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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 MARCH 31, 1997
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 MARCH 31, 1997 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 X 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 April 30,
1997 - 201,589,596 shares
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DUKE POWER COMPANY
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income for the Three Months Ended March 31, 1997 and 1996 . . . . . . . . . . . 2
. .
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996. . . . . . . . . 3
.
Consolidated Balance Sheets - March 31, 1997 and December 31, 1996. . . . . . . . . . . . . . . . . . . . 4-5
. . . . . . . .
Consolidated Statements of Capitalization - March 31, 1997 and December 31, 1996. . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . 9
. . . . . . . . . . . . . .
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
. . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands)
Three Months Ended
March 31
1997 1996
Operating revenues $ 1,133,295 $ 1,162,077
----------- -----------
Operating expenses
Fuel used in electric generation 171,020 176,545
Net interchange and purchased power 78,980 109,285
Other operation and maintenance 359,297 330,073
Depreciation and amortization 125,846 122,737
General taxes 67,165 66,025
----------- -----------
Total operating expenses 802,308 804,665
----------- -----------
Operating income 330,987 357,412
----------- -----------
Interest expense and other income
Interest expense (70,023) (71,463)
Allowance for funds used during
construction and other deferred
returns 28,852 28,910
Other, net 3,398 2,938
----------- -----------
Total interest expense and other
income (37,773) (39,615)
----------- -----------
Income before income taxes 293,214 317,797
----------- -----------
Income taxes 117,779 126,493
----------- -----------
Net income 175,435 191,304
Dividends on preferred and preference
stock 11,039 11,127
----------- -----------
Earnings for common stock $ 164,396 $ 180,177
=========== ===========
Common stock data
Average common shares outstanding
(thousands) 201,590 204,859
Earnings per share $ 0.82 $ 0.88
Dividends per share $ 0.53 $ 0.51
See Notes to Consolidated Financial Statements.
2
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Three Months Ended
March 31
1997 1996
---------- --------
Cash flows operating activities
Net income $ 175,435 $ 191,304
Adjustments reconcile net income to net cash
provided by operating activities:
Non-cash items
Depreciation and amortization 154,400 176,905
Deferred income taxes and investment tax credit
amortization (4,576) (10,759)
Allowance for equity funds used during construction (3,950) (3,421)
Purchased capacity levelization 14,080 31,037
Other, net 39,132 26,780
(Increase) Decrease in
Accounts receivable 36,639 56,355
Inventory (19,976) 9,814
Prepayments (4,174) 1,091
(Increase) Decrease in
Accounts payable (130,056) (67,745)
Taxes accrued 127,960 123,849
Interest accrued and other liabilities (43,564) (54,549)
--------- ---------
Total adjustments 165,915 289,357
--------- ---------
Net cash provided by operating activities 341,350 480,661
--------- ---------
Cash flows from investing activities
Construction expenditures and other property additions (190,767) (209,073)
External funding for decommissioning (14,118) (14,118)
Investment in nuclear fuel (16,398) (6,412)
Investment in affiliates 6,315 (16,552)
Net change in investment securities (477) (9,956)
--------- ---------
Net cash used in investing activities (215,445) (256,111)
--------- ---------
Cash flows from financing activities
Proceeds from the issuance of
Construction loans and other 33,000 --
Payments for the redemption of
First and refunding mortgage bonds -- (3,000)
Short-term notes payable, net (51,050) (118,000)
Construction loans and other (2,673) (2,170)
Dividends paid (117,765) (115,690)
Other (392) 5,153
--------- ---------
Net cash used in financing activities (138,880) (233,707)
--------- ---------
Net increase (decrease) in cash (12,975) (9,157)
Cash at beginning of period 36,106 45,410
--------- ---------
Cash at end of period $ 23,131 $ 36,253
========= =========
See Notes to Consolidated Financial Statements.
3
DUKE POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
ASSETS
March 31 December 31
1997 1996
------------ -------------
Current assets
Cash $ 23,131 $ 36,106
Short-term investments 70,452 72,712
Receivables (less allowance for losses:
1997--$7,289; 1996--$7,134) 673,353 709,992
Inventory--at average cost 321,341 301,365
Prepayments and other 28,105 23,931
----------- -----------
Total current assets 1,116,382 1,144,106
----------- -----------
Investments and other assets
Investments in affiliates 182,667 188,982
Other investments, at cost or less 117,407 114,669
Nuclear decommissioning trust funds 381,557 362,627
Pre-funded pension cost 80,000 80,000
----------- -----------
Total investments and other assets 761,631 746,278
----------- -----------
Property, plant and equipment
Electric plant in service (at original cost)
Production 7,301,007 7,278,439
Transmission 1,545,878 1,543,688
Distribution 4,366,486 4,303,885
Other 1,077,898 1,068,342
----------- -----------
Electric plant in service 14,291,269 14,194,354
Less accumulated depreciation and amortization 5,524,902 5,438,498
----------- -----------
Electric plant in service, net 8,766,367 8,755,856
----------- -----------
Nuclear fuel 632,074 604,813
Less accumulated amortization 386,670 363,290
----------- -----------
Nuclear fuel, net 245,404 241,523
----------- -----------
Construction work in progress (including nuclear fuel
in process:
1997--$13,342; 1996--$27,546) 377,231 388,999
----------- -----------
Total electric plant, net 9,389,002 9,386,378
Other property--at cost (less accumulated depreciation:
1997--$32,831; 1996--$31,544) 466,374 426,039
----------- -----------
Total property, plant and equipment, net 9,855,376 9,812,417
----------- -----------
Deferred debits
Purchased capacity costs 877,920 892,000
Debt expense, primarily refinancing costs, being
amortized over the terms of related debt 167,088 169,842
Regulatory asset related to income taxes 488,551 488,936
Regulatory asset related to DOE assessment fee 94,717 94,717
Other 113,556 121,394
----------- -----------
Total deferred debits 1,741,832 1,766,889
----------- -----------
Total assets $13,475,221 $13,469,690
=========== ===========
See Notes to Consolidated Financial Statements.
4
DUKE POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31
1997 1996
------------ -------------
Current liabilities
Accounts payable $ 176,646 $ 327,315
Notes payable 54,500 105,550
Taxes accrued 128,933 973
Interest accrued 44,464 64,589
Current maturities of long-term debt and preferred stock 193,287 212,309
Other 128,909 152,233
------------ ------------
Total current liabilities 726,739 862,969
------------ ------------
Long-term debt 3,588,240 3,538,114
------------ ------------
Accumulated deferred income taxes 2,382,120 2,376,012
------------ ------------
Deferred credits and other liabilities
Investment tax credit 247,320 250,117
DOE assessment fee 94,717 94,717
Nuclear decommissioning costs externally funded 381,557 362,627
Other 425,095 412,419
------------ -----------
Total deferred credits and other liabilities 1,148,689 1,119,880
------------ -----------
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 1,896,141 1,896,141
----------- -----------
Retained earnings 3,049,292 2,992,574
---------- -----------
Total common stockholders' equity 4,945,433 4,888,715
----------- -----------
Total liabilities and stockholders' equity $13,475,221 $13,469,690
=========== ===========
See Notes to Consolidated Financial Statements.
5
DUKE POWER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(unaudited)
(dollars in thousands)
March 31 December 31
1997 1996
----------- -----------
Common stock equity
Common stock, no par, 300,000,000 shares authorized; 201,589,596
shares outstanding for 1997 and 1996 $1,896,141 $1,896,141
Retained earnings 3,049,292 2,992,574
--------- ----------
Total common stock equity 4,945,433 4,888,715
--------- ----------
Preferred and preference stock
(At March 31, 1997 and December 31, 1996, 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 preferred and preference stock 684,000 684,000
-------- -------
Long-term debt
First and refunding mortgage bonds 3,463,184 3,463,184
Capitalized leases 10,884 11,265
Other long-term debt 146,528 146,539
Unamortized debt discount and premium, net (55,826) (56,995)
Current maturities of long-term debt (174,924) (174,726)
--------- ---------
Subtotal long-term debt 3,389,846 3,389,267
--------- ---------
Subsidiary long-term debt
Crescent Resources, Inc. 149,114 118,058
Nantahala Power and Light Company 67,643 68,372
Current maturities of long-term debt (18,363) (37,583)
--------- --------
Subtotal subsidiary long-term debt 198,394 148,847
-------- --------
Total consolidated long-term debt 3,588,240 3,538,114
---------- ----------
Total capitalization $9,217,673 $9,110,829
========== ==========
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 March 31 were $4,849,000 and
$1,667,000 for 1997 and 1996, respectively. Interest paid, net of amounts
capitalized, for the quarter ended March 31 was $65,894,000 and $68,019,000
for 1997 and 1996, respectively.
2. 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 final disposition of these proceedings
will not have a material adverse effect on the results of operations or
financial position of the Company.
3. 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.
4. 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, 1997 through March 31, 1997, additions to
property (including nuclear fuel) of $222.9 million and retirements of $68.9
million resulted in a net increase in gross plant of $154.0 million.
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 March 31, 1997,
using the SEC method, was 5.00 times. Internal cash generation for the twelve
months ended March 31, 1997 was 89 percent.
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.
As described in its Form 8-K Report filed April 25, 1997 (the "Form
8-K"), the Company has received orders from the North Carolina Utilities
Commission and The Public Service Commission of South Carolina approving the
Company's applications filed in connection with its proposed merger with
PanEnergy Corp. Such approvals were granted subject to several conditions, as
further described in the Form 8-K. Management is of the opinion that the
conditions imposed in such orders will not have a material adverse effect upon
the Company's results of operations or financial position.
RESULTS OF OPERATIONS
Earnings per share for the first quarter 1997 were $0.82, down 6.8%
compared to the same period in 1996. This decline was primarily due to decreased
electric revenues.
Revenues for first quarter 1997 decreased $28.8 million when compared
to the same period in 1996. Total kilowatt-hour sales decreased 5.8% from the
first quarter 1996, primarily because of milder winter weather. Residential
sales decreased 12.4% and general service sales decreased 3.2%, although the
Company continued to experience growth in the number of residential and general
service customers. Total industrial sales increased by 0.9%, with textile sales
up 3.3% over depressed 1996 first quarter sales and other industrial sales down
0.6%. The South Carolina retail rate reduction also decreased first quarter
revenues when compared to 1996. The total electric revenue decrease was
partially offset by increased revenues from the Associated Enterprises Group
business units, primarily resulting from Duke Engineering & Services, Inc.'s
business acquisitions during 1996.
Fuel expense for first quarter 1997 decreased $5.5 million compared to
the same period in 1996. The first quarter decrease was primarily due to lower
fossil fuel costs and decreased production requirements. These decreases were
partially offset by higher levels of fossil generation as a percentage of total
generation.
Net interchange and purchased power expense decreased $30.3 million for
first quarter 1997 compared to first quarter 1996. This decrease was primarily
due to lower levelized purchased power costs
8
from the other joint owners of Catawba as a result of the substantial completion
of the recovery of such costs from South Carolina retail customers.
Operating and maintenance expenses increased $29.2 million for the
first quarter 1997 compared to the same period in 1996. This 8.9% increase was
primarily due to increased costs associated with the increased activity of the
Associated Enterprises Group business units. These increased costs were
partially offset by lower storm restoration costs in the first quarter 1997
compared to 1996 due to a severe winter storm in February, 1996.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders
of the Company during the first quarter of 1997.
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 two reports on Form 8-K during the first quarter
of 1997. The Form 8-K report dated February 10, 1997 contained disclosure under
Item 7, Financial Statements and Exhibits. The following financial statements
were filed as Exhibit 99.1 to such report:
Audited Consolidated Balance Sheets as of December 31, 1996 and
1995, and the related Consolidated Statements of Income,
Consolidated Statements of Retained Earnings, and Consolidated
Statements of Cash Flows for each of the years ended December 31,
1994, 1995 and 1996, and Notes to Consolidated Financial
Statements.
The Form 8-K report dated March 20, 1997 contained disclosure under Item 5,
Other Events, and Item 7, Financial Statements and Exhibits.
9
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: May 9, 1997 ___________________________________
Richard J. Osborne
Senior Vice President and Chief Financial Officer
Date: May 9, 1997 ____________________________________
Jeffrey L. Boyer
Controller