UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ][X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2000
---------------------------
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)from ____________ to ______________.
Exact name of registrants as specified in their
Commission charters, state of incorporation, address of principal I.R.S. Employer
File Number executive offices, and telephone number Identification Number
1-15929 CP&L Energy, Inc. 56-2155481
411 Fayetteville Street
Raleigh, North Carolina 27601-1748
Telephone: (919) 546-6411
State of Incorporation: North Carolina
1-3382 Carolina Power & Light Company 56-0165465
411 Fayetteville Street
Raleigh, North Carolina 27601-1748
Telephone: (919) 546-6411
State of Incorporation: North Carolina
56-0165465
-------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
411 Fayetteville Street, Raleigh, North Carolina 27601-1748
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
919-546-6111
------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No
.
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:---. ---.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (Without Par
Value) shares outstanding at April
Description of Shares Outstanding
Registrant Common Stock at July 31, 2000
CP&L Energy, Inc: Common Stock (Without Par Value) 159,597,655
Carolina Power & Light Company Common Stock (Without Par Value) 159,608,055
(All held by CP&L Energy, Inc.)
Filing Format
This Quarterly Report on Form 10Q is a combined quarterly report being filed
separately by two registrants: CP&L Energy, Inc. (CP&L Energy) and Carolina
Power & Light Company (CP&L). CP&L Energy became the holding company for CP&L on
June 19, 2000. Information contained herein relating exclusively to either
individual registrant is filed by such registrant solely on its own behalf. Each
registrant makes no representation as to information relating exclusively to the
other registrant.
CP&L ENERGY, INC. AND CAROLINA POWER & LIGHT COMPANY
FORM 10-Q - For the Quarter Ended June 30, 2000: 159,636,055.
12000
Safe Harbor For Forward-Looking Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements:
CP&L Energy, Inc.
-----------------------------
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Carolina Power & Light Company
--------------------------------
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Supplemental Data Schedule
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
2
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
------------------------------------------
The matters discussed throughout this Form 10-Q that are not historical facts
are forward-looking and, accordingly, involve estimates, projections, goals,
forecasts, assumptions, risks and uncertainties that could cause actual results
or outcomes to differ materially from those expressed in the forward-looking
statements.
Examples of forward-looking statements discussed in this Form 10-Q, PART 1, ITEM
2, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS", include, but are not limited to, statements under the heading
"Other Matters" concerning the effects of electric utility industry
restructuring.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Companyneither CP&L Energy nor CP&L undertakes noany obligation to update
any forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made.
Examples of factors that you should be consideredconsider with respect to any forward-looking
statements made throughout this document include, but are not limited to, the
following: Governmental policies and regulatory actions (including those of the
Federal Energy Regulatory Commission, the Environmental Protection Agency, the
Nuclear Regulatory Commission, the Department of Energy, the North Carolina
Utilities Commission and the Public Service Commission of South Carolina);
general industry trends; operation of nuclear power facilities; availability of
nuclear waste storage facilities; nuclear decommissioning costs; changes in the
economy of areas served by the Company;CP&L ; legislative and regulatory initiatives that
impact the speed and degree of industry restructuring; ability to obtain
adequate and timely rate recovery of costs, including potential stranded costs
arising from industry restructuring; competition from other energy suppliers;
the success of the Company'sCP&L Energy's direct and indirect subsidiaries; weather
conditions and catastrophic weather-related damage; market demand for energy;
inflation; capital market conditions; the proposed share exchange with Florida
Progress Corporation; failure of the potential benefits of the Company'sCP&L's conversion to
a holding company structure to materialize; cash flows derived from the
synthetic fuel plant;plants; unanticipated changes in operating expenses and capital
expenditures and legal and administrative proceedings. All such factors are
difficult to predict, contain uncertainties that may materially affect actual
results, and may be beyond the control of the Company.CP&L Energy and CP&L. New factors
emerge from time to time, and it is not possible for management to predict all
of such factors, nor can it assess the effect of each such factor on the Company.
2CP&L Energy
and CP&L.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
- --------------------------------------------------------------------------------
CAROLINA POWER & LIGHT COMPANY
(ORGANIZED UNDER THE LAWS OF NORTH CAROLINA)CP&L Energy, Inc.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
MARCH 31,JUNE 30, 2000
- --------------------------------------------------------------------------------
STATEMENTS OF INCOME
Three Months Ended March 31Six Months Ended
June 30 June 30
(In thousands except per share amounts) 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Operating Revenues
Electric $ 779,908778,470 $ 738,559733,999 $ 1,558,378 $ 1,472,558
Natural gas 72,09875,350 - 147,448 -
Diversified businesses 25,134 24,34338,484 28,823 63,618 53,166
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 877,140 762,902892,304 762,822 1,769,444 1,525,724
- --------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES------------------------------------------------------------------------------------------------------------------------------
Operating Expenses
Fuel used in electric generation 160,387 138,964137,001 142,918 297,388 281,882
Purchased power 70,259 85,22285,067 96,961 155,326 182,183
Gas purchased for resale 43,89859,836 - 103,734 -
Other operation and maintenance 198,227 142,967164,989 164,819 363,216 307,786
Depreciation and amortization 132,489 120,556134,134 121,284 266,624 241,840
Taxes other than on income 37,334 36,00135,511 34,669 72,845 70,670
Harris Plant deferred costs, net 5,281 1,5242,815 1,964 8,096 3,488
Diversified businesses 44,155 38,30758,767 42,836 102,922 81,096
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 692,030 563,541678,120 605,451 1,370,151 1,168,945
- --------------------------------------------------------------------------------------------------------------
OPERATING INCOME 185,110 199,361------------------------------------------------------------------------------------------------------------------------------
Operating Income 214,184 157,371 399,293 356,779
- --------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 3,263 2,2932,048 2,270 5,311 4,563
Other, net 4,295 (6,949)(5,531) (8,992) (1,977) (16,729)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) 7,558 (4,656)(3,483) (6,722) 3,334 (12,166)
- --------------------------------------------------------------------------------------------------------------
INTEREST CHARGES------------------------------------------------------------------------------------------------------------------------------
Interest Charges
Long-term debt 50,072 42,40154,851 43,993 104,923 86,394
Other interest charges 5,001 2,7614,279 3,042 9,280 5,803
Allowance for borrowed funds used during construction (4,606) (1,828)(6,323) (2,964) (10,929) (4,792)
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Interest Charges 50,467 43,33452,807 44,071 103,274 87,405
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 142,201 151,371
INCOME TAXES 56,198 59,159------------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 157,894 106,578 299,353 257,208
Income Taxes 50,434 44,161 106,632 103,320
- --------------------------------------------------------------------------------------------------------------
NET INCOME 86,003 92,212
PREFERRED STOCK DIVIDEND REQUIREMENTS (742) (742)
- --------------------------------------------------------------------------------------------------------------
EARNINGS FOR COMMON STOCK------------------------------------------------------------------------------------------------------------------------------
Net Income $ 85,261107,460 $ 91,470
==============================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 153,054 144,293
BASIC AND DILUTED EARNINGS PER COMMON SHARE62,417 $ 0.56192,721 $ 0.63
DIVIDENDS DECLARED PER COMMON SHARE153,888
==============================================================================================================================
Average Common Shares Outstanding 153,311 144,466 153,183 144,380
Basic Earnings per Common Share $ 0.70 $ 0.43 $ 1.26 $ 1.07
Diluted Earnings per Common Share $ 0.70 $ 0.43 $ 1.26 $ 1.06
Dividends Declared per Common Share $ 0.515 $ 0.500 ==============================================================================================================$ 1.030 $ 1.000
==============================================================================================================================
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
4
CP&L Energy, Inc.
BALANCE SHEETS
June 30 December 31
(In thousands) 2000 1999 1999
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Utility Plant
Electric utility plant in service $ 10,915,192 $ 10,418,318 $ 10,633,823
Gas utility plant in service 362,445 - 354,773
Accumulated depreciation (5,246,208) (4,685,796) (4,975,405)
- -------------------------------------------------------------------------------------------------------------------
Utility plant in service, net 6,031,429 5,732,522 6,013,191
Held for future use 8,028 11,984 11,282
Construction work in progress 637,770 408,959 536,017
Nuclear fuel, net of amortization 193,287 184,095 204,323
- -------------------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 6,870,514 6,337,560 6,764,813
- -------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 29,464 81,303 79,871
Accounts receivable 501,516 448,655 446,367
Taxes receivable - - 3,770
Inventory 272,508 233,264 247,913
Deferred fuel cost 95,683 44,411 81,699
Prepayments 31,980 9,462 42,631
Other current assets 114,243 81,393 177,082
- -------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,045,394 898,488 1,079,333
- -------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Income taxes recoverable through future rates 228,880 253,000 229,008
Harris Plant deferred costs 49,562 58,341 56,142
Unamortized debt expense 13,264 16,922 10,924
Nuclear decommissioning trust funds 411,534 345,947 379,949
Diversified business property, net 192,154 170,767 239,982
Miscellaneous other property and investments 428,335 227,320 252,454
Goodwill, net 341,671 61,269 288,970
Other assets and deferred debits 190,338 196,503 192,444
- -------------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 1,855,738 1,330,069 1,649,873
- -------------------------------------------------------------------------------------------------------------------
Total Assets $ 9,771,646 $ 8,566,117 $ 9,494,019
===================================================================================================================
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock equity $ 3,460,084 $ 2,975,565 $ 3,412,647
Preferred stock of subsidiary - redemption not required 59,376 59,376 59,376
Long-term debt, net 3,084,048 2,716,447 3,028,561
- -------------------------------------------------------------------------------------------------------------------
Total Capitalization 6,603,508 5,751,388 6,500,584
- -------------------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 388,477 201,610 197,250
Accounts payable 269,278 231,787 269,053
Taxes accrued 60,873 35,280 -
Interest accrued 49,558 47,104 47,607
Dividends declared 81,185 74,385 80,939
Short-term obligations 114,631 - 168,240
Other current liabilities 153,670 114,282 130,036
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,117,672 704,448 893,125
- -------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 1,581,633 1,636,415 1,632,778
Accumulated deferred investment tax credits 198,506 206,722 203,704
Other liabilities and deferred credits 270,327 267,144 263,828
- -------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 2,050,466 2,110,281 2,100,310
- -------------------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 9,771,646 $ 8,566,117 $ 9,494,019
===================================================================================================================
SCHEDULES OF COMMON STOCK EQUITY
(In thousands)
Common stock (without par value, authorized 500,000,000; issued and $ 1,747,584 $ 1,382,353 $ 1,745,455
outstanding 159,608,055, 151,337,503 and 159,599,650
shares, respectively)
Unearned ESOP common stock (129,260) (144,254) (140,153)
Retained earnings 1,841,760 1,737,466 1,807,345
- -------------------------------------------------------------------------------------------------------------------
Total Common Stock Equity $ 3,460,084 $ 2,975,565 $ 3,412,647
===================================================================================================================
3See Supplemental Data and Notes to Consolidated Interim Financial Statements.
5
CP&L Energy, Inc.
STATEMENTS OF CASH FLOWS Three Months Ended Six Months Ended
June 30 June 30
(In thousands) 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 107,460 $ 62,417 $ 192,721 $ 153,888
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 156,549 143,534 310,334 286,905
Harris Plant deferred costs 2,033 1,065 6,580 1,679
Deferred income taxes (20,066) (15,407) (51,106) (32,805)
Investment tax credit (2,599) (2,550) (5,198) (5,100)
Deferred fuel cost (credit) (20,014) (2,172) (12,555) (1,765)
Net (increase) decrease in receivables, inventories,
prepaid expense and other current assets (136,989) (61,429) 3,799 (69,861)
Net increase (decrease) in payables and accrued expenses 4,005 36,203 74,016 87,265
Other 6,451 32,260 61,529 81,080
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 96,830 193,921 580,120 501,286
- -------------------------------------------------------------------------------------------------------------------------
Investing Activities
Gross property additions (186,664) (139,938) (418,321) (309,004)
Nuclear fuel additions (22,077) (5,439) (47,329) (32,573)
Contributions to nuclear decommissioning trust (7,704) (7,712) (17,979) (17,995)
Increase in cash restricted for redemption of long-term debt (59,079) - (59,079) -
Net cash flow of company-owned life insurance program (4,976) (6,729) (4,963) (6,850)
Investment in non-utility activities (34,883) (41,611) (61,486) (106,545)
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (315,383) (201,429) (609,157) (472,967)
- -------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 417,383 - 417,383 400,970
Net increase (decrease) in short-term indebtedness (69,500) 117,500 (57,600) (144,750)
Net increase (decrease) in outstanding payments 10,067 473 41,620 (85,833)
Retirement of long-term debt (67,352) (47) (264,717) (1,683)
Dividends paid on common stock (79,125) (72,522) (158,056) (144,736)
Other - (187) - 144
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 211,473 45,217 (21,370) 24,112
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (7,080) 37,709 (50,407) 52,431
Cash and Cash Equivalents at Beginning of the Period 36,544 43,594 79,871 28,872
- -------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period $ 29,464 $ 81,303 $ 29,464 81,303
- -------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest $ 30,131 $ 26,543 $ 96,864 $ 77,731
income taxes $ 110,477 $ 108,337 $ 111,866 $ 109,493
- -------------------------------------------------------------------------------------------------------------------------
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
6
PART I. FINANCIAL INFORMATION (cont.)
Item 1. Financial Statements (cont.)
- ------ ----------------------------
Carolina Power & Light Company
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30 June 30
(In thousands) 2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Operating Revenues
Electric $ 778,470 $ 733,999 $ 1,558,378 $ 1,472,558
Natural gas 75,350 - 147,448 -
Diversified businesses 38,484 28,823 63,618 53,166
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues 892,304 762,822 1,769,444 1,525,724
- ---------------------------------------------------------------------------------------------------------------------------
Operating Expenses
Fuel used in electric generation 137,001 142,918 297,388 281,882
Purchased power 85,067 96,961 155,326 182,183
Gas purchased for resale 59,836 - 103,734 -
Other operation and maintenance 164,989 164,819 363,216 307,786
Depreciation and amortization 134,134 121,284 266,624 241,840
Taxes other than on income 35,511 34,669 72,845 70,670
Harris Plant deferred costs, net 2,815 1,964 8,096 3,488
Diversified businesses 58,767 42,836 102,922 81,096
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 678,120 605,451 1,370,151 1,168,945
- ---------------------------------------------------------------------------------------------------------------------------
Operating Income 214,184 157,371 399,293 356,779
- ---------------------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 2,048 2,270 5,311 4,563
Other, net (4,789) (8,250) (494) (15,246)
- ---------------------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (2,741) (5,980) 4,817 (10,683)
- ---------------------------------------------------------------------------------------------------------------------------
Interest Charges
Long-term debt 54,851 43,993 104,923 86,394
Other interest charges 4,279 3,042 9,280 5,803
Allowance for borrowed funds used during construction (6,323) (2,964) (10,929) (4,792)
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Charges 52,807 44,071 103,274 87,405
- ---------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 158,635 107,320 300,836 258,691
Income Taxes 50,434 44,161 106,632 103,320
- ---------------------------------------------------------------------------------------------------------------------------
Net Income 108,202 63,159 194,204 155,371
Preferred Stock Dividend Requirements (742) (742) (1,483) (1,483)
- ---------------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock $ 107,460 $ 62,417 $ 192,721 $ 153,888
===========================================================================================================================
===========================================================================================================================
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
7
Carolina Power & Light Company
BALANCE SHEETS
March 31June 30 December 31
(In thousands) 2000 1999 1999
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ASSETS
UTILITY PLANT
Utility Plant
Electric utility plant in service $10,701,751$ 10,915,192 $ 10,418,318 $ 10,633,823
Gas utility plant in service 362,259362,445 - 354,773
Accumulated depreciation (5,109,441)(5,246,208) (4,685,796) (4,975,405)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Utility plant in service, net 5,954,5696,031,429 5,732,522 6,013,191
Held for future use 7,1058,028 11,984 11,282
Construction work in progress 667,735637,770 408,959 536,017
Nuclear fuel, net of amortization 204,641193,287 184,095 204,323
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 6,834,0506,870,514 6,337,560 6,764,813
- -------------------------------------------------------------------------------------------------------------
CURRENT ASSETS------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 36,54429,464 81,303 79,871
Accounts receivable 415,534501,516 448,655 446,367
Taxes receivable - - 3,770
Inventory 244,264272,508 233,264 247,913
Deferred fuel cost 72,52495,683 44,411 81,699
Prepayments 17,99731,980 9,462 42,631
Other current assets 97,157114,243 81,393 177,082
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 884,0201,045,394 898,488 1,079,333
- -------------------------------------------------------------------------------------------------------------
DEFERRED DEBITS AND OTHER ASSETS------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Income taxes recoverable through future rates 228,814228,880 253,000 229,008
Abandonment costs 1,657- 9,005 1,675
Harris Plant deferred costs 51,59549,562 58,341 56,142
Unamortized debt expense 10,61213,264 16,922 10,924
Nuclear decommissioning trust funds 397,007411,534 345,947 379,949
Diversified business property, net 258,174192,154 170,767 239,982
Miscellaneous other property and investments 252,591428,335 227,320 252,454
Goodwill, net 285,271341,671 61,269 288,970
Other assets and deferred debits 175,954190,338 187,498 190,769
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 1,661,6751,855,738 1,330,069 1,649,873
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS------------------------------------------------------------------------------------------------------------
Total Assets $ 9,379,7459,771,646 $ 8,566,117 $ 9,494,019
=============================================================================================================- ------------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATIONCapitalization
Common stock equity $ 3,429,8333,460,084 $ 2,975,565 $ 3,412,647
Preferred stock - redemption not required 59,376 59,376 59,376
Long-term debt, net 3,028,8073,084,048 2,716,447 3,028,561
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Capitalization 6,518,0166,603,508 5,751,388 6,500,584
- -------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES-----------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt -388,477 201,610 197,250
Accounts payable 253,646269,278 231,787 269,053
Taxes accrued 91,59760,873 35,280 -
Interest accrued 28,58549,558 47,104 47,607
Dividends declared 81,13381,185 74,385 80,939
Notes payable 180,140Short-term obligations 114,631 - 168,240
Other current liabilities 144,578153,670 114,282 130,036
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 779,6791,117,672 704,448 893,125
- -------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES-----------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 1,608,4611,581,633 1,636,415 1,632,778
Accumulated deferred investment tax credits 201,105198,506 206,722 203,704
Other liabilities and deferred credits 272,484270,327 267,144 263,828
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 2,082,0502,050,466 2,110,281 2,100,310
- -------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES-----------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 9,379,7459,771,646 $ 8,566,117 $ 9,494,019
========================================================================================================================================================================================================================
SCHEDULES OF COMMON STOCK EQUITY
(In thousands)
Common stock (without par value, authorized 200,000,000, $ 1,748,400 $ 1,383,143 $ 1,746,249
issued and outstanding 159,623,510159,608,055,
151,337,503 and 159,599,650 shares,
respectively)
$ 1,749,022 $ 1,746,249
Unearned ESOP common stock (131,851)(129,260) (144,254) (140,153)
Capital stock issuance expense (816) (790) (794)
Retained earnings 1,813,4781,841,760 1,737,466 1,807,345
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Common Stock Equity $ 3,429,8333,460,084 $ 2,975,565 $ 3,412,647
========================================================================================================================================================================================================================
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
48
Carolina Power & Light Company
STATEMENTS OF CASH FLOWS Three Months Ended March 31Six Months Ended
June 30 June 30
(In thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Operating Activities
Net income $ 86,003108,202 $ 92,21263,159 $ 194,204 $ 155,371
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 153,785 143,371156,549 143,534 310,334 286,905
Harris Plant deferred costs 4,547 6142,033 1,065 6,580 1,679
Deferred income taxes (31,040) (17,398)(20,066) (15,407) (51,106) (32,805)
Investment tax credit (2,599) (2,550) (5,198) (5,100)
Deferred fuel cost 7,459 407(credit) (20,014) (2,172) (12,555) (1,765)
Net (increase) decrease in receivables, inventories,
prepaid expense and other current assets 140,788 (8,432)(136,989) (61,429) 3,799 (69,861)
Net increase (decrease) in payables and accrued expenses 70,011 51,0624,005 36,203 74,016 87,265
Other 55,078 48,8206,451 32,260 61,529 81,080
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 484,032 308,10697,572 194,663 581,603 502,769
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES------------------------------------------------------------------------------------------------------------------------
Investing Activities
Gross property additions (231,657) (169,066)(186,664) (139,938) (418,321) (309,004)
Nuclear fuel additions (25,252) (27,134)(22,077) (5,439) (47,329) (32,573)
Contributions to nuclear decommissioning trust (10,275) (10,283)(7,704) (7,712) (17,979) (17,995)
Increase in cash restricted for redemption of long-term debt (59,079) - (59,079) -
Net cash flow of company-owned life insurance program 13 (121)(4,976) (6,729) (4,963) (6,850)
Investment in non-utility activities (26,603) (64,934)(34,883) (41,611) (61,486) (106,545)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (293,774) (271,538)(315,383) (201,429) (609,157) (472,967)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 417,383 - 417,383 400,970
Net increase (decrease) in short-term indebtedness 11,900 (262,250)(69,500) 117,500 (57,600) (144,750)
Net increase (decrease) in outstanding payments 31,553 (86,306)10,067 473 41,620 (85,833)
Retirement of long-term debt (197,365) (1,636)(67,352) (47) (264,717) (1,683)
Dividends paid on common and preferred stock (79,673) (72,955)(79,867) (73,264) (159,539) (146,219)
Other - 331(187) - -----------------------------------------------------------------------------------------------------------144
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Used inProvided by (Used in) Financing Activities (233,585) (21,846)210,731 44,475 (22,853) 22,629
- -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (43,327) 14,722
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (7,080) 37,709 (50,407) 52,431
Cash and Cash Equivalents at Beginning of the Period 36,544 43,594 79,871 28,872
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period $ 36,54429,464 $ 43,594
===========================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION81,303 $ 29,464 81,303
- ------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest $ 68,06130,131 $ 53,01926,543 $ 96,864 $ 77,731
income taxes $ 1,389110,477 $ 1,156
===========================================================================================================108,337 $ 111,866 $ 109,493
- ------------------------------------------------------------------------------------------------------------------------
See Supplemental Data and Notes to Consolidated Interim Financial Statements.
59
CP&L Energy, Inc and Carolina Power & Light Company
SUPPLEMENTAL DATA Three Months Ended March 31Six Months Ended
June 30 June 30
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES (IN THOUSANDS)
Operating Revenues (in thousands)
Electric
Retail $ 634,667622,227 $ 602,263580,155 $ 1,256,893 $ 1,182,419
Wholesale 129,691 121,289138,785 136,832 268,477 258,120
Miscellaneous revenue 15,550 15,00717,458 17,012 33,008 32,019
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Electric 779,908 738,559778,470 733,999 1,558,378 1,472,558
Natural gas 72,09875,350 - 147,448 -
Diversified businesses 25,134 24,34338,484 28,823 63,618 53,166
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues $ 877,140892,304 $ 762,902
============================================================================================================
ENERGY SALES
ELECTRIC (MILLIONS OF762,822 $ 1,769,444 $ 1,525,724
========================================================================================================================
Energy Sales
Electric (millions of kWh)
Retail
Residential 3,890 3,6623,172 2,753 7,061 6,416
Commercial 2,512 2,4332,962 2,689 5,474 5,121
Industrial 3,423 3,2843,768 3,827 7,191 7,111
Other retail 346 312332 326 678 638
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total retail 10,171 9,69110,234 9,595 20,404 19,286
Wholesale 3,707 3,2703,303 3,772 7,011 7,042
- ------------------------------------------------------------------------------------------------------------
TOTAL ELECTRIC 13,878 12,961------------------------------------------------------------------------------------------------------------------------
Total Electric 13,537 13,367 27,415 26,328
- ------------------------------------------------------------------------------------------------------------
============================================================================================================
NATURAL GAS DELIVERED (THOUSANDS OF------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
Natural Gas Delivered (thousands of dt) 17,34413,497 - ============================================================================================================
ENERGY SUPPLY (MILLIONS OF30,841 -
========================================================================================================================
Energy Supply (millions of kWh)
Generated - coal 7,460 6,5526,885 6,840 14,345 13,392
nuclear 5,664 5,7405,433 5,405 11,097 11,145
hydro 176 210157 145 333 355
combustion turbines 34 20282 47 316 67
Purchased 1,032 9281,299 1,392 2,331 2,320
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total Energy Supply (Company Share) 14,366 13,450
============================================================================================================
DETAIL OF INCOME TAXES (IN THOUSANDS)14,056 13,829 28,422 27,279
========================================================================================================================
Detail of Income Taxes (in thousands)
Income tax expense (credit) - current $ 89,83773,099 $ 79,10762,118 $ 162,936 $ 141,225
deferred (31,040) (17,398)(20,066) (15,407) (51,106) (32,805)
investment tax credit (2,599) (2,550) (5,198) (5,100)
- ------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE------------------------------------------------------------------------------------------------------------------------
Total Income Tax Expense $ 56,19850,434 $ 59,159
============================================================================================================44,161 $ 106,632 $ 103,320
========================================================================================================================
See Notes to Consolidated Interim Financial Statements.
610
CP&L Energy, Inc. & Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
A. Organization. Carolina Power & Light Company (the Company)On June 19, 2000, CP&L was reorganized into a holding
company structure and all of the shares of common stock of CP&L were
exchanged for an equal number of shares of common stock of CP&L Energy.
The outstanding preferred stock and debt securities of CP&L were not
affected by the holding company restructuring and remain outstanding as
securities of CP&L. The holding company structure will allow greater
organizational flexibility, including a clearer separation of regulated
businesses from each other and from unregulated business such as energy
services, telecommunications and electric generation projects for
wholesale markets.
CP&L is a public service corporation primarily engaged in the
generation, transmission, distribution and sale of electricity in
portions of North and South Carolina and the transmission, distribution
and sale of natural gas in portions of North Carolina.
B. Basis of Presentation. These consolidated interim financial
statements should be read in conjunction withThis Quarterly Report on Form 10-Q is a combined
report of CP&L Energy and CP&L, a regulated electric and gas utility
subsidiary of CP&L Energy. The Notes to the Company'sConsolidated Financial
Statements apply to both CP&L Energy and CP&L, unless indicated
otherwise. CP&L Energy's prior period consolidated financial statements
included in the Company's
1999 Annual Report on Form 10-K. The amounts are unaudited
but, inhave been prepared from CP&L's prior period consolidated financial
statements, except that certain items have been reclassified to reflect
CP&L Energy's structure.
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to fairly
present the Company'sCP&L Energy's and CP&L's financial position and results of
operations for the interim periods. These consolidated interim
financial statements do not contain the complete detail or footnote
disclosure which would be included in full year financial statements
and, therefore, should be read in conjunction with the consolidated
financial statements included in CP&L's Annual Report on Form 10-K for
the Year Ended December 31, 1999. Due to temperature variations between
seasons of the year and the timing of outages of electric generating
units, especially nuclear-fueled units, the results of operations for
interim periods are not necessarily indicative of amounts expected for
the entire year. Certain amounts for 1999 have been reclassified to
conform to the 2000 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.
On July 15, 1999, the CompanyCP&L completed the acquisition of North Carolina
Natural Gas Corporation (NCNG). The acquisition was accounted for as a
purchase and, accordingly, the operating results of NCNG have been
included in the Company's
consolidated financial statements of CP&L since the
date of acquisition.
2. FLORIDA PROGRESS CORPORATION
----------------------------
The Company,CP&L, Florida Progress Corporation (FPC), a Florida corporation, and
CP&L Energy, entered into an Amended and Restated Agreement and Plan of
Share Exchange dated as of August 22, 1999, amended and restated as of
March 3, 2000 (the "Amended Agreement").
Under the terms of the Amended Agreement, all outstanding shares of
common stock, no par value, of FPC common stock would be acquired by
CP&L Energy in a statutory share exchange with an approximate value of
$5.0 billion, which is subject to change based on CP&L Energy's stock
price and on the value of the contingent value obligations (CVO)
discussed below. Each share of FPC common stock, at the election of the
holder, will be exchanged for (i) $54.00 in cash and one CVO, or (ii)
the number of shares of common stock, no par value, of CP&L Energy
equal to the ratio determined by dividing $54.00 by the average of the
closing sale price per share of CP&L Energy common stock (Final Stock
Price), as reported on the New York Stock Exchange composite tape for
the twenty consecutive trading days ending with the fifth trading day
immediately preceding the closing date for the exchange, and one CVO,
or (iii) a combination of cash and CP&L Energy common stock, and one
CVO; provided, however, that shareholder elections shall be subject to
allocation and proration to achieve a mix of the aggregate exchange
consideration that is 65% cash and 35% common stock. The number of
shares of CP&L Energy common stock that will be issued as stock
consideration will vary if the Final Stock Price is within a range of
$37.13 to $45.39, but not outside that range. Thus, the maximum number
of shares of CP&L Energy common stock into which one share of FPC
common stock could be exchanged would be 1.4543 and the minimum would
be 1.1897.
11
FPC shareholders will receive one CVO for each share of FPC stock
owned. Each CVO will represent the right to receive contingent payments
that may be made by CP&L Energy based on certain cash flows that may be
derived from future operations of four synthetic fuel plants, purchased
by FPC in October 1999. In conjunction with this proposed share
exchange, CP&L Energy plans to issue debt to fund the cash portion of
the exchange.
The transaction has been approved by the Boards of Directors of FPC,
CP&L and CP&L Energy. Consummation of the exchange is subject to the
satisfaction or waiver of certain closing conditions including, among
others, the approval by the shareholders of FPC and the approval of the
issuance of CP&L Energy common stock in the exchange by the
shareholders of CP&L Energy; the approval or regulatory review by the
Federal Energy Regulatory Commission (FERC), the Securities and
Exchange Commission (SEC), the Nuclear Regulatory Commission (NRC), the
North Carolina Utilities Commission (NCUC), and certain other federal
and state regulatory bodies; the expiration or early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (HSR Act); and other customary closing conditions. In addition,
FPC's obligation to consummate the exchange is conditioned upon the
Final Stock Price being not less than $30.00. CP&L, CP&L Energy and FPC
have agreed to certain undertakings and limitations regarding the
conduct of their respective businesses prior to the closing of the
transaction. The transaction is expected to be completed in the fall of
2000.
Either FPC or CP&L Energy and CP&L may terminate the Amended Agreement
under certain circumstances, including if the exchange has not been
consummated on or before December 31, 2000; provided that if certain
conditions have not been satisfied on December 31, 2000, but all other
conditions have been satisfied or waived then such date shall be June
30, 2001. In the event that FPC or CP&L Energy terminate the Amended
Agreement in certain limited circumstances, FPC would be required to
pay CP&L Energy a termination fee of $150 million, plus CP&L Energy's
reasonable out-of-pocket expenses which are not to exceed $25 million
in the aggregate.
On May 23, 2000, the NRC approved the change in control of FPC that
will result from the share exchange. On July 12, 2000, the FERC
approved the change of control over FPC's jurisdictional facilities
resulting from the share exchange. Also, on July 12, 2000, the
Department of Justice terminated the waiting period under the HSR Act
and completed its antitrust review. On February 3, 2000, CP&L Energy
filed an application with the NCUC for authorization of the share
exchange with FPC and the issuance of common stock in connection with
the transaction. A hearing was held on this matter on July 18, 2000.
Prior to the hearing, CP&L Energy had settled all disputed matters with
all parties. As part of the settlement with the NCUC Public Staff, CP&L
agreed to reduce rates to all of its non-Real Time Pricing customers by
$3 million in 2002, $4.5 million in 2003, $6 million in 2004 and $6
million in 2005. CP&L also agreed to write off and forego recovery of
$10 million of unrecovered fuel costs in its 2000 fuel cost recovery
proceeding. On March 14, 2000, CP&L Energy and FPC filed an application
with the SEC requesting approval of the share exchange under the Public
Utility Holding Company Act. On July 28, 2000, the parties filed an
amended application with the SEC, and the SEC issued its notice of the
merger application on August 4, 2000. CP&L Energy and CP&L expect to
obtain the final regulatory approvals and close the transaction by the
fall of 2000. However, CP&L Energy and CP&L cannot predict the outcome
of this matter.
3. FINANCIAL INFORMATION BY BUSINESS SEGMENT
CP&L provides services through the following business segments:
electric, natural gas and other.
The electric segment generates, transmits, distributes and sells
electric energy in portions of North and South Carolina. Electric
operations are subject to the rules and regulations of the FERC, the
NCUC and the Public Service Commission of South Carolina (SCPSC).
The natural gas segment transmits, distributes and sells gas in
portions of North Carolina. Gas operations are subject to the rules and
regulations of the NCUC.
The other segment primarily includes telecommunication services, energy
management services, propane and miscellaneous non-regulated
activities.
For reportable segments presented in the accompanying table, segment
earnings (losses) before taxes include intersegment sales accounted for
at prices representative of unaffiliated party transactions.
12
(in thousands)
Natural Segment
Electric Gas Other Eliminations Totals
---------------------------------------- -------------- -------------- ------------- -------------- --------------
Three Months Ended 6/30/00
Revenues
Unaffiliated $778,470 $73,779 $37,643 - $889,892
Intersegment - 2,412 5,410 (5,410) 2,412
-------------- -------------- ------------- -------------- --------------
Total Revenues $778,470 $76,191 $43,053 (5,410) $892,304
Depreciation and Amortization $129,204 $4,930 $7,742 - $141,876
Net Interest Charges $53,013 $1,674 $230 (1,880) $53,037
Earnings(Losses) Before Taxes $179,246 $959 $(21,552) (18) $158,635
Total Segment Assets $8,830,386 $561,680 $495,067 (115,487) $9,771,646
Capital and Investment Expenditures $204,980 $6,685 $9,882 - $221,547
======================================== ============== ============== ============= ============== ==============
Electric Natural Other Eliminations Segment
Gas Totals
---------------------------------------- -------------- -------------- ------------- -------------- --------------
Three Months Ended 6/30/99
Revenues
Unaffiliated $733,999 - $28,823 - $762,822
Intersegment - - 6,146 (6,146) -
-------------- -------------- ------------- -------------- --------------
Total Revenues $733,999 - $34,969 $(6,146) $762,822
Depreciation and Amortization $121,284 - $4,045 - $125,329
Net Interest Charges $44,071 - $376 - $44,447
Earnings(Losses) Before Taxes $124,887 - $(17,550) $(17) $107,320
Total Segment Assets $8,280,912 - $285,170 $35 $8,566,117
Capital and Investment Expenditures $158,376 - $23,173 - $181,549
======================================== ============== ============== ============= ============== ==============
Electric Natural Other Eliminations Segment
Gas Totals
---------------------------------------- -------------- -------------- ------------- -------------- --------------
Six Months Ended 6/30/00
Revenues
Unaffiliated $1,588,378 $145,747 $62,777 - $1,766,902
Intersegment - 2,542 13,811 (13,811) 2,542
-------------- -------------- ------------- -------------- --------------
Total Revenues $1,558,378 $148,289 $76,588 $(13,811) $1,769,444
Depreciation and Amortization $257,008 $9,616 $13,504 - $280,128
Net Interest Charges $103,665 $3,388 $567 $(3,779) $103,841
Earnings(Losses) Before Taxes $326,407 $15,344 $(40,879) $(36) $300,836
Total Segment Assets $8,830,386 $561,680 $495,067 $(115,487) $9,771,646
Capital and Investment Expenditures $429,840 $16,497 $33,470 - $479,807
======================================== ============== ============== ============= ============== ==============
Six Months Ended 6/30/99
Revenues
Unaffiliated $1,472,558 - $53,166 - $1,525,724
Intersegment - - 12,707 (12,707) -
-------------- -------------- ------------- -------------- --------------
Total Revenues $1,472,558 - $65,873 $(12,707) $1,525,724
Depreciation and Amortization $241,840 - $8,146 - $249,986
Net Interest Charges $87,405 - $780 - $88,185
Earnings(Losses) Before Taxes $294,009 - $(35,277) $(41) $258,691
Total Segment Assets $8,280,912 - $285,170 $35 $8,566,117
Capital and Investment Expenditures $292,860 - $122,689 - $415,549
======================================== ============== ============== ============= ============== ==============
Segment totals for depreciation and amortization expense include
expenses related to the other segments that are included in diversified
business operating expenses on a consolidated basis. Segment totals for
interest expense include expenses related to the other segments that
are included in other, net on a consolidated basis.
13
4. FINANCING ACTIVITIES
During 2000, CP&L has issued a total of $300 million principal amount
of Senior Notes and $497.64 million principal amount of variable rate
First Mortgage Bonds. The issuances were as follows:
a) On April 11, 2000, CP&L issued $300 million principal amount of
Senior Notes, 7.50% Series Due April 1, 2005.
b) On June 15, 2000, CP&L issued $67.3 million principal amount of
First Mortgage Bonds, Pollution Control Series N, Wake County
Pollution Control Revenue Refunding Bonds (Carolina Power &
Light Company Project) 2000 Series A Due November 1, 2018.
c) On June 15, 2000, CP&L issued $55.64 million principal amount
of First Mortgage Bonds, Pollution Control Series O, Person
County Pollution Control Revenue Refunding Bonds (Carolina
Power & Light Company Project) 2000 Series A Due November 1,
2018.
d) On July 13, 2000, CP&L issued $329.1 million principal amount
of First Mortgage Bonds, Pollution Control Series P, Q, and S
through V, Wake County Pollution Control Revenue Refunding
Bonds (Carolina Power & Light Company Project) 2000 Series B,
C, and D through G Due October 1, 2022.
e) On July 13, 2000, CP&L issued $45.6 million principal amount of
First Mortgage Bonds, Pollution Control Series R, Person County
Solid Waste Disposal Revenue Refunding Bonds (Carolina Power &
Light Company Project) 2000 Series B Due October 1, 2022.
In addition, CP&L retired or redeemed $47.25 million principal amount
of Promissory Notes, $150 million principal amount of First Mortgage
Bonds and $497.64 million principal amount of variable rate Pollution
Control Obligations. The following contains details of each retirement
or redemption:
a) The retirement on January 15, 2000 of $47.25 million principal
amount of non-interest bearing Promissory Notes, Series 1993A,
which matured on that date.
b) The retirement on February 1, 2000 of $150 million principal
amount of First Mortgage Bonds, 6-1/8% Series, which matured on
that date.
c) The redemption of CP&L's Pollution Control Obligations
relating to:
i) The redemption on June 30, 2000, of $67.3 million principal
amount of The Wake County Industrial Facility and Pollution
Control Financing Authority Pollution Control Revenue Bonds
(Carolina Power & Light Company Project) Series 1985A due
May 1, 2015, at 100% of the principal amount of such bonds.
ii) The redemption on July 28, 2000, of $50 million principal
amount of The Wake County Industrial Facility and Pollution
Control Financing Authority Pollution Control Revenue Bonds
(Carolina Power & Light Company Project) Series 1985B due
September 1, 2015, at 100% of the principal amount of such
bonds.
iii) The redemption on July 28, 2000, of $97.4 million
principal amount of The Wake County Industrial Facility and
Pollution Control Financing Authority Pollution Control
Revenue Bonds (Carolina Power & Light Company Project)
Series 1985C due October 1, 2015, at 100% of the principal
amount of such bonds.
iv) The redemption on August 1, 2000, of $45.6 million
principal amount of The Person County Industrial Facility
and Pollution Control Financing Authority Solid Waste
Disposal Revenue Bonds (Carolina Power & Light Company
Project) Series 1986 due November 1, 2016, at 100% of the
principal amount of such bonds.
v) The redemption on August 1, 2000, of $41.7 million
principal amount of The Wake County Industrial Facility and
Pollution Control Financing Authority Pollution Control
Revenue Bonds (Carolina Power & Light Company Project)
Series 1987 due March 1, 2017, at 100% of the principal
amount of such bonds.
vi) The redemption on August 1, 2000, of $70 million principal
amount of The Wake County Industrial Facility and Pollution
Control Financing Authority Pollution Control Revenue
Refunding Bonds (Carolina Power & Light Company Project)
Series 1990A due June 15, 2014, at 100% of the principal
amount of such bonds.
vii) The redemption on August 1, 2000, of $70 million principal
amount of The Wake County Industrial Facility and Pollution
Control Financing Authority Pollution Control Revenue
Refunding Bonds (Carolina Power & Light Company Project)
Series 1990B due June 15, 2014, at 100% of the principal
amount of such bonds.
viii) The redemption on August 2, 2000, of $55.64 million
principal amount of The Person County Industrial Facility
and Pollution Control Financing Authority Pollution Control
Revenue Refunding Bonds (Carolina Power & Light Company
Project) Series 1992A due November 1, 2019, at 100% of the
principal amount of such bonds.
14
5. NUCLEAR DECOMMISSIONING
In CP&L's retail jurisdictions, provisions for nuclear decommissioning
costs are approved by the NCUC and the 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 7.75% and an assumed cost escalation rate of
4%, current levels of rate recovery for nuclear decommissioning costs
are adequate to provide for decommissioning of CP&L's nuclear
facilities.
CP&L's most recent site-specific estimates of decommissioning costs
were developed in 1998, using 1998 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 1998 dollars, are $281.5 million for Robinson Unit
No. 2, $299.6 million for Brunswick Unit No. 1, $298.7 million for
Brunswick Unit No. 2 and $328.1 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 (Power Agency), which
holds an undivided ownership interest in the Brunswick and Harris
nuclear generating facilities. Operating licenses for CP&L's nuclear
units expire in the year 2010 for Robinson Unit No. 2, 2016 for
Brunswick Unit No. 1, 2014 for Brunswick Unit No. 2 and 2026 for the
Harris Plant.
The Financial Accounting Standards Board is proceeding with its project
regarding accounting practices related to obligations associated with
the retirement of long-lived assets, and a revised exposure draft of a
proposed accounting standard was issued during the first quarter of
2000. It is uncertain what effects this draft may ultimately have on
CP&L's accounting for nuclear decommissioning and other retirement
costs.
6. COMMITMENTS AND CONTINGENCIES
Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 1999,
with respect to the commitments discussed in Note 16 of the financial
statements included in CP&L's 1999 Annual Report on Form 10-K.
Contingencies
1) Applicability of SFAS-71. As a regulated entity, CP&L 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, CP&L
records certain assets and liabilities resulting from the
effects of the ratemaking process, which would not be
recorded under generally accepted accounting principles for
unregulated entities. CP&L's ability to continue to meet
the criteria for application of SFAS-71 may be affected in
the future by competitive forces, deregulation and
restructuring in the electric utility industry. In the
event that SFAS-71 no longer applies to a separable portion
of CP&L's operations, related regulatory assets and
liabilities would be eliminated unless an appropriate
regulatory recovery mechanism is provided. Additionally,
these factors could result in an impairment of electric
utility plant assets as determined pursuant to Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." CP&L's net regulatory assets totaled
$417 million, $426 million and $414 million as of June 30,
2000, June 30, 1999 and December 31, 1999, respectively.
2) Claims and Uncertainties.
a) CP&L 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
electric utility and gas utility have some connection. In this
regard, both the electric utility and gas utility, along with
others, are participating in a cooperative effort with the
North Carolina Department of Environment and Natural
Resources, Division of Waste Management (DWM). The DWM has
established a uniform framework to address MGP sites. The
investigation and remediation of specific MGP sites will be
addressed pursuant to an Administrative Order on Consent (AOC)
between the DWM and the potentially responsible party or
parties. Both the electric utility and gas utility have signed
an AOC to investigate and remediate certain sites. Both the
electric utility and the gas utility continue to identify
parties connected to individual MGP sites, and to determine
their relative relationship to other parties at those sites
and the degree to which they will undertake efforts with
others at individual sites. CP&L
15
Energy and CP&L do not expect the costs associated with these
sites to be material to the consolidated results of operations
or financial position of CP&L Energy and CP&L.
The electric utility and gas utility are periodically notified
by regulators such as the North Carolina Department of
Environment and Natural Resources, the South Carolina
Department of Health and Environmental Control, and the U.S.
Environmental Protection Agency (EPA) of its involvement or
potential involvement in sites, other than MGP sites, that may
require investigation and/or remediation. Although CP&L may
incur costs at the sites about which it has been notified,
based upon the current status of the sites, CP&L Energy and
CP&L do not expect those costs to be material to the
consolidated results of operations or financial position of
CP&L Energy and CP&L.
The EPA has been conducting an enforcement initiative related
to a number of coal-fired electric utility power plants in an
effort to determine whether modifications at those facilities
were subject to New Source Review requirements or New Source
Performance Standards under the Clean Air Act. CP&L has been
asked to provide information to the EPA as part of this
initiative and has cooperated in providing the requested
information. The EPA has initiated enforcement actions, which
may have potentially significant penalties, against other
companies that have been subject to this initiative. CP&L
cannot predict the outcome of this matter.
The EPA published a final rule approving petitions under
section 126 of the Clean Air Act, which requires certain
sources to make reductions in nitrogen oxide emissions by
2003. The final rule also includes a set of regulations that
affect nitrogen oxide emissions from sources included in the
petitions. CP&L's fossil-fueled electric generating plants are
included in these petitions. CP&L and certain states are
participating in litigation challenging the EPA's action. CP&L
cannot predict the outcome of this matter.
In 1998, the EPA published a final rule addressing the issue
of regional transport of ozone. This rule is commonly known as
the NOx SIP Call. The EPA's rule requires 22 states, including
North and South Carolina, to further reduce nitrogen oxide
emissions in order to attain a pre-set state NOx emission
level by May 2003. The EPA's rule also suggests to the states
that these additional nitrogen oxide emission reductions be
obtained from the utility sector. CP&L is evaluating necessary
measures to comply with the rule and estimates its related
capital expenditures through 2003 could be approximately $327
million. Increased operation and maintenance costs relating to
the NOx SIP Call are not expected to be material to CP&L's
results of operations. CP&L and the states of North and South
Carolina have been participating in litigation challenging the
NOx SIP Call. The District of Columbia Circuit Court of
Appeals upheld the EPA's NOx SIP Call. Further appeals are
being considered. Prior to resolution of a potential appeal,
the EPA is requiring regulations in the states involved in the
NOx SIP call including North and South Carolina to comport
with the NOx SIP call. Acceptable state plans can be approved
in lieu of the final rules the EPA approved as part of the 126
petitions. CP&L cannot predict the outcome of this matter.
In July 1997, the EPA issued final regulations establishing a
new eight-hour ozone standard. In October 1999, the District
of Columbia Circuit Court of Appeals ruled against the EPA
with regard to the federal eight-hour ozone standard. North
Carolina and certain states are participating in a further
appeal to the U.S. Supreme Court. North Carolina adopted the
federal eight-hour ozone standard and is proceeding with the
implementation process.
b) As required under the Nuclear Waste Policy Act of 1982,
CP&L entered into a contract with the U.S. Department of
Energy (DOE) under which the DOE agreed to begin taking spent
nuclear fuel by no later than January 31, 1998. All similarly
situated utilities were required to sign the same standard
contract.
In April 1995, the DOE issued a final interpretation that it
did not have an unconditional obligation to take spent nuclear
fuel by January 31, 1998. In Indiana & Michigan Power v. DOE,
the Court of Appeals vacated the DOE's final interpretation
and ruled that the DOE had an unconditional obligation to
begin taking spent nuclear fuel. The Court did not specify a
remedy because the DOE was not yet in default.
After the DOE failed to comply with the decision in Indiana &
Michigan Power v. DOE, a group of utilities (including CP&L)
petitioned the Court of Appeals in Northern States Power (NSP)
v. DOE, seeking an order requiring the DOE to begin taking
spent nuclear fuel by January 31, 1998. The DOE took the
position that their delay was unavoidable, and the DOE was
excused from performance under the terms and conditions of the
contract. The Court of Appeals did not order the DOE to begin
taking spent nuclear fuel, stating that the utilities had a
potentially adequate remedy by filing a claim for damages
under the contract.
16
After the DOE failed to begin taking spent nuclear fuel by
January 31, 1998, a group of utilities (including CP&L) filed
a motion with the Court of Appeals to enforce the mandate in
NSP v. DOE. Specifically, the utilities asked the Court to
permit the utilities to escrow their waste fee payments, to
order the DOE not to use the waste fund to pay damages to the
utilities, and to order the DOE to establish a schedule for
disposal of spent nuclear fuel. The Court denied this motion
based primarily on the grounds that a review of the matter was
premature, and that some of the requested remedies fell
outside of the mandate in NSP v. DOE.
Subsequently, a number of utilities each filed an action for
damages in the Court of Claims and before the Court of
Appeals. CP&L is in the process of evaluating whether it
should file a similar action for damages. In NSP v. U.S., the
Court of Claims decided that NSP must pursue its
administrative remedies instead of filing an action in the
Court of Claims. NSP has filed an interlocutory appeal to the
Court of Appeals based on NSP's position that the Court of
Claims has jurisdiction to decide that matter. A group of
utilities (including CP&L) has submitted an amicus brief in
support of NSP's position.
CP&L also continues to monitor legislation that has been
introduced in Congress which might provide some limited
relief. CP&L cannot predict the outcome of this matter.
With certain modifications and additional approval by the NRC,
CP&L's spent fuel storage facilities will be sufficient to
provide storage space for spent fuel generated on CP&L's
system through the expiration of the current operating
licenses for all of CP&L's nuclear generating units.
Subsequent to the expiration of these licenses, dry storage
may be necessary. CP&L has initiated the process of obtaining
the additional NRC approval.
c) In the opinion of management, liabilities, if any, arising
under other pending claims would not have a material effect on
the financial position and results of operations of CP&L
Energy and CP&L.
7. EARNINGS PER COMMON SHARE
Restricted stock awards and contingently issuable shares had a dilutive
effect on earnings per share for the six months ended June 30, 1999 and
increased the weighted-average number of common shares outstanding for
dilutive purposes by 400,256 and 370,149 for the three and six months
ended June 30, 2000, respectively, and by 289,087 and 282,988 for the
three and six months ended June 30, 1999, respectively. The
weighted-average number of common shares outstanding for dilutive
purposes was 153.7 million and 153.5 million for the three and six
months ended June 30, 2000, respectively, and 144.8 million and 144.7
million for the three and six months ended June 30, 1999.
Employee Stock Ownership Plan shares that have not been committed to be
released to participants' accounts are not considered outstanding for
the determination of earnings per common share. Those shares totaled
5,875,527 and 6,557,051 at June 30, 2000 and June 30, 1999,
respectively.
8. NEW ACCOUNTING STANDARD
In June 2000, the Financial Accounting Standards Board published
Statement of Financial Accounting Standards (SFAS) No. 138, which
amended SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The amendment to SFAS No. 133 includes expansion
of the normal purchases and sales exception to most contracts for which
physical delivery of the asset being sold or purchased is probable.
This amendment is expected to substantially reduce the scope of SFAS
No. 133 implementation efforts by CP&L. In addition, CP&L believes that
its contracts that will fall within the scope of SFAS No. 133, as
amended, are currently being recorded at fair value, with appropriate
hedge or non-hedge accounting treatment. Consequently, based on CP&L's
historical use of such contracts, CP&L currently does not expect SFAS
No. 133 to have a material effect on its financial position or results
of operations. CP&L will continue its SFAS No. 133 implementation
efforts during the last half of 2000 in preparation for implementation
in 2001.
9. RISK MANAGEMENT AND DERIVATIVE INFORMATION
During the second quarter, CP&L entered into interest rate swap
agreements to hedge its exposure on variable rate debt positions. The
agreements, with a total notional amount of $500 million, are effective
in July 2000 and mature in July 2002. Under these agreements, CP&L
receives a floating rate based on the three month LIBOR and pays a
weighted-average fixed rate of approximately 7.17%. The notional amount
of the contracts is not exchanged and does not represent exposure to
credit loss. In the event of default by a counterparty, the risk in
these transactions is
17
the cost of replacing the agreements at current market rates. CP&L only
enters into swap agreements with strong creditworthy counterparties.
10 INTERPATH AGREEMENT
Effective June 28, 2000, CP&L, Caronet, Inc. (CP(Caronet), the
wholly-owned subsidiary of CP&L Energy)formerly known as Interpath
Communications, Inc., a North Carolina and Virginia corporation, and
wholly owned subsidiaryBain Capital, Inc. a private equity fund, and its affiliates (Bain)
formed a new company, Interpath Communications, Inc. (Interpath), a
Delaware corporation. As part of the Company, formerly knowntransaction, Caronet contributed
the net assets used in the application service provider business to
Interpath. Under the terms of the related agreement, Caronet owns 35%
of Interpath's stock (10% of the voting stock) and Bain owns 65% of
Interpath's stock. Prior to this agreement, Caronet was consolidated in
CP&L's financial statements as a wholly-owned subsidiary. As of the
effective date, the net book value of CP&L's investment in Interpath
was recorded in miscellaneous other property and investments using the
cost method of accounting.
11 SUBSEQUENT EVENT
On July 1, 2000, CP&L Holdings,distributed its ownership interest in the stock
of NCNG, Strategic Resource Solutions Corp. (SRS), Monroe Power Company
(Monroe Power) and CPL Energy Ventures, Inc (Energy Ventures) to CP&L
Energy. As a result, those companies are direct subsidiaries of CP&L
Energy and will not be included in CP&L's results of operations and
financial position on a prospective basis.
18
Item 2. Management's Discussion and Analysis of Financial Condition
------ ------------------------------------------------------------
and Results of Operations
-------------------------
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2000,
As Compared With the Corresponding Period One Year Earlier
----------------------------------------------------------
This is a combined Quarterly Report on Form 10-Q of CP&L Energy, Inc.
(CP&L Energy) and Carolina Power & Light (CP&L). Therefore, the
Management Discussion and Analysis of Financial Condition and Results
of Operations (MD&A) applies to both CP&L Energy and CP&L, unless
indicated otherwise. The MD&A should be read in conjunction with the
consolidated financial statements included in this report.
Business segment earnings and the factors affecting them are discussed
below.
Electric
--------
The fluctuations in electric operating revenues for the three and six
months ended June 30, 2000 as compared to last year were affected by
the following factors (in millions):
Three Six
Months Months
Customer growth/changes in usage patterns* $ 30 $ 60
Industrial sales (3) 4
Weather 27 32
Price (7) (13)
Sales to Power Agency 3 8
Sales to other utilities (7) (6)
Miscellaneous 1 1
----- -----
Total $ 44 $ 86
====== =====
*Customer growth/changes in usage patterns excludes industrial
customers.
The increase in the customer growth/changes in usage patterns component
of revenues reflects continued growth in the number of customers served
by CP&L. During the three-month period, industrial sales experienced a
decline reflecting the downturn in the chemical industry. During the
six-month period, industrial sales experienced an overall increase
primarily related to the textile industry, while continuing to be
negatively affected by the downturn in the chemical industry. The
increase in the weather component of revenues is the result of
favorable temperatures in the current periods compared to corresponding
prior periods. During the three-month period, the price-related
decrease reflects capacity pricing changes between CP&L and the North
Carolina Electric Membership Corporation that took effect January 1,
2000. During the six-month period, the price-related decrease reflects
capacity pricing changes between CP&L and the North Carolina Electric
Membership Corporation that took effect January 1, 2000, and the
effects of real-time pricing rate participation by industrial
customers. The increase in revenue related to sales to North Carolina
Eastern Municipal Power Agency (Power Agency) is due to more favorable
temperatures and to increased demand. For both periods, the decrease in
sales to other utilities is attributable to unit outages, and the
effects of gas prices on generation sales.
The increase in fuel used in electric generation for the six-month
period is primarily due to an increase in generation and to deferred
fuel adjustments.
Purchased power decreased in both periods primarily due to the
expiration in mid-1999 of CP&L's long-term purchase power agreement
with Duke Energy Corporation (Duke Energy).
Other operation and maintenance expense remained relatively stable for
the three month period but increased significantly during the six
months ended June 30, 2000 due to restoration costs associated with the
severe winter storm and record breaking snowfall in January, the timing
of plant outages, increased general and administrative expenses and the
effects of emission allowances which CP&L began to expense in January
2000. These allowances were acquired to meet the Clear Air Act emission
requirements.
Natural Gas
-----------
On July 15, 1999, CP&L completed the acquisition of North Carolina
Natural Gas (NCNG), now operating as a wholly-owned subsidiary. The
acquisition was accounted for as a purchase and, accordingly, the
operating results
19
of NCNG have been included in CP&L's financial results since the date
of acquisition. Natural gas revenues totaled $75.4 million and $147.4
million, while gas purchased for resale totaled $59.8 million and
$103.7 million and other operation and maintenance expenses totaled
$7.6 million and $15.1 million for the three months and six months,
respectively. NCNG's natural gas operations contributed $1.9 million
and $17.5 million of operating income for the three months and six
months, respectively.
Other
-----
The increase in operating revenues of diversified business operations
was due to several factors. Strategic Resource Solution Corp.'s (SRS)
operating revenues continued to increase for the three and six months
ended June 30, 2000, while revenues in the current periods also
included the results of NCNG's and Monroe Power's diversified
operations. Operating expenses increased primarily due to the business
expansion program at Interpath Communications, Inc. (Interpath) and the
addition of NCNG's and Monroe Power's diversified operations. This
increase was partially offset by a decline in SRS's expenses due to the
sale of the lighting division and improved operational performance.
MATERIAL CHANGES IN LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Financing
-----------------------
In July 2000, CP&L established a $300 million medium term notes, Series
D program. As of August 14, 2000, there were no medium term notes,
Series D, issued and outstanding.
Issuances of Bonds, Preferred Stock and Debentures
--------------------------------------------------
On April 11, 2000, CP&L issued $300 million principal amount of Senior
Notes, 7.50% Series Due April 1, 2005. The net proceeds from the
issuance were used to reduce the outstanding balance of commercial
paper and other short-term indebtedness, and for general corporate
purposes.
On June 15, 2000, CP&L issued $67.3 million principal amount of First
Mortgage Bonds, Pollution Control Series N, Wake County Pollution
Control Revenue Refunding Bonds (Carolina Power & Light Company
Project) 2000 Series A Due November 1, 2018. The proceeds were used to
redeem The Wake County Industrial Facilities and Pollution Control
Financing Authority's Pollution Control Revenue Bonds (Carolina Power &
Light Company Project) Series 1985A Due May 1, 2015, at 100% of the
principal amount of such bonds.
On June 15, 2000, CP&L issued $55.64 million principal amount of First
Mortgage Bonds, Pollution Control Series O, Person County Pollution
Control Revenue Refunding Bonds (Carolina Power & Light Company
Project) 2000 Series A Due November 1, 2018. The proceeds were used for
the redemption on August 2, 2000 of $55.64 million The Person County
Industrial Facilities and Pollution Control Financing Authority's
Pollution Control Revenue Refunding Bonds (Carolina Power & Light
Company Project) Series 1992A Due November 1, 2019, at 100% of the
principal amount of such bonds.
On July 13, 2000, CP&L issued $329.1 million principal amount of First
Mortgage Bonds, Pollution Control Series P, Q, and S through V, Wake
County Pollution Control Revenue Refunding Bonds (Carolina Power &
Light Company Project) 2000 Series B, C, and D through G Due October 1,
2022. The proceeds were used for the redemption on July 28 and August
1, 2000 of $329.1 million The Wake County Industrial Facilities and
Pollution Control Financing Authority's Pollution Control Revenue Bonds
(Carolina Power & Light Company Project) Series 1985B due September 1,
2015, Series 1985C due October 1, 2015, Series 1987 due March 1, 2017,
Series 1990A due June 15, 2014, and Series 1990B due June 15, 2014, at
100% of the principal amount of such bonds.
On July 13, 2000, CP&L issued $45.6 million principal amount of First
Mortgage Bonds, Pollution Control Series R, Person County Solid Waste
Disposal Revenue Refunding Bonds (Carolina Power & Light Company
Project) 2000 Series B Due October 1, 2022. The proceeds were used for
the redemption on August 1, 2000 of $45.6 million The Person County
Industrial Facilities and Pollution Control Financing Authority's Solid
Waste Disposal Revenue Bonds (Carolina Power & Light Company Project)
Series 1986 due November 1, 2016, at 100% of the principal amount of
such bonds.
Redemptions/Retirements of Bonds, Preferred Stock and Debentures
i. The retirement on January 15, 2000 of $47.25 million
principal amount of non-interest bearing Promissory Notes,
Series 1993A, which matured on that date.
20
ii. The retirement on February 1, 2000 of $150 million
principal amount of First Mortgage Bonds, 6-1/8% Series,
which matured on that date.
iii. The redemption of CP&L's Pollution Control Obligations
related to:
a. The redemption on June 30, 2000, of $67.3
million principal amount of The Wake County
Industrial Facility and Pollution Control
Financing Authority Pollution Control
Revenue Bonds (Carolina Power & Light
Company Project) Series 1985A due May 1,
2015, at 100% of the principal amount of
such bonds.
b. The redemption on July 28, 2000, of $50
million principal amount of The Wake County
Industrial Facility and Pollution Control
Financing Authority Pollution Control
Revenue Bonds (Carolina Power & Light
Company Project) Series 1985B due September
1, 2015, at 100% of the principal amount of
such bonds.
c. The redemption on July 28, 2000, of $97.4
million principal amount of The Wake County
Industrial Facility and Pollution Control
Financing Authority Pollution Control
Revenue Bonds (Carolina Power & Light
Company Project) Series 1985C due October 1,
2015, at 100% of the principal amount of
such bonds.
d. The redemption on August 1, 2000, of $45.6
million principal amount of The Person
County Industrial Facility and Pollution
Control Financing Authority Solid Waste
Disposal Revenue Bonds (Carolina Power &
Light Company Project) Series 1986 due
November 1, 2016, at 100% of the principal
amount of such bonds.
e. The redemption on August 1, 2000, of $41.7
million principal amount of The Wake County
Industrial Facility and Pollution Control
Financing Authority Pollution Control
Revenue Bonds (Carolina Power & Light
Company Project) Series 1987 due March 1,
2017, at 100% of the principal amount of
such bonds.
f. The redemption on August 1, 2000, of $70
million principal amount of The Wake County
Industrial Facility and Pollution Control
Financing Authority Pollution Control
Revenue Refunding Bonds (Carolina Power &
Light Company Project) Series 1990A due June
15, 2014, at 100% of the principal amount of
such bonds.
g. The redemption on August 1, 2000, of $70
million principal amount of The Wake County
Industrial Facility and Pollution Control
Financing Authority Pollution Control
Revenue Refunding Bonds (Carolina Power &
Light Company Project) Series 1990B due June
15, 2014, at 100% of the principal amount of
such bonds.
h. The redemption on August 2, 2000, of $55.64
million principal amount of The Person
County Industrial Facility and Pollution
Control Financing Authority Pollution
Control Revenue Refunding Bonds (Carolina
Power & Light Company Project) Series 1992A
due November 1, 2019, at 100% of the
principal amount of such bonds.
Credit Facilities
-----------------
As of June 30, 2000, CP&L's revolving credit facilities totaled $750
million, all of which are long-term agreements supporting its
commercial paper borrowings and other short-term indebtedness. CP&L is
required to pay minimal annual commitment fees to maintain its credit
facilities. Consistent with management's intent to maintain its
commercial paper, pollution control revenue refunding bonds (pollution
control bonds) and other short-term indebtedness on a long-term basis,
and as supported by its long-term revolving credit facilities, CP&L
included in long-term debt commercial paper, pollution control bonds
and other short-term indebtedness of $750 million at June 30, 2000 and
December 31, 1999.
Credit Ratings
--------------
CP&L's First Mortgage Bonds are currently rated "A2" by Moody's
Investors Service, "A" CreditWatch with negative implications by
Standard and Poor's and "A+" Rating Watch-Down by Duff and Phelps.
Moody's Investors Service, Standard and Poor's and Duff and Phelps have
rated CP&L's commercial paper and extendible
21
notes "P-1", "A-1" and "D-1", respectively. Moody's Investors Service
and Standard and Poor's have rated CP&L's extendible commercial notes
"P-1" and "A-1", respectively.
Debt Filing
-----------
On July 21, 2000, NCNG filed a shelf registration statement with the
Securities and Exchange Commission (SEC) that will allow NCNG to issue
up to $300 million in debt securities. The proceeds may be used to
finance ongoing construction and maintenance, redeem or retire
outstanding indebtedness, finance future acquisitions of other entities
or for other general corporate purposes.
OTHER MATTERS
-------------
Florida Progress Corporation
----------------------------
CP&L, Florida Progress Corporation (FPC), a Florida corporation, and
CP&L Energy, entered into an Amended and Restated Agreement and Plan of
Share Exchange dated as of August 22, 1999, amended and restated as of
March 3, 2000 (the "Amended Agreement").
Under the terms of the Amended Agreement, all outstanding shares of
common stock, no par value, of FPC common stock would be acquired by
CP&L Energy in a statutory share exchange with an approximate value of
$5.0 billion, which is subject to change based on CP&L Energy's stock
price and on the value of the contingent value obligations (CVO)
discussed below. Each share of FPC common stock, at the election of the
holder, will be exchanged for (i) $54.00 in cash and one CVO, or (ii)
the number of shares of common stock, no par value, of CP&L Energy
equal to the ratio determined by dividing $54.00 by the average of the
closing sale price per share of CP&L Energy common stock (Final Stock
Price), as reported on the New York Stock Exchange composite tape for
the twenty consecutive trading days ending with the fifth trading day
immediately preceding the closing date for the exchange, and one CVO,
or (iii) a combination of cash and CP&L Energy common stock, and one
CVO; provided, however, that shareholder elections shall be subject to
allocation and proration to achieve a mix of the aggregate exchange
consideration that is 65% cash and 35% common stock. The number of
shares of CP&L Energy common stock that will be issued as stock
consideration will vary if the Final Stock Price is within a range of
$37.13 to $45.39, but not outside that range. Thus, the maximum number
of shares of CP&L Energy common stock into which one share of FPC
common stock could be exchanged would be 1.4543 and the minimum would
be 1.1897. FPC shareholders will receive one CVO for each share of FPC
stock owned. Each CVO will represent the right to receive contingent
payments that may be made by CP&L Energy based on certain cash flows
that may be derived from future operations of four synthetic fuel
plants, currently ownedpurchased by FPC.FPC in October 1999. In conjunction with this
proposed share exchange, CP&L Energy plans to issue debt to fund the
cash portion of the exchange.
The transaction has been approved by the Boards of Directors of FPC,
the CompanyCP&L and CP&L Energy. Consummation of the exchange is subject to the
satisfaction or waiver of certain closing conditions including, among
others, the approval by the shareholders of FPC and the approval of the
issuance of CP&L Energy common stock in the exchange by the
shareholders of the Company or CP&L Energy; the approval or regulatory review by the
Federal Energy Regulatory Commission (FERC), the Securities and
Exchange Commission (SEC), the Nuclear Regulatory Commission (NRC), the
North Carolina Utilities Commission (NCUC), and certain other federal
and 7
state regulatory bodies; the expiration or early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976;1976 (HSR Act); and other customary closing conditions. In addition,
FPC's obligation to consummate the exchange is conditioned upon the
Final Stock Price being not less than $30.00. Both the CompanyCP&L, CP&L Energy and FPC
have agreed to certain undertakings and limitations regarding the
conduct of their respective businesses prior to the closing of the
transaction. The transaction is expected to be completed in the fall of
2000.
Either partyFPC or CP&L Energy and CP&L may terminate the Amended Agreement
under certain circumstances, including if the exchange has not been
consummated on or before December 31, 2000; provided that if certain
conditions have not been satisfied on December 31, 2000, but all other
conditions have been satisfied or waived then such date shall be June
30, 2001. In the event that FPC or the CompanyCP&L Energy terminate the Amended
Agreement in certain limited circumstances, FPC would be required to
pay the CompanyCP&L Energy a termination fee of $150 million, plus the Company'sCP&L Energy's
reasonable out-of-pocket expenses which are not to exceed $25 million
in the aggregate.
On January 31,May 23, 2000, applications were filed with the NRC seeking
approval ofapproved the change in control of FPC that
will result from the share exchange. On July 12, 2000, the FERC
approved the change of control over FPC's jurisdictional facilities
resulting from the share exchange. Also on July 12, 2000, the
Department of Justice terminated the waiting period under the HSR Act
and completed its antitrust review. On February 3, 2000, CP&L Energy
filed an application with the NCUC for authorization of the share
exchange with FPC and the issuance of common stock in connection with
the transaction. On
February 3, 2000,transaction, a hearing was held on this matter on July 18, 2000.
Prior to the hearing CP&L Energy and FPC filed a joint applicationhad settled all disputed matters with
all parties. As part of the settlement with the FERC requesting approvalNCUC Public Staff, CP&L
agreed to reduce rates to all of
the share exchange.22
its non-Real Time Pricing customers by $3 million in 2002, $4.5 million
in 2003, $6 million in 2004 and $6 million in 2005. CP&L also agreed to
write off and forego recovery of $10 million of unrecovered fuel costs
in its 2000 fuel cost recovery proceeding. On March 14, 2000, CP&L
Energy and FPC filed an application with the SEC requesting approval of
the share exchange under the Public Utility Holding Company Act. The Company cannot predictOn
July 28, 2000, the outcome of these matters.
3. FINANCIAL INFORMATION BY BUSINESS SEGMENT
-----------------------------------------
The Company provides services throughparties filed an amended application with the following business segments:
electric, natural gasSEC,
and other.
The electric segment generates, transmits, distributes and sells
electric energy in portions of North and South Carolina. Electric
operations are subject to the rules and regulationsSEC issued its notice of the FERC,merger application on August 4,
2000. CP&L Energy and CP&L expect to obtain final regulatory approvals
and close the NCUC and the Public Service Commission of South Carolina (SCPSC).
The natural gas segment transmits, distributes and sells gas in
portions of North Carolina. Gas operations are subject to the rules and
regulations of the NCUC.
The other segment primarily includes telecommunication services, energy
management services, propane and miscellaneous non-regulated
activities.
For reportable segments presented in the accompanying table, segment
earnings (losses) before taxes include intersegment sales accounted for
at prices representative of unaffiliated party transactions.
8
(in thousands)
NATURAL SEGMENT
ELECTRIC GAS OTHER ELIMINATIONS TOTALS
==================================================================================================================
THREE MONTHS ENDED 3/31/00
Revenues
Unaffiliated $779,908 $71,968 $25,134 - $877,010
Intersegment - 130 8,401 (8,401) 130
-------------------------------------------------------------------------
Total Revenues $779,908 $72,098 $33,535 $(8,401) $877,140
Depreciation and Amortization $127,804 $4,685 $5,762 - $138,251
Net Interest Charges $50,652 $1,714 $337 $(1,899) $50,804
Earnings(Losses) Before Taxes $147,160 $14,386 $(19,327) $(18) $142,201
Total Segment Assets $8,558,136 $542,992 $388,706 $(110,089) $9,379,745
Capital and Investment
Expenditures $224,860 $9,812 $23,588 - $258,260
==================================================================================================================
NATURAL SEGMENT
ELECTRIC GAS OTHER ELIMINATIONS TOTALS
==================================================================================================================
THREE MONTHS ENDED 3/31/99
Revenues
Unaffiliated $738,559 - $24,343 - $762,902
Intersegment - - 6,561 (6,561) -
-------------------------------------------------------------------------
Total Revenues $738,559 - $30,904 $(6,561) $762,902
Depreciation and Amortization $120,556 - $4,101 - $124,657
Net Interest Charges $43,334 - $404 - $43,738
Earnings(Losses) Before Taxes $169,122 - $(17,727) $(24) $151,371
Total Segment Assets $8,216,225 - $251,148 $(2,421) $8,464,952
Capital and Investment
Expenditures $134,485 - $99,516 - $234,001
==================================================================================================================
RECONCILIATION OF FINANCIAL INFORMATION BY BUSINESS SEGMENT TO CONSOLIDATED FINANCIAL
STATEMENTS:
DEPRECIATION AND AMORTIZATION
(in thousands)
SEGMENT
PERIOD TOTALS ADJUSTMENTS CONSOLIDATED TOTALS
---------------------------------------------------------------------------------------------------
Three months ended 3/31/00 $138,251 $(5,762) $132,489
Three months ended 3/31/99 $124,657 $(4,101) $120,556
---------------------------------------------------------------------------------------------------
NET INTEREST CHARGES
(in thousands)
SEGMENT
PERIOD TOTALS ADJUSTMENTS CONSOLIDATED TOTALS
---------------------------------------------------------------------------------------------------
Three months ended 3/31/00 $50,804 $(337) $50,467
Three months ended 3/31/99 $43,738 $(404) $43,334
---------------------------------------------------------------------------------------------------
Adjustments to depreciation and amortization expense consist of
expenses related to the other segments that are included in diversified
business operating expenses on a consolidated basis. Adjustments to
interest expense consist of expenses related to the other segments that
are included in other, net on a consolidated basis.
9
4. FINANCING ACTIVITIES
--------------------
During the three months ended March 31, 2000, the Company retired
$47.25 million principal amount of non-interest bearing Promissory
Notes, Series 1993A, which matured on January 15, 2000 and $150 million
principal amount of First Mortgage Bonds, 6-1/8% Series, which matured
on February 1, 2000.
On April 11, 2000, the Company issued $300 million principal amount of
Senior Notes, 7.50% Series Due April 1, 2005.
5. NUCLEAR DECOMMISSIONING
-----------------------
In the Company's retail jurisdictions, provisions for nuclear
decommissioning costs are approvedtransaction by the NCUC and the 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 7.75% 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 1998, using 1998 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 1998 dollars, are $281.5 million for Robinson Unit
No. 2, $299.6 million for Brunswick Unit No. 1, $298.7 million for
Brunswick Unit No. 2 and $328.1 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 (Power Agency), which
holds an undivided ownership interest in the Brunswick and Harris
nuclear generating facilities. Operating licenses for the Company's
nuclear units expire in the year 2010 for Robinson Unit No. 2, 2016 for
Brunswick Unit No. 1, 2014 for Brunswick Unit No. 2 and 2026 for the
Harris Plant.
The Financial Accounting Standards Board is proceeding with its project
regarding accounting practices related to obligations associated with
the retirement of long-lived assets, and a revised exposure draft of a
proposed accounting standard was issued during the first quarterfall of 2000. It is uncertain what effects this draft may ultimately have on
the Company's accounting for nuclear decommissioningHowever, CP&L Energy
and other
retirement costs.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 1999,
with respect to the commitments discussed in Note 16 of the financial
statements included in the Company's 1999 Annual Report on Form 10-K.
Contingencies
1) Applicability of SFAS-71. As a regulated entity, the Company
is subject to the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS-71). Accordingly, the
Company records certain assets and liabilities resulting from
the effects of the ratemaking process, which would not be
recorded under generally accepted accounting principles for
unregulated entities. The Company's ability to continue to
meet the criteria for application of SFAS-71 may be affected
in the future by competitive forces, deregulation and
restructuring in the electric utility industry. In the event
that SFAS-71 no longer applied to a separable portion of the
Company's operations, related regulatory assets and
liabilities would be eliminated unless an appropriate
regulatory recovery mechanism is provided. Additionally, these
factors could result in an impairment of electric utility
plant assets as determined pursuant to Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The Company's net regulatory assets totaled $398 million
and $414 million as of March 31, 2000 and December 31, 1999,
respectively.
10
2) Claims and Uncertainties.
a) 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
electric utility and gas utility have some connection. In this
regard, both the electric utility and gas utility, along with
others, are participating in a cooperative effort with the
North Carolina Department of Environment and Natural
Resources, Division of Waste Management (DWM). The DWM has
established a uniform framework to address MGP sites. The
investigation and remediation of specific MGP sites will be
addressed pursuant to an Administrative Orders on Consent
(AOC) between the DWM and the potentially responsible party or
parties. Both the electric utility and gas utility have signed
an AOC to investigate and remediate certain sites. Both the
electric utility and the gas utility continue to identify
parties connected to individual MGP sites, and to determine
their relative relationship to other parties at those sites
and the degree to which they will undertake efforts with
others at individual sites. The Company does not expect the
costs associated with these sites to be material to the
consolidated results of operations or financial position of
the Company.
The Company is periodically notified by regulators such as the
North Carolina Department of Environment and Natural
Resources, the South Carolina Department of Health and
Environmental Control, and the U.S. Environmental Protection
Agency (EPA) of its involvement or potential involvement in
sites, other than MGP sites, that may require investigation
and/or remediation. Although the Company may incur costs at
the sites about which it has been notified, based upon the
current status of the sites, the Company does not expect those
costs to be material to the consolidated results of operations
or financial position of the Company.
The EPA has been conducting an enforcement initiative related
to a number of coal-fired utility power plants in an effort to
determine whether modifications at those facilities were
subject to New Source Review requirements or New Source
Performance Standards under the Clean Air Act. The Company has
been asked to provide information to the EPA as part of this
initiative and has cooperated in providing the requested
information. The EPA has initiated enforcement actions, which
may have potentially significant penalties, against other
companies that have been subject to this initiative. The
CompanyCP&L cannot predict the outcome of this matter.
The EPA published a final rule approving petitions under
section 126 of the Clean Air Act which requires certain
sources to make reductions in nitrogen oxide emissions by
2003. The Company's fossil-fueled electric generating plants
are included in these petitions. The Company and other states
are participating in litigation challenging the EPA's action.
The Company cannot predict the outcome of this matter.
b) 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 begin taking spent
nuclear fuel by no later than January 31, 1998. All similarly
situated utilities were required to sign the same standard
contract.
In April 1995, the DOE issued a final interpretation that it
did not have an unconditional obligation to take spent nuclear
fuel by January 31, 1998. In Indiana & Michigan Power v. DOE,
the Court of Appeals vacated the DOE's final interpretation
and ruled that the DOE had an unconditional obligation to
begin taking spent nuclear fuel. The Court did not specify a
remedy because the DOE was not yet in default.
After the DOE failed to comply with the decision in Indiana &
Michigan Power v. DOE, a group of utilities (including the
Company) petitioned the Court of Appeals in Northern States
Power (NSP) v. DOE, seeking an order requiring the DOE to
begin taking spent nuclear fuel by January 31, 1998. The DOE
took the position that their delay was unavoidable, and the
DOE was excused from performance under the terms and
conditions of the contract. The Court of Appeals did not order
the DOE to begin taking spent nuclear fuel, stating that the
utilities had a potentially adequate remedy by filing a claim
for damages under the contract.
After the DOE failed to begin taking spent nuclear fuel by
January 31, 1998, a group of utilities (including the Company)
filed a motion with the Court of Appeals to enforce the
mandate in NSP v. DOE. Specifically, the utilities asked the
Court to permit the utilities to escrow their waste fee
payments, to order the DOE not to use the waste fund to pay
damages to the utilities, and to order the DOE to establish a
schedule for disposal of spent nuclear fuel. The Court denied
this motion based primarily on the grounds that a review of
the matter was premature, and that some of the requested
remedies fell outside of the mandate in NSP v. DOE.
11
Subsequently, a number of utilities each filed an action for
damages in the Court of Claims and before the Court of
Appeals. The Company is in the process of evaluating whether
it should file a similar action for damages. In NSP v. U.S.,
the Court of Claims decided that NSP must pursue its
administrative remedies instead of filing an action in the
Court of Claims. NSP has filed an interlocutory appeal to the
Court of Appeals based on NSP's position that the Court of
Claims has jurisdiction to decide that matter. A group of
utilities (including the Company) has submitted an amicus
brief in support of NSP's position.
The Company also continues to monitor legislation that has
been introduced in Congress which might provide some limited
relief. The Company cannot predict the outcome of this matter.
With certain modifications and additional approval by the NRC,
the Company's spent fuel storage facilities will be sufficient
to provide storage space for spent fuel generated on the
Company's system through the expiration of the current
operating licenses for all of the Company's nuclear generating
units. Subsequent to the expiration of these licenses, dry
storage may be necessary. The Company has initiated the
process of obtaining the additional NRC approval.
c) In the opinion of management, liabilities, if any, arising
under other pending claims would not have a material effect on
the financial position and results of operations of the
Company.
7. SUBSEQUENT EVENT
----------------
On May 3, 2000, the Company signed a letter of intent with Bain
Capital, Inc. (Bain), a private equity fund, to form a new company.
Under the agreement, the Company and Bain will each invest $50 million
of new equity, in addition to an investment by the Company of the
Application Service Provider assets of Interpath Communications, Inc.
Upon completion of the transaction, the Company will own 35% and Bain
will own 65% of the newly formed company.
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000,
AS COMPARED WITH THE CORRESPONDING PERIOD ONE YEAR EARLIER
----------------------------------------------------------
Business segment earnings and the factors affecting them are discussed
below.
Electric
--------
The fluctuations in electric operating revenues for the three months
ended March 31, 2000 as compared to last year were affected by the
following factors (in millions):
Customer growth/changes in usage patterns* $ 29
Industrial Sales 7
Weather 5
Price (6)
Sales to Power Agency 5
Sales to other utilities 1
----
Total $ 41
====
* Customer growth/changes in usage patterns excludes
industrial customers.
The increase in customer growth/changes in usage patterns component of
revenues reflects continued growth in the number of customers served by
the Company and increased sales to all customer classes. Industrial
sales experienced an overall increase primarily related to the textile
industry, while continuing to be negatively affected by the downturn in
the chemical industry. The increase in the weather component of
revenues is the result of favorable temperatures in the current period
compared to the corresponding prior period. The price-related decrease
is due to capacity pricing changes between the Company and the North
Carolina Electric Membership Corporation that took effect January 1,
2000, and the effects of real-time pricing rate participation by
industrial customers. The increase in revenue related to sales to Power
Agency is due to more favorable temperatures and to the decreased
availability of generating units that are jointly owned by the Company
and Power Agency.
The increase in fuel used for electric generation is primarily due to
an increase in generation and deferred fuel adjustments.
Purchased power decreased primarily due to the expiration in mid-1999
of the Company's long-term purchase power agreement with Duke Energy
Other operation and maintenance expense increased during the three
months ended March 31, 2000 due to restoration costs associated with
the severe winter storm and record breaking snowfall in January, the
timing of plant outages, increased general and administrative expenses
and the effects of emission allowances which the Company began to
expense in January 2000. These allowances were acquired to meet the
Clear Air Act emission requirements.
Natural Gas
-----------
On July 15, 1999, the Company completed the acquisition of North
Carolina Natural Gas Corporation (NCNG), now operating as a wholly
owned subsidiary. The acquisition was accounted for as a purchase and,
accordingly, the operating results of NCNG have been included in the
Company's financial results since the date of acquisition. Natural gas
revenues totaled $72.1 million, while gas purchased for resale totaled
$43.9 million and other operation and maintenance expenses totaled $7.5
million. NCNG's natural gas operations contributed $15.3 million of
operating income.
Other
-----
The change in operating revenues of diversified business operations was
due to several factors. Revenues decreased due to the sale, in
mid-1999, of SRS's lighting division. Operating revenues related to
SRS's continuing business increased, and revenues in the current period
include the results of NCNG's diversified operations, primarily its
propane business. Operating expenses increased primarily due to the
business expansion program at Interpath and the addition of NCNG's
diversified operations. This increase was partially offset by a decline
in SRS's expenses due to the sale of the lighting division and improved
operational performance.
13
MATERIAL CHANGES IN LIQUIDITY AND CAPITAL RESOURCES
FOR THE THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------
Cash Flow and Financing
-----------------------
ISSUANCES OF BONDS, PREFERRED STOCK AND DEBENTURES
--------------------------------------------------
On April 11, 2000, the Company issued $300 million principal amount of
Senior Notes, 7.50% Series Due April 1, 2005. The net proceeds from the
issuance were used to reduce the outstanding balance of commercial
paper and other short-term indebtedness, and for general corporate
purposes.
REDEMPTIONS/RETIREMENTS OF BONDS, PREFERRED STOCK AND DEBENTURES
----------------------------------------------------------------
i. The retirement on January 15, 2000 of $47.25 million principal
amount of non-interest bearing Promissory Notes, Series 1993A,
which matured on that date.
ii. The retirement on February 1, 2000 of $150 million principal
amount of First Mortgage Bonds, 6-1/8% Series, which matured on
that date.
CREDIT FACILITIES
-----------------
As of March 31, 2000, the Company's revolving credit facilities totaled
$750 million, all of which are long-term agreements supporting its
commercial paper borrowings and other short-term indebtedness. The
Company is required to pay minimal annual commitment fees to maintain
its credit facilities. Consistent with management's intent to maintain
its commercial paper, pollution control revenue refunding bonds
(pollution control bonds) and other short-term indebtedness on a
long-term basis, and as supported by its long-term revolving credit
facilities, the Company included in long-term debt commercial paper,
pollution control bonds and other short-term indebtedness of $750
million at March 31, 2000 and December 31, 1999.
CREDIT RATINGS
--------------
The Company's First Mortgage Bonds are currently rated "A2" by Moody's
Investors Service, "A" CreditWatch with negative implications by
Standard and Poor's and "A+" Rating Watch-Down by Duff and Phelps.
Moody's Investors Service, Standard and Poor's and Duff and Phelps have
rated the Company's commercial paper and extendible notes "P-1", "A-1"
and "D-1", respectively. Moody's Investors Service and Standard and
Poor's have rated the Company's extendible commercial notes "P-1" and
"A-1", respectively.
OTHER MATTERS
-------------
Florida Progress Corporation
----------------------------
The Company, Florida Progress Corporation (FPC), a Florida corporation,
and CP&L Energy, Inc. (CP&L Energy), a North Carolina corporation and
wholly owned subsidiary of the Company, formerly known as CP&L
Holdings, Inc. entered into an Amended and Restated Agreement and Plan
of Share Exchange dated as of August 22, 1999, amended and restated as
of March 3, 2000 (the "Amended Agreement").
Under the terms of the Amended Agreement, all outstanding shares of
common stock, no par value, of FPC common stock would be acquired by
CP&L Energy in a statutory share exchange with an approximate value of
$5.0 billion, which is subject to change based on CP&L Energy's stock
price and on the value of the contingent value obligations (CVO)
discussed below. Each share of FPC common stock, at the election of the
holder, will be exchanged for (i) $54.00 in cash and one CVO, or (ii)
the number of shares of common stock, no par value, of CP&L Energy
equal to the ratio determined by dividing $54.00 by the average of the
closing sale price per share of CP&L Energy common stock (Final Stock
Price), as reported on the New York Stock Exchange composite tape for
the twenty consecutive trading days ending with the fifth trading day
immediately preceding the closing date for the exchange, and one CVO,
or (iii) a combination of cash and CP&L Energy common stock, and one
CVO; provided, however, that shareholder elections shall be subject to
allocation and proration to achieve a mix of the aggregate exchange
consideration that is 65% cash and 35% common stock. The number of
shares of CP&L Energy common stock that will be issued as stock
consideration will vary if the Final Stock Price is within a range of
$37.13 to $45.39, but not outside that range. Thus, the maximum number
of shares of CP&L Energy common stock into which one share of FPC
common stock could be exchanged would be 1.4543 and the minimum would
be 1.1897.
14
FPC shareholders will receive one CVO for each share of FPC stock
owned. Each CVO will represent the right to receive contingent payments
that may be made by CP&L Energy based on certain cash flows that may be
derived from future operations of four synthetic fuel plants currently
owned by FPC. In conjunction with this proposed share exchange, CP&L
Energy plans to issue debt to fund the cash portion of the exchange.
The transaction has been approved by the Boards of Directors of FPC,
the Company and CP&L Energy. Consummation of the exchange is subject to
the satisfaction or waiver of certain closing conditions including,
among others, the approval by the shareholders of FPC and the approval
of the issuance of CP&L Energy common stock in the exchange by the
shareholders of the Company or CP&L Energy; the approval or regulatory
review by the Federal Energy Regulatory Commission (FERC), the SEC, the
Nuclear Regulatory Commission (NRC), the North Carolina Utilities
Commission (NCUC), and certain other federal and state regulatory
bodies; the expiration or early termination of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976; and other
customary closing conditions. In addition, FPC's obligation to
consummate the exchange is conditioned upon the Final Stock Price being
not less than $30.00. Both the Company and FPC have agreed to certain
undertakings and limitations regarding the conduct of their respective
businesses prior to the closing of the transaction. The transaction is
expected to be completed in the fall of 2000.
Either party may terminate the Amended Agreement under certain
circumstances, including if the exchange has not been consummated on or
before December 31, 2000; provided that if certain conditions have not
been satisfied on December 31, 2000, but all other conditions have been
satisfied or waived then such date shall be June 30, 2001. In the event
that FPC or the Company terminate the Amended Agreement in certain
limited circumstances, FPC would be required to pay the Company a
termination fee of $150 million, plus the Company's reasonable
out-of-pocket expenses which are not to exceed $25 million in the
aggregate.
On January 31, 2000, applications were filed with the NRC seeking
approval of the change in control of FPC that will result from the
share exchange. On February 3, 2000, CP&L Energy filed an application
with the NCUC for authorization of the share exchange with FPC and the
issuance of common stock in connection with the transaction. On
February 3, 2000, CP&L Energy and FPC filed a joint application with
the FERC requesting approval of the share exchange. On March 14, 2000,
CP&L Energy and FPC filed an application with the SEC requesting
approval of the share exchange under the Public Utility Holding Company
Act. The Company cannot predict the outcome of these matters.
Competition
-----------
WHOLESALE COMPETITIONWholesale Competition
---------------------
To assist in the development of wholesale competition, the FERC, in
1996, issued standards for wholesale wheeling of electric power through
its rules on open access transmission and stranded costs and on
information systems and standards of conduct (Orders 888 and 889). The
rules require all transmitting utilities to have on file an open access
transmission tariff, which contains provisions for the recovery of
stranded costs and numerous other provisions that could affect the sale
of electric energy at the wholesale level. The CompanyCP&L filed its open access
transmission tariff with the FERC in mid-1996. Shortly thereafter,
Power Agency and other entities filed protests challenging numerous
aspects of the Company'sCP&L's tariff and requesting that an evidentiary proceeding
be held. The FERC set the matter for hearing and set a discovery and
procedural schedule. In July 1997, the CompanyCP&L filed an offer of settlement in
this matter. The administrative law judge certified the offer to the
full FERC in September 1997. The offer is pending before the FERC. In
February 2000, the FERC issued a basket order for several utilities
including the CompanyCP&L to file a compliance filing stating whether there were
any remaining undisputed issues surrounding the Company'sCP&L's open access
transmission tariff. On May 1, 2000, the CompanyCP&L made the compliance filing
setting forth the remaining undisputed issues and a plan for settling
those issues. The
Company will make anCP&L made additional compliance filingfilings on June 8, 2000
and July 12, 2000 to report the status of negotiations with the
remaining intervenors. The
CompanyCP&L cannot predict the outcome of this matter.
Regional Transmission Organizations (RTO)
-----------------------------------------
On December 20, 1999, the FERC issued a ruleOrder No. 2000 on Regional
Transmission Organizations (RTO) that, which sets forth four minimum
characteristics and eight functions for transmission entities,
including independent system operators and transmission companies, to
become FERC-approved RTOs. The rule states that public utilities that
own, operate or control interstate transmission facilities must file by
October 15, 2000, either a proposal to participate in an RTO or an
alternative filing describing efforts and plans to participate in an
RTO. The Company
plans to participateCP&L is participating in an effort with Duke Power and South
Carolina Electric & Gas (SCE&G) to develop a for-profit transmission
company to comply with Order No. 2000. The RTO is currently known as
GridSouth and anticipates complying with thisis expected to operate the transmission systems of CP&L,
Duke Power, SCE&G and perhaps others. The current plans for GridSouth
include public meetings on the proposed transmission company beginning
August 2, 2000 and a filing requirement.
15
NORTH CAROLINA ACTIVITIESfor approval of GridSouth by October 16,
2000. CP&L cannot predict the outcome of these matters.
North Carolina Activities
-------------------------
On April 3,May 16, 2000, the 29-member commission established in 1997 byStudy Commission on the North Carolina General Assembly to evaluate the futureFuture of electric
serviceElectric Service
in North Carolina unanimously approved recommendations to the
General Assembly regarding electricity deregulation in North Carolina.
Included among these recommendations are the following: (1) full
competition should begin no later than January 1, 2006; (2) up to 50
percent of each power supplier's customer load, equally proportioned
among customer classes, should be allowed to choose an alternative
electric supplier as of January 1, 2005; (3) the initial phase of
stranded cost recovery, accomplished through a rate freeze at current
rates, should last until December 31, 2004; (4) the North Carolina
Utilities Commission (NCUC) should establish rates for the year 2005
and establish any remaining stranded cost recovery charges; and (5) for
any investor-owned utilities with stranded cost recovery after December
31, 2004, the NCUC should conduct a one-time true-up of remaining
stranded costs by July 1, 2007, at which time the NCUC may
prospectively adjust the continuing level of stranded cost recovery, as
appropriate. The study commission did not make any recommendation
concerning the assets or indebtedness of the municipal power agencies
in North Carolina. The study commission is expected to meet to approveissued its report to the General Assembly. The report
includes the recommendations adopted by the study commission on April
3, 2000, as well as discussion regarding the recommendations, a summary
of past study commission meetings, summaries of studies prepared for
the study commission by its consultants, and other background
information.
As proposed by the study commission's April 3, 2000 recommendations,
the General Assembly including these recommendations, in
May,acted during its 2000 short session, which
concluded on July 13, 2000, to extend the authorization and funding of
the study commission until June 30, 2006. According to submit its report, during the General Assembly's 2000
session. The
study commission will recommend specific legislation to the 2001 General Assembly, and where
necessary, the 2003 General Assembly, specific legislation to
address the above recommendations as well as other issues,
including consumer protection, the environment and alternative energy,
and taxation. The Companyaccomplish its recommendations. CP&L cannot predict the outcome of this
matter.
FEDERAL ACTIVITIESFederal Activities
------------------
A draft bill regarding electric industry restructuring passed the House
Commerce Subcommittee on October 27, 1999, and is nowremains pending before
the full Commerce Committee.Committee, which has yet to reach a consensus on the
issue of jurisdiction over bundled retail transmission sales. The
Senate Energy & Natural Resources
Committee heldpassed a series of hearings in Aprilstand-alone reliability bill on electricJune
20, 2000, after failing to reach a consensus on a comprehensive
restructuring issues. Thebill introduced by the chairman of the committeeCommittee in
February. The reliability bill passed the full Senate on June 30 and
was then sent to
23
the House, where it awaits review and approval. On July 18, 2000, a new
comprehensive restructuring bill was introduced in the Senate, which
would require all states to implement retail competition by January 1,
2002. No date has announced his intention to
begin markupbeen set for consideration of a bill in May, in an effort to craft a bill from the various bills introduced to date. The chairman has indicated his
intention to report a bill by the July 4 recess. The Companybill. CP&L cannot
predict the outcome of this matter.
COMPANY ACTIVITIESCompany Activities
-------------------
In December 1998, the Company entered into an agreement to purchase all
of the output of a combustion turbine project to be built, owned and
operated by Broad River Energy, LLC (BRE), in Cherokee County, South
Carolina. In conjunction with this agreement, the Company agreed to
provide bridge financing to BRE under a Financing Term Sheet. In March
2000, the Financing Term Sheet agreement was settled upon the Company's
receipt of final payment from BRE.
In October 1999, the CompanyCP&L and the Albemarle-Pamlico Economic Development
Corporation (APEC) announced their intention to build an 850-mile,
$197.5 million, natural gas transmission and distribution system to 14
currently unserved counties in eastern North Carolina. The
CompanyCP&L will
operate both the transmission and distribution systems, and APEC will
help ensure that the new facilities are built in the most advantageous
locations to promote development of the economic base in the region. In
conjunction with this proposal, the CompanyCP&L and APEC filed a joint request
with the NCUC for $186 million of a $200 million state bond package
established for natural gas infrastructure. If
granted, these funds will be usedinfrastructure to pay for the portion of
the project that likely could not be recovered from future gas
customers through rates. On April 10, 2000, the CompanyCP&L and APEC executed an
operating agreement creating Eastern North Carolina Natural Gas, LLC
(ENCNG), a limited liability company, which will be the local
distribution natural gas company serving the 14 counties in question.
CP&L and APEC will be the joint owners. The operations of Eastern North Carolina Natural Gas, LLCENCNG will be
subject to the rules and regulations of the NCUC. On April 12,June 15, 2000, the
NCUC held hearings onissued an order awarding ENCNG an exclusive franchise to all 14
counties and granted $38.7 million in bond funding for phase one of the
jointproject. Phase one, which will cost a total of $50.5 million, will
bring gas service to 6 of the 14 counties. The NCUC will consider
approval of bond funding request filed byfor phases two through five of the Company and APEC. An order is expected in mid-2000. The Companyproject at
a later date. CP&L cannot predict the outcome of this matter.
On April 7, 2000, the CompanyCP&L announced the execution of an agreement to
purchase 75 million cubic feet per day of firm gas transportation
service to be provided through the Williams Energy's Sundance expansion projectExpansion
Project on itsthe Transcontinental Interstate Pipeline.Pipeline (Transco). This
service will be used, beginning in mid-2002, to supply the 30-inch
Sandhills natural gas pipeline, which the CompanySandhills Pipeline that CP&L announced in
December 1999 it would build
in North Carolinabuild. The pipeline will extend from Iredell
County to Richmond County.County in North Carolina. The agreement is
contingent upon FERC approval and both parties can terminate if Transco
fails to commence service by April 3, 2003. The CompanyCP&L cannot predict the
outcome of this matter.
In April 2000, the CompanyCP&L signed a 5-1/2 year agreement with Duke Power Co.,Energy,
whereby the CompanyCP&L will provide peaking generation capacity. The CompanyCP&L will
provide 300 MW of capacity for the first 11 months of the contract,
beginning July 1, 2000, and will provide 150 MW for the remainder of
the contract.
16
Transition toFormation of Holding Company
Structure
-------------------------------------------------------------------
The Company is in the processCP&L board of convertingdirectors decided to reorganize with a holding
company structure in whichbefore agreeing to the Company would become a subsidiary of a newly
formed holding company.share exchange with FPC. This
conversionreorganization will offer certain advantages as the CompanyCP&L continues to
confront the rapidly changing environment facing electric utilities.
The holding company structure wouldwill allow greater organizational
flexibility, including a clearer separation of regulated businesses
from each other and from unregulated businessesbusiness such as energy services,
telecommunications and electric generation projects for wholesale
markets. The ability to conduct financing activities at the holding
company level without the need for state regulatory approvals will
enable the CompanyCP&L to satisfy financing needs more quickly and efficiently.
The Company's shareholders approvedConsequently, CP&L Energy was incorporated in August 1999 under the
contemplated holding company
structure on October 20, 1999. The transaction also requires the
approval of various regulatory authorities. Upon conversion to a
holding company structure, each sharelaws of the Company's common stock
will automatically be exchanged for one shareState of common stockNorth Carolina as a subsidiary of the
new holding company.
On September 15, 1999, the Company filed an application with the NRC
for consent to indirectly transfer control of its nuclear plant
operating licenses to the newly formed holding company. This
application was approved on December 31, 1999.
On October 15, 1999, the Company filed an application with the NCUC to
approve the transfer of ownership of the Company, Interpath and NCNG to
the newly formed holding company. Action is expected by the end of the
second quarter of 2000.
On October 18, 1999, the Company filed an application with the SEC for
approval which allows the holding company to acquire voting securities
resulting in control over the Company and NCNG. Action is expected by
the end of the second quarter of 2000.CP&L. On October
20, 1999, shareholders of CP&L approved the Company filed an applicationformation of the holding
company structure. Upon completion of the holding company
restructuring, the holders of CP&L common stock became the holders of
the outstanding stock of CP&L Energy, through a one-for-one share
exchange. CP&L and CP&L Energy completed the restructuring on June 19,
2000, following receipt of required regulatory approvals.
On July 1, 2000, CP&L distributed its ownership interest in the stock
of NCNG, SRS, Monroe Power and CPL Energy Ventures, Inc. (Energy
Ventures) to CP&L Energy. As a result, those companies are direct
subsidiaries of CP&L Energy and will not be included in CP&L's results
of operations and financial position on a prospective basis.
Synthetic Fuel Plants
On April 25, 2000, Energy Ventures, a wholly owned subsidiary of CP&L,
through CPL Synfuels, LLC (CPL Synfuels), a wholly-owned subsidiary of
Energy Ventures, purchased a 90 percent membership interest in Solid
Fuel, LLC which operates the Powell Mountain synthetic fuel plant in
Virginia.
24
On May 22, 2000, Energy Ventures, through CPL Synfuels, purchased a 90
percent membership interest in Sandy River Synfuel, LLC which operates
the Cyrus Dock synthetic fuel plant in West Virginia.
Interpath Agreements
--------------------
Pursuant to a Contribution Agreement effective June 28, 2000 between
CP&L, Caronet, Inc. (Caronet), the wholly owned subsidiary of CP&L
formerly known as Interpath Communications, Inc., a North Carolina and
Virginia Corporation, and Interpath Communications, Inc. (Interpath), a
Delaware corporation formed in conjunction with the SCPSCtransaction,
Caronet contributed the assets used in the application service provider
business to approveInterpath. Under the transferterms of the Companyagreement, Caronet owns
35% of Interpath's stock and Interpath toBain Capital, Inc. a private equity fund,
and its affiliates (Bain) own 65% of Interpath's stock. On July 6,
2000, Caronet and Bain each invested $25 million of additional equity
in Interpath.
On May 3, 2000, CP&L also entered into a capacity sharing and marketing
agreement with Progress Telecom, a wholly-owned fiber optic based
subsidiary of FPC, utilizing the newly formed
holding company. The SCPSC issued an order approving the application on
March 6, 2000.
On October 25, 1999, the Company filed an application with the FERC for
approvalfiber optic network assets of Caronet.
Upon completion of the proposed reorganization ofshare exchange between CP&L Energy and FPC, the
Company related to the
establishment of the new holding company. This application was approved
on December 23, 1999.two fiber optic subsidiaries will be combined and will operate as
Progress Telecom.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
The Company has certain------ ----------------------------------------------------------
Certain market risks are inherent in the Company'sCP&L's financial instruments,
which arise from transactions entered into in the normal course of
business. The Company'sCP&L's primary exposures are changes in interest rates with
respect to long-term debt and commercial paper, and fluctuations in the
return on marketable securities with respect to its nuclear
decommissioning trust funds. The Company'sCP&L's exposure to return on marketable
securities for the decommissiondecommissioning trust funds has not changed
materially since December 31, 1999. The exposure
to changes in interest rates from the Company's long-term debt and
commercial paper at March 31, 2000 was not materially different than at
December 31, 1999. The total fixed rate debt at March 31,June
30, 2000 was $1.726$2.026 billion, with an average interest rate of 7.12%7.17%.
The total commercial paper and extendible notes outstanding at March 31,June 30,
2000 was $375$305 million, with an average interest rate of 6.07%6.19%, and $500
million, with an average interest rate of 6.26%6.40%, respectively.
17During the second quarter, CP&L entered into interest rate swap
agreements to hedge its exposure on variable rate debt positions. The
agreements, with a total notional amount of $500 million, are effective
in July 2000 and mature in July 2002. Under these agreements, CP&L
receives a floating rate based on the three month LIBOR and pays a
weighted-average fixed rate of approximately 7.17%. The notional amount
of the contracts is not exchanged and does not represent exposure to
credit loss. In the event of default by a counterparty, the risk in
these transactions is the cost of replacing the agreements at current
market rates. CP&L only enters into swap agreements with strong
creditworthy counterparties.
25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------------- -----------------
Legal aspects of certain matters are set forth in Part I, Item 1 Notes
to the Consolidated Interim Financial Statements, Note 6: Commitments
and Contingencies.
Item 2. Changes in Securities and Use of Proceeds
-------------------------------------------------------- -----------------------------------------
RESTRICTED STOCK AWARDS:
(a) Securities Delivered. On January 28,May 15, June 5, June 22 and July 12, 2000,
March 21, 200027,000, 6,800, 18,300 and May
8, 2000, 5,100, 40,000 and 32,70056,900 restricted shares, respectively of
the Company'sCP&L's and CP&L Energy's Common Shares were delivered to certain key
employees pursuant to the terms of the Company's 1997 Equity Incentive Plan
(Plan), which was approved by the Company'sCP&L's shareholders on May 7, 1997.
Section 9 of the Plan provides for the granting of Restricted Stock by
the Personnel, Executive Development and Compensation Committee
(currently the Committee on Organization and Compensation), (the
Committee) to key employees of the Company.CP&L and CP&L Energy. The Common Shares
delivered pursuant to the Plan were acquired in market transactions
directly for the accounts of the recipients and do not represent newly
issued shares of the Company.CP&L Energy.
(b) Underwriters and Other Purchasers. No underwriters were used in
connection with the delivery of Common Shares described above. The
Common Shares were delivered to certain key employees of the Company.CP&L Energy
and CP&L. The Plan defines "key employees" as an officer or other
employee of the
CompanyCP&L Energy or CP&L who, in the opinion of the Committee,
can contribute significantly to the growth and profitability of, or
perform services of major importance to, the Company.CP&L Energy or CP&L.
(c) Consideration. The Common Shares were delivered to provide an incentive
to the employee recipients to exert their utmost efforts on the Company'sCP&L
Energy's or CP&L's behalf and thus enhance the Company'srespective company's
performance while aligning the employee's interest with those of the Company'sCP&L
Energy's shareholders.
(d) Exemption from Registration Claimed. The Common Shares described in
this Item were delivered on the basis of an exemption from registration
under Section 4(2) of the Securities Act of 1933. Receipt of the Common
Shares required no investment decision on the part of the recipients.
All award decisions were made by the Committee, which consists entirely
of non-employee directors.
STRATEGIC RESOURCE SOLUTIONS CORP.:Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
(a) Securities Delivered. On April 17, 2000, the Company issued 12,545
shares of its Common Stock (Common Shares) in connection with the June
5, 1997 merger of Knowledge Builders, Inc. (KBI) into a wholly-owned
subsidiaryThe Annual Meeting of the Company (CaroCapital, Inc.,Shareholders of CP&L was held on May 10,
2000.
(b) The meeting involved the election of three Class II directors to serve
for three-year terms and one Class I director to serve for a North Carolina
Enterprise Corporation since renamed Strategic Resource Solutions
Corp.) Of these, 11,603 sharestwo-year
term. Proxies for the meeting were issued as post-closing merger
consideration to the former holders of KBI common stock for KBI shares
that were canceled in the merger. The remaining 942 shares were issued
as incentive compensation payments based upon the 1999 performance of
SRS and its subsidiaries arising under incentive compensation
agreements entered intosolicited pursuant to Regulation 14,
there was no solicitation in opposition to management's nominees as
listed below, and all nominees were elected.
(c) The total votes for the merger with KBI.
(b) Underwriters and Other Purchasers. No underwriterselection of directors were usedas follows:
Class II Votes For Votes Withheld
-------- --------- --------------
(Term Expiring in connection with this issuance of Common Shares.2003)
Edwin B. Borden 131,965,625 2,528,003
David L. Burner 129,387,791 5,105,826
Richard L. Daugherty 131,873,716 2,619,901
Class I Votes For Votes Withheld
------- --------- --------------
(Term Expiring in 2002)
E. Marie McKee 131,914,751 2,578,878
The Common Shares were
issued (A) as merger consideration to former holders of KBI common
stock whose KBI shares were canceled inshareholder proposal regarding the merger and (B) as incentive
compensation payments to certain SRS employees based uponCP&L's cash balance
pension plan was not approved by the 1999
performance of SRS.
(c) Consideration.shareholders. The consideration for 11,603 of the Common Shares
issued was the cancellation of former shares of KBI in the merger. The
other 942 Common Shares were issued as compensation pursuant to certain
incentive compensation award agreements.
(d) Exemption from Registration Claimed. The Common Shares described
above were issued on the basis of an exemption from registration under
Section 4(2) of the Securities Act of 1933. The Common Shares were
issued to a limited number
of persons and subjected to restrictions on
resale appropriate for private placements, and appropriate disclosure
was made to all persons to whom Common Shares were issued.
ACQUISITION OF CAROLINA ENVIRONMENTAL SYSTEMS, INC. AND PALMETTO
CONTROLS GROUP, INC.
(a) Securities Sold. On May 3, 2000, 69,617 shares of the Company's Common
Stock (Common Shares) that had recently been purchased in the open
market by the Company's wholly-owned subsidiary, Strategic Resource
Solutions Corp., a North Carolina Enterprise Corporation (SRS) were
delivered by SRS as part of the considerationvoted for the purchase, on
April 14, 2000,proposal was 18,930,496 and the number
of substantially all ofshares voted against the assets of Carolina
Environmental Systems, Inc. (CES) and Palmetto Controls Group, Inc
(Palmetto). In addition, within six months of the of the closing, SRS
is obligated to deliver to CES and Palmetto additional Common Shares
having a market value of $150,000, if certain financial performance
objectives for the transition period are met. Finally, SRS is obligated
to deliver to CES and Palmetto additional Common Shares having a market
value of $200,000 within a year after the closing, subject to claims or
reductions in the purchase price described in the provisions of the
asset purchase agreement that establish a contingency reserve of
$200,000 with which to pay such claims and reductions. These Common
Shares delivered, or to be delivered, by SRS pursuant to the asset
purchase agreement were or will be acquired in market transactions, and
do not represent newly-issued shares of the Company.
(b) Underwriters and Other Purchasers. No underwriters were used in
connection with the transactions identified above. CES and Palmetto
were the only recipients of the Common Shares.
(c) Consideration. The consideration for the Common Sharesproposal was the delivery
of certain assets of CES and Palmetto pursuant to the asset purchase
agreement.
(d) Exemption from Registration Claimed. The Common Shares described in
this Item were delivered on the basis of an exemption from registration
under Section 4(2) of the Securities Act of 1933. The Common Shares
were received by two corporations and are subject to restrictions on
resale typical for private placements. Appropriate disclosure was made
to the recipients of the Common Shares.
1891,251,526.
26
Item 5. Other Information
--------------------------
SYNTHETIC FUEL PLANT
On April 25, 2000, the Company purchased a 90 percent ownership
interest in a synthetic fuel plant located at the Powell Mountain mine
site in Virginia. The synthetic fuel plant was previously wholly owned
by a subsidiary of Florida Progress Corporation. The Company is
currently in negotiations to purchase a 90 percent ownership interest
in a second plant.
INTERPATH AGREEMENTS
On May 3, 2000, the Company signed a letter of intent with Bain
Capital, Inc. (Bain), a private equity fund, to form a new company.
Under the agreement, the Company and Bain will each invest $50 million
of new equity, in addition to an investment by the Company of the
Application Service Provider assets of Interpath Communications, Inc.
Upon completion of the transaction, the Company will own 35% and Bain
will own 65% of the newly formed company.
On May 3, 2000, the Company also entered into a capacity sharing and
marketing agreement with Progress Telecom, a wholly owned fiber optic
based subsidiary of Florida Progress Corporation, utilizing the fiber
optic network assets of Interpath. Upon completion of the previously
announced merger agreement between the Company and Florida Progress
Corporation, the two fiber optic subsidiaries will be combined and will
operate as Progress Telecom.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------------- --------------------------------
(a) See EXHIBIT INDEX
(b) Reports on Form 8-K filed during or with respect to the quarter:
The CompanyCP&L filed a Current Report on Form 8-K on April 20, 2000,
detailing the April 11, 2000 issuance of $300 million
principal amount of Senior Notes, 7.50% Series Due April 1,
2005 under Item 5 of the Report. Exhibits related to the
issuance were listed under Item 7 of the Report.
CP&L filed a Current Report on Form 8-K on June 21, 2000,
detailing the June 19, 2000 restructuring in which CP&L
Energy, Inc. became the holding company for CP&L under Item 5
of the Report. Exhibits related to the restructuring were
listed under Item 7 of the Report.
CP&L filed a Current Report on Form 8-K on July 18, 2000,
detailing the June 30, 2000 establishment of a $300 million
principal amount of unsecured Medium Term Notes, Series D
program under Item 5 of the Report. Exhibits related to the
program were listed under Item 7 of the Report.
CP&L Energy filed a Current Report on Form 8-K on June 21,
2000, detailing the June 19, 2000 restructuring in which CP&L
Energy became the holding company for CP&L under Item 5 of the
Report. Exhibits related to the restructuring were listed
under Item 7 of the Report.
27
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
------------------------------------CP&L ENERGY, INC.
-----------------
(Registrant)
By /s/ Peter M. Scott III
------------------------------------------------------------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
CAROLINA POWER & LIGHT COMPANY
------------------------------
(Registrant)
By /s/ Robert H. Bazemore, Jr.
-------------------------------------------------------------------------
Robert H. Bazemore, Jr.
Vice President and Controller
(Chief Accounting Officer)
Date: May 12,August 14, 2000
2028
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
27Exhibit Number Description
3(a)(1) Amended and Restated Articles of
Incorporation of CP&L Energy, Inc., as
amended and restated on June 15, 2000.
3(b)(1) Bylaws of CP&L Energy, Inc., as amended and
restated June 15, 2000.
3(b)(2) Bylaws of Carolina Power & Light Company, as
amended on July 12, 2000.
27(a) Financial Data Schedule 21- CP&L Energy, Inc.
27(b) Financial Data Schedule - Carolina Power &
Light Company
29