-----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, TKcfIiKBNBV4Xgi+BRm+BgYjQ03Gdz92Kv4waJgBxsGxZZTULUVtu739pJewakYx KVzEPQmqPIykBF4OGgY1bQ== 0000017797-97-000024.txt : 19971114 0000017797-97-000024.hdr.sgml : 19971114 ACCESSION NUMBER: 0000017797-97-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NYSE SROS: PSE 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: 97713629 BUSINESS ADDRESS: STREET 1: 411 FAYETTEVILLE ST CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 9195466111 10-Q 1 THIRD QUARTER 1997 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---- ---- Commission file number 1-3382 ------ 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) ------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock (Without Par Value) shares outstanding at October 31, 1997: 150,340,394. PART I. FINANCIAL INFORMATION Item 1. Financial Statements -------------------- Reference is made to the attached Appendix containing the Consolidated Interim Financial Statements for the periods ended September 30, 1997. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ----------------------------------------------------------------- RESULTS OF OPERATIONS For the Three, Nine and Twelve Months Ended September 30, 1997, As Compared With the Corresponding Periods One Year Earlier ------------------------------------------------------------- Operating Revenues -------------------- For the three, nine and twelve months ended September 30, 1997, operating revenues were affected by the following factors (in millions): Three Nine Twelve Months Months Months ------ ------ ------ Customer Growth / Changes In Usage Patterns ................................. $ 61 $ 103 $ 124 Weather ........................................ 21 (70) (92) Price .......................................... (21) (32) (35) Power Agency ................................... (1) (22) (24) NCEMC Load Loss ................................ -- -- (24) Sales to Other Utilities ....................... 14 7 9 Other .......................................... 1 2 4 - ------------------------------------------------ ----- ----- ----- Total ..................................... $ 75 $ (12) $ (38) ===== ====== ====== The increase in the customer growth / changes in usage patterns component of revenue for all comparison periods is primarily a result of economic growth within the Company's service territory. The increase in the weather component of revenue for the three months ended September 30, 1997 reflects a return to more normal temperatures in the current period. The decrease in the weather component of revenue for the nine and twelve months ended September 30, 1997, is the result of milder than normal temperatures in the current periods as compared to more extreme weather patterns in the prior periods. Both the customer growth / changes in usage patterns and weather components of revenue were impacted by lost revenues caused by Hurricanes Fran and Bertha in the prior periods. For all comparison periods, part of the decrease in the price component of revenue is attributable to a decrease in the fuel cost component of revenue, along with the impact of changes to the Power Coordination Agreement between the Company and North Carolina Electric Membership Corporation (NCEMC), which became effective in January 1997. The decrease in revenue related to sales to North Carolina Eastern Municipal Power Agency (Power Agency) for the nine- and twelve-month periods is primarily due to the impacts of milder weather, along with the increased availability in the current period of generating units owned jointly by the Company and Power Agency. Beginning in January 1996, NCEMC replaced 200 MW of load capacity it formerly purchased from the Company with power purchases from another supplier. The increase in revenues from sales to other utilities for all comparison periods reflects the Company's increased bulk power marketing efforts. Operating Expenses ------------------ The change in purchased power for all periods includes increased purchases from other utilities resulting from the Company's more active participation in bulk power marketing. These increases were offset to varying extents by decreases in purchased power as a result of amendments to electric purchase power agreements between the Company and Cogentrix of North Carolina, Inc. and Cogentrix Eastern Carolina Corporation, which became effective in September 1996. Other operation and maintenance expense for all prior periods includes Hurricane Fran expenses of $29.8 million. The Company received approval from the North Carolina Utilities Commission (NCUC) to defer total accumulated expenses of approximately $40 million associated with Hurricane Fran and amortize them over a 40-month period. These expenses were deferred during the fourth quarter of 1996. Excluding the impact of Hurricane Fran, other operation and maintenance expense decreased $13.5 million and $14.5 million for the three and nine months ended September 30, 1997, respectively. The three-month decrease is primarily a result of the timing of plant outages. In the prior three-month period, there were higher expenses associated with nuclear plant outages as compared to the current period. The decrease for the nine-month period is partially a result of decreased severance-related costs in the current period. Both comparison periods also reflect the Company's continued cost reduction efforts, particularly the consolidation of customer service functions, and the impact of Hurricane Bertha striking the Company's service territory in July 1996. Other operation and maintenance expense increased $11.9 million for the twelve-month period ended September 30, 1997, excluding the impact of Hurricane Fran expenses incurred in the prior period and the subsequent deferral of all Hurricane Fran expenses in the current period. This increase is primarily a result of increased outage expense incurred during the current period. In the current twelve-month period there were several major fossil and nuclear plant outages that resulted in higher expense as compared to the prior period. Partially offsetting these expenses were the Company's continued cost reduction efforts and the impacts of severance-related costs and Hurricane Bertha, as discussed above. In December 1996, the NCUC authorized the Company to accelerate amortization of certain regulatory assets over a three-year period beginning January 1, 1997. In March 1997, the South Carolina Public Service Commission (SCPSC) approved a similar plan for the Company to accelerate the amortization of certain regulatory assets, including plant abandonment costs related to the Harris Nuclear Plant, over a three-year period beginning January 1, 1997. Depreciation and amortization for the three, nine and twelve months ended September 30, 1997, includes approximately $17 million, $51 million, and $51 million, respectively, related to accelerated amortization of these regulatory assets. The increase in depreciation and amortization expense for the three, nine and twelve months ended September 30, 1997, also reflects amortization of deferred expenses associated with Hurricane Fran of approximately $3 million, $9 million and $13 million, respectively, in the current periods. Income tax expense increased $33 million for the three-month period primarily due to an increase in pre-tax operating income. For the nine- and twelve-month periods, income tax expense decreased $28.3 and $50.4 million, respectively due to a reduction in pre-tax operating income, as well as the impact of current and prior period tax provision adjustments recorded for potential audit issues in open tax years. Other Income ------------ Allowance for equity funds used during construction decreased for the nine and twelve months ended September 30, 1997, in accordance with the application of the formula prescribed by the Federal Energy Regulatory Commission. During the current periods, a greater proportion of the total allowance for funds used during construction was credited to interest charges as allowance for borrowed funds used during construction. Interest income increased for all periods primarily as a result of interest income of $1.3 million, $10.0 million and $10.0 million recorded during the three, nine and twelve months ended September 30, 1997, respectively, related to an income tax refund. The change in other income, net, for the three, nine and twelve months ended September 30, 1997, includes losses in the current periods for certain non-regulated investments which are in the start-up phases and decreases in certain income items, none of which is individually significant. Offsetting these decreases in the current twelve-month period, was an adjustment of $22.9 million to the unamortized balance of abandonment costs related to the Harris Nuclear Plant. See additional discussion of the abandonment adjustment in the Retail Rate Matters section of OTHER MATTERS. Interest Charges ------------------ Interest charges on long-term debt decreased for all reported periods primarily due to reduced long-term debt balances. Also contributing to the decrease in interest charges for the twelve-month period were refinancings of long-term debt with lower interest cost commercial paper borrowings. MATERIAL CHANGES IN LIQUIDITY AND CAPITAL RESOURCES From December 31, 1996, to September 30, 1997 and From September 30, 1996, to September 30, 1997 ---------------------------------------------------- Capital Requirements ---------------------- During the nine- and twelve-month periods ended September 30, 1997, the Company financed redemptions or retirements of long-term debt totaling $60 million and $135 million, respectively, from the issuance of short-term debt and/or internally generated funds. On July 1, 1997, the Company redeemed all 500,000 shares of $7.72 Serial Preferred Stock and all 350,000 shares of $7.95 Serial Preferred Stock, both at a redemption price of $101 per share. The redemptions were funded with additional commercial paper borrowings and/or internally generated funds. On August 26, 1997, the Company issued $200 million of First Mortgage Bonds. The net proceeds from this issuance were used to reduce the outstanding balance of commercial paper and other short-term debt and for other general corporate purposes. There were no other long-term debt issuances during the nine and twelve months ended September 30, 1997. On September 30, 1997, the Company terminated a $70 million long-term revolving credit facility. As of October 1, 1997, the Company's revolving credit facilities totaled $615 million, consisting of long-term agreements totaling $515 million and a $100 million short-term agreement. The Company is required to pay minimal annual commitment fees to maintain its credit facilities. The Company's capital structure as of September 30 was as follows: 1997 1996 ---- ---- Common Stock Equity ............. 53.40% 50.75% Long-term Debt .................. 45.47% 46.53% Preferred Stock ................. 1.13% 2.72% The Company's First Mortgage Bonds are currently rated "A2" by Moody's Investors Service, "A" by Standard & Poor's and "A+" by Duff & Phelps. Moody's Investors Service, Standard & Poor's and Duff & Phelps have rated the Company's commercial paper "P-1," "A-1" and "D-1," respectively. OTHER MATTERS Retail Rate Matters ------------------- A petition was filed in July 1996 by the Carolina Industrial Group for Fair Utility Rates (CIGFUR) with the NCUC, requesting that the NCUC conduct an investigation of the Company's base rates or treat its petition as a complaint against the Company. The petition alleged that the Company's return on equity (which was authorized by the NCUC in the Company's last general rate proceeding in 1988) and earnings are too high. In December 1996, the NCUC issued an order denying CIGFUR's petition and stating that it tentatively found no reasonable grounds to proceed with CIGFUR's petition as a complaint. In January 1997, CIGFUR filed its Comments and Motion for Reconsideration to which the Company responded. On February 6, 1997, the NCUC issued an order denying CIGFUR's Motion for Reconsideration. On February 25, 1997, CIGFUR filed a Notice of Appeal of the NCUC's decision with the North Carolina Court of Appeals. The Company filed its brief in this matter on July 18, 1997. Oral argument before the North Carolina Court of Appeals is scheduled for November 19, 1997. The Company cannot predict the outcome of this matter. In December 1996, the Company filed a proposal with the SCPSC to accelerate amortization of certain regulatory assets, including plant abandonment costs related to the Harris Nuclear Plant, over a three-year period beginning January 1, 1997. In anticipation of approval of the proposal in 1997, the unamortized balance of plant abandonment costs related to the Harris Nuclear Plant was adjusted in 1996 to reflect the present value impact of the shorter recovery period. This adjustment resulted in an increase in income of approximately $14 million, after tax, in the fourth quarter of 1996. On March 20, 1997, the SCPSC approved the Company's accelerated amortization proposal. Competition ----------- On April 17, 1997, the North Carolina General Assembly approved legislation establishing a 23-member study commission to evaluate the future of electric service in the state. In October 1997, the North Carolina Senate and the North Carolina House of Representatives appointed twelve state legislators, two residential customers, two industrial customers, one commercial customer and one power marketer to the study commission. Also in October 1997, the Governor of North Carolina appointed an environmentalist to the study commission. The study commission also includes a representative from each of the four major power suppliers in the state: the Company, Duke Energy, NCEMC and ElectriCities. The commission will examine a wide range of issues related to the cost and delivery of electric service, including the issue of customer choice of electric providers, and will make an interim report to the 1998 General Assembly and a final report in 1999. The study commission's first meeting was held on November 4, 1997. The Company cannot predict the outcome of this matter. Also on April 17, 1997, a bill was introduced in the North Carolina House of Representatives calling for retail electric competition. The bill would require that residential customers be able to choose their provider by October 1, 1998, commercial customers by January 1, 1999, and industrial customers by July 1, 1999. The Company cannot predict the outcome of this matter. On February 6, 1997, representatives in the South Carolina General Assembly introduced a bill calling for a transition to full competition in the electric utility industry beginning in 1998. No action was taken on this bill. In addition, by letter dated May 6, 1997, the Speaker of the South Carolina House of Representatives requested that the SCPSC prepare a proposal for the deregulation and restructuring of electricity in South Carolina, with a report date of January 31, 1998. The SCPSC requested and received comments, including those filed by the Company, on deregulation and invited interested parties to make presentations on August 19, 1997. The Company and other interested parties made presentations regarding deregulation to the SCPSC August 19 through August 21, 1997. The South Carolina General Assembly's Utility Subcommittee has completed six hearings around the state in order to receive citizen input on the deregulation issue. The subcommittee will continue to meet regarding deregulation. The Company cannot predict the outcome of this matter. Numerous bills have been introduced in both the House and Senate of the 105th Congress concerning the restructuring of the electric utility industry. There is little consensus among key provisions of the various bills. Some bill sponsors have held workshops and hearings to discuss various aspects of restructuring. No legislation has been passed to date in this session. More restructuring-related bills are expected to be introduced later in the session. The Company cannot predict the outcome of these matters. In anticipation of the emergence of deregulation in the electric utility industry, the Company will internally organize into separate business units in early 1998. The business units will include Energy Supply, Energy Delivery and Retail Sales and Services. The focus of these business units will be to create a corporate culture that is necessary to compete in a deregulated environment. Impact of New Accounting Standard --------------------------------- In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS-128), which changed the previous standards on computing and presenting earnings per share. SFAS-128 is effective for fiscal years ending after December 15, 1997; earlier application is not permitted. The Company does not expect the adoption of SFAS-128 to have a material impact on its financial statements. PART II. OTHER INFORMATION Item 1. Legal Proceedings - ------- ------------------- Legal aspects of certain matters are set forth in Item 5 below. Item 2. Changes in Securities - ------- ----------------------- (a) Securities Delivered. On October 30, 1997, 301,087 shares of --------------------- the Company's common stock (Common Shares) that had been recently purchased in the open market by the Company's wholly-owned subsidiary, Strategic Resource Solutions Corp., a North Carolina Enterprise Corporation (SRS), were exchanged by SRS for all of the outstanding shares of Diversified Control Systems, Inc., a North Carolina corporation (DCS). SRS is obligated to deliver additional Common Shares having a market value (calculated according to a formula in the exchange agreement) of $500,000 if DCS meets certain financial performance objectives by December 31, 1997. All Common Shares delivered by SRS pursuant to the exchange agreement have been or will be acquired in market transactions, and do not represent newly-issued shares of the Company. (b) Underwriters and Other Purchasers. No underwriters were used ---------------------------------- in connection with the share exchange transactions identified above. The recipients of the Common Shares were the shareholders of DCS, who all agreed to exchange their DCS shares for Common Shares pursuant to the exchange agreement. (c) Consideration. The consideration for the Common Shares was -------------- the exchange of all outstanding shares of DCS stock pursuant to the exchange agreement. (d) Exemption from Registration Claimed. The Common Shares --------------------------------------- described in this Item were delivered on the basis of an exemption from registration under Section 4(2) of the Securities Act of 1933. The Common Shares were received by a limited number of individuals and are subject to restrictions on resale typical for private placements. Appropriate disclosure was made to all persons receiving Common Shares in the exchange with SRS. Item 3. Defaults upon Senior Securities ) - ------- ------------------------------- ) Not applicable for the quarter ) ended September 30, 1997. Item 4. Submission of Matters to a Vote ) - ------- of Security Holders ) ------------------------------- Item 5. Other Information - ------- ----------------- 1. (Reference is made to the Company's 1996 Form 10-K, Generating Capability, paragraph 3.e., page 4.) With regard to the Asheville Combustion Turbine Project, a Certificate of Public Convenience and Necessity was issued by the North Carolina Utilities Commission (NCUC) on August 1, 1997, to construct a 160 MW combustion turbine unit. On August 15, 1997, the Company contracted with General Electric Company to manufacture and install this combustion turbine unit. The expected in-service date is June 1999. 2. (Reference is made to the Company's 1996 Form 10-K, Competition and Franchises, paragraph 1.b., page 6.) By order issued September 23, 1997, the NCUC requested additional comments from interested parties regarding: the matters raised in the parties' initial and reply comments filed in Docket No. E-100, Sub 78; general industry trends related to industry restructuring; and the parties' actual experience under FERC Orders 888 and 889. The initial comments are due on November 26, 1997, and reply comments are due on December 17, 1997. The Company cannot predict the outcome of this matter. 3. (Reference is made to the Company's 1996 Form 10-K, Competition and Franchises, paragraph 1.b., page 6. Reference is also made to the Company's Form 10-Q for the quarter ended March 31, 1997, Item 5, paragraph 1. Reference is also made to the Company's Form 10-Q for the quarter ended June 30, 1997, Item 5, paragraph 3.) With regard to the 23-member deregulation study commission established by the North Carolina General Assembly, in October 1997, the North Carolina Senate and North Carolina House of Representatives appointed twelve state legislators, two residential customers, two industrial customers, one commercial customer and one power marketer to the study commission. The Governor of North Carolina appointed an environmentalist to the study commission. The study commission also includes a representative from each of the four major power suppliers in the state: the Company, Duke Energy, North Carolina Electric Membership Corporation and ElectriCities. The study commission's first meeting was held on November 4, 1997. Interested parties, including the Company, made presentations regarding deregulation to the South Carolina Public Service Commission (SCPSC) August 19 through August 21, 1997. The South Carolina General Assembly's Utility Subcommittee has completed six hearings around the state in order to receive citizen input on the deregulation issue. The subcommittee will continue to meet regarding deregulation. The Company cannot predict the outcome of these matters. 4. (Reference is made to the Company's 1996 Form 10-K, Financing Program, paragraph 3, page 11.) Issuance of Bonds, Preferred Stock and Debentures were as follows: The issuance on August 26, 1997, of $200 million principal amount of First Mortgage Bonds, 6.80% Series due on August 15, 2007. The net proceeds of approximately $199 million were used to reduce the outstanding balance of commercial paper and other short-term debt and for other general corporate purposes. 5. (Reference is made to the Company's 1996 Form 10-K, Financing Program, paragraph 4, page 11.) Retirements and redemptions during 1997 were as follows: The full redemption on July 1, 1997, of 500,000 shares of Serial Preferred Stock, $7.72 Series, at a redemption price of $101.00 per share. The full redemption on July 1, 1997, of 350,000 shares of Serial Preferred Stock, $7.95 Series, at a redemption price of $101.00 per share. 6. (Reference is made to the Company's 1996 Form 10-K, Financing Program, paragraph 5, page 11.) On September 30, 1997, the Company terminated a $70 million long-term revolving credit facility. As of October 1, 1997, the Company's credit facilities totaled $615 million, consisting of $515 million in long-term agreements and a $100 million short-term agreement. The Company is required to pay minimal annual commitment fees to maintain its credit facilities. 7. (Reference is made to the Company's 1996 Form 10-K, Retail Rate Matters, paragraph 2, page 12. Reference is also made to the Company's Form 10-Q for the quarter ended June 30, 1997, Item 5, paragraph 4.) With regard to the filing by Carolina Industrial Group for Fair Utility Rates (CIGFUR) of a Notice of Appeal with the North Carolina Court of Appeals, oral argument before the North Carolina Court of Appeals is scheduled for November 19, 1997. The Company cannot predict the outcome of this matter. 8. (Reference is made to the Company's 1996 Form 10-K, Retail Rate Matters, paragraph 3, page 13.) With regard to Integrated Resource Planning (IRP), on September 16, 1997, the NCUC issued an order soliciting comments from interested parties regarding streamlining or otherwise refining the IRP process. Initial comments were filed by the Company on October 30, 1997, and reply comments are due December 1, 1997. The Company cannot predict the outcome of this matter. 9. (Reference is made to the Company's 1996 Form 10-K, Retail Rate Matters, paragraph 4, page 13. Reference is also made to the Company's Form 10-Q for the quarter ended June 30, 1997, Item 5, paragraph 5.) With regard to the annual NCUC fuel factor hearing on August 5, 1997, the NCUC issued a final order approving the billing fuel factor of 1.097 cents/kwh on September 8, 1997. This new factor became effective on September 15, 1997. 10. (Reference is made to the Company's 1996 Form 10-K, Environmental Matters, paragraph 2, page 15. Reference is also made to the Company's Form 10-Q for the quarter ended June 30, 1997, Item 5, paragraph 7.) With regard to the Clean Air Act matters, the Environmental Protection Agency (EPA) has recently issued a rulemaking to implement the Ozone Transport Assessment Group's recommendations regarding utility Nitrogen Oxide (NOx) emissions. Northeastern states are petitioning the EPA for additional NOx controls. The Company cannot predict the outcome of this matter. 11. (Reference is made to the Company's 1996 Form 10-K, Environmental Matters, paragraph 3.c., page 16.) With regard to the Seaboard Chemical Corporation in Jamestown, North Carolina, on August 22, 1997, the Company joined with other members of the Seaboard Group II in entering into an Administrative Order on Consent to undertake a feasibility study. The Company cannot predict the outcome of this matter. 12. (Reference is made to the Company's 1996 Form 10-K, Environmental Matters, paragraph 3.d., page 17.) With regard to the Crown Cork & Seal Company and Clark Equipment Company lawsuit seeking contribution from the Company in connection with the Macon-Dockery site, on April 11, 1997, the United States District Court for the Middle District of North Carolina granted the plaintiffs' motion for a voluntary dismissal without prejudice. The Company anticipates that this lawsuit will be refiled shortly. The Company cannot predict the outcome of this matter. 13. (Reference is made to the Company's 1996 Form 10-K, Environmental Matters, paragraph 3.f., page 17.) With regard to the Cherokee Oil Company sites in Charlotte, North Carolina, on October 10, 1997, a partial consent decree resolving the Company's liability at the site was entered with the United States District Court for the Western District of North Carolina. The costs associated with this site are not material to the results of operations of the Company. 14. (Reference is made to the Company's 1996 Form 10-K, Environmental Matters, paragraph 4, page 17.) With regard to Wilmington Oil Terminal, the North Carolina Department of Environment and Natural Resources, (formerly the North Carolina Department of Environment, Health and Natural Resources), approved the corrective action plan modifications for natural attenuation and degradation of petroleum residuals in the groundwater. The costs associated with this site are not material to the results of operations of the Company. 15. (Reference is made to the Company's 1996 Form 10-K, Nuclear Matters, paragraph 2, page 18.) With regard to high-level radioactive waste disposal and fees paid by the Company to the Department of Energy (DOE), by order issued August 20, 1997, the NCUC requested comments from interested parties regarding the utilities' spent fuel storage and disposal activities and costs and the reasonableness of the utilities continuing to pay a disposal fee to the DOE after January 31, 1998. Initial comments were filed by the Company and other interested parties on September 30, 1997. Reply comments were filed on October 21, 1997. The Company cannot predict the outcome of this matter. In October of 1997, the U.S. House of Representatives voted 307 to 120 in favor of legislation calling for the construction of an interim nuclear waste storage site in Nevada by 2002. A similar waste bill was approved by the U.S. Senate in April of 1997. The Company cannot predict the outcome of this matter. 16. (Reference is made to the Company's 1996 Form 10-K, Other Matters, paragraph 5, page 25.) With regard to CaroNet, LLC and its applications to provide competing local telephone service and to provide intrastate long distance service in North Carolina, the NCUC granted CaroNet, LLC Certificates of Public Convenience and Necessity to provide these services on April 10, 1997 and September 11, 1997, respectively. Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits Filed: Exhibit No. Description ----------- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K filed during or with respect to the quarter: The Company filed a Form 8-K on August 28, 1997 regarding the August 26, 1997 issuance of $200 million principal amount of First Mortgage Bonds, 6.80% Series due August 15, 2007. SIGNATURES Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CAROLINA POWER & LIGHT COMPANY (Registrant) By /s/ Glenn E. Harder -------------------------------- Glenn E. Harder Executive Vice President and Chief Financial Officer By /s/ Bonnie V. Hancock ------------------------------- Bonnie V. Hancock Vice President and Controller (and Principal Accounting Officer) Date: November 12, 1997 EX-99 2 STATEMENT OF INCOME - APPENDIX
Appendix A ----------------------------------------------------- Carolina Power & Light Company (ORGANIZED UNDER THE LAWS OF NORTH CAROLINA) CONSOLIDATED INTERIM FINANCIAL STATEMENTS (NOT AUDITED BY INDEPENDENT AUDITORS) SEPTEMBER 30, 1997 - ----------------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF INCOME Three Months Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 (In thousands except per share amounts) 1997 1996 1997 1996 1997 1996 ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues $ 906,841 $ 831,590 $ 2,288,948 $ 2,301,143 $ 2,983,519 $ 3,021,994 ------------------------------------------------------------------------------------------------------------------------------ Operating Expenses Fuel 145,524 141,139 397,774 391,660 521,165 512,778 Purchased power 120,242 108,621 294,406 320,298 386,662 420,904 Other operation and maintenance 152,801 196,123 494,610 538,886 685,864 733,579 Depreciation and amortization 119,590 94,283 358,590 280,169 465,348 372,110 Taxes other than on income 36,761 37,364 105,286 110,020 135,744 141,178 Income tax expense 115,213 82,123 198,078 226,390 241,452 291,832 Harris Plant deferred costs, net 5,429 7,812 19,173 20,201 25,687 27,372 ------------------------------------------------------------------------------------------------------------------------------ Total Operating Expenses 695,560 667,465 1,867,917 1,887,624 2,461,922 2,499,753 ------------------------------------------------------------------------------------------------------------------------------ Operating Income 211,281 164,125 421,031 413,519 521,597 522,241 ------------------------------------------------------------------------------------------------------------------------------ Other income Allowance for equity funds used during construction 2 4 118 2,226 (2,097) 2,905 Income tax credit 4,789 5,488 9,914 14,319 9,443 22,327 Harris Plant carrying costs 1,107 1,530 3,610 5,888 5,021 7,811 Interest income 3,227 689 15,412 2,864 16,610 4,117 Other income, net (6,695) 2,374 (11,173) 14,372 11,795 9,642 ------------------------------------------------------------------------------------------------------------------------------ Total Other Income 2,430 10,085 17,881 39,669 40,772 46,802 ------------------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 213,711 174,210 438,912 453,188 562,369 569,043 ------------------------------------------------------------------------------------------------------------------------------ Interest Charges Long-term debt 40,630 42,408 121,778 130,437 163,962 177,000 Other interest charges 6,191 3,833 16,508 15,738 19,925 19,307 Allowance for borrowed funds used during construction (939) (1,190) (3,754) (3,148) (7,014) (4,129) ------------------------------------------------------------------------------------------------------------------------------ Net Interest Charges 45,882 45,051 134,532 143,027 176,873 192,178 ------------------------------------------------------------------------------------------------------------------------------ Net Income 167,829 129,159 304,380 310,161 385,496 376,865 Preferred Stock Dividend Requirements (2,167) (2,402) (5,310) (7,206) (7,713) (9,609) ------------------------------------------------------------------------------------------------------------------------------ Earnings for Common Stock $ 165,662 $ 126,757 $ 299,070 $ 302,955 $ 377,783 $ 367,256 ------------------------------------------------------------------------------------------------------------------------------ Average Common Shares Outstanding 143,800 143,738 143,591 143,724 143,522 143,881 Earnings per Common Share $ 1.15 $ 0.88 $ 2.08 $ 2.11 $ 2.63 $ 2.55 Dividends Declared per Common Share $ 0.470 $ 0.455 $ 1.410 $ 1.365 $ 1.880 $ 1.820 --------------------------------------------------------------------------------------------------------------------------------- See Supplemental Data and Notes to Consolidated Interim Financial Statements.
EX-99 3 BALANCE SHEETS
Carolina Power & Light Company BALANCE SHEETS September 30 December 31 (In thousands) 1997 1996 1996 - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Electric Utility Plant Electric utility plant in service $ 10,039,131 $ 9,659,303 $ 9,783,442 Accumulated depreciation (4,057,913) (3,721,581) (3,796,645) - ----------------------------------------------------------------------------------------------------------------------------------- Electric utility plant in service, net 5,981,218 5,937,722 5,986,797 Held for future use 12,734 12,752 12,127 Construction work in progress 155,098 215,329 196,623 Nuclear fuel, net of amortization 184,643 183,178 204,372 - ----------------------------------------------------------------------------------------------------------------------------------- Total Electric Utility Plant, Net 6,333,693 6,348,981 6,399,919 - ----------------------------------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents 14,736 18,020 10,941 Accounts receivable 396,167 344,753 384,318 Fuel 46,715 43,478 60,369 Materials and supplies 130,604 127,644 122,809 Deferred fuel cost (credit) 11,260 (8,754) (4,339) Prepayments 59,273 55,041 65,794 Other current assets 43,271 32,014 27,808 - ----------------------------------------------------------------------------------------------------------------------------------- Total Current Assets 702,026 612,196 667,700 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred Debits and Other Assets Income taxes recoverable through future rates 342,976 384,325 384,336 Abandonment costs (Note 4) 45,461 46,559 65,863 Harris Plant deferred costs 67,834 88,500 83,397 Unamortized debt expense 53,767 71,201 69,956 Miscellaneous other property and investments 393,320 454,796 489,334 Other assets and deferred debits 215,030 175,099 204,357 - ----------------------------------------------------------------------------------------------------------------------------------- Total Deferred Debits and Other Assets 1,118,388 1,220,480 1,297,243 - ----------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 8,154,107 $ 8,181,657 $ 8,364,862 - ----------------------------------------------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES Capitalization Common stock equity $ 2,805,515 $ 2,682,931 $ 2,690,454 Preferred stock - redemption not required (Note 3) 59,376 143,801 143,801 Long-term debt, net (Note 3) 2,389,251 2,459,445 2,525,607 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization 5,254,142 5,286,177 5,359,862 - ----------------------------------------------------------------------------------------------------------------------------------- Current Liabilities Current portion of long-term debt 188,529 138,345 103,345 Notes payable - 3,640 64,885 Accounts payable 160,344 194,810 375,216 Taxes accrued 134,257 176,160 - Interest accrued 33,810 36,055 39,436 Dividends declared 69,901 71,386 73,469 Other current liabilities 96,950 71,236 74,668 - ----------------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 683,791 691,632 731,019 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities Accumulated deferred income taxes 1,743,092 1,733,013 1,827,693 Accumulated deferred investment tax credits 224,587 234,873 232,262 Other liabilities and deferred credits 248,495 235,962 214,026 - ----------------------------------------------------------------------------------------------------------------------------------- Total Deferred Credits and Other Liabilities 2,216,174 2,203,848 2,273,981 - ----------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 6) Total Capitalization and Liabilities $ 8,154,107 $ 8,181,657 $ 8,364,862 - ----------------------------------------------------------------------------------------------------------------------------------- SCHEDULES OF COMMON STOCK EQUITY (In thousands) Common stock $ 1,371,520 $ 1,369,963 $ 1,366,100 Unearned ESOP common stock (165,805) (178,514) (178,514) Capital stock issuance expense (790) (790) (790) Retained earnings 1,600,590 1,492,272 1,503,658 - ----------------------------------------------------------------------------------------------------------------------------------- Total Common Stock Equity $ 2,805,515 $ 2,682,931 $ 2,690,454 - ----------------------------------------------------------------------------------------------------------------------------------- See Supplemental Data and Notes to Consolidated Interim Financial Statements.
EX-99 4 STATEMENT OF CASH FLOWS
Carolina Power & Light Company STATEMENTS OF CASH FLOWS Three Months Ended Nine Months Ended Twelve Months Ended (In thousands) September 30 September 30 September 30 1997 1996 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Activities Net income $ 167,829 $ 129,159 $ 304,380 $ 310,161 $ 385,496 $ 376,865 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 141,085 114,076 420,038 342,359 524,187 454,317 Harris Plant deferred costs 4,322 6,282 15,563 14,313 20,666 19,561 Deferred income taxes (16,507) (9,023) (57,788) 18,242 54,788 102,934 Investment tax credit (2,558) (2,611) (7,675) (7,834) (10,286) (9,520) Allowance for equity funds used during construction (2) (4) (118) (2,226) 2,097 (2,905) Deferred fuel cost (credit) (16,362) (8,806) (15,599) (18,742) (20,014) (26,707) Net (increase) decrease in receivables, inventories and prepaid expense (50,849) 17,133 (86,366) (18,152) (133,007) (22,183) Net increase (decrease) in payables and accrued expenses 104,574 103,497 37,510 114,184 (72,003) 43,969 Miscellaneous 29,740 53,496 200,697 79,730 185,820 80,827 - ----------------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 361,272 403,199 810,642 832,035 937,744 1,017,158 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities Gross property additions (103,931) (80,480) (277,344) (249,980) (396,672) (325,017) Nuclear fuel additions (16,474) (28,705) (50,278) (64,603) (72,940) (74,705) Contributions to external decommissioning trust (7,556) (7,515) (25,577) (25,535) (30,725) (30,095) Contributions to retiree benefit trusts - - (21,096) (24,700) (21,096) (24,700) Allowance for equity funds used during construction 2 4 118 2,226 (2,097) 2,905 Miscellaneous 2,992 (4,919) 1,785 (23,485) (2,776) (30,265) - ----------------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (124,967) (121,615) (372,392) (386,077) (526,306) (481,877) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities Proceeds from issuance of long-term debt (Note 3) 199,075 - 199,075 276,257 272,818 276,300 payable (maturity less than 90 days) (93,900) (77,109) (62,224) 3,640 (74,722) 60,383 Retirement of long-term debt (191,020) (106,613) (252,447) (498,088) (222,169) (522,137) Retirement of preferred stock (Note 3) (85,850) - (85,850) - (85,850) - Purchase of Company common stock - (14,472) (23,418) (21,068) (27,558) (78,111) Dividends paid on common and preferred stock (70,260) (67,818) (209,591) (203,168) (277,241) (268,564) - ----------------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Financing Activities (241,955) (266,012) (434,455) (442,427) (414,722) (532,129) - ------------------------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash and Cash Equivalents (5,650) 15,572 3,795 3,531 (3,284) 3,152 Cash and Cash Equivalents at Beginning of the Period 20,386 2,448 10,941 14,489 18,020 14,868 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of the Period $ 14,736 $ 18,020 $ 14,736 $ 18,020 $ 14,736 $ 18,020 - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental Disclosures of Cash Flow Information Cash paid during the period - interest $ 48,616 $ 51,310 $ 138,653 $ 154,700 $ 178,344 $ 204,806 income taxes $ 36,599 $ 8,360 $ 133,893 $ 48,750 $ 226,493 $ 161,302 Noncash Activities In June 1997, Strategic Resource Solutions Corp. (formerly CaroCapital, Inc.), a wholly-owned subsidiary, purchased all remaining shares of Knowledge Builders, Inc. (KBI). In connection with the purchase of KBI, the Company issued $20.5 million in common stock and paid $1.9 million in cash. See Note 5. - ------------------------------------------------------------------------------------------------------------------------------------ See Supplemental Data and Notes to Consolidated Interim Financial Statements.
EX-99 5 SUPPLEMENTAL DATA
Carolina Power & Light Company SUPPLEMENTAL DATA Three Months Ended Nine Months Ended Twelve Months Ended September 30 September 30 September 30 1997 1996 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands) Residential $ 310,251 $ 279,468 $ 750,113 $ 768,131 $ 974,134 $ 999,794 Commercial 193,713 176,561 493,684 478,477 643,087 627,484 Industrial 206,230 200,371 561,735 542,600 740,723 722,688 Government and municipal 21,766 18,651 58,667 57,676 76,382 76,861 Power Agency contract requirements 28,672 30,101 57,418 78,975 75,238 99,276 NCEMC 68,666 65,141 169,365 189,571 214,447 256,794 Other wholesale 23,041 21,196 67,301 63,091 91,672 83,837 Other utilities 40,314 26,497 89,158 82,606 111,629 102,741 Miscellaneous revenue 14,188 13,604 41,507 40,016 56,207 52,519 - ------------------------------------------------------------------------------------------------------------------------------------ Total Operating Revenues $ 906,841 $ 831,590 $ 2,288,948 $ 2,301,143 $ 2,983,519 $ 3,021,994 - ------------------------------------------------------------------------------------------------------------------------------------ Energy Sales (millions of kWh) Residential 3,697 3,288 9,416 9,736 12,290 12,716 Commercial 2,984 2,682 7,612 7,339 9,889 9,599 Industrial 3,953 3,750 11,345 10,775 15,027 14,411 Government and municipal 379 323 989 978 1,274 1,293 Power Agency contract requirements 779 693 1,619 2,078 2,064 2,649 NCEMC 1,359 1,122 3,131 3,075 4,004 4,343 Other wholesale 484 464 1,531 1,447 2,097 1,940 Other utilities 1,339 1,139 3,524 3,791 4,632 4,716 - ------------------------------------------------------------------------------------------------------------------------------------ Total Energy Sales 14,974 13,461 39,167 39,219 51,277 51,667 - ------------------------------------------------------------------------------------------------------------------------------------ Energy Supply (millions of kWh) Generated - coal 7,424 6,999 18,683 19,026 24,517 24,871 nuclear 5,491 4,806 16,106 15,290 21,100 20,338 hydro 105 150 677 673 886 898 combustion turbines 95 27 145 56 156 58 Purchased 2,251 1,985 4,832 5,709 6,418 7,516 - ------------------------------------------------------------------------------------------------------------------------------------ Total Energy Supply (Company Share) 15,366 13,967 40,443 40,754 53,077 53,681 - ------------------------------------------------------------------------------------------------------------------------------------ Detail of Income Taxes (in thousands) Included in Operating Expenses Income tax expense (credit) - current $ 134,217 $ 94,214 $ 264,040 $ 219,234 $ 206,756 $ 203,807 deferred (16,446) (9,480) (58,287) 14,990 44,982 97,545 investment tax credit adjustments (2,558) (2,611) (7,675) (7,834) (10,286) (9,520) - ------------------------------------------------------------------------------------------------------------------------------------ Subtotal 115,213 82,123 198,078 226,390 241,452 291,832 - ------------------------------------------------------------------------------------------------------------------------------------ Harris Plant deferred costs - investment tax credit adjustments (30) (74) (130) (223) (193) (297) - ------------------------------------------------------------------------------------------------------------------------------------ Total Included in Operating Expenses 115,183 82,049 197,948 226,167 241,259 291,535 - ------------------------------------------------------------------------------------------------------------------------------------ Included in Other Income Income tax expense (credit) - current (4,728) (5,945) (10,413) (17,571) (19,249) (27,717) deferred (61) 457 499 3,252 9,806 5,390 - ------------------------------------------------------------------------------------------------------------------------------------ Total Included in Other Income (4,789) (5,488) (9,914) (14,319) (9,443) (22,327) - ------------------------------------------------------------------------------------------------------------------------------------ Total Income Tax Expense $ 110,394 $ 76,561 $ 188,034 $ 211,848 $ 231,816 $ 269,208 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL STATISTICS Ratio of earnings to fixed charges 4.11 4.05 Return on average common stock equity 13.79% 13.87% Book value per common share $ 19.51 $ 18.71 Capitalization ratios Common stock equity 53.40% 50.75% Preferred stock - redemption not required 1.13 2.72 Long-term debt, net 45.47 46.53 - ------------------------------------------------------------------------------------------------------------------------------------ Total 100.00% 100.00% - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Interim Financial Statements.
EX-99 6 NOTES TO 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 --------------------- are prepared in conformity with the accounting principles reflected in the financial statements included in the Company's 1996 Annual Report on Form 10-K. Due to temperature variations between seasons of the year and the timing of outages of electric generating units, especially nuclear-fueled units, the amounts reported in the Statements of Income for periods of less than twelve months are not necessarily indicative of amounts expected for the year. The amounts are unaudited but, in the opinion of management, reflect all adjustments necessary to fairly present the Company's financial position and results of operations for the interim periods. Certain amounts for 1996 have been reclassified to conform to the 1997 presentation, with no effect on previously reported net income or common stock equity. In preparing financial statements that conform with generally accepted accounting principles, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and amounts of revenues and expenses reflected during the reporting period. Actual results could differ from those estimates. 2. NUCLEAR DECOMMISSIONING ------------------------- In the Company's retail jurisdictions, provisions for nuclear decommissioning costs are approved by the North Carolina Utilities Commission (NCUC) and the South Carolina Public Service Commission (SCPSC) and are based on site-specific estimates that include the costs for removal of all radioactive and other structures at the site. In the wholesale jurisdiction, the provisions for nuclear decommissioning costs are based on amounts agreed upon in applicable rate agreements. Based on the site-specific estimates discussed below, and using an assumed after-tax earnings rate of 8.5% and an assumed cost escalation rate of 4%, current levels of rate recovery for nuclear decommissioning costs are adequate to provide for decommissioning of the Company's nuclear facilities. The Company's most recent site-specific estimates of decommissioning costs were developed in 1993, using 1993 cost factors, and are based on prompt dismantlement decommissioning, which reflects the cost of removal of all radioactive and other structures currently at the site, with such removal occurring shortly after operating license expiration. These estimates, in 1993 dollars, are $257.7 million for Robinson Unit No. 2, $235.4 million for Brunswick Unit No. 1, $221.4 million for Brunswick Unit No. 2 and $284.3 million for the Harris Plant. The estimates are subject to change based on a variety of factors including, but not limited to, cost escalation, changes in technology applicable to nuclear decommissioning, and changes in federal, state or local regulations. The cost estimates exclude the portion attributable to North Carolina Eastern Municipal Power Agency, which holds an undivided ownership interest in the Brunswick and Harris nuclear generating facilities. Operating licenses for the Company's nuclear units expire in the year 2010 for Robinson Unit No. 2, 2016 for Brunswick Unit No. 1, 2014 for Brunswick Unit No. 2 and 2026 for the Harris Plant. Carolina Power & Light Company NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued) The Financial Accounting Standards Board (the Board) has reached several tentative conclusions with respect to its project regarding accounting practices related to closure and removal of long-lived assets. The primary conclusions as they relate to nuclear decommissioning are: 1) the cost of decommissioning should be accounted for as a liability and accrued as the obligation is incurred; 2) recognition of a liability for decommissioning results in recognition of an increase to the cost of the plant; 3) the decommissioning liability should be measured based on discounted cash flows using a risk-free rate; and 4) decommissioning trust funds should not be offset against the decommissioning liability. It is uncertain what impacts the final statement may ultimately have on the Company's accounting for nuclear decommissioning and other closure and removal costs. The Board has announced that the effective date would be no earlier than 1998. 3. CAPITALIZATION -------------- A. Preferred Stock Redemption. On July 1, 1997, the Company redeemed all -------------------------- 500,000 shares of $7.72 Serial Preferred Stock and all 350,000 shares of $7.95 Serial Preferred Stock, both at a redemption price of $101 per share. The redemptions were funded with additional commercial paper borrowings and/or internally generated funds. B. Long-Term Debt. On August 26, 1997, the Company issued $200 million --------------- principal amount of First Mortgage Bonds, 6.80% Series due August 15, 2007. See Common Stock issuance information in "Note 5" below. 4. RETAIL RATE MATTERS -------------------- A petition was filed in July 1996 by the Carolina Industrial Group for Fair Utility Rates (CIGFUR) with the NCUC requesting that the NCUC conduct an investigation of the Company's base rates or treat its petition as a complaint against the Company. The petition alleged that the Company's return on equity (which was authorized by the NCUC in the Company's last general rate proceeding in 1988) and earnings are too high. In December 1996, the NCUC issued an order denying CIGFUR's petition and stating that it tentatively found no reasonable grounds to proceed with CIGFUR's petition as a complaint. In January 1997, CIGFUR filed its Comments and Motion for Reconsideration to which the Company responded. On February 6, 1997, the NCUC issued an order denying CIGFUR's Motion for Reconsideration. On February 25, 1997, CIGFUR filed a Notice of Appeal of the NCUC's decision with the North Carolina Court of Appeals. The Company filed its brief in this matter on July 18, 1997. Oral argument before the North Carolina Court of Appeals is scheduled for November 19, 1997. The Company cannot predict the outcome of this matter. In December 1996, the Company filed a proposal with the SCPSC to accelerate amortization of certain regulatory assets, including plant abandonment costs related to the Harris Plant, over a three-year period beginning January 1, 1997. This accelerated amortization will reduce income by approximately $13 million, after tax, in each of the three years. In anticipation of approval of the proposal in 1997, the unamortized balance of plant abandonment costs related to the Harris Plant was adjusted in 1996 to reflect the present value impact of the shorter recovery period. This adjustment resulted in an increase in income of approximately $14 million, after tax, in the fourth quarter of 1996. On March 20, 1997, the SCPSC approved the Company's accelerated amortization proposal. Carolina Power & Light Company NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued) 5. PURCHASE OF KNOWLEDGE BUILDERS, INC. (KBI) -------------------------------------------------- On May 6, 1997, CaroCapital, Inc. (CaroCapital), a wholly owned subsidiary of the Company, entered into a merger agreement pursuant to which KBI was merged into CaroCapital. KBI is an energy-management software and control systems company in which CaroCapital purchased a 40% equity interest in 1996. In connection with the merger, the remaining KBI stock was exchanged for common stock of the Company according to a market value formula. The merger resulted in the issuance of approximately 604,000 shares of the Company's common stock (valued at $20.5 million) and a cash payment of $1.9 million. The merger agreement also provided for incentive payments based on CaroCapital's future results of operations. If earned, these additional payments will be made primarily in shares of the Company's common stock. The merger was completed on June 5, 1997. Following the completion of the merger, CaroCapital was renamed Strategic Resource Solutions Corp., a North Carolina Enterprise Corporation. 6. COMMITMENTS AND CONTINGENCIES ----------------------------- Contingencies existing as of the date of these statements are described below. No significant changes have occurred since December 31, 1996, with respect to the commitments discussed in Note 11 of the financial statements included in the Company's 1996 Annual Report to Shareholders. A. Applicability of SFAS-71. As a regulated entity, the Company is -------------------------- subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," (SFAS-71). Accordingly, the Company records certain assets and liabilities resulting from the effects of the ratemaking process, which would not be recorded under generally accepted accounting principles for non-regulated entities. The continued applicability of SFAS-71 will require further evaluation as competitive forces, deregulation and restructuring take effect in the electric utility industry. In the event that SFAS-71 no longer applied to certain regulatory assets and liabilities, those assets and liabilities would be eliminated. At September 30, 1997, the Company's regulatory assets totaled $590.9 million. Additionally, the factors discussed above could result in an impairment of electric utility plant assets as determined pursuant to Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." B. Claims and Uncertainties. 1) The Company is subject to federal, state ------------------------ and local regulations addressing air and water quality, hazardous and solid waste management and other environmental matters. Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under various federal and state laws. There are several manufactured gas plant (MGP) sites to which the Company and certain entities that were later merged into the Company had some connection. In this regard, the Company, along with others, is participating in a cooperative effort with the North Carolina Department of Environment and Natural Resources, Division of Waste Management (DWM) to establish a uniform framework for addressing these MGP sites. The investigation and remediation of specific MGP sites will be addressed pursuant to one or more Administrative Orders on Consent between the DWM and the potentially responsible party or parties. The Company continues to investigate the identities of parties connected to individual MGP sites, the relative relationships of the Company and other parties to those sites and the degree to which the Company will undertake shared voluntary efforts with others at individual sites. Carolina Power & Light Company NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued) The Company has been notified by regulators of its involvement or potential involvement in several sites, other than MGP sites, that require remedial action. Although the Company cannot predict the outcome of these matters, it does not expect costs associated with these sites to be material to the results of operations of the Company. The Company carries a liability for the estimated costs associated with certain remedial activities at certain MGP and other sites. This liability is not material to the financial position of the Company. Due to uncertainty regarding the extent of remedial action that will be required and questions of liability, the cost of remedial activities at certain MGP sites is not currently determinable. The Company cannot predict the outcome of these matters. 2) As required under the Nuclear Waste Policy Act of 1982, the Company entered into a contract with the U. S. Department of Energy (DOE) under which the DOE agreed to dispose of the Company's spent nuclear fuel. The Company cannot predict whether the DOE will be able to perform its contractual obligations and provide interim storage or permanent disposal repositories for spent nuclear fuel and/or high-level radioactive waste materials on a timely basis. With certain modifications, the Company's spent fuel storage facilities are sufficient to provide storage space for spent fuel generated on the Company's system through the expiration of the current operating licenses for all of the Company's nuclear generating units. Subsequent to the expiration of these licenses, dry storage may be necessary. 3) In the opinion of management, liabilities, if any, arising under other pending claims would not have a material effect on the financial position, results of operations or cash flows of the Company. 7. IMPACT OF NEW ACCOUNTING STANDARD ----------------------------------- In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS-128), which changed the previous standards on computing and presenting earnings per share. SFAS-128 is effective for fiscal years ending after December 15, 1997; earlier application is not permitted. The Company does not expect the adoption of SFAS-128 to have a material impact on its financial statements. EX-99 7 EXHIBIT INDEX Exhibit No. Description 27 Financial Data Schedule EX-27 8 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000017797 CAROLINA POWER & LIGHT COMPANY 1,000 9-MOS DEC-31-1997 SEP-30-1997 PER-BOOK $6,333,693 $393,320 $702,026 $510,038 $215,030 $8,154,107 $1,205,715 ($790) $1,600,590 $2,805,515 $0 $59,376 $2,389,251 $0 $0 $0 $188,529 $0 $0 $0 $2,711,436 $8,154,107 $2,288,948 $198,078 $1,669,839 $1,867,917 $421,031 $17,881 $438,912 $134,532 $304,380 $5,310 $299,070 $202,138 $121,778 $810,642 2.08 2.08
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