-----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, RJ2RF1dIZKDIYiTolGI+045+8wPf2z5bCsruyve2cLb7w4Pa4AKu00FwkPChs9mx c5D9p00F3Ro13TutqYhurA== 0000754737-97-000007.txt : 19970514 0000754737-97-000007.hdr.sgml : 19970514 ACCESSION NUMBER: 0000754737-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCANA CORP CENTRAL INDEX KEY: 0000754737 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 570784499 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08809 FILM NUMBER: 97602456 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST STREET 2: P O BOX 764 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8033768547 MAIL ADDRESS: STREET 1: MAIL CODE 051 CITY: COLUMBIA STATE: SC ZIP: 29218 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 March 31, 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 1-8809 SCANA Corporation (Exact name of registrant as specified in its charter) South Carolina 57-0784499 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1426 Main Street, Columbia, South Carolina 29201 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code(803) 748-3000 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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes . 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. 106,697,782 Common Shares, without par value, as of March 31, 1997 SCANA CORPORATION INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996.................................... 3 Consolidated Statements of Income and Retained Earnings for the Periods Ended March 31, 1997 and 1996............ 5 Consolidated Statements of Cash Flows for the Periods Ended March 31, 1997 and 1996............................ 6 Notes to Consolidated Financial Statements............... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................ 16 Item 6. Exhibits and Reports on Form 8-K......................... 16 Signatures........................................................ 17 Exhibit Index..................................................... 18 2 PART I FINANCIAL INFORMATION SCANA CORPORATION CONSOLIDATED BALANCE SHEETS As of March 31, 1997 and December 31, 1996 (Unaudited) March 31, December 31, 1997 1996 (Thousands of Dollars) ASSETS Utility Plant: Electric................................................... $4,159,642 $4,135,567 Gas........................................................ 542,324 540,196 Transit.................................................... 3,881 3,923 Common..................................................... 82,058 81,858 Total.................................................... 4,787,905 4,761,544 Less accumulated depreciation and amortization............. 1,551,474 1,517,847 Total.................................................... 3,236,431 3,243,697 Construction work in progress.............................. 252,401 219,150 Nuclear fuel, net of accumulated amortization.............. 38,659 41,006 Acquisition adjustment-gas, net of accumulated amortization............................................. 24,926 25,175 Utility Plant, Net.................................... 3,552,417 3,529,028 Nonutility Property and Investments, net of accumulated depreciation and depletion................................. 314,546 345,248 Current Assets: Cash and temporary cash investments........................ 61,230 17,349 Receivables................................................ 219,692 239,286 Inventories (at average cost): Fuel..................................................... 52,818 67,428 Materials and supplies................................... 50,434 49,449 Prepayments................................................ 14,806 13,276 Deferred income taxes...................................... 20,043 20,776 Total Current Assets.................................. 419,023 407,564 Deferred Debits: Emission allowances........................................ 30,485 30,457 Environmental.............................................. 41,418 41,375 Nuclear plant decommissioning fund......................... 43,842 42,194 Pension asset, net......................................... 62,116 57,931 Other...................................................... 263,947 305,549 Total Deferred Debits................................. 441,808 477,506 Total....................................... $4,727,794 $4,759,346 See notes to consolidated financial statements. 3 SCANA CORPORATION CONSOLIDATED BALANCE SHEETS As of March 31, 1997 and December 31, 1996 (Unaudited) March 31, December 31, 1997 1996 (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Stockholders' Investment: Common Equity: Common stock (without par value)......................... $1,139,067 $1,125,282 Retained earnings........................................ 575,253 558,166 Net Unrealized Holding Loss on Securities................ (13,462) - Total Common Equity..................................... 1,700,858 1,683,448 Preferred Stock of Subsidiary (not subject to purchase or sinking funds)........................................ 26,027 26,027 Total Stockholders' Investment.......................... 1,726,885 1,709,475 Preferred Stock of Subsidiary, net (subject to purchase or sinking funds).......................................... 41,253 43,014 Long-term debt, net.......................................... 1,549,471 1,581,608 Total Capitalization.................................. 3,317,609 3,334,097 Current Liabilities: Short-term borrowings...................................... 135,586 144,599 Current portion of long-term debt.......................... 107,730 51,220 Current portion of preferred stock......................... 2,432 2,432 Accounts payable........................................... 111,790 157,475 Customer deposits.......................................... 16,653 16,122 Taxes accrued.............................................. 35,566 70,610 Interest accrued........................................... 31,731 25,609 Dividends declared......................................... 42,059 40,773 Other...................................................... 8,729 7,200 Total Current Liabilities............................. 492,276 516,040 Deferred Credits: Deferred income taxes...................................... 587,223 577,509 Deferred investment tax credits............................ 83,189 84,100 Reserve for nuclear plant decommissioning.................. 43,842 42,194 Other...................................................... 203,655 205,406 Total Deferred Credits................................ 917,909 909,209 Total....................................... $4,727,794 $4,759,346 See notes to consolidated financial statements. 4 SCANA CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Periods Ended March 31, 1997 and 1996 (Unaudited) Three Months Ended March 31, 1997 1996 (Thousands of Dollars, Except Per Share Amounts) OPERATING REVENUES: Electric.............................................. $252,597 $262,146 Gas................................................... 132,110 131,906 Transit............................................... 411 910 Total Operating Revenues.......................... 385,118 394,962 OPERATING EXPENSES: Fuel used in electric generation...................... 54,329 57,002 Purchased power....................................... 662 1,740 Gas purchased for resale.............................. 82,807 86,535 Other operation....................................... 55,679 56,219 Maintenance........................................... 15,490 14,970 Depreciation and amortization......................... 38,267 35,790 Income taxes.......................................... 30,933 34,264 Other taxes........................................... 25,847 23,056 Total Operating Expenses.......................... 304,014 309,576 OPERATING INCOME........................................ 81,104 85,386 OTHER INCOME: Allowance for equity funds used during construction................................. 1,919 1,705 Other income, net of income taxes..................... 6,632 13,739 Total Other Income................................ 8,551 15,444 INCOME BEFORE INTEREST CHARGES AND PREFERRED STOCK DIVIDENDS............................. 89,655 100,830 INTEREST CHARGES (CREDITS): Interest expense...................................... 32,609 32,596 Allowance for borrowed funds used during construction................................. (1,662) (1,949) Total Interest Charges, Net....................... 30,947 30,647 INCOME BEFORE PREFERRED STOCK CASH DIVIDENDS OF SUBSIDIARY............................... 58,708 70,183 PREFERRED STOCK CASH DIVIDENDS OF SUBSIDIARY (At stated rates).......................... (1,343) (1,370) NET INCOME.............................................. 57,365 68,813 RETAINED EARNINGS AT BEGINNING OF PERIOD................ 558,166 497,991 COMMON STOCK CASH DIVIDENDS DECLARED.................... (40,278) (38,334) RETAINED EARNINGS AT END OF PERIOD...................... $575,253 $528,470 NET INCOME.............................................. $ 57,365 $ 68,813 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (THOUSANDS) ....................... 106,623 104,158 EARNINGS PER WEIGHTED AVERAGE SHARE OF COMMON STOCK....................................... $ .54 $ .66 CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK........................................... $ .3775 $ .3675 See notes to consolidated financial statements. 5 SCANA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Periods Ended March 31, 1997 and 1996 (Unaudited) Three Months Ended March 31, 1997 1996 (Thousands of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................ $ 57,365 $ 68,813 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation, depletion and amortization............ 45,015 48,224 Amortization of nuclear fuel........................ 5,767 5,208 Deferred income taxes, net.......................... 18,787 18,489 Pension asset....................................... (4,185) (3,104) Allowance for funds used during construction........ (3,581) (3,654) Over (under) collections, fuel adjustment clauses... 17,100 9,155 Early retirements................................... 4,306 (4,260) Changes in certain current assets and liabilities: (Increase) decrease in receivables................. 29,558 (25,070) (Increase) decrease in inventories................. 13,625 11,134 (Increase) decrease in prepayments................. (1,530) (465) Increase (decrease) in accounts payable............ (45,685) (28,565) Increase (decrease) in taxes accrued............... (35,044) (25,967) Increase (decrease) in interest accrued ........... 6,122 7,629 Other, net.......................................... (6,227) 18,831 Net Cash Provided From Operating Activities............. 101,393 96,398 CASH FLOWS FROM INVESTING ACTIVITIES: Utility property additions and construction expenditures, net of AFC............................ (40,518) (47,869) Increase in other property and investments............ (12,466) (13,781) Sale of Subsidiary Assets............................. 7,794 - Net Cash Used For Investing Activities.................. (45,190) (61,650) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds: Issuance of notes and loans......................... 24,844 60,000 Issuance of other long-term debt.................... - 935 Issuance of common stock............................ 14,653 19,248 Repayments: Redemption of notes................................. - (61,886) Other long-term debt................................ (3,434) (391) Preferred stock..................................... (1,761) (1,762) Dividend payments: Common stock........................................ (39,019) (37,305) Preferred stock of subsidiary....................... (1,341) (1,396) Short-term borrowings, net............................ (9,013) (16,541) Fuel and emission allowance financings, net........... 2,749 7,523 Net Cash Used For Financing Activities.................. (12,322) (31,575) NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS............................ 43,881 3,173 CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1........ 17,349 16,082 CASH AND TEMPORARY CASH INVESTMENTS AT MARCH 31......... $ 61,230 $ 19,255 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for - Interest (includes capitalized interest of $1,662 and $1,949)....... $ 25,918 $ 24,112 - Income taxes.......................... 2,156 2,238 NONCASH INVESTING ACTIVITIES: Subsidiary sale of interest in joint venture and certain other assets valued at approximately 24.4 million in exchange for preferred stock and notes of investee: See notes to consolidated financial statements.
6 SCANA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 (Unaudited) The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in SCANA Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. These are interim financial statements and, because of temperature variations between seasons of the year, the amounts reported in the Consolidated Statements of Income are not necessarily indicative of amounts expected for the year. In the opinion of management, the information furnished herein reflects all adjustments, all of a normal recurring nature, which are necessary for a fair statement of the results for the interim periods reported. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Basis of Accounting The Company accounts for its regulated utility operations, assets and liabilities in accordance with the provisions of Statement of Financial Accounting Standards (SFAS 71). The accounting standard requires cost-based rate-regulated utilities, such as the Company, to recognize in their financial statements revenues and expenses in different time periods than do enterprises that are not rate-regulated. As a result the Company has recorded, as of March 31, 1997, approximately $242 million and $68 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $107 million and $60 million, respectively. The electric regulatory assets of approximately $89 million (excluding deferred income tax assets) are being recovered through rates, and the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of approximately $61 million of these assets. In the future, as a result of deregulation or other changes in the regulatory environment, the Company may no longer meet the criteria for continued application of SFAS 71 and would be required to write off its regulatory assets and liabilities. Such an event could have a material adverse effect on the Company's results of operations in the period the write-off is recorded, but it is not expected that cash flows or financial position would be materially affected. B. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 1997 presentation. 2. RETAINED EARNINGS: The Restated Articles of Incorporation of the Company do not limit the dividends that may be payable on its common stock. However, the Restated Articles of Incorporation of SCE&G and the Indenture underlying certain of its bond issues contain provisions that may limit the payment of cash dividends on common stock. In addition, with respect to hydroelectric projects, the Federal Power Act may require the appropriation of a portion of the earnings therefrom. At March 31, 1997 approximately $18.4 million of SCE&G's retained earnings were restricted as to payment of cash dividends on common stock. 7 3. INVESTMENTS IN EQUITY SECURITIES: SCANA Communications, Inc. (SCI), owns 4.5 million common shares and 100,000 non-voting convertible preferred shares of InterCel, Inc. (InterCel), an established provider of cellular telephone services and a developer of a personal communications services (PCS) system in major markets in the Southeast. Such investments, with book values of approximately $66.7 million and $75.1 million, respectively, are accounted for on the cost method. Common shares were recorded at $14.85 per share and are restricted securities (within the meaning of the Securities Act of 1933) until February 1998. Preferred shares are convertible in April 2000 at a conversion price of $16.50 per common share or approximately 4.5 million common shares. InterCel common stock, which trades on NASDAQ, traded between a high of $17 per share and a low of $9 3/4 per share during the first quarter and closed at $10 per share on March 31, 1997, resulting in a pretax unrealized holding loss of $21.8 million, or $13.5 million after-tax. Such amount is shown in the balance sheet as a separate line item under "Common Equity." The market value of the convertible preferred shares of InterCel is not readily determinable. However, on an as if converted basis, the market value of the underlying common shares was approximately $45.5 million at March 31, 1997, resulting in an unrecorded pretax holding loss of $29.6 million. SCI also holds investments in ITC Holding Company, Inc. (ITC), the parent company of InterCel, of approximately 775,000 shares of common stock and 588,000 shares of convertible preferred stock, with book values of approximately $16.1 million and $18 million, respectively. Fair market values for these investments are not readily determinable. In March 1997 SCI sold its interest in GulfStates Fibernet, a Georgia general partnership (constituting the remaining joint venture interests of SCI), and certain fiber optic assets of SCI located within the State of Georgia to ITC, a Georgia- based telecommunications holding company, in exchange for non- voting convertible preferred stock and a subordinated note of ITC. 4. CONTINGENCIES: With respect to commitments at March 31, 1997, reference is made to Note 10 of Notes to Consolidated Financial Statements appearing in The Company's Annual Report on Form 10-K for the year ended December 31, 1996. Contingencies at March 31, 1997 are as follows: A. Nuclear Insurance The Price-Anderson Indemnification Act, which deals with the Company's public liability for a nuclear incident, currently establishes the liability limit for third-party claims associated with any nuclear incident at $8.9 billion. Each reactor licensee is currently liable for up to $79.3 million per reactor owned for each nuclear incident occurring at any reactor in the United States, provided that not more than $10 million of the liability per reactor would be assessed per year. SCE&G's maximum assessment, based on its two-thirds ownership of Summer Station, would be approximately $52.9 million per incident, but not more than $6.7 million per year. SCE&G currently maintains policies (for itself and on behalf of the South Carolina Public Service Authority with American Nuclear Insurers (ANI) and Nuclear Electric Insurance Limited (NEIL) providing combined property and decontamination insurance coverage of $1.9 billion for any losses at Summer Station. SCE&G pays annual premiums and, in addition, could be assessed a retroactive premium assessment not to exceed five times its annual premium in the event of property damage loss to any nuclear generating facility covered under the NEIL program. Based on the current annual premium, this retroactive premium assessment would not exceed $5.7 million. 8 To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that SCE&G's rates would not recover the cost of any purchased replacement power, SCE&G will retain the risk of loss as a self-insurer. SCE&G has no reason to anticipate a serious nuclear incident at Summer Station. If such an incident were to occur, it could have a material adverse impact on the Company's results of operations, cash flows and financial position. B. Environmental The Company has an environmental assessment program to identify and assess current and former operations sites that could require environmental cleanup. As site assessments are initiated an estimate is made of the amount of expenditures, if any, necessary to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from the original estimates. Amounts estimated and accrued to date for site assessments and cleanup and environmental claims settlements relate primarily to regulated operations; such amounts are deferred (approximately $41.4 million) and are being amortized and recovered through rates over a five-year period for electric operations and an eight- year period for gas operations. The deferral includes the costs estimated to be associated with the matters discussed below. In September 1992 the Environmental Protection Agency (EPA) notified SCE&G, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park area site in Charleston, South Carolina. This site originally encompassed approximately 18 acres and included properties which were the locations for industrial operations, including a wood preserving (creosote) plant and one of SCE&G's decommissioned manufactured gas plants. The original scope of this investigation has been expanded to approximately 30 acres, including adjacent properties owned by the National Park Service, the City of Charleston and private properties. The site has not been placed on the National Priority List, but may be added before cleanup is initiated. The potentially responsible parties (PRP) have agreed with the EPA to participate in an innovative approach to site investigation and cleanup called "Superfund Accelerated Cleanup Model," allowing the pre-cleanup site investigation process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993 and the EPA conditionally approved a Remedial Investigation Report in March 1997. SCE&G is continuing to investigate cost-effective cleanup methodologies. In October 1996 the City of Charleston and SCE&G settled all environmental claims the City may have had against SCE&G involving the Calhoun Park area for a payment of $26 million over four years (1996-1999) by SCE&G to the City. SCE&G expects to recover the amount of the settlement, which does not encompass site assessment and cleanup costs, in the same manner as other amounts accrued for site assessments and cleanup as discussed above. As part of the environmental settlement, SCE&G has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. SCE&G owns three other decommissioned manufactured gas plant sites which contain residues of by-product chemicals. SCE&G is actively investigating the sites to monitor the nature and extent of the residual contamination. SCE&G is pursuing recovery of environmental liabilities from appropriate pollution insurance carriers. Site assessment and cleanup costs recovered through rates are net of insurance recoveries. 9 C. SCANA Communications, Inc. Matters SCI, as a result of an internal audit, informed the Federal Communications Commission (FCC) that it violated certain licensing requirements in establishing and operating an 800 Mhz radio system in South Carolina for public safety and utility use. As a result, SCI has returned to the FCC several licenses obtained in violation of FCC rules and the FCC is conducting an investigation of the system. The Company does not believe that the resolution of this issue will have a material impact on its results of operations, cash flows or financial position. 5. Subsequent Event On April 24, 1997 SCE&G sold 1,000,000 shares of 6.52% cumulative preferred stock, $100 par value. Net proceeds from the sale will be used to reduce short term indebtedness incurred for SCE&G's construction program, to refinance senior securities or for general corporate purposes. 10 SCANA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Competition The electric utility industry has begun a major transition that could lead to expanded market competition and less regulation. Deregulation of electric wholesale and retail markets is creating opportunities to compete for new and existing customers and markets. As a result, profit margins and asset values of some utilities could be adversely affected. Legislative initiatives at the Federal and state levels are being considered and, if enacted, could mandate market deregulation. The pace of deregulation, future prices of electricity, and the regulatory actions which may be taken by the PSC and the FERC in response to the changing environment cannot be predicted. However, recent FERC actions will likely accelerate competition among electric utilities by providing for wholesale transmission access. In April 1996 the FERC issued Order 888, which addresses open access to transmission lines and stranded cost recovery. Order 888 requires utilities under FERC jurisdiction that own, control or operate transmission lines to file nondiscriminatory open access tariffs that offer to others the same transmission service they provide themselves. The FERC has also permitted utilities to seek recovery of wholesale stranded costs from departing customers by direct assignment. Approximately five percent of the Company's electric revenues is under FERC jurisdiction. The Company is aggressively pursuing actions to position itself strategically for the transformed environment. To enhance its flexibility and responsiveness to change, the Company's electric and gas utility, SCE&G, operates Strategic Business Units. Maintaining a competitive cost structure is of paramount importance in the utility's strategic plan. SCE&G has undertaken a variety of initiatives, including reductions in operation and maintenance costs and in staffing levels. In January 1996 the PSC approved (as discussed under "Liquidity and Capital Resources") the accelerated recovery of SCE&G's electric regulatory assets and the shift, for ratemaking purposes, of depreciation reserves from transmission and distribution assets to nuclear production assets. The FERC has rejected the depreciation transfer for rates subject to its jurisdiction. In May 1996 the FERC approved SCE&G's application establishing open access transmission tariffs and requesting authorization to sell bulk power to wholesale customers at market- based rates. Significant investments are being made in customer and management information systems. Marketing of services to commercial and industrial customers has been increased significantly. The Company believes that these actions as well as numerous others that have been and will be taken demonstrate its ability and commitment to succeed in the new operating environment to come. Regulated public utilities are allowed to record as assets some costs that would be expensed by other enterprises. If deregulation or other changes in the regulatory environment occur, the Company may no longer be eligible to apply this accounting treatment and may be required to eliminate such regulatory assets from its balance sheet. Although the potential effects of deregulation cannot be determined at present, discontinuation of the accounting treatment could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. It is expected that cash flows and the financial position of the Company would not be materially affected by the discontinuation of the accounting treatment. The Company reported approximately $242 million and $68 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $107 million and $60 million, respectively, on its balance sheet at March 31, 1997. Material Changes in Capital Resources and Liquidity Since December 31, 1996 Liquidity and Capital Resources The cash requirements of the Company arise primarily from SCE&G's operational needs, the Company's construction program and the need to fund the activities or investments of the Company's nonregulated subsidiaries. The ability of the Company's regulated subsidiaries to replace existing plant investment, as well as to expand to meet future demands for electricity and gas, will depend upon their ability to attract the necessary financial capital on reasonable terms. The Company's regulated subsidiaries recover the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and the regulated subsidiaries continue their ongoing construction programs, it is necessary to seek increases in rates. As a result, the Company's future financial position and results of operations will be affected by the regulated subsidiaries' ability to obtain adequate and timely rate and other regulatory relief. 11 On January 9, 1996 the PSC issued an order granting SCE&G an increase in retail electric rates of 7.34% which will produce additional revenues of approximately $67.5 million annually. The increase has been implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced in January 1996. The second phase was implemented in January 1997 and will produce additional revenues of approximately $8.0 million annually, based on a test year, or .87% more than current rates. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million to be collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of SCE&G's electric regulatory assets (excluding deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenues under the FERC's jurisdiction, which constitutes approximately 5% of the Company's electric revenues. The FERC has rejected the transfer of depreciation reserves for rates subject to its jurisdiction. The following table summarizes how the Company generated funds for its property acquisitions and utility property additions and construction expenditures during the three months ended March 31, 1997 and 1996: Three Months Ended March 31, 1997 1996 (Thousands of Dollars) Net cash provided from operating activities $101,393 $ 96,398 Net cash used for financing activities (12,322) (31,575) Cash and temporary cash investments available at the beginning of the period 17,349 16,082 Net cash available for property acquisitions and utility property additions and construction expenditures $106,420 $ 80,905 Funds used for utility property additions and construction expenditures, net of noncash allowance for funds used during construction $ 40,518 $ 47,869 Funds used for nonutility property additions $ 4,672 $ 13,781 On January 12, 1996 SCANA closed on unsecured bank loans totalling $60 million due January 10, 1997, and used the proceeds to pay off a loan in a like total amount. On January 10, 1997 SCANA refinanced the loans with unsecured bank loans totaling $60 million due January 9, 1998 at initial interest rates between 5.995% and 6.031%, at a fixed 12-month LIBOR plus a spread of 10 to 12 1/2 basis points. On February 12, 1997 SCANA closed on the sale of $25 million of Medium-Term Notes having an annual interest rate of 6.9% and maturing February 15, 2007. These funds were used to reduce short- term borrowings at SCANA. On April 24, 1997 SCE&G sold 1,000,000 shares of 6.52% cumulative preferred stock $100 par value. Net proceeds from the sale will be used to reduce short term indebtedness incurred for SCE&G's construction program, to refinance senior securities or for general corporate purposes. On August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with SCE&G. In consideration for the electric franchise agreement, SCE&G will pay the City $25 million over seven years (1996-2002) and has donated to the City the existing transit assets in Charleston. In settlement of environmental claims the City may have had against SCE&G involving the Calhoun Park area, where SCE&G and its predecessor companies operated a manufactured gas plant until the 1960's, SCE&G will pay the City $26 million over a four-year period. As part of the environmental settlement, SCE&G has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. 12 The Company and Westvaco Corporation have formed a limited liability company, Cogen South LLC, to build and operate a $170 million cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. The Company and Westvaco each own a 50% interest in the LLC. The facility will provide industrial process steam for the Westvaco paper mill and shaft horsepower to enable SCE&G to generate up to 99 megawatts of electricity. Construction financing is being provided to Cogen South LLC by banks. A $15 million capital contribution to the LLC by each partner is expected prior to operation of the facility. In addition to the cogeneration LLC, Westvaco has entered into a 20- year contract with SCE&G for all its electricity requirements at the North Charleston mill at SCE&G's standard industrial rate. Construction of the plant began in September 1996 and it is expected to be operational in the fall of 1998. SCI holds an approximate 17% interest in the common stock of InterCel, a publicly traded telecommunications company which owns PCS licenses for the Birmingham, Alabama; Jacksonville, Florida; and Memphis, Tennessee/Jackson, Mississippi MTAs. In June 1996 InterCel purchased a PCS license for the Atlanta MTA, financing the purchase principally through a private placement of non-voting convertible preferred stock, of which SCI purchased $75 million. The non-voting preferred stock is convertible to InterCel common stock in April 2000. InterCel was the winning bidder for additional PCS licenses to provide service to thirteen BTAs in Kentucky, Tennessee and Indiana. In March 1997 SCI sold its interest in GulfStates Fibernet, a Georgia general partnership (constituting the remaining joint venture interests of SCI), and certain fiber optic assets of SCI located within the State of Georgia to ITC, a Georgia-based telecommunications holding company, in exchange for non-voting convertible preferred stock and a subordinated note of ITC. SCI, as a result of an internal audit, informed the FCC that it violated certain licensing requirements in establishing and operating an 800 Mhz radio system in South Carolina for public safety and utility use. As a result, SCI has returned to the FCC several licenses obtained in violation of FCC rules and the FCC is conducting an investigation of the system. The Company does not believe that the resolution of this issue will have a material impact on its results of operations, cash flows or financial position. SCANA Petroleum Resources, Inc. (SPR) and Fina Oil and Chemical Company (Fina) are parties to a joint exploration and development agreement providing for the exclusive oil and gas development rights on approximately 400,000 acres in southern Louisiana. SPR and Fina are continuing an extensive 3-D seismic acquisition program on the property. Fina is the operator of the multi-million dollar seismic program, which is financed and owned on a 50-50 basis between the companies. SPR's participation in the seismic and drilling activity is financed largely with internal cash flows from the existing SPR operations. In August 1996, SPR and Cobra Oil Gas Corporation (COBRA) entered into an agreement providing for the joint exploration and development of fifteen field areas in Atlanta, Arkansas, Louisiana, New Mexico and Texas. SPR's average interest in the program is approximately 30%. Under the agreement, SPR has acquired interests in 83,000 acres of processed 3-D seismic data covering 900 square miles. The Company anticipates that the remainder of its 1997 cash requirements will be met through internally generated funds, the sales of additional equity securities and medium-term notes and the incurrence of additional short-term and long-term indebtedness. The timing and amount of such financing will depend upon market conditions and other factors. The Company expects that it has or can obtain adequate sources of financing to meet its cash requirements for the next twelve months and for the foreseeable future. The ratio of earnings to fixed charges for the twelve months ended March 31, 1997 was 3.45. 13 SCANA CORPORATION Results of Operations For the Three Months ended March 31, 1997 As Compared to the Corresponding Periods in 1996 Earnings and Dividends Net income for the three months ended March 31, 1997 decreased approximately $11.5 million, when compared to the corresponding period in 1996. The electric margin decreased by approximately $5.8 million primarily as a result of milder weather in the current period. The negative impact of weather on the electric margin was partially offset by higher retail electric rates and economic and customer growth. A non-recurring after-tax gain of $5.2 million reported by SCI as a result of the business combination of Powertel PCS Partners and Intercel, Inc. in February 1996 is included in net income for the three months ended March 31, 1996. Allowance for funds used during construction (AFC) is a utility accounting practice whereby a portion of the cost of both equity and borrowed funds used to finance construction (which is shown on the balance sheet as construction work in progress) is capitalized. Both the equity and the debt portions of AFC are noncash items of nonoperating income which have the effect of increasing reported net income. AFC represented approximately 4% and 3% of income before income taxes for the three months ended March 31, 1997 and 1996, respectively. On February 18, 1997 the Company's Board of Directors declared a quarterly dividend on common stock of 37 3/4 cents per share, for the quarter ended March 31, 1997. The dividend was paid on April 1, 1997 to common stockholders of record on March 10, 1997. On April 24, 1997 the Company's Board of Directors declared a quarterly dividend on common stock of 37 3/4 cents per share for the quarter ended June 30, 1997. The dividend is payable on July 1, 1997 to common stockholders of record on June 10, 1997. Sales Margins The change in the electric sales margin for the three months ended March 31, 1997, when compared to the corresponding period in 1996, was as follows: Three Months Change % Change (Millions) Electric operating revenues $(9.6) (3.6) Less: Fuel used in electric generation (2.7) (4.7) Purchased power (1.1) (62.0) Margin $(5.8) (2.9) The electric sales margin decreased for the three months ended March 31, 1997, when compared to the corresponding period in 1996 as a result of the effect of milder weather which more than offset the favorable impact of the rate increases placed into effect in January 1996 and January 1997 and economic growth factors. 14 The change in the gas sale margins for the three months ended March 31, 1997, when compared to the corresponding period in 1996, was as follows: Three Months Change % Change (Millions) Gas operating revenues $ 0.2 0.2 Less: Gas purchased for resale (3.7) (4.3) Margin $ 3.9 8.7 The gas sales margin increased for the three months ended March 31, 1997, when compared to the corresponding period in 1996 primarily as a result of increased sales to interruptible customers attributable to fewer curtailments. Other Operating Expenses Changes in other operating expenses, including taxes, for the three months ended March 31, 1997, when compared to the corresponding period in 1996 are presented in the following table: Three Months Change % Change (Millions) Other operation and maintenance $ - - Depreciation and amortization 2.4 6.9 Income taxes (3.3) (9.7) Other taxes 2.8 12.1 Total $ 1.9 1.2 Other operation and maintenance expenses for the three months ended March 31, 1997 remained at 1996 levels. Increased costs at electric generating plants were largely offset by a decrease in transit operating costs resulting from the Company's transfer of the ownership of the Charleston transit system to the City of Charleston in October 1996. The increase in depreciation and amortization expenses for the three months' comparisons reflects the addition of the Cope Plant and other additions to plant in service. The decrease in income tax expense for the three months results from the decrease in operating income. The increase in other taxes results primarily from the accrual of additional property taxes, beginning in January 1997, related to the Cope Plant and other property additions. Recovery of the Cope Plant property taxes is provided for in a retail electric rate increase that became effective in January 1997. Other Income Other income, net of income taxes, for the three months ended March 31, 1997 decreased $7.1 million when compared to the corresponding period of 1996. The principal factors accounting for the drop in other income is the nonrecurring gain reported by SCI (discussed under "Earnings and Dividends"), which is included in other income reported for the three months ended March 31, 1996. 15 SCANA CORPORATION Part II OTHER INFORMATION Item 1. Legal Proceedings For information regarding legal proceedings see Note 2 "Rate Matters," appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, and Note 4 "Contingencies" of Notes to Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q. Items 2, 3, 4 and 5 are not applicable. Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibits filed with this Quarterly Report on Form 10-Q are listed in the following Exhibit Index. Certain of such exhibits which have heretofore been filed with the Securities and Exchange Commission and which are designated by reference to their exhibit numbers in prior filings are hereby incorporated herein by reference and made a part hereof. B. Reports on Form 8-K None 16 SCANA CORPORATION SIGNATURES Pursuant to the 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. SCANA CORPORATION (Registrant) May 13, 1997 By: s/K. B. Marsh K. B. Marsh, Vice President - Finance, Chief Financial Officer and Controller 17 SCANA CORPORATION EXHIBIT INDEX Sequentially Numbered Pages Number 2. Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession Not Applicable 3. Articles of Incorporation and By-Laws A. Restated Articles of Incorporation of SCANA Corporation as adopted on April 26, 1989 (Exhibit 3-A to Registration Statement No. 33-49145)........................................... # B. Articles of Amendment dated April 27, 1995 (Exhibit 4-B to Registration Statement No. 33-62421)............................................... # C. Copy of By-Laws of SCANA Corporation as revised and amended on June 18, 1996 (Exhibit 4-B to Registration Statement No. 333-18149).................... # 4. Instruments Defining the Rights of Security Holders, Including Indentures A. Articles of Exchange of South Carolina Electric & Gas Company and SCANA Corporation (Exhibit 4-A to Post-Effective Amendment No. 1 to Registration Statement No. 2-90438).................. # B. Indenture dated as of November 1, 1989 to The Bank of New York, Trustee (Exhibit 4-A to Registration No. 33-32107)........................... # C. Indenture dated as of January 1, 1945, from the South Carolina Power Company (the "Power Company") to Central Hanover Bank and Trust Company, as Trustee, as supplemented by three Supplemental Indentures dated respectively as of May 1, 1946, May 1, 1947 and July 1, 1949 (Exhibit 2-B to Registration No. 2-26459)............... # D. Fourth Supplemental Indenture dated as of April 1, 1950, to Indenture referred to in Exhibit 4C, pursuant to which the Company assumed said Indenture (Exhibit 2-C to Registration No. 2-26459)............................... # E. Fifth through Fifty-second Supplemental Indentures referred to in Exhibit 4C dated as of the dates indicated below and filed as exhibits to the Registration Statements and 1934 Act reports whose file numbers are set forth below......................................... # # Incorporated herein by reference as indicated. 18 SCANA CORPORATION EXHIBIT INDEX Number December 1, 1950 Exhibit 2-D to Registration No. 2-26459 July 1, 1951 Exhibit 2-E to Registration No. 2-26459 June 1, 1953 Exhibit 2-F to Registration No. 2-26459 June 1, 1955 Exhibit 2-G to Registration No. 2-26459 November 1, 1957 Exhibit 2-H to Registration No. 2-26459 September 1, 1958 Exhibit 2-I to Registration No. 2-26459 September 1, 1960 Exhibit 2-J to Registration No. 2-26459 June 1, 1961 Exhibit 2-K to Registration No. 2-26459 December 1, 1965 Exhibit 2-L to Registration No. 2-26459 June 1, 1966 Exhibit 2-M to Registration No. 2-26459 June 1, 1967 Exhibit 2-N to Registration No. 2-29693 September 1, 1968 Exhibit 4-O to Registration No. 2-31569 June 1, 1969 Exhibit 4-C to Registration No. 33-38580 December 1, 1969 Exhibit 4-Q to Registration No. 2-35388 June 1, 1970 Exhibit 4-R to Registration No. 2-37363 March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324 January 1, 1972 Exhibit 4-C to Registration No. 33-38580 July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291 May 1, 1975 Exhibit 4-C to Registration No. 33-38580 July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908 February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304 December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936 March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662 May 1, 1977 Exhibit 4-C to Registration No. 33-38580 February 1, 1978 Exhibit 4-C to Registration No. 33-38580 June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653 April 1, 1979 Exhibit 4-C to Registration No. 33-38580 June 1, 1979 Exhibit 4-C to Registration No. 33-38580 April 1, 1980 Exhibit 4-C to Registration No. 33-38580 June 1, 1980 Exhibit 4-C to Registration No. 33-38580 December 1, 1980 Exhibit 4-C to Registration No. 33-38580 April 1, 1981 Exhibit 4-D to Registration No. 33-49421 June 1, 1981 Exhibit 4-D to Registration No. 2-73321 March 1, 1982 Exhibit 4-D to Registration No. 33-49421 April 15, 1982 Exhibit 4-D to Registration No. 33-49421 May 1, 1982 Exhibit 4-D to Registration No. 33-49421 December 1, 1984 Exhibit 4-D to Registration No. 33-49421 December 1, 1985 Exhibit 4-D to Registration No. 33-49421 June 1, 1986 Exhibit 4-D to Registration No. 33-49421 February 1, 1987 Exhibit 4-D to Registration No. 33-49421 September 1, 1987 Exhibit 4-D to Registration No. 33-49421 January 1, 1989 Exhibit 4-D to Registration No. 33-49421 January 1, 1991 Exhibit 4-D to Registration No. 33-49421 February 1, 1991 Exhibit 4-D to Registration No. 33-49421 July 15, 1991 Exhibit 4-D to Registration No. 33-49421 # Incorporated herein by reference as indicated. 19 SCANA CORPORATION EXHIBIT INDEX Sequentially Numbered Pages Number August 15, 1991 Exhibit 4-D to Registration No. 33-49421 April 1, 1993 Exhibit 4-E to Registration No. 33-49421 July 1, 1993 Exhibit 4-D to Registration No. 33-57955 F. Indenture dated as of April 1, 1993 from South Carolina Electric & Gas Company to NationsBank of Georgia, National Association (Filed as Exhibit 4-F to Registration Statement No. 33-49421)........................................... # G. First Supplemental Indenture to Indenture referred to in Exhibit 4-F dated as of June 1, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-49421)........................................... # H. Second Supplemental Indenture to Indenture referred to in Exhibit 4-F dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955)........................................... # 10. Material Contracts Not Applicable 11. Statement Re Computation of Per Share Earnings Not Applicable 15. Letter Re Unaudited Interim Financial Information Not Applicable 18. Letter Re Change in Accounting Principles Not Applicable 19. Report Furnished to Security Holders Not Applicable 22. Published Report Regarding Matters Submitted to Vote of Security Holders Not Applicable 23. Consents of Experts and Counsel Not Applicable 24. Power of Attorney Not Applicable 27. Financial Data Schedule (Filed herewith) 99. Additional Exhibits Not Applicable 20 EX-27 2
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 MAR-31-1997 PER-BOOK 3,552,417 314,546 419,023 441,808 0 4,727,794 1,139,067 0 575,253 1,700,858 41,253 26,027 1,549,471 135,586 0 0 107,730 2,432 0 0 1,164,437 4,727,794 385,118 30,933 273,081 304,014 81,104 8,551 89,655 30,947 58,708 (1,343) 57,365 40,278 0 101,393 .54 0
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