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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended June 30, 1996
DUKE POWER COMPANY
422 South Church Street
Charlotte, North Carolina 28242-0001
704-594-0887
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 Commission File Number 1-4928
DUKE POWER COMPANY
(Exact name of registrant as specified in its charter)
North Carolina 56-0205520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
422 South Church Street,
Charlotte, N.C. 28242-0001
(Address of principal executive office)
(Zip Code)
Registrant's telephone number, including area code 704-594-0887
No Change
(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 (Check mark) No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of Common Stock, without par value, outstanding at July 31,
1996..... 202,781,802 shares
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DUKE POWER COMPANY
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income for the Three and Six Months Ended June 30, 1996 and 1995 . . .. 2
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995. . . . . . . 3
Consolidated Balance Sheets - June 30, 1996 and December 31, 1995. . . . . . . . . . . . . . . . . 4-5
Consolidated Statements of Capitalization - June 30, 1996 and December 31, 1995. . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . .. 8-9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Part I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
Operating revenues .......................... $ 1,119,731 $ 1,052,403 $ 2,281,808 $ 2,163,468
Operating expenses
Fuel used in electric generation ............ 182,268 167,408 358,813 336,776
Net interchange and purchased power ......... 99,674 121,897 208,959 236,156
Other operation and maintenance ............. 349,062 324,363 679,135 606,493
Depreciation and amortization ............... 123,699 113,700 246,436 226,435
General taxes ............................... 63,797 61,159 129,822 124,318
Total operating expenses ................... 818,500 788,527 1,623,165 1,530,178
Operating income ............................. 301,231 263,876 658,643 663,290
Interest expense and other income
Interest expense ............................ (70,126) (72,685) (141,589) (145,208)
Allowance for funds used during construction
and other deferred returns ................. 27,546 32,711 56,456 64,308
Other, net .................................. 2,542 2,160 5,480 4,208
Total interest expense and other income .... (40,038) (37,814) (79,653) (76,692)
Income before income taxes .................. 261,193 226,062 578,990 556,598
Income taxes ................................ 103,811 88,539 230,304 217,799
Net income ................................... 157,382 137,523 348,686 338,799
Dividends on preferred and preference stock . 11,033 12,677 22,160 25,412
Earnings for common stock ................... $ 146,349 $ 124,846 $ 326,526 $ 313,387
Common stock data
Average common shares outstanding (thousands) 204,859 204,859 204,859 204,859
Earnings per share .......................... $ 0.71 $ 0.61 $ 1.59 $ 1.53
Dividends per share ......................... $ 0.51 $ 0.49 $ 1.02 $ 0.98
See Notes to Consolidated Financial Statements.
2
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six Months Ended
June 30
1996 1995
Cash flows from operating activities
Net income ......................................................................... $ 348,686 $338,799
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items
Depreciation and amortization ..................................................... 343,602 332,291
Deferred income taxes and investment tax credit amortization ...................... (5,738) 12,165
Allowance for equity funds used during construction ............................... (6,931) (12,228)
Purchased capacity levelization ................................................... 57,124 (28,637)
Other, net ........................................................................ (936) 42,387
(Increase) Decrease in
Accounts receivable ............................................................. 43,031 6,834
Inventory ....................................................................... 21,961 (31,294)
Prepayments ..................................................................... 1,938 179
Increase (Decrease) in
Accounts payable ................................................................ (47,099) (81,323)
Taxes accrued ................................................................... 11,698 (4,233)
Interest accrued and other liabilities .......................................... (44,672) (22,047)
Total adjustments ................................................................. 373,978 214,094
Net cash provided by operating activities .................................... 722,664 552,893
Cash flows from investing activities
Construction expenditures and other property additions ............................ (349,815) (375,915)
External funding for decommissioning .............................................. (28,235) (28,235)
Investment in nuclear fuel ........................................................ (51,153) (17,416)
Investment in joint ventures ...................................................... (28,312) (35,280)
Net change in investment securities ............................................... 6,417 15,463
Net cash used in investing activities .......................................... (451,098) (441,383)
Cash flows from financing activities
Proceeds from the issuance of
First and refunding mortgage bonds ................................................ -- 77,415
Short-term notes payable, net ..................................................... (59,800) 138,000
Construction loans and other ...................................................... 9,180 18,250
Payments for the redemption of
First and refunding mortgage bonds ................................................ (3,000) (116,976)
Preferred stock ................................................................... -- (2,926)
Construction loans and other ...................................................... (3,780) (5,990)
Dividends paid..................................................................... (231,443) (226,070)
Other .............................................................................. 4,546 (751)
Net cash used in financing activities ............................................ (284,297) (119,048)
Net increase (decrease) in cash ..................................................... (12,731) (7,538)
Cash at beginning of period ......................................................... 45,410 37,430
Cash at end of period ............................................................... $ 32,679 $ 29,892
See Notes to Consolidated Financial Statements.
3
DUKE POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
ASSETS
June 30 December 31
1996 1995
Current Assets
Cash ............................................................... $ 32,679 $ 45,410
Short-term investments ............................................. 66,193 76,300
Receivables (less allowance for losses:
1996--$6,035; 1995- $6,352) ........................................ 646,673 689,703
Inventory--at average cost ......................................... 319,880 341,841
Prepayments and other .............................................. 20,962 22,900
Total current assets ............................................. 1,086,387 1,176,154
Investments and other assets
Investments in joint ventures ...................................... 191,586 163,274
Other investments, at cost or less ................................. 88,885 85,194
Nuclear decommissioning trust funds ................................ 310,236 273,466
Pre-funded pension cost ............................................ 80,000 80,000
Total investments and other assets ............................... 670,707 601,934
Property, plant and equipment
Electric plant in service (at original cost)
Production ........................................................ 7,257,717 7,154,332
Transmission ...................................................... 1,541,031 1,532,302
Distribution ...................................................... 4,177,770 4,105 513
Other ............................................................. 1,070,775 1,030,226
Electric plant in service ....................................... 14,047,293 13,822,373
Less accumulated depreciation and amortization .................. 5,281,253 5,122,192
Electric plant in service, net .................................. 8,766,040 8,700,181
Nuclear fuel ....................................................... 718,409 731,691
Less accumulated amortization ...................................... 453,614 453,921
Nuclear fuel, net .................................................. 264,795 277,770
Construction work in progress (including nuclear fuel in process:
1996- $15,800; 1995- $25,500) ...................................... 326,766 382,582
Total electric plant, net ....................................... 9,357,601 9,360,533
Other property - at cost (less accumulated depreciation:
1996- $31,539; 1995- $29,956) ....................................... 404,173 354,713
Total property, plant and equipment, net ........................ 9,761,774 9,715,246
Deferred debits
Purchased capacity costs ........................................... 908,349 965,473
Debt expense, primarily refinancing costs, being amortized
over the terms of related debt .................................... 175,648 180,930
Regulatory asset related to income taxes ........................... 488,695 490,676
Regulatory asset related to DOE assessment fee ..................... 101,274 101,274
Other ............................................................... 109,582 126,797
Total deferred debits .......................................... 1,783,548 1,865,150
Total assets......................................................... $13,302,416 $13,358,484
See Notes to Consolidated Financial Statements.
4
DUKE POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30 December 31
1996 1995
Current liabilities
Accounts payable ......................................................... $ 233,229 $ 343,692
Notes payable ............................................................ 95.500 155,300
Taxes accrued ............................................................ 44,081 34,884
Interest accrued ......................................................... 65,629 73,675
Current maturities of long-term debt and preferred stock ................. 83,561 12,071
Other .................................................................... 112,601 149,555
Total current liabilities .............................................. 634,601 769,177
Long-term debt ............................................................ 3,649,199 3,711,405
Accumulated deferred income taxes ......................................... 2,381,904 2,382,204
Deferred credits and other liabilities
Investment tax credit .................................................... 255,743 261,347
DOE assessment fee ....................................................... 101,274 101,274
Nuclear decommissioning costs externally funded .......................... 310,236 273,466
Other .................................................................... 382,831 390,427
Total deferred credits and other liabilities ........................... 1,050,084 1,026,514
Preferred and preference stock with sinking fund requirements ............. 234,000 234,000
Preferred and preference stock without sinking fund requirements .......... 450,000 450,000
Common stockholders' equity
Common stock, no par ..................................................... 1,926,909 1,926,909
Retained earnings ........................................................ 2,975,719 2,858,275
Total common stockholders' equity ...................................... 4,902,628 4,785,184
Total liabilities and stockholders' equity ................................ $13,302,416 $ 13,358,484
See Notes to Consolidated Financial Statements.
5
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(unaudited)
(dollars in thousands)
June 30 December 31
1996 1995
Common stock equity
Common stock, no par, 300,000,000 shares authorized;
204,859,339 shares outstanding for 1996 and 1995 .............................. $ 1,926,909 $ 1,926,909
Retained earnings .............................................................. 2,975,719 2,858,275
Total common stock equity ................................................. 4,902,628 4,785,184
Preferred and preference stock
(At June 30, 1996 and December 31, 1995 12,500,000 shares of preferred stock,
10,000,000 shares of preferred stock A, and 1,500,000 shares of preference stock
were authorized with or without sinking fund requirements)
Without sinking fund requirements .............................................. 450,000 450,000
With sinking fund requirements.................................................. 234,000 234,000
Total preference stock .................................................... 684,000 684,000
Long-term debt
First and refunding mortgage bonds ............................................ 3,463,281 3,466,281
Capitalized leases ............................................................ 12,367 7,477
Other long-term debt .......................................................... 147,066 147,410
Unamortized debt discount and premium, net .................................... (59,335) (61,674)
Current maturities of long-term debt .......................................... (74,804) (4,295)
Subtotal long-term debt ................................................... 3,488,575 3,555,199
Subsidiary long-term debt
Crescent Resources, Inc. ...................................................... 136,154 130,694
Nantahala Power and Light Company ............................................. 33,227 33,288
Current maturities of long-term debt .......................................... (8,757) (7,776)
Subtotal subsidiary long-term debt ........................................ 160,624 156,206
Total consolidated long-term debt ..................................... 3,649,199 3,711,405
Total capitalization ........................................................... $ 9,235,827 $ 9,180,589
See Notes to Consolidated Financial Statements.
6
DUKE POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Total income taxes paid for the quarter ended June 30 were $234,768,000 and
$207,499,000 for 1996 and 1995, respectively. For the six months ended June
30, 1996 and 1995, income taxes paid were $236,435,000 and $220,085,000,
respectively. Interest paid, net of amounts capitalized, for the quarter
ended June 30 was $69,665,000 and $61,979,000 for 1996 and 1995,
respectively. For the six months ended June 30, 1996 and 1995, interest
paid was $137,684,000 and $129,570,000, respectively.
2. The South Carolina Public Service Commission, on May 7, 1996, ordered a
rate reduction in the form of a decrement rider of 0.4319 cents per
kilowatt-hour, or an average of approximately 8 percent, affecting South
Carolina retail customers. The rate reduction was reflected on bills
rendered on or after June 1, 1996. This net decrement rider reflects a
reduction for an interim true-up adjustment associated with Catawba Nuclear
Station purchased capacity costs as well as an increase for demand side
management costs recovery. The rate adjustment was made because, in the
South Carolina retail jurisdiction, cumulative levelized revenues
associated with the recovery of Catawba purchased capacity costs have
exceeded purchased capacity payments and accrual of deferred returns.
3. The Company is involved in legal, tax and regulatory proceedings before
various courts, regulatory commissions and governmental agencies regarding
matters arising in the ordinary course of business, some of which involve
substantial amounts. Where appropriate, the Company has made accruals in
accordance with Statement of Financial Accounting Standards No.
5 "Accounting for Contingencies," in order to provide for such
matters. Management is of the opinion that the final disposition of these
proceedings will not have a material adverse effect on the results of
operations or financial position of the Company.
4. These are quarterly financial statements and the amounts reported in the
Consolidated Statements of Income are not necessarily indicative of amounts
expected for the respective years. These amounts may be affected by
seasonal temperature variations, timing of scheduled and unscheduled
maintenance of certain electric generating units, and the Company's policy
of accruing estimates for certain other expenses ratably over twelve months
until final amounts are determined.
5. In the opinion of the Company, the accompanying financial statements
contain adjustments of a normal recurring nature such that the financial
statements present fairly the financial position of the Company as of the
respective dates shown and the results of its operations for the respective
periods then ended.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity And Capital Resources
During the period January 1, 1996 through June 30, 1996, additions to
property (including nuclear fuel) of $320.6 million and retirements of $113.7
million resulted in a net increase in gross plant of $206.9 million.
The Company has completed the construction of a combustion turbine
facility in Lincoln County, North Carolina to provide capacity at periods of
peak demand. During 1995, twelve units of the Lincoln Combustion Turbine Station
began commercial operation. The last four units began commercial operation in
the first quarter of 1996, two units on February 1, 1996 and two units on March
1, 1996.
As a result of bids received in response to the two requests for
proposals (RFP) issued in 1995, the Company signed a Letter of Intent with PECO
Energy Co. of Philadelphia for the option to purchase up to 250 megawatts of
capacity during the summer months of 1998 through 2001. Contract arrangements
between the parties were finalized on August 1, 1996. The long-term RFP is
closed and will not be awarded.
The Company normally experiences seasonal peak loads in the summer and
winter which are relatively in balance. On August 14, 1995, the Company
experienced a new all-time peak load of 15,542 megawatts. This peak load figure
excludes both the portion of the demand of the other joint owners of the Catawba
Nuclear Station met by their retained ownership and the load of Nantahala Power
and Light Company.
Fixed charges coverage for the twelve months ended June 30, 1996, using
the SEC method, was 5.05 times. Internal cash generation for the twelve months
ended June 30, 1996 was 98 percent.
During July 1996, the Company made its first purchases under a program,
announced in March 1996, to repurchase up to $1 billion of its outstanding
Common Stock over the next five years. The Company may repurchase shares
periodically subject to available cash and alternative investment opportunities.
The Company is involved in legal, tax and regulatory proceedings before
various courts, regulatory commissions and governmental agencies regarding
matters arising in the ordinary course of business, some of which involve
substantial amounts. Where appropriate, the Company has made accruals in
accordance with Statement of Financial Accounting Standards No. 5 "Accounting
for Contingencies," in order to provide for such matters. Management is of the
opinion that the final disposition of these proceedings will not have a material
adverse effect on the results of operations or financial position of the
Company.
The South Carolina Public Service Commission, on May 7, 1996, ordered a
rate reduction in the form of a decrement rider of 0.4319 cents per
kilowatt-hour, or an average of approximately 8 percent, affecting South
Carolina retail customers. The rate reduction was reflected on bills rendered on
or after June 1, 1996. This net decrement rider reflects a reduction for an
interim true-up adjustment associated with Catawba Nuclear Station purchased
capacity costs as well as an increase for demand side management costs recovery.
The rate adjustment was made because, in the South Carolina retail jurisdiction,
cumulative levelized revenues associated with the recovery of Catawba purchased
capacity costs have exceeded purchased capacity payments and accrual of deferred
returns.
On April 24, 1996, the Federal Energy Regulatory Commission (FERC)
issued final rules on open access transmission. On July 9, 1996, the Company
filed a pro forma open access transmission tariff complying with the
requirements of the final rules. Such a filing was required of all
transmission-owning utilities subject to the FERC's final rules. The Company
also filed on that date a proposed settlement of all
8
rate issues previously pending before the FERC. The Company's pro forma tariff
contains the rates agreed upon under the settlement. The settlement and the July
9, 1996 tariff filing remain subject to final FERC approval.
Results of Operations
Earnings per share for the second quarter and year-to-date June 1996
were $0.71 and $1.59, respectively, up 16.4% and 3.9% compared to the same
periods in 1995.
Revenues for the second quarter and year-to-date June 1996 increased by
$67.3 and $118.3 million, respectively, when compared to the same periods in
1995. Total electric sales for the second quarter were up 5.3% compared to the
second quarter of 1995. Warmer weather in May and June contributed to increases
in billed residential and general service sales of 14.5% and 7.4%, respectively.
Textile sales were down 6.4%, due to a weaker demand for textile goods, while
other industrial sales were up 1.1%. This increase in revenues was also
partially aided by increased revenues from the Associated Enterprises Group
business units. For year-to-date June 1996, total revenues increased primarily
due to warmer summer and colder winter weather and contributions from the
Associated Enterprises Group business units.
Fuel expense for the second quarter and year-to-date June 1996
increased by $14.9 and $22.0 million, respectively, compared to the same periods
in 1995. These increases were primarily due to higher levels of fossil
generation as a percentage of total generation.
Net interchange and purchased power expense decreased $22.2 and $27.2
million for the second quarter and year-to-date June 1996, respectively,
compared to the same periods in 1995. These decreases were primarily due to
decreases in power purchased from the other Catawba joint owners.
Operating and maintenance expenses increased $24.7 million for the
second quarter 1996 compared to the same period in 1995. This 7.6% increase was
primarily due to higher nuclear outage costs associated with the timing of
planned refueling outages at the Company's nuclear power stations. Increased
activity of the Associated Enterprises Group business units also resulted in
increased costs. Year-to-date June 1996 operating and maintenance expenses
increased $72.6 million compared to the same period in 1995. This increase was
primarily due to costs associated with a severe winter storm affecting large
portions of the Company's service area in February 1996 and higher planned
nuclear refueling outage costs. Costs incurred in connection with the increased
activity of the Associated Enterprises Group business units also contributed to
this increase.
Depreciation and amortization increased $10.0 and $20.0 million for the
second quarter and year-to-date June 1996, respectively, compared to the same
periods in 1995. These increases are primarily due to the completion of the
Lincoln Combustion Turbine Station and additions to distribution plant,
including investment to support customer growth.
Allowance for funds used during construction and other deferred returns
decreased $5.2 and $7.9 million for the second quarter and year-to-date June
1996, respectively, compared to the same periods in 1995. These decreases
were largely due to the completion of the Lincoln Combustion Turbine Station.
9
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders on April 25, 1996,
the shareholders of the Company elected G. Alex Bernhardt, W. A. Coley, W.H.
Grigg and Max Lennon as Class II directors to serve until the Annual Meeting of
Shareholders to be held in 1999, or until their successors are elected and
qualified. The shareholders also voted to approve the Duke Power Company Stock
Incentive Plan, and further voted to ratify the selection of Deloitte & Touche
to act as independent auditors to make an examination of the Company's accounts
for the year 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(27) Financial Data Schedule (included in electronic filing only)
(B) Reports on Form 8-K
The Company filed no Form 8-K reports during the second quarter of 1996.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DUKE POWER COMPANY
Date: August 9, 1996 _________________________________
Richard J. Osborne
Senior Vice President and Chief Financial Officer
Date: August 9, 1996 _________________________________
Jeffrey L. Boyer
Controller