UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________ .
Commission Exact name of registrants as specified in their charters, state of I.R.S. Employer
File Number incorporation, address of principal executive offices, and telephone number Identification Number
1-15929 Progress Energy, Inc. 56-2155481
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
Telephone: (919) 546-6111
State of Incorporation: North Carolina
1-3382 Carolina Power & Light Company 56-0165465
410 South Wilmington Street
Raleigh, North Carolina 27601-1748
Telephone: (919) 546-6111
State of Incorporation: North Carolina
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 .
--- ---
This combined Form 10-Q is filed separately by two registrants: Progress Energy,
Inc. (Progress Energy) and Carolina Power & Light Company (CP&L). Information
contained herein relating 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.
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. As of April 30, 2001,
each registrant had the following shares of common stock outstanding
Registrant Description Shares
---------- ----------- ------
Progress Energy, Inc. Common Stock (Without Par Value) 206,082,949
Carolina Power & Light Company Common Stock (Without Par Value) 159,608,055 (all of which were
held by Progress Energy, Inc.)
PROGRESS ENERGY, INC. AND CAROLINA POWER & LIGHT COMPANY
FORM 10-Q - For the Quarter Ended March 31, 2001
Glossary of Terms
Safe Harbor For Forward-Looking Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Interim Financial Statements:
Progress Energy, Inc.
-----------------------------
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Supplemental Data Schedule
Notes to Consolidated Interim Financial Statements
Carolina Power & Light Company
--------------------------------
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Interim Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 6. Exhibits and Reports on Form 8-K
Signatures
2
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
APEC Albemarle-Pamlico Economic Development Corporation
Code Internal Revenue Service Code
CP&L Carolina Power & Light Company
CP&L Energy CP&L Energy, Inc., now known as Progress Energy, Inc.
CR3 Florida Power's nuclear generating plant, Crystal River Unit No. 3
CVO Contingent value obligation
DEP Florida Department of Environment and Protection
DOE Department of Energy
Dt Dekatherm
DWM North Carolina Department of Environment and Natural Resources, Division
of Waste Management
Electric Fuels Electric Fuels Corporation
EasternNC Eastern North Carolina Natural Gas Company
Energy Ventures Progress Energy Ventures, Inc. (formerly known as CPL Energy Ventures,
Inc.)
EPA United States Environmental Protection Agency
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Florida Power Florida Power Corporation
FPC Florida Progress Corporation
FPSC Florida Public Service Commission
Generally accepted Accounting principles generally accepted in the United States of America
accounting principles
IRS Internal Revenue Service
kWh kilowatt-hour
MGP Manufactured Gas Plant
Monroe Power Monroe Power Company
MW Megawatt
NCNG North Carolina Natural Gas Corporation
NCUC North Carolina Utilities Commission
NOx SIP Call EPA rule which requires 22 states including North and South Carolina to
further reduce nitrogen oxide emissions.
NRC United States Nuclear Regulatory Commission
NSP Northern States Power
PLRs Private Letter Rulings
Progress Energy Progress Energy, Inc.
Progress Telecom Progress Telecommunications Corporation
PUHCA Public Utility Holding Company Act of 1935, as amended
RTO Regional Transmission Organization
SCPSC Public Service Commission of South Carolina
SEC United States Securities and Exchange Commission
SFAS No. 133 Statement of Financial Accounting Standards No. 133, Accounting for
Derivative and Hedging Activities
SFAS No. 138 Statement of Financial Accounting Standards No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of
FASB Statement No. 133
SRS Strategic Resource Solutions Corp.
the Company Progress Energy, Inc. and subsidiaries
3
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.
In addition, forward-looking statements are discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
including, but not limited to, statements under the sub-heading "Other
Matters" concerning synthetic fuel tax credits and regulatory developments.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made.
Examples of factors that you should consider 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, the Public
Service Commission of South Carolina and the Florida Public Service
Commission), particularly legislative and regulatory initiatives that may
impact the speed and degree of the restructuring of the electricity
industry and the results of negotiations related to the expiration of
Florida Power's rate stipulation; the outcome of legal and administrative
proceedings before our principal regulators; risks associated with
operating nuclear power facilities, availability of nuclear waste storage
facilities, and nuclear decommissioning costs; changes in the economy of
areas served by CP&L, Florida Power or NCNG; the extent to which we are
able to obtain adequate and timely rate recovery of costs, including
potential stranded costs arising from the restructuring of the electricity
industry; weather conditions and catastrophic weather-related damage;
general industry trends, increased competition from energy and gas
suppliers, and market demand for energy; inflation and capital market
conditions; the extent to which we are able to realize the potential
benefits of our recent acquisition of Florida Progress Corporation and
successfully integrate it with the remainder of our business; the extent to
which we are able to realize the potential benefits of the conversion of
Carolina Power & Light Company to a non-regulated holding company structure
and the success of our direct and indirect subsidiaries; the extent to
which we are able to use tax credits associated with the operations of the
synthetic fuel facilities; the extent to which we are able to reduce our
capital expenditures through the utilization of the natural gas expansion
fund established by the North Carolina Utilities Commission; and
unanticipated changes in operating expenses and capital expenditures.
All such factors are difficult to predict, contain uncertainties that may
materially affect actual results, and may be beyond the control of the
Company. New factors emerge from time to time, and it is not possible for
management to predict all such factors, nor can it assess the effect of
each such factor on the Company.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
Progress Energy, Inc.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
March 31, 2001
STATEMENTS OF INCOME
Three Months Ended
March 31,
(In thousands except per share amounts) 2001 2000
- --------------------------------------------------------------------------------------------------------------
Operating Revenues
Electric $ 1,632,048 $ 779,908
Natural gas 138,573 72,098
Diversified businesses 137,469 25,134
- --------------------------------------------------------------------------------------------------------------
Total Operating Revenues 1,908,090 877,140
- --------------------------------------------------------------------------------------------------------------
Operating Expenses
Fuel used in electric generation 369,856 160,387
Purchased power 217,548 70,259
Gas purchased for resale 109,593 43,898
Other operation and maintenance 295,097 198,227
Depreciation and amortization 313,164 132,489
Taxes other than on income 99,646 37,334
Harris Plant deferred costs, net 3,625 5,281
Diversified businesses 189,706 44,155
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses 1,598,235 692,030
- --------------------------------------------------------------------------------------------------------------
Operating Income 309,855 185,110
- --------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 9,943 3,263
Other, net 2,923 3,553
- --------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) 12,866 6,816
- --------------------------------------------------------------------------------------------------------------
Interest Charges
Long-term debt 126,443 50,072
Other interest charges 36,701 5,001
Allowance for borrowed funds used during construction (3,479) (4,606)
- --------------------------------------------------------------------------------------------------------------
Net Interest Charges 159,665 50,467
- --------------------------------------------------------------------------------------------------------------
Income before Income Taxes 163,056 141,459
Income Taxes 9,053 56,198
- --------------------------------------------------------------------------------------------------------------
Net Income $ 154,003 $ 85,261
==============================================================================================================
Average Common Shares Outstanding 199,799 153,054
Basic and Diluted Earnings per Common Share $ 0.77 $ 0.56
Dividends Declared per Common Share $ 0.530 $ 0.515
==============================================================================================================
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.
5
Progress Energy, Inc
BALANCE SHEETS
(In thousands) March 31, December 31,
Assets 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Utility Plant
Electric utility plant in service $ 18,205,786 $ 18,124,036
Gas utility plant in service 382,936 378,464
Accumulated depreciation (9,551,807) (9,350,235)
- ---------------------------------------------------------------------------------------------------------------------
Utility plant in service, net 9,036,915 9,152,265
Held for future use 16,302 16,302
Construction work in progress 1,186,617 1,043,439
Nuclear fuel, net of amortization 257,574 224,692
- ---------------------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 10,497,408 10,436,698
- ---------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 53,573 101,296
Accounts receivable 931,840 925,911
Inventory 519,914 420,985
Deferred fuel cost 190,013 217,806
Prepayments 16,594 50,040
Assets held for sale, net 782,763 747,745
Other current assets 183,598 192,347
- ---------------------------------------------------------------------------------------------------------------------
Total Current Assets 2,678,295 2,656,130
- ---------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Income taxes recoverable through future rates 213,639 208,997
Deferred purchased power contract termination costs 158,518 226,656
Harris Plant deferred costs 41,850 44,813
Unamortized debt expense 38,971 38,771
Nuclear decommissioning trust funds 813,072 811,998
Diversified business property, net 747,173 729,662
Miscellaneous other property and investments 602,163 510,935
Goodwill, net 3,605,862 3,652,429
Other assets and deferred debits 655,101 773,923
- ---------------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 6,876,349 6,998,184
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $ 20,052,052 $ 20,091,012
=====================================================================================================================
Capitalization and Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Capitalization
- ---------------------------------------------------------------------------------------------------------------------
Common stock equity $ 5,446,342 $ 5,424,201
Preferred stock of subsidiaries-not subject to mandatory redemption 92,831 92,831
Long-term debt, net 9,201,322 5,890,099
- ---------------------------------------------------------------------------------------------------------------------
Total Capitalization 14,740,495 11,407,131
- ---------------------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 202,000 184,037
Accounts payable 696,901 828,568
Taxes accrued 23,535 932
Interest accrued 120,276 121,433
Dividends declared 107,825 107,645
Short-term obligations 868,315 3,972,674
Other current liabilities 453,191 447,370
- ---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,472,043 5,662,659
- ---------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 1,698,037 1,807,192
Accumulated deferred investment tax credits 242,301 261,255
Other liabilities and deferred credits 899,176 952,775
- ---------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 2,839,514 3,021,222
- ---------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 9)
- ---------------------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 20,052,052 $ 20,091,012
=====================================================================================================================
SCHEDULES OF COMMON STOCK EQUITY
(In thousands except share data)
Common stock (without par value, authorized 500,000,000, issued and $ 3,610,146 $ 3,608,902
outstanding 206,082,949 and 206,089,047 shares, respectively)
Unearned ESOP common stock (119,759) (127,211)
Accumulated other comprehensive loss (34,991) -
Retained earnings 1,990,946 1,942,510
- ---------------------------------------------------------------------------------------------------------------------
Total Common Stock Equity $ 5,446,342 $ 5,424,201
=====================================================================================================================
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.
6
Progress Energy, Inc.
STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
(In thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 154,003 $ 85,261
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 333,847 153,785
Harris Plant deferred costs 2,963 4,547
Deferred income taxes (19,182) (31,040)
Investment tax credit (6,973) (2,599)
Deferred fuel cost 27,793 7,459
Net decrease in accounts receivable 27,815 30,546
Net (increase) decrease in inventories (115,188) 2,893
Net decrease in prepaids and other current assets 32,273 107,349
Net decrease in accounts payable (59,630) (22,058)
Net increase (decrease) in other current liabilities (16,060) 92,069
Other 3,344 54,336
- -----------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 365,005 482,548
- -----------------------------------------------------------------------------------------------------------
Investing Activities
Gross property additions (270,922) (231,657)
Nuclear fuel additions (61,161) (25,252)
Contributions to nuclear decommissioning trust (15,220) (10,275)
Net cash flow of company-owned life insurance program 417 13
Investments in non-utility activities (55,191) (26,603)
- -----------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (402,077) (293,774)
- -----------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 3,176,010 -
Net increase (decrease) in short-term indebtedness (2,913,841) 11,900
Net increase (decrease) in outstanding payments (89,015) 31,553
Retirement of long-term debt (31,110) (197,365)
Dividends paid on common stock (106,163) (78,189)
Other (46,532) -
- -----------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (10,651) (232,101)
- -----------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (47,723) (43,327)
Cash and Cash Equivalents at Beginning of the Period 101,296 79,871
- -----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period $ 53,573 $ 36,544
===========================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest $ 159,269 $ 66,733
income taxes $ 8,307 $ 1,389
===========================================================================================================
See Notes to Progress Energy, Inc. Consolidated Interim Financial Statements.
7
Progress Energy, Inc.
SUPPLEMENTAL DATA SCHEDULE Three Months Ended
March 31,
2001 2000(a)
- ------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands)
Electric
Retail $ 1,323,017 $ 634,770
Wholesale 264,433 130,396
Unbilled (61,878) (808)
Miscellaneous revenue 106,476 15,550
- ------------------------------------------------------------------------------------------------------------------
Total Electric 1,632,048 779,908
Natural gas 138,573 72,098
Diversified businesses 137,469 25,134
- ------------------------------------------------------------------------------------------------------------------
Total Operating Revenues $ 1,908,090 $ 877,140
==================================================================================================================
Energy Sales
Electric (millions of kWh)
Retail
Residential 8,722 3,928
Commercial 5,274 2,556
Industrial 4,194 3,400
Other retail 962 341
- ------------------------------------------------------------------------------------------------------------------
Total retail 19,152 10,225
Unbilled (1,168) (65)
Wholesale 4,779 3,708
- ------------------------------------------------------------------------------------------------------------------
Total Electric 22,763 13,868
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
Natural Gas Delivered (thousands of dt) 14,845 17,344
==================================================================================================================
Energy Supply (millions of kWh)
Generated - steam 11,913 7,460
nuclear 7,138 5,664
hydro 53 176
combustion turbines 1,137 34
Purchased 3,674 1,032
- ------------------------------------------------------------------------------------------------------------------
Total Energy Supply (Company Share) 23,915 14,366
==================================================================================================================
Detail of Income Taxes (in thousands)
Income tax expense (credit) - current $ 35,208 $ 89,837
deferred (19,182) (31,040)
investment tax credit (6,973) (2,599)
- ------------------------------------------------------------------------------------------------------------------
Total Income Tax Expense $ 9,053 $ 56,198
==================================================================================================================
(a) Supplemental data does not include information related to Florida Progress
for the three months ended March 31, 2000.
8
Progress Energy, Inc.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
A. Organization. Progress Energy, Inc. (the Company) is a registered
holding company under the Public Utility Holding Company Act
(PUHCA) of 1935. Both the Company and its subsidiaries are
subject to the regulatory provisions of the PUHCA. The Company
was formed as a result of the reorganization of Carolina Power &
Light Company (CP&L) into a holding company structure on June 19,
2000. All shares of common stock of CP&L were exchanged for an
equal number of shares of the Company. On December 4, 2000, the
Company changed its name from CP&L Energy, Inc. to Progress
Energy, Inc. Through its wholly-owned regulated subsidiaries,
CP&L, Florida Power Corporation (Florida Power) and North
Carolina Natural Gas Corporation (NCNG), the Company is primarily
engaged in the generation, transmission, distribution and sale of
electricity in portions of North Carolina, South Carolina and
Florida and the transport, distribution and sale of natural gas
in portions of North Carolina. The Company also engages in
non-regulated business areas such as telecommunications, coal and
synthetic fuel operations, energy management and related services
and merchant energy generation.
B. Basis of Presentation. These financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (generally accepted
accounting principles) for interim financial information and with
the instructions to Form 10-Q and Regulation S-X. Accordingly,
they do not include all of the information and footnotes required
by generally accepted accounting principles for complete
financial statements. Because the accompanying consolidated
interim financial statements do not include all of the
information and footnotes required by generally accepted
accounting principles, they should be read in conjunction with
the audited financial statements for the period ended December
31, 2000 and notes thereto included in Progress Energy's Form
10-K for the year ended December 31, 2000.
The amounts included in the consolidated interim financial
statements are unaudited but, in the opinion of management,
reflect all adjustments necessary to fairly present the Company's
financial position and results of operations for the interim
periods. Due to seasonal weather variations 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 2000 have been reclassified to conform to the
2001 presentation.
In preparing financial statements that conform with generally
accepted accounting principles, management must make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and amounts of revenues and
expenses reflected during the reporting period. Actual results
could differ from those estimates.
2. FLORIDA PROGRESS CORPORATION
----------------------------
On November 30, 2000, the Company completed its acquisition of Florida
Progress Corporation (FPC) for an aggregate purchase price of
approximately $5.4 billion. The Company paid cash consideration of
approximately $3.5 billion and issued 46.5 million common shares valued
at approximately $1.9 billion. In addition, the Company issued 98.6
million contingent value obligations (CVO) valued at approximately
$49.3 million. The purchase price includes $18.6 million in direct
transaction costs.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the results of operations for FPC have
been included in the Company's consolidated financial statements since
the date of acquisition. There were no significant purchase price
adjustments for the three months ended March 31, 2001. The excess of
the purchase price over the estimated fair value of the net
identifiable assets and liabilities acquired has been recorded as
goodwill. The goodwill, of approximately $3.4 billion, is being
amortized on a straight-line basis over a period of primarily 40 years.
The fair values of FPC's rate-regulated net assets acquired were
considered to be equivalent to book value since book value represents
the amount that will be recoverable through regulated rates. The
allocation of the purchase
9
price included estimated amounts expected to be realized from the sale
of FPC's Rail Services and Inland Marine Transportation business
segments which are classified as net assets held for sale (See Note 3).
The SEC order approving the merger requires the Company to divest of
certain other immaterial non-regulated investments of FPC.
The Company began the implementation of a plan to combine operations of
the companies resulting in a non-executive involuntary termination cost
accrual of approximately $52.2 million. Approximately $41.8 million is
attributable to Florida Power employees and has been reflected as part
of the purchase price allocation, while approximately $10.4 million
attributable to acquiring company employees was charged to operating
results in 2000. The Company expects to complete the implementation
phase of the plan by the end of June 2001 and finalize the plan by the
end of 2001. The majority of the related severance payments are
expected to occur in 2001 with the remaining payments occurring through
2003. The Company expects additional termination effects related to
pension and postretirement benefit plan curtailments in 2001.
The first quarter activity for the termination costs is detailed in the
table below:
Non-Executive
(In millions) Termination Costs
-----------------
Balance at December 31, 2000 $ 52.1
Payments (13.5)
Adjustments -
--------------------------
Balance at March 31, 2001 $ 38.6
==========================
The final purchase price allocation and estimated life of goodwill are
subject to adjustment for changes in the Company's preliminary
assumptions and analyses, pending additional information concerning
asset and liability valuations and the evaluation of certain
pre-acquisition contingent liabilities, including but not limited to:
o final actuarial valuations of pension and other postretirement
benefit plan obligations
o proceeds realized from the disposition of assets held for sale
o valuations of non-regulated businesses and individual assets and
liabilities
The following unaudited pro forma combined results of operations for
the three months ended March 31, 2000, has been prepared assuming the
acquisition of FPC had occurred on January 1, 2000. The pro forma
results are provided for information purposes only. The results are not
necessarily indicative of the actual results that would have been
realized had the acquisition occurred on the indicated date, nor are
they necessarily indicative of future results of operations of the
combined companies.
(in thousands, except per share data)
Three Months Ended
March 31, 2000
------------------
Revenues $ 1,555,465
Net income $ 106,484
Basic and diluted earnings per share $ 0.53
Average shares 199,546
3. NET ASSETS HELD FOR SALE
-------------------------
FPC's Rail Services and Inland Marine Transportation business segments
are included in the Company's net assets held for sale. Rail Services'
operations include railcar repair, rail parts reconditioning and sales,
scrap metal recycling and other rail related services. Inland Marine
Transportation provides transportation of coal, agriculture and other
dry-bulk commodities as well as fleet management services. The Company
intends to sell these business lines during 2001 in order to focus on
growing core businesses.
The Company's results of operations for the three months ended March
31, 2001, exclude a $1.7 million net loss from the FPC's Rail Services
and Inland Marine Transportation businesses and allocated interest
expense, net of tax, totaling approximately $2.8 million. Both the
expected earnings from these businesses and allocated interest expense,
net of tax, during the holding period on the incremental debt incurred
to finance the purchase of these business segments has been included in
the determination of net assets held for sale.
10
The table below reflects the adjustments to the carrying value of the
net assets held for sale for the three months ended March 31, 2001:
(in thousands)
---------------------------------------------------------------------
Carrying value at December 31, 2000 $ 747,745
Interest allocated, net of tax 2,823
Cash flows funded by parent 32,195
---------------------------------------------------------------------
Carrying value at March 31, 2001 $ 782,763
4. FINANCIAL INFORMATION BY BUSINESS SEGMENT
----------------------------------------------
Effective with the acquisition of FPC on November 30, 2000, the Company
changed the basis of segment reporting and measurement of segment
profitability beginning with the fourth quarter of 2000. Prior periods
have been restated to reflect this change. The Company currently
provides services through the following business segments: CP&L
electric, Florida Power electric, natural gas, energy and related
services and other.
FPC's operations consist mainly of the Florida Power electric segment
and certain other subsidiaries involved in coal and synthetic fuel
operations and telecommunication services. The operating results of
Electric Fuels subsidiaries involved in coal and synthetic fuel
operations are included in the energy and related services segment and
the operating results of Progress Telecommunications Corporation
(Progress Telecom) are included in the other segment. FPC operations
are not included in the Company's results of operations prior to the
acquisition date of November 30, 2000.
The electric segments (CP&L and Florida Power) generate, transmit,
distribute and sell electric energy in portions of North Carolina,
South Carolina and Florida. Electric operations are subject to the
rules and regulations of FERC, the NCUC, the SCPSC and the FPSC.
The natural gas segment transports, distributes and sells gas in
portions of North Carolina. Gas operations are subject to the rules and
regulations of the NCUC.
The energy and related services segment is primarily made up of
merchant energy generation, coal and synthetic fuel operations.
The other segment is primarily made up of other diversified businesses
and holding company operations. The other segment includes
telecommunication services, energy management services and
miscellaneous non-regulated activities and elimination entries.
For reportable segments presented in the accompanying table, segment
income includes intersegment revenues accounted for at prices
representative of unaffiliated party transactions.
Energy and
(in thousands) Florida Power Related Segment
CP&L Electric Electric Natural Gas Services Other Totals
=================================================================================================================================
Three Months Ended 3/31/01
Revenues
Unaffiliated $821,574 $810,474 $138,042 $111,220 $26,249 $1,907,559
Intersegment - - 531 76,465 (76,465) 531
--------------- ----------------- --------------- ---------------- ------------- --------------
Total Revenues $821,574 $810,474 $138,573 $187,685 $(50,216) $1,908,090
Segment Income (Loss) $118,794 $71,606 $7,533 $41,717 $(85,647) $154,003
Total Segment Assets $8,713,177 $4,829,168 $738,209 $701,024 $5,070,474 $20,052,052
=================================================================================================================================
=================================================================================================================================
Energy and
Florida Power Related Segment
CP&L Electric Electric Natural Gas Services Other Totals
=================================================================================================================================
Three Months Ended 3/31/00
Revenues
Unaffiliated $ 779,908 - $ 71,968 $ 1,369 $ 23,765 $ 877,010
Intersegment - - 130 - - 130
--------------- ----------------- --------------- ---------------- ------------- --------------
Total Revenues $ 779,908 - $ 72,098 $ 1,369 $23,765 $ 877,140
Segment Income (Loss) $89,961 - $8,800 $232 $ (13,732) $ 85,261
Total Segment Assets $8,356,381 - $542,992 $96,676 $ 383,696 $9,379,745
=================================================================================================================================
=================================================================================================================================
11
5. IMPACT OF NEW ACCOUNTING STANDARD
---------------------------------
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138. SFAS
No. 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as assets or
liabilities in the consolidated balance sheet and measure those
instruments at fair value.
As a result of the adoption of SFAS No. 133, the Company recorded a
transition adjustment as a cumulative effect of a change in accounting
principle of $23.6 million, net of tax, which increased accumulated
other comprehensive loss as of January 1, 2001. This amount relates to
several derivatives used to hedge cash flows related to interest on
long-term debt. The net derivative losses will be reclassified into
earnings consistent with hedge designations, primarily over the life of
the related debt instruments, which principally range from three to ten
years. The Company estimates that approximately $6.8 million of the
$23.6 million net losses will be reclassified into earnings during the
twelve months ended December 31, 2001. There was no transition
adjustment affecting the consolidated statement of income as a result
of the adoption of SFAS No. 133.
The application of the new rules is still evolving and further guidance
from the Financial Accounting Standards Board (FASB) is expected, which
could additionally impact the Company's financial statements.
6. COMPREHENSIVE INCOME
--------------------
Comprehensive income for the three months ended March 31, 2001, was
$119.0 million. For the three months ended March 31, 2000,
comprehensive income was $85.3 million. Prior to the adoption of SFAS
No. 133 (see Note 5) the Company had no other comprehensive income
items and therefore comprehensive income for the three months ended
March 31, 2000 is equal to net income for that period.
7. FINANCING ACTIVITIES
--------------------
On February 22, 2001, the Company issued $3.2 billion of senior
unsecured notes with maturities ranging from three to thirty years.
Proceeds from this issuance were primarily used to retire short-term
obligations issued in connection with the FPC acquisition.
Additionally, as part of this transaction, the Company terminated the
$1.125 billion notional amount of interest rate forward contracts that
were issued in anticipation of the debt issuance. The Company
recognized a $45.3 million loss on these contracts, designated as cash
flow hedges, that is being deferred through accumulated comprehensive
loss and amortized over the life of the associated debt instruments.
On April 9, 2001, CP&L issued $300 million of 6.65% Medium-Term Notes,
Series D due April 1, 2008. Proceeds from the issuance were primarily
used to retire commercial paper.
8. FPC-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES (QUIPS) OF
--------------------------------------------------------------------
SUBSIDIARY HOLDING SOLELY FPC GUARANTEED NOTE
---------------------------------------------
In April 1999, FPC Capital I (the Trust), an indirect wholly-owned
subsidiary of FPC, issued 12 million shares of $25 par cumulative
FPC-obligated mandatorily redeemable preferred securities (Preferred
Securities) due 2039, with an aggregate liquidation value of $300
million and a quarterly distribution rate of 7.10%. Currently, all 12
million shares of the Preferred Securities that were issued are
outstanding. Concurrent with the issuance of the Preferred Securities,
the Trust issued to Florida Progress Funding Corporation (Funding
Corp.) all of the common securities of the Trust (371,135 shares) for
$9.3 million. Funding Corp. is a direct wholly-owned subsidiary of FPC.
The existence of the Trust is for the sole purpose of issuing the
Preferred Securities and the common securities and using the proceeds
thereof to purchase from Funding Corp. its 7.10% Junior Subordinated
Deferrable Interest Notes (subordinated notes) due 2039, for a
principal amount of $309.3 million. The subordinated notes and the
Notes Guarantee (as discussed below) are the sole assets of the Trust.
Funding Corp.'s proceeds from the sale of the subordinated notes were
advanced to Progress Capital and used for general corporate purposes
including the repayment of a portion of certain outstanding short-term
bank loans and commercial paper.
12
FPC has fully and unconditionally guaranteed the obligations of Funding
Corp. under the subordinated notes (the Notes Guarantee). In addition,
FPC has guaranteed the payment of all distributions required to be made
by the Trust, but only to the extent that the Trust has funds available
for such distributions (Preferred Securities Guarantee). The Preferred
Securities Guarantee, considered together with the Notes Guarantee,
constitutes a full and unconditional guarantee by FPC of the Trust's
obligations under the Preferred Securities.
The subordinated notes may be redeemed at the option of Funding Corp.
beginning in 2004 at par value plus accrued interest through the
redemption date. The proceeds of any redemption of the subordinated
notes will be used by the Trust to redeem proportional amounts of the
Preferred Securities and common securities in accordance with their
terms. Upon liquidation or dissolution of Funding Corp., holders of the
Preferred Securities would be entitled to the liquidation preference of
$25 per share plus all accrued and unpaid dividends thereon to the date
of payment.
9. COMMITMENTS AND CONTINGENCIES
-----------------------------
Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 2000,
with respect to the commitments discussed in Note 19 of the financial
statements included in the Company's 2000 Annual Report on Form 10-K.
Contingencies
1) Insurance. The Company is a member of Nuclear Electric
Insurance Limited (NEIL), which provides primary and excess
insurance coverage against property damage to members' nuclear
generating facilities. Under the primary program, the Company
is insured for $500 million at each of its nuclear plants. In
addition to primary coverage, NEIL also provides
decontamination, premature decommissioning and excess property
insurance with limits of $1.0 billion on the Brunswick Plant,
$1.0 billion on the Harris Plant, $800 million on the Robinson
Plant, and $1.1 billion on Crystal River Unit No. 3 (CR3). An
additional shared limit policy of $1 billion in excess of $1
billion is also provided through NEIL on the Brunswick and
Harris Plants for decontamination, premature decommissioning
and excess property.
Insurance coverage against incremental costs of replacement
power resulting from prolonged accidental outages at nuclear
generating units is also provided through membership in NEIL.
The Company is insured thereunder, following a twelve week
deductible period, for 52 weeks in weekly amounts of $2.25
million at Brunswick Unit No. 1, $2.25 million at Brunswick
Unit No. 2, $2.4 million at the Harris Plant, $1.96 million at
Robinson Unit No. 2 and $2.1 million at CR3. An additional 104
weeks of coverage is provided at 80% of the above weekly
amounts. For the current policy period, the Company is subject
to retrospective premium assessments of up to approximately
$13.5 million with respect to the primary coverage, $15.4
million with respect to the decontamination, decommissioning
and excess property coverage, $2.6 million with respect to the
shared limit excess coverage and $7.1 million for the
incremental replacement power costs coverage, in the event
covered expenses at insured facilities exceed premiums,
reserves, reinsurance and other NEIL resources. Pursuant to
regulations of the NRC, the Company's property damage
insurance policies provide that all proceeds from such
insurance be applied, first, to place the plant in a safe and
stable condition after an accident and, second, to
decontamination costs, before any proceeds can be used for
decommissioning, plant repair or restoration. The Company is
responsible to the extent losses may exceed limits of the
coverage described above.
Under the provisions of the Price Anderson Act, which limits
liability for accidents at nuclear power plants, the Company,
as an owner of nuclear plants, can be assessed for a portion
of any third-party liability claims arising from an accident
at any commercial nuclear power plant in the United States.
The Company is insured against public liability for a nuclear
incident up to $9.54 billion per occurrence. In the event that
public liability claims from an insured nuclear incident
exceed $200 million, CP&L and Florida Power would be subject
to a pro rata assessment of up to $83.9 million and $88.1
million, respectively, for each reactor owned per occurrence.
Payment of such assessment would be made over time as
necessary to limit the payment in any one year to no more than
$10 million per reactor owned.
13
Florida Power self-insures its transmission and distribution
lines against loss due to storm damage and other natural
disasters. Pursuant to a regulatory order, Florida Power is
accruing $6 million annually to a storm damage reserve and may
defer any losses in excess of the reserve.
14
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 federal and state laws. The lead or sole
regulatory agency that is responsible for a particular former
coal tar site depends largely upon the state in which the site
is located. There are several manufactured gas plant (MGP)
sites to which both electric utilities and the gas utility
have some connection. In this regard, both electric utilities
and the gas utility, with other potentially responsible
parties, are participating in investigating and, if necessary,
remediating former coal tar sites with several regulatory
agencies, including, but not limited to, the U.S.
Environmental Protection Agency (EPA), the Florida Department
of Environment and Protection (DEP) and the North Carolina
Department of Environment and Natural Resources, Division of
Waste Management (DWM). Although the Company may incur costs
at these sites about which it has been notified, based upon
current status of these sites, the Company does not expect
those costs to be material to its consolidated financial
position or results of operations.
Both electric utilities, the gas utility and Electric Fuels
are periodically notified by regulators such as the EPA and
various state agencies of their involvement or potential
involvement in sites, other than MGP sites, that may require
investigation and/or remediation. Although the Company's
subsidiaries may incur costs at the sites about which they
have been notified, based upon the current status of these
sites, the Company does not expect those costs to be material
to the consolidated financial position or results of
operations 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. Both CP&L and
Florida Power have recently been asked to provide information
to the EPA as part of this initiative and have cooperated in
providing the requested information. The EPA has initiated
enforcement actions against other unaffiliated utilities as
part of this initiative, some of which have resulted in
settlement agreements calling for expenditures, ranging from
$1.0 billion to $1.4 billion. These settlement agreements have
generally called for expenditures to be made over extended
time periods, and some of the companies may seek recovery of
the related cost through rate adjustments. The Company 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 23 jurisdictions,
including North and South Carolina, but not Florida, to
further reduce nitrogen oxide emissions in order to attain a
pre-set state NOx emission level by May 31, 2004. CP&L is
evaluating necessary measures to comply with the rule and
estimates its related capital expenditures could be
approximately $370 million, which has not been adjusted for
inflation. Increased operation and maintenance costs relating
to the NOx SIP Call are not expected to be material to the
Company's results of operations. Further controls are
anticipated as electricity demand increases. The Company
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. The U.S.
Supreme Court has upheld, in part, the District of Columbia
Circuit Court of Appeals decision. Further litigation and
rulemaking are anticipated. North Carolina adopted the federal
eight-hour ozone standard and is proceeding with the
implementation process. North Carolina has promulgated final
regulations, which will require CP&L to install nitrogen oxide
controls under the State's eight-hour standard. The cost of
those controls are included in the cost estimate of $370
million set forth above.
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
15
of regulations that affect nitrogen oxide emissions from
sources included in the petitions. The North Carolina
fossil-fueled electric generating plants are included in these
petitions. Acceptable state plans under the NOx SIP call can
be approved in lieu of the final rules the EPA approved as
part of the 126 petitions. CP&L, other utilities, trade
organizations and other states are participating in litigation
challenging the EPA's action. The Company cannot predict the
outcome of this matter.
Both electric utilities and the gas utility have filed claims
with the Company's general liability insurance carriers to
recover costs arising out of actual or potential environmental
liabilities. Some claims have settled and others are still
pending. While management cannot predict the outcome of these
matters, the outcome is not expected to have a material effect
on the consolidated financial position or results of
operations.
b) As required under the Nuclear Waste Policy Act of 1982,
CP&L and Florida Power each entered into a contract with the
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 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 found that the delay was not unavoidable,
but 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 filed a motion with the
Court of Appeals to enforce the mandate in NSP v. DOE.
Specifically, this group of 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. In a recent decision, the U.S.
Circuit Court of Appeals (Federal Circuit) ruled that
utilities may sue the DOE for damages in the Federal Court of
Claims instead of having to file an administrative claim with
DOE. CP&L and Florida Power are in the process of evaluating
whether they should each file a similar action for damages.
CP&L and Florida Power also continue to monitor legislation
that has been introduced in Congress which might provide some
limited relief. CP&L and Florida Power cannot predict the
outcome of this matter.
With certain modifications and additional approval by the NRC,
CP&L's spent nuclear 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 obtained NRC approval to use additional
storage space at the Harris Plant in December 2000. Florida
Power currently is storing spent nuclear fuel onsite in spent
fuel pools. If Florida Power does not seek renewal of the CR3
operating license, with certain modifications to its storage
pools currently underway, CR3 will have sufficient storage
capacity in place for fuel consumed through the end of the
expiration of the license in 2016. If Florida Power extends
the CR3 operating license, dry storage may be necessary.
c) The Company and its subsidiaries are involved in various
litigation matters in the ordinary course of business, some of
which involve substantial amounts. Where appropriate, accruals
have been made in
16
accordance with SFAS No. 5, "Accounting for Contingencies," to
provide for such matters. In the opinion of management, the
final disposition of pending litigation would not have a
material adverse effect on the Company's consolidated results
of operations or financial position.
17
CAROLINA POWER & LIGHT COMPANY
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
March 31, 2001
STATEMENTS OF INCOME
Three Months Ended
March 31,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------------
Operating Revenues
Electric $ 821,574 $ 779,908
Natural gas - 72,098
Diversified businesses 5,029 25,134
- --------------------------------------------------------------------------------------------------------------
Total Operating Revenues 826,603 877,140
- --------------------------------------------------------------------------------------------------------------
Operating Expenses
Fuel used in electric generation 153,470 160,387
Purchased power 91,929 70,259
Gas purchased for resale - 43,898
Other operation and maintenance 168,654 198,227
Depreciation and amortization 134,335 132,489
Taxes other than on income 38,436 37,334
Harris Plant deferred costs, net 3,625 5,281
Diversified businesses 4,513 44,155
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses 594,962 692,030
- --------------------------------------------------------------------------------------------------------------
Operating Income 231,641 185,110
- --------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 4,685 3,263
Other, net 9,357 4,295
- --------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) 14,042 7,558
- --------------------------------------------------------------------------------------------------------------
Interest Charges
Long-term debt 62,569 50,072
Other interest charges 2,285 5,001
Allowance for borrowed funds used during construction (2,772) (4,606)
- --------------------------------------------------------------------------------------------------------------
Net Interest Charges 62,082 50,467
- --------------------------------------------------------------------------------------------------------------
Income before Income Taxes 183,601 142,201
Income Taxes 62,756 56,198
- --------------------------------------------------------------------------------------------------------------
Net Income 120,845 86,003
Preferred Stock Dividend Requirements (741) (742)
- --------------------------------------------------------------------------------------------------------------
Earnings for Common Stock $ 120,104 $ 85,261
==============================================================================================================
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.
18
Carolina Power & Light Company
CONSOLIDATED BALANCE SHEETS
(In thousands) March 31, December 31,
Assets 2001 2000
- --------------------------------------------------------------------------------------------------------------
Utility Plant
Electric utility plant in service $ 11,198,432 $ 11,125,901
Accumulated depreciation (5,629,129) (5,505,731)
- --------------------------------------------------------------------------------------------------------------
Utility plant in service, net 5,569,303 5,620,170
Held for future use 7,105 7,105
Construction work in progress 905,690 815,246
Nuclear fuel, net of amortization 187,366 184,813
- --------------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 6,669,464 6,627,334
- --------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 14,806 30,070
Accounts receivable 391,634 466,774
Receivables from affiliated companies 352,715 362,834
Taxes receivable - 15,412
Inventory 271,112 233,369
Deferred fuel cost 123,691 119,853
Prepayments 18,618 24,284
Other current assets 75,191 75,451
- --------------------------------------------------------------------------------------------------------------
Total Current Assets 1,247,767 1,328,047
- --------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Income taxes recoverable through future rates 215,214 210,571
Harris Plant deferred costs 41,850 44,813
Unamortized debt expense 15,445 15,716
Nuclear decommissioning trust funds 414,193 411,279
Diversified business property, net 105,342 102,294
Miscellaneous other property and investments 358,626 395,995
Other assets and deferred debits 119,723 124,339
- --------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 1,270,393 1,305,007
- --------------------------------------------------------------------------------------------------------------
Total Assets $ 9,187,624 $ 9,260,388
==============================================================================================================
Capitalization and Liabilities
- --------------------------------------------------------------------------------------------------------------
Capitalization
- --------------------------------------------------------------------------------------------------------------
Common stock $ 1,639,720 $ 1,625,894
Retained earnings 1,257,282 1,226,144
Accumulated other comprehensive loss (4,561) -
Preferred stock - not subject to mandatory redemption 59,334 59,334
Long-term debt, net 3,804,305 3,619,984
- --------------------------------------------------------------------------------------------------------------
Total Capitalization 6,756,080 6,531,356
- --------------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable 194,614 281,026
Payables to affiliated companies 15,617 275,976
Taxes accrued 91,901 -
Interest accrued 47,772 56,259
Dividends declared 1,482 1,482
Other current liabilities 178,813 146,191
- --------------------------------------------------------------------------------------------------------------
Total Current Liabilities 530,199 760,934
- --------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 1,432,723 1,491,660
Accumulated deferred investment tax credits 180,245 197,207
Other liabilities and deferred credits 288,377 279,231
- --------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 1,901,345 1,968,098
- --------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 6)
- --------------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 9,187,624 $ 9,260,388
==============================================================================================================
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.
19
Carolina Power & Light Company
STATEMENTS OF CASH FLOWS Three Months Ended
March 31,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 120,845 $ 86,003
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 156,915 153,785
Harris Plant deferred costs 2,963 4,547
Deferred income taxes (31,051) (31,040)
Investment tax credit (4,984) (2,599)
Deferred fuel cost (credit) (3,838) 7,459
Net decrease in accounts receivable 132,480 30,546
Net (increase) decrease in inventories (37,743) 2,893
Net decrease in prepaids and other current assets 5,926 107,349
Net decrease in accounts payable (317,332) (22,058)
Net increase in other current liabilities 78,610 92,069
Other 4,759 55,078
- --------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 107,550 484,032
- --------------------------------------------------------------------------------------------------------------
Investing Activities
Gross property additions (204,266) (231,657)
Nuclear fuel additions (25,142) (25,252)
Contributions to nuclear decommissioning trust (10,228) (10,275)
Net cash flow of company-owned life insurance program 417 13
Investments in non-utility activities (4,631) (26,603)
- --------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (243,850) (293,774)
- --------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 185 -
Net increase in short-term indebtedness 191,555 11,900
Net increase in outstanding payments - 31,553
Retirement of long-term debt (109) (197,365)
Dividends paid on common stock (69,854) (78,931)
Dividends paid on preferred stock (741) (742)
- --------------------------------------------------------------------------------------------------------------
Net Cash Provide by (Used in) Financing Activities 121,036 (233,585)
- --------------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (15,264) (43,327)
Cash and Cash Equivalents at Beginning of the Period 30,070 79,871
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period $ 14,806 $ 36,544
==============================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period - interest $ 69,016 $ 66,733
income taxes $ (6,382) $ 1,389
==============================================================================================================
See Notes to Carolina Power & Light Company Consolidated Interim Financial Statements.
20
Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
---------------------------------------
A. Organization. Carolina Power & Light Company (CP&L) is a
public service corporation primarily engaged in the
generation, transmission, distribution and sale of electricity
in portions of North Carolina and South Carolina. CP&L is a
wholly-owned subsidiary of Progress Energy, Inc. (Progress
Energy or the Company), which was formed as a result of the
reorganization of CP&L into a holding company structure on
June 19, 2000. All shares of common stock of CP&L were
exchanged for an equal number of shares of the Company. On
December 4, 2000, the Company changed its name from CP&L
Energy, Inc. to Progress Energy, Inc. The Company is a
registered holding company under the Public Utility Holding
Company Act (PUCHA) of 1935. Both the Company and its
subsidiaries are subject to the regulatory provisions of the
PUCHA.
On July 1, 2000, CP&L distributed its ownership interest in
the stock of North Carolina Natural Gas (NCNG), Strategic
Resource Solutions Corporation (SRS), Monroe Power Company
(Monroe Power) and Progress Energy Ventures, Inc. (Energy
Ventures) to the Company. As a result, those companies are
direct subsidiaries of the Progress Energy, Inc. and are not
included in CP&L's results of operations and financial
position since that date.
B. Basis of Presentation. These financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (generally accepted
accounting principles) for interim financial information and
with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. Because the accompanying
consolidated interim financial statements do not include all
of the information and footnotes required by generally
accepted accounting principles, they should be read in
conjunction with the audited financial statements for the
period ended December 31, 2000 and notes thereto included in
CP&L's Form 10-K for the year ended December 31, 2000.
The amounts included in the consolidated interim financial
statements are unaudited but, in the opinion of management,
reflect all adjustments necessary to fairly present the
Company's financial position and results of operations for the
interim periods. Due to seasonal weather variations 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 2000 have been
reclassified to conform to the 2001 presentation, with no
effect on previously reported net income or common stock
equity.
In preparing financial statements that conform with generally
accepted accounting principles, management must make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements and amounts of
revenues and expenses reflected during the reporting period.
Actual results could differ from those estimates.
2. FINANCIAL INFORMATION BY BUSINESS SEGMENT
-----------------------------------------
As described in Note 1A, on July 1, 2000, CP&L distributed its
ownership interest in the stock of NCNG, SRS, Monroe Power and Energy
Ventures to Progress Energy. As a result, those companies are direct
subsidiaries of Progress Energy and are not included in CP&L's results
of operations and financial position since that date.
Through June 30, 2000, the business segments, operations and assets of
Progress Energy and CP&L were substantially the same. Subsequent to
July 1, 2000, CP&L's operations consist primarily of the CP&L Electric
segment with no other material segments.
21
The financial information by business segment for CP&L-Electric for the
three months ended March 31, 2001 and 2000 is as follows:
(In thousands) March 31, 2001 March 31, 2000
==========================================================================================
Revenues
Unaffiliated $821,574 $779,908
Intersegment - -
-----------------------------------------------
Total Revenues $821,574 $779,908
Segment Income $118,794 $89,961
Total Segment Assets $8,713,177 $8,356,381
==========================================================================================
==========================================================================================
The primary differences between the CP&L Electric and CP&L consolidated
financial information relate to other non-electric operations and
elimination entries.
3. IMPACT OF NEW ACCOUNTING STANDARD
---------------------------------
Effective January 1, 2001, CP&L adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138. SFAS
No. 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as assets or
liabilities in the consolidated balance sheet and measure those
instruments at fair value.
The adoption of SFAS No. 133 did not result in a significant transition
adjustment affecting accumulated other comprehensive loss.
Additionally, there was no transition adjustment affecting the
consolidated statement of income as a result of the adoption of SFAS
No. 133.
The application of the new rules is still evolving and further guidance
from the Financial Accounting Standards Board (FASB) is expected, which
could additionally impact CP&L's financial statements.
4. COMPREHENSIVE INCOME
---------------------
Comprehensive income for the three months ended March 31, 2001, was
$116.3 million. For the three months ended March 31, 2000,
comprehensive income was $86.0 million. Prior to the adoption of SFAS
No. 133 (See Note 3) CP&L had no other comprehensive income items and
therefore comprehensive income for the three months ended March 31,
2000 is equal to net income for that period.
5. FINANCING ACTIVITIES
--------------------
On April 9, 2001, CP&L issued $300 million of Medium-Term Notes, 6.65%
Series D due April 1, 2008. Proceeds from the issuance were primarily
used to retire commercial paper.
6. COMMITMENTS AND CONTINGENCIES
------------------------------
Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 2000,
with respect to the commitments discussed in Note 16 of the financial
statements included in CP&L's 2000 Annual Report on Form 10-K.
Contingencies
1) Insurance. CP&L is a member of Nuclear Electric Insurance
Limited (NEIL), which provides primary and excess insurance
coverage against property damage to members' nuclear
generating facilities. Under the primary program, CP&L is
insured for $500 million at each of its nuclear plants. In
addition to primary coverage, NEIL also provides
decontamination, premature decommissioning and excess property
insurance with limits of $1.0 billion on the Brunswick Plant,
$1.0 billion on the Harris Plant and $800 million on the
Robinson Plant. An additional shared limit policy of $1
billion in excess of $1 billion is also provided
22
through NEIL on the Brunswick and Harris Plants for
decontamination, premature decommissioning and excess
property.
Insurance coverage against incremental costs of replacement
power resulting from prolonged accidental outages at nuclear
generating units is also provided through membership in NEIL.
CP&L is insured thereunder, following a twelve week deductible
period, for 52 weeks in weekly amounts of $2.25 million at
Brunswick Unit No. 1, $2.25 million at Brunswick Unit No. 2,
$2.4 million at the Harris Plant and $1.96 million at Robinson
Unit No. 2. An additional 104 weeks of coverage is provided at
80% of the above weekly amounts. For the current policy
period, CP&L is subject to retrospective premium assessments
of up to approximately $13.5 million with respect to the
primary coverage, $15.4 million with respect to the
decontamination, decommissioning and excess property coverage,
$2.6 million with respect to the shared limit excess coverage
and $7.1 million for the incremental replacement power costs
coverage, in the event covered expenses at insured facilities
exceed premiums, reserves, reinsurance and other NEIL
resources. Pursuant to regulations of the Nuclear Regulatory
Commission, CP&L's property damage insurance policies provide
that all proceeds from such insurance be applied, first, to
place the plant in a safe and stable condition after an
accident and, second, to decontamination costs, before any
proceeds can be used for decommissioning, plant repair or
restoration. CP&L is responsible to the extent losses may
exceed limits of the coverage described above.
Under the provisions of the Price Anderson Act, which limits
liability for accidents at nuclear power plants, CP&L, as an
owner of a nuclear plant, can be assessed for a portion of any
third-party liability claims arising from an accident at any
commercial nuclear power plant in the United States. CP&L is
insured against public liability for a nuclear incident up to
$9.54 billion per occurrence. In the event that public
liability claims from an insured nuclear incident exceed $200
million, CP&L would be subject to a pro rata assessment of up
to $83.9 million for each reactor owned per occurrence.
Payment of such assessment would be made over time as
necessary to limit the payment in any one year to no more than
$10 million per reactor owned.
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 federal and state laws. The lead or sole
regulatory agency that is responsible for a particular former
coal tar site depends largely upon the state in which the site
is located. There are several manufactured gas plant (MGP)
sites to which CP&L has some connection. In this regard, CP&L,
with other potentially responsible parties, are participating
in investigating and, if necessary, remediating former coal
tar sites with several regulatory agencies, including, but not
limited to, the U.S. Environmental Protection Agency (EPA) and
the North Carolina Department of Environment and Natural
Resources, Division of Waste Management (DWM). Although CP&L
may incur costs at these sites about which it has been
notified, based upon current status of these sites, CP&L does
not expect those costs to be material to its consolidated
financial position or results of operations.
CP&L is periodically notified by regulators such as the EPA
and various state agencies of their 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 they have been notified, based
upon the current status of these sites, CP&L does not expect
those costs to be material to its consolidated financial
position or results of operations.
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. CP&L has
recently been asked to provide information to the EPA as part
of this initiative and has cooperated in providing the
23
requested information. The EPA has initiated enforcement
actions against other unaffiliated utilities as part of this
initiative, some of which have resulted in settlement
agreements calling for expenditures, ranging from $1.0 billion
to $1.4 billion. These settlement agreements have generally
called for expenditures to be made over extended time periods,
and some of the companies may seek recovery of the related
cost through rate adjustments. 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 23 jurisdictions,
including North and South Carolina, to further reduce nitrogen
oxide emissions in order to attain a pre-set state NOx
emission level by May 31, 2004. CP&L is evaluating necessary
measures to comply with the rule and estimates its related
capital expenditures could be approximately $370 million,
which has not been adjusted for inflation. Increased operation
and maintenance costs relating to the NOx SIP Call are not
expected to be material to CP&L's results of operations.
Further controls are anticipated as electricity demand
increases. 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. The U.S.
Supreme Court has upheld, in part, the District of Columbia
Circuit Court of Appeals decision. Further litigation and
rulemaking are anticipated. North Carolina adopted the federal
eight-hour ozone standard and is proceeding with the
implementation process. North Carolina has promulgated final
regulations, which will require CP&L to install nitrogen oxide
controls under the State's eight-hour standard. The cost of
those controls are included in the cost estimate of $370
million set forth above.
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. The North Carolina fossil-fueled electric
generating plants are included in these petitions. Acceptable
state plans under the NOx SIP Call can be approved in lieu of
the final rules the EPA approved as part of the 126 petitions.
CP&L, other utilities, trade organizations and other states
are participating in litigation challenging the EPA's action.
CP&L cannot predict the outcome of this matter.
CP&L has filed claims with its general liability insurance
carriers to recover costs arising out of actual or potential
environmental liabilities. Some claims have settled and others
are still pending. While management cannot predict the outcome
of these matters, the outcome is not expected to have a
material effect on the consolidated financial position or
results of operations.
b) As required under the Nuclear Waste Policy Act of 1982,
CP&L entered into a contract with the 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 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 found that the delay was not unavoidable,
but 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.
24
After the DOE failed to begin taking spent nuclear fuel by
January 31, 1998, a group of utilities filed a motion with the
Court of Appeals to enforce the mandate in NSP v. DOE.
Specifically, this group of 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. In a recent decision, the U.S.
Circuit Court of Appeals (Federal Circuit) ruled that
utilities may sue the DOE for damages in the Federal Court of
Claims instead of having to file an administrative claim with
DOE. CP&L is in the process of evaluating whether they should
file a similar action for damages.
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 nuclear fuel storage facilities will be
sufficient to provide storage space for spent fuel generated
on its system through the expiration of the current operating
licenses for all of its nuclear generating units. Subsequent
to the expiration of these licenses, dry storage may be
necessary. CP&L obtained NRC approval to use additional
storage space at the Harris Plant in December 2000.
c) CP&L is involved in various litigation matters in the
ordinary course of business, some of which involve substantial
amounts. Where appropriate, accruals have been made in
accordance with SFAS No. 5, "Accounting for Contingencies," to
provide for such matters. In the opinion of management, the
final disposition of pending litigation would not have a
material adverse effect on CP&L's consolidated results of
operations or financial position.
25
Item 2. Management's Discussion and Analysis of Financial Condition
----------------------------------------------------------------------
and Results of Operations
--------------------
RESULTS OF OPERATIONS
---------------------
For the three months ended March 31, 2001, as compared to the
corresponding period in the prior year
Progress Energy, Inc.
Operating Results
-----------------
Progress Energy's consolidated earnings for the three month period
ended March 31, 2001, were $154.0 million, or $0.77 per share, compared
to earnings of $85.3 million, or $0.56 per share, for the same period
in 2000. The increase in the Company's earnings is primarily related to
Florida Progress being included in Progress Energy's results of
operations since the acquisition date of November 30, 2000. Operating
results for the three months ended March 31, 2001 were also favorably
impacted by expanded operations in the Energy and Related Services
segment and earnings from the CP&L Electric segment.
Business segment earnings and the factors affecting them are discussed
below.
CP&L Electric
-------------
CP&L Electric contributed net income of $118.8 million and $90.0
million for the three months ended March 31, 2001 and 2000,
respectively.
The fluctuations in electric operating revenues for the three months
ended March 31, 2001, as compared to last year, were affected by the
following factors (in millions):
Customer growth/changes in usage patterns* $ 31.2
Industrial sales (15.6)
Weather -
Sales to Power Agency 3.9
Sales to other utilities 17.7
Miscellaneous 4.5
---
Total $ 41.7
====
*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 residential and commercial customer
classes. Industrial sales experienced an overall decrease primarily
related to the textile and chemical industries, which continue to be
negatively affected by a slow down in demand in these industries. The
weather component of revenues remained flat in the current period
compared to the corresponding prior period. The increase in revenue
related to sales to Power Agency is due to increases in kilowatt-hour
(KwH) usage, and the increase in revenue related to sales to other
utilities is due to favorable pricing.
The decrease in fuel used for electric generation was primarily due to
deferred fuel write-off in March 2000 and a decrease in generation.
This decrease was partially offset by price increases in coal, oil, and
gas.
Purchased power increased primarily due to increases in price and
volume, offset by decreases in purchases from cogenerators. The
decrease in cogenerator purchases was due to the termination of two
contracts in the fourth quarter of 2000.
Other operation and maintenance expense decreased during the three
months ended March 31, 2001, due to the absence of restoration costs
associated with the severe winter storm and record breaking snowfall in
January 2000. Also, general and administrative expenses decreased due
to the establishment of the service company in June 2000, which
allocates its costs among all Progress Energy entities.
Interest on long-term debt increased during the three months ended
March 31, 2001, primarily due to an increase in long-term debt
outstanding.
26
Florida Power Electric
----------------------
Florida Power contributed net income of $71.6 million for the three
months ended March 31, 2001. The results of the Florida Power electric
segment are not comparable to the prior year as the operating results
of Florida Power have only been included in Progress Energy's results
of operations since the date of acquisition on November 30, 2000.
Florida Power's operating revenues increased $185.2 million for the
three months ended March 31, 2001 when compared to the prior year.
Florida Power's total kilowatt-hour sales increased 3.4 percent during
the first quarter of 2001, compared with 2000. The improvement was
primarily due to strong customer growth, and colder temperatures in
January of 2001. Retail sales were up 5 percent as Florida Power
provided electric service to approximately 38,400 new customers during
the first quarter of 2001 compared with the same period last year.
Weather, a key factor influencing usage among residential customers,
favorably influenced retail sales for the quarter. Usage among
residential customers was nearly 12 percent higher during the quarter
when compared with last year. Wholesale sales decreased slightly
compared to 2000, which is attributable to lower sales to Seminole
Electric Cooperative, Florida Power's largest wholesale customer.
Fuel used in generation and purchased power increased $78.2 million and
$22.5 million, respectively, for the first quarter of 2001 when
compared to the same period last year. The increase is due mainly to
the increased price of coal, oil and gas when compared to the prior
year and increased usage. Fuel and purchased power expenses are
recovered primarily through cost recovery clauses and, as such, have no
material impact on operating results. Operations and maintenance
expense decreased slightly during the quarter. The decrease is due
primarily to lower employee-related costs resulting from the
reorganization after the acquisition by Progress Energy.
Natural Gas
-----------
Natural Gas operations contributed net income of $7.5 million and $8.8
million for the three months ended March 31, 2001 and 2000,
respectively. The decrease is mainly due to reduced sales to certain
large industrial customers with fuel switching capabilities. Natural
gas revenues increased for the three months ended March 31, 2001, when
compared to the same period in the prior year, primarily due to
increases in the market price of natural gas, which is passed on to
customers. Operation and maintenance expenses increased slightly for
the three months ended March 31, 2001 when compared to the same period
in the prior year due to increases in shared service allocations.
During March 2001, North Carolina Natural Gas (NCNG) completed
construction of the 84-mile Sandhills pipeline project that will
transport natural gas from Iredell County to Progress Energy's Richmond
generating site.
The Eastern North Carolina Natural Gas Co. (EasternNC) is a corporation
formed equally between the Albemarle Pamlico Economic Development
Corporation (APEC) and Progress Energy to build an 850-mile natural gas
pipeline system to serve 14 eastern North Carolina counties. EasternNC
has begun surveying, designing, engineering and environmental
permitting for the first phase of the project. The initial phase
consists of about 140 miles of transmission (6- to 12-inch diameter)
pipeline and about 75 miles of distribution (2- to 6-inch diameter)
pipe. Construction of the first phase is scheduled to begin in late
2001, and is scheduled to be completed by mid-summer 2002. The entire
project should be completed by the end of 2004.
Progress Energy has agreed to fund a portion of the project,
currently estimated to be approximately $22 million. EasternNC plans to
obtain additional capital through bond funding. On March
20, 2001 EasternNC filed its amended application for approval of the
route design for Phases 2-7 of the project and additional gas bond
funds of $149.6 million to construct this system. An Order on this
application may be received by the end of May.
Energy and Related Services
---------------------------
Energy and Related Services contributed net income of $41.7 million and
$0.2 million for the three months ended March 31, 2001 and 2000,
respectively. The Energy and Related Services operations include fuel
extraction, manufacturing and delivery, synthetic fuels and merchant
generation. The increase in earnings for this segment is primarily due
to the tax credits generated by the Company's synthetic fuel operations
(see "Other Matters" below). The Energy and Related Services segment
sold 2.8 million tons of synthetic fuel for the three months ended
March 31, 2001. Due to the creation of Progress Energy Ventures (Energy
Ventures) in 2000 and the acquisition of
27
Electric Fuels subsidiaries through the FPC acquisition, the result of
operations for the Energy and Related Services segment are not
comparable to the prior year.
28
Other
-----
The other segment contributed a net loss of $85.6 million and $13.7
million for the three months ended March 31, 2001 and 2000,
respectively. The other segment primarily includes the operations of
Strategic Resource Solutions Corp. (SRS), Progress Telecommunications
Corporation (Progress Telecom), Caronet, Inc. and certain holding
company results. The operations of SRS, Progress Telecom and Caronet
did not have a material impact on the Company's results for the three
months ended March 31, 2001. The decrease in earnings for this segment
is primarily due to the increase in interest expense for holding
company debt and goodwill amortization resulting from the acquisition
of Florida Progress.
Additionally, the other segment results also include the effect of an
intra-period tax allocation adjustment. Generally accepted accounting
principles require companies to apply a levelized effective tax rate to
interim periods that is consistent with the estimated annual rate.
Income tax expense was increased by $20 million for the first quarter
of 2001 to maintain an effective tax rate consistent with the estimated
annual rate. The tax credits associated with the Company's synthetic
fuel operations lower the overall effective tax rate. These credits,
along with seasonal earnings variations, can also cause large swings in
the effective tax rate for interim periods. Therefore, this adjustment
will vary each quarter, but have no effect on net income for the year.
The Financial Accounting Standards Board (FASB) is proceeding with its
project related to business combinations and accounting for goodwill.
This project, as proposed, would eliminate the amortization of goodwill
and, instead, would require goodwill to be reviewed periodically for
impairment. The FASB plans to issue a final statement in June 2001.
LIQUIDITY AND CAPITAL RESOURCES
---------------------------------------------------
Progress Energy, Inc.
Progress Energy's capital expenditures are expected to be funded
primarily from internally generated funds and external debt. During the
first three months of 2001, $270.9 million was spent on its utility
subsidiaries construction program and $55.2 million was spent in
diversified operations.
In February 2001, Progress Energy issued $3.2 billion of senior
unsecured notes with maturities ranging from three to thirty years.
These notes were issued with a weighted average coupon of 7.06%.
Proceeds from this issuance were primarily used to retire commercial
paper and other short-term indebtedness issued in connection with the
FPC acquisition. As a result of the issuance of $3.2 billion of senior
notes, Progress Energy's available lines of credit, used to support its
commercial paper borrowings, was reduced to $550 million.
During the first quarter of 2001, Progress Capital Holdings retired a
total of $31 million in Medium-Term Notes. The $6 million of
medium-term notes that were retired in January had a 9.95% coupon rate
and the $25 million of medium-term notes that were retired in February
had a 6.13% coupon rate. Progress Capital Holdings issued commercial
paper to fund the maturing medium-term notes.
On April 9, 2001, CP&L issued $300 million of Medium-Term Notes, 6.65%
Series D due April 1, 2008. Proceeds from the issuance were primarily
used to retire commercial paper.
In April 2001, CP&L filed a $1 billion shelf registration statement
with the SEC under which first mortgage bonds, senior notes and other
debt securities are available for issuance.
The Company and its subsidiaries participate in two internal money
pools, operated by Progress Energy, to more effectively utilize cash
resources and to reduce outside short-term borrowings. Short-term
borrowing needs are met first by available funds of the money pool
participants. Borrowing companies pay interest at a rate designed to
approximate the cost of outside short-term borrowings. Subsidiaries,
which invest in the money pool, earn interest on a basis proportionate
to their average monthly investment. The interest rate used to
calculate earnings approximates external interest rates. Funds may be
withdrawn from or repaid to the pool at any time without prior notice.
29
OTHER MATTERS
-------------
Regional Transmission Organization
----------------------------------
In October 2000, Florida Power, along with Florida Power & Light
Company and Tampa Electric Company, filed with the Federal Energy
Regulatory Commission (FERC) an application for approval of a Regional
Transmission Organization (RTO) for peninsular Florida, currently named
GridFlorida. On March 28, 2001, FERC gave preliminary approval for the
formation of GridFlorida to manage the power market for peninsular
Florida. In conjunction with the preliminary approval, FERC has
requested that a new approach on market design issues be submitted
within 60 days in addition to a better congestion management plan. See
"Regulatory Developments" below for additional GridFlorida
developments.
Company Activities
------------------
In March 2001, CP&L formed Richmond County Power, LLC and Rowan County
Power, LLC. CP&L filed for approval with the North Carolina Utilities
Commission (NCUC) to transfer Certificates of Public Convenience and
Necessity granted for eleven generating units in Richmond and Rowan
counties, N.C., to subsidiaries of Energy Ventures. These natural
gas-fired units will have a combined summer generating capability of
approximately 1,760 MW. Seven of these generating units are scheduled
to be in operation this June.
Synthetic Fuels Tax Credits
---------------------------
On April 20, 2001 and May 4, 2001, the Internal Revenue Service (IRS)
released Revenue Procedure 2001-30 and Revenue Procedure 2001-34,
respectively, that outline the conditions that must be met to receive a
Private Letter Ruling (PLR) for Section 29 tax credits from the IRS.
PLRs represent advance rulings from the IRS applying its interpretation
of the tax law to an entities' facts for Section 29 credits. The
Company continues to pursue PLRs for its four majority-owned facilities
that have not received PLRs. In management's opinion, the Company is
complying with all the necessary requirements to be allowed such
credits under Section 29, although it cannot provide certainty that it
will receive PLRs or prevail on any credits taken.
Regulatory Developments
-----------------------
On May 3, 2001, the FPSC staff recommended to the FPSC that it require
Florida Power to submit minimum filing requirements, based on a 2002
projected calendar year, by September 15, 2001 to initiate a base rate
proceeding regarding Florida Power's future base rates. The FPSC staff
also recommended that pending completion of the Florida Power rate
case, annual revenues of $114 million should be held subject to refund
to Florida Power's customers. The FPSC staff has asked the FPSC to
consider its recommendations on May 15, 2001. Florida Power's current
rate agreement expires on June 30, 2001. On May 14, 2001, Florida Power
filed a proposed rate reduction with the FPSC that includes plans to
increase generating capacity, improve reliability and enhance customer
service. The Company will continue to work with the FPSC staff and
other interested parties to resolve the outstanding issues. The Company
cannot predict the outcome of this matter.
In its May 3, 2001 recommendation, the FPSC staff expressed concerns
related to Florida Power's plans to participate in the creation of the
GridFlorida RTO along with Florida Power & Light Company and Tampa
Electric Company. The FPSC staff raised questions about the prudence of
establishing the new system and costs associated with the process. The
Company is continuing to evaluate the concerns the FPSC staff has
raised about GridFlorida and the impact those concerns might have on
the implementation of the GridFlorida RTO plan this year. The Company
cannot predict the outcome of this matter.
Nuclear
-------
On May 10, 2001, the Nuclear Regulatory Commission (NRC) rejected
Orange County's request for stay and petition for review of the
issuance of a license amendment to expand spent fuel storage capacity
at CP&L's Shearon Harris Nuclear Plant. Counsel for the Board of
Commissioners of Orange County, North Carolina has announced that
Orange County intends to appeal the decision to the District of
Columbia Circuit Court of Appeals. The Company cannot predict the
outcome of this matter.
Carolina Power & Light Company
The information required by this item is incorporated herein by
reference to the following portions of Progress Energy's Management's
Discussion and Analysis of Financial Condition and Results of
Operations, insofar as they relate to CP&L: RESULTS OF OPERATIONS;
LIQUIDITY AND CAPITAL RESOURCES and OTHER MATTERS.
30
RESULTS OF OPERATIONS
---------------------
On July 1, 2000, CP&L distributed its ownership interest in the stock
of NCNG, SRS, Monroe Power and Energy Ventures to Progress Energy.
Prior to that date, the consolidated operations of CP&L and Progress
Energy were substantially the same. Subsequent to that date, the
operations of these subsidiaries are no longer included in CP&L's
results of operations and financial position.
Additionally, the results of operations for the CP&L Electric segment
are identical between CP&L and Progress Energy. The results of
operations for CP&L's non-utility subsidiaries are not material to
CP&L's consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The statement of cash flows for CP&L does not include amounts related
to NCNG, SRS, Monroe Power and Energy Ventures after July 1, 2000.
Additionally, the CP&L statement of cash flows for the three months
ended March 31, 2001 does not reflect any amounts related to the
acquisition of FPC, issuance of long-term debt as part of the
transaction, and capital expenditures made for other Progress Energy
subsidiaries.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
------- ----------------------------------------------------------
Progress Energy, Inc.
Market risk represents the potential loss arising from adverse changes
in market rates and prices. Certain market risks are inherent in the
Company's financial instruments, which arise from transactions entered
into in the normal course of business. The Company'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 manages its market risk in accordance with its established risk
management policies, which may include entering into various derivative
transactions.
The Company's exposure to return on marketable securities for the
decommissioning trust funds has not changed materially since December
31, 2000. The Company's exposure to market value risk with respect to
the CVO's has also not changed materially since December 31, 2000.
In February 2001, Progress Energy issued $3.2 billion of fixed-rate
senior unsecured notes with maturities ranging from three to thirty
years. The proceeds from this issuance were primarily used to retire
commercial paper and other short-term indebtedness issued in connection
with the FPC acquisition. Additionally, as part of this transaction,
the Company terminated the $1.125 billion notional amount of interest
rate forward contracts that were issued in anticipation of the debt
issuance. The Company recognized a $45.3 million loss on these
contracts that is being deferred through accumulated comprehensive loss
and amortized over the life of the associated debt instruments.
As a result of the $3.2 billion senior note issuance, the exposure to
changes in interest rates from the Company's long-term debt at March
31, 2001, has changed from December 31, 2000. The total fixed rate
long-term debt at March 31, 2001, was $6.9 billion, with an average
interest rate of 7.02% and fair market value of $6.9 billion.
The exposure to changes in interest rates from the Company's variable
rate long-term debt, commercial paper, extendible notes and FPC
mandatorily redeemable securities of trust at March 31, 2001, was not
materially different than at December 31, 2000. The total variable rate
long-term debt and commercial paper outstanding at March 31, 2001, was
$620 million, with an average interest rate of 3.50%, and $1.2 billion,
with an average interest rate of 5.77%, respectively. The total
extendible notes and FPC mandatorily redeemable securities of trust
outstanding at March 31, 2001, was $500 million, with an average
interest rate of 6.12%, and $300 million, with an average interest rate
of 7.10%, respectively.
The Company's exposure on the $500 million notional amount of interest
rate swap agreements used to hedge its exposure on variable rate debt
positions was not materially different than at December 31, 2000. The
fair value of the swaps was a $15.1 million liability position at March
31, 2001.
31
Carolina Power & Light Company
CP&L has certain market risks inherent in its financial instruments,
which arise from transactions entered into in the normal course of
business. CP&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. CP&L's exposure to return on marketable
securities for the decommission trust funds has not changed materially
since December 31, 2000. The exposure to changes in interest rates from
the Company's long-term debt and commercial paper at March 31, 2001,
was not materially different than at December 31, 2000. The total fixed
rate debt at March 31, 2001, was $2.0 billion, with an average interest
rate of 7.14%. The total variable rate debt and commercial paper
outstanding at March 31, 2001, was $1.1 billion, with an average
interest rate of 4.67%, and $678 million, with an average interest rate
of 5.7%, respectively.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
------- -----------------
Legal aspects of certain matters are set forth in Part I, Item 1. See
Note 9 to the Progress Energy, Inc. Consolidated Interim Financial
Statements and Note 6 to the CP&L Consolidated Interim Financial
Statements.
Item 2. Changes in Securities and Use of Proceeds
------- -----------------------------------------
RESTRICTED STOCK AWARDS:
(a) Securities Delivered. On January 2, 2001, January 29, 2001 and
March 22, 2001, 88,095, 6,800 and 67,700 restricted shares,
respectively of the Company's Common Shares were granted to certain
key employees pursuant to the terms of the Company's 1997 Equity
Incentive Plan (Plan), which was approved by the Company's shareholders
on May 7, 1997. (Sponsorship of the Plan was transferred from CP&L to
the Company effective August 1, 2000.) 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, including its Affiliates and Subsidiaries. The Common Shares
delivered pursuant to the Plan were acquired in market transactions
directly for the accounts of the recipients and do not represent newly
issued shares of the Company.
(b) Underwriters and Other Purchasers. No underwriters were used in
connection with the delivery of Common Shares described above. The
Common Shares were delivered to certain key employees of the Company.
The Plan defines "key employees" as an officer or other employee of the
Company who, in the opinion of the Committee, can contribute
significantly to the growth and profitability of, or perform services
of major importance to, the Company.
(c) Consideration. The Common Shares were delivered to provide an
incentive to the employee recipients to exert their utmost efforts on
the Company's behalf and thus enhance the Company's performance while
aligning the employee's interest with those of the Company's
shareholders.
(d) Exemption from Registration Claimed. The Common Shares described in
this Item were delivered on the basis of an exemption from registration
under Section 4(2) of the Securities Act of 1933. Receipt of the Common
Shares required no investment decision on the part of the recipients.
All award decisions were made by the Committee, which consists entirely
of non-employee directors.
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits
None
32
(b) Reports on Form 8-K filed during or with respect to the quarter:
Progress Energy, Inc.
---------------------
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- -------- ------------- ----------
9 No January 22, 2001 January 23, 2001
7 Yes November 30, 2000 January 24, 2001
5 No February 14, 2001 February 27, 2001
9 No March 15, 2001 March 16, 2001
Carolina Power & Light Company
------------------------------
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- -------- ------------- ----------
5 No April 4, 2001 April 16, 2001
33
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.
PROGRESS ENERGY, INC.
---------------------
CAROLINA POWER & LIGHT COMPANY
------------------------------
Date: May 15, 2001 (Registrants)
By: /s/ Peter M. Scott III
------------------------
Executive Vice President and
Chief Financial Officer
By: /s/ Robert H. Bazemore, Jr.
-----------------------------
Vice President and Controller
Chief Accounting Officer
34