FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Exact name of Registrant as specified in I.R.S. Employer
Commission its charter, state of incorporation, address Identification
File No. of principal executive offices, telephone Number
------------ -------------------------------------------- ---------------
1-8349 FLORIDA PROGRESS CORPORATION 59-2147112
A Florida Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Telephone (813) 824-6400
1-3274 FLORIDA POWER CORPORATION 59-0247770
A Florida Corporation
3201 34th Street South
St. Petersburg, Florida 33711
Telephone (813) 866-5151
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.
Description of Shares Outstanding
Registrant Class at June 30, 1995
---------- -------------- ------------------
Florida Progress Corporation Common Stock,
without par value 95,836,298
Florida Power Corporation Common Stock,
without par value 100 (all of which were
held, beneficially and
of record, by Florida
Progress Corporation)
This combined Form 10-Q represents separate filings by Florida Progress
Corporation and Florida Power Corporation. Information contained herein
relating to an individual registrant is filed by that registrant on its own
behalf. Florida Power makes no representations as to the information
relating to Florida Progress' diversified operations.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Income
(In millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
------- ------- -------- --------
(Unaudited) (Unaudited)
REVENUES:
Electric utility $550.5 $517.0 $1,066.4 $1,000.5
Diversified 192.4 176.2 379.7 331.9
-------- -------- --------- ---------
742.9 693.2 1,446.1 1,332.4
EXPENSES: -------- -------- --------- ---------
Electric utility:
Fuel used in generation 113.1 127.9 191.7 218.6
Purchased power 107.5 80.4 210.8 136.7
Deferred fuel (8.6) (34.6) (1.2) (19.4)
Other operation 85.7 100.3 173.1 208.4
-------- -------- --------- ---------
Operation 297.7 274.0 574.4 544.3
Maintenance 28.1 33.2 61.1 63.4
Depreciation 70.8 64.9 141.5 129.4
Taxes other than income taxes 44.9 40.8 87.8 81.0
-------- -------- --------- ---------
441.5 412.9 864.8 818.1
-------- -------- --------- ---------
Diversified:
Cost of sales 159.6 144.4 312.5 273.7
Other 18.2 14.1 34.9 27.5
-------- -------- --------- ---------
177.8 158.5 347.4 301.2
-------- -------- --------- ---------
INCOME FROM OPERATIONS 123.6 121.8 233.9 213.1
-------- -------- --------- ---------
INTEREST EXPENSE AND OTHER:
Interest expense 36.0 36.6 72.6 72.8
Allowance for funds used during
construction (1.6) (2.9) (3.8) (5.5)
Preferred dividend requirements of
Florida Power 2.4 2.5 4.9 5.0
Other expense, net 0.5 1.0 1.3 1.6
-------- -------- --------- ---------
37.3 37.2 75.0 73.9
-------- -------- --------- ---------
INCOME BEFORE INCOME TAXES 86.3 84.6 158.9 139.2
Income Taxes 31.1 30.9 57.1 49.0
-------- -------- --------- ---------
NET INCOME $55.2 $53.7 $101.8 $90.2
======== ======== ========= =========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 95.6 92.3 95.4 91.2
======== ======== ========= =========
EARNINGS PER AVERAGE COMMON SHARE $0.58 $0.58 $1.07 $0.99
======== ======== ========= =========
DIVIDENDS PER COMMON SHARE $0.505 $0.495 $1.01 $0.99
======== ======== ========= =========
Note: Prior year amounts have been restated for the pooling of FM Industries.
The accompanying notes are an integral part of these financial statements.
3
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(In millions)
June 30, December 31,
1995 1994
----------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held
for future use $5,735.6 $5,603.4
Less - Accumulated depreciation 2,094.8 1,981.6
Accumulated decommissioning for nuclear plant 147.9 135.2
Accumulated dismantlement for fossil plants 96.1 92.4
---------- ----------
3,396.8 3,394.2
Construction work in progress 201.4 222.1
Nuclear fuel, net of amortization of $335.8
in 1995 and $322.8 in 1994 40.7 52.9
---------- ----------
Net electric utility property 3,638.9 3,669.2
Other property, net of depreciation of $175.9
in 1995 and $163.5 in 1994 429.0 420.9
---------- ----------
4,067.9 4,090.1
---------- ----------
CURRENT ASSETS:
Cash and equivalents 10.2 14.4
Accounts receivable, net 293.4 262.2
Current portion of leases and loans receivable 15.6 15.3
Inventories at average cost:
Fuel 88.8 75.2
Materials and supplies 111.9 110.4
Diversified materials 71.6 68.1
Underrecovery of fuel cost 8.4 1.8
Deferred income taxes 26.1 28.8
Other 13.8 12.2
---------- ----------
639.8 588.4
---------- ----------
OTHER ASSETS:
Investments:
Leases and loans receivable, net 389.4 438.0
Marketable securities 169.2 148.3
Nuclear plant decommissioning fund 142.2 123.6
Joint ventures and partnerships 76.2 74.5
Deferred insurance policy acquisition costs 100.5 91.9
Other 160.5 163.9
---------- ----------
1,038.0 1,040.2
---------- ----------
$5,745.7 $5,718.7
========== ==========
Note: The accompanying notes are an integral part of these financial statements.
4
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(In millions)
June 30, December 31,
1995 1994
----------- -----------
CAPITAL AND LIABILITIES (Unaudited)
COMMON STOCK EQUITY:
Common stock $1,168.4 $1,148.1
Retained earnings 848.3 842.9
Unrealized loss on securities available for sale (0.6) (6.6)
---------- ----------
2,016.1 1,984.4
CUMULATIVE PREFERRED STOCK OF FLORIDA POWER:
Without sinking funds 113.5 113.5
With sinking funds 30.0 30.0
LONG-TERM DEBT 1,811.2 1,859.6
---------- ----------
TOTAL CAPITAL 3,970.8 3,987.5
---------- ----------
CURRENT LIABILITIES:
Accounts payable 156.7 147.1
Customers' deposits 79.2 76.9
Income taxes payable 42.8 12.7
Accrued other taxes 48.9 14.8
Accrued interest 47.7 47.3
Other 79.6 69.3
---------- ----------
454.9 368.1
Notes payable 41.1 55.3
Current portion of long-term debt 28.6 52.9
---------- ----------
524.6 476.3
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 703.5 744.1
Unamortized investment tax credits 105.8 110.0
Insurance policy benefit reserves 242.8 222.5
Other postretirement benefit costs 76.2 67.8
Other 122.0 110.5
---------- ----------
1,250.3 1,254.9
---------- ----------
$5,745.7 $5,718.7
========== ==========
Note: The accompanying notes are an integral part of these financial statements.
5
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Cash Flows
(In millions)
Six Months Ended
June 30,
1995 1994
----------- -----------
(Unaudited)
OPERATING ACTIVITIES:
Net income $101.8 $90.2
Adjustments for noncash items:
Depreciation and amortization 173.3 156.8
Deferred income taxes and
investment tax credits, net (50.6) (10.3)
Increase in accrued other postretirement
benefit costs 8.4 10.7
Net change in deferred insurance policy
acquisition costs (8.6) (7.9)
Net change in insurance policy
benefit reserves 20.3 20.4
Changes in working capital, net of effects
from acquisition or sale of businesses:
Accounts receivable (31.2) (18.6)
Inventories (18.6) (14.1)
Underrecovery of fuel cost (6.6) (24.8)
Accounts payable 7.6 8.5
Income taxes payable 30.6 (28.2)
Accrued other taxes 33.9 33.0
Other 11.4 (6.0)
Other operating activities 11.7 17.4
--------- ---------
283.4 227.1
--------- ---------
INVESTING ACTIVITIES:
Property additions (including allowance for
borrowed funds used during construction) (148.5) (158.5)
Proceeds from sale of properties and businesses 6.6 12.3
Purchase of leases, loans and securities (14.5) (57.4)
Proceeds from sale or collection of leases,
loans and securities 48.7 48.9
Acquisition of businesses (5.8) (16.8)
Other investing activities (7.9) (7.1)
--------- ---------
(121.4) (178.6)
--------- ---------
FINANCING ACTIVITIES:
Issuance of long-term debt - 100.4
Repayment of long-term debt (29.2) (17.1)
Decrease in commercial paper with
long-term support (45.4) (87.8)
Sale of common stock 19.0 118.0
Dividends paid on common stock (96.4) (90.5)
Decrease in short-term debt (14.2) (61.0)
Other financing activities - (0.7)
--------- ---------
(166.2) (38.7)
--------- ---------
NET INCREASE (DECREASE)IN CASH AND EQUIVALENTS (4.2) 9.8
Beginning cash and equivalents 14.4 9.1
--------- ---------
ENDING CASH AND EQUIVALENTS $10.2 $18.9
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $69.1 $72.6
Income taxes (net of refunds) $77.6 $87.3
Note: Prior year amounts have been restated for the pooling of FM Industries.
The accompanying notes are an integral part of these financial statements.
6
FLORIDA POWER CORPORATION
FINANCIAL STATEMENTS
FLORIDA POWER CORPORATION
Statements of Income
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
------- ------- -------- --------
(Unaudited) (Unaudited)
OPERATING REVENUES:
Residential $301.2 $272.8 $584.9 $540.3
Commercial 130.1 122.7 239.5 225.2
Industrial 48.4 44.0 91.5 83.7
Sales for resale 28.8 26.6 54.8 57.5
Other 42.0 50.9 95.7 93.8
-------- -------- --------- ---------
550.5 517.0 1,066.4 1,000.5
-------- -------- --------- ---------
OPERATING EXPENSES:
Operation:
Fuel used in generation 113.1 127.9 191.7 218.6
Purchased power 107.5 80.4 210.8 136.7
Deferred fuel (8.6) (34.6) (1.2) (19.4)
Other 85.7 100.3 173.1 208.4
-------- -------- --------- ---------
297.7 274.0 574.4 544.3
-------- -------- --------- ---------
Maintenance 28.1 33.2 61.1 63.4
Depreciation 70.8 64.9 141.5 129.4
Taxes other than income taxes 44.9 40.8 87.8 81.0
Income taxes:
Currently payable 38.8 20.1 72.1 53.6
Deferred, net (6.4) 10.7 (13.6) (2.5)
Investment tax credits, net (2.1) (2.1) (4.2) (4.2)
-------- -------- --------- ---------
30.3 28.7 54.3 46.9
-------- -------- --------- ---------
471.8 441.6 919.1 865.0
-------- -------- --------- ---------
OPERATING INCOME 78.7 75.4 147.3 135.5
-------- -------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 0.9 1.6 2.1 3.1
Miscellaneous other expense, net (0.5) (0.7) (1.0) (1.5)
-------- -------- --------- ---------
0.4 0.9 1.1 1.6
-------- -------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 23.9 24.3 48.1 48.2
Other interest expense 2.9 3.2 5.7 6.9
-------- -------- --------- ---------
26.8 27.5 53.8 55.1
Allowance for borrowed funds used
during construction (0.7) (1.3) (1.7) (2.4)
-------- -------- --------- ---------
26.1 26.2 52.1 52.7
-------- -------- --------- ---------
NET INCOME 53.0 50.1 96.3 84.4
DIVIDENDS ON PREFERRED STOCK 2.4 2.5 4.9 5.0
-------- -------- --------- ---------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $50.6 $47.6 $91.4 $79.4
======== ======== ========= =========
The accompanying notes are an integral part of these financial statements.
7
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
June 30, December 31,
1995 1994
----------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held
for future use $5,735.6 $5,603.4
Less - Accumulated depreciation 2,094.8 1,981.6
Accumulated decommissioning for nuclear plant 147.9 135.2
Accumulated dismantlement for fossil plants 96.1 92.4
---------- ----------
3,396.8 3,394.2
Construction work in progress 201.4 222.1
Nuclear fuel, net of amortization of $335.8
in 1995 and $322.8 in 1994 40.7 52.9
---------- ----------
3,638.9 3,669.2
Other property, net 20.9 24.2
---------- ----------
3,659.8 3,693.4
---------- ----------
CURRENT ASSETS:
Cash and equivalents 5.1 -
Accounts receivable, less reserve of $4.0
in 1995 and $2.3 in 1994 207.0 167.3
Inventories at average cost:
Fuel 62.9 52.6
Materials and supplies 111.9 110.4
Underrecovery of fuel cost 8.4 1.8
Deferred income taxes 26.1 28.8
Other 5.7 5.8
---------- ----------
427.1 366.7
---------- ----------
OTHER ASSETS:
Nuclear plant decommissioning fund 142.2 123.6
Unamortized debt expense, being amortized
over term of debt 28.7 29.6
Other 69.0 71.2
---------- ----------
239.9 224.4
---------- ----------
$4,326.8 $4,284.5
========== ==========
The accompanying notes are an integral part of these financial statements.
8
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
June 30, December 31,
1995 1994
----------- -----------
CAPITALIZATION AND LIABILITIES (Unaudited)
CAPITALIZATION:
Common stock $955.4 $942.9
Retained earnings 727.1 724.5
---------- ----------
1,682.5 1,667.4
CUMULATIVE PREFERRED STOCK:
Without sinking funds 113.5 113.5
With sinking funds 30.0 30.0
LONG-TERM DEBT 1,363.7 1,363.8
---------- ----------
TOTAL CAPITAL 3,189.7 3,174.7
---------- ----------
CURRENT LIABILITIES:
Accounts payable 89.9 85.0
Accounts payable to associated companies 22.5 21.4
Customers' deposits 79.2 76.9
Income taxes payable 10.3 7.1
Accrued other taxes 44.0 11.3
Accrued interest 34.8 32.6
Other 46.4 36.2
---------- ----------
327.1 270.5
Notes payable 41.1 55.3
Current portion of long-term debt 16.8 35.4
---------- ----------
385.0 361.2
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 476.7 488.0
Unamortized investment tax credits 105.2 109.3
Other postretirement benefit costs 73.3 65.4
Other 96.9 85.9
---------- ----------
752.1 748.6
---------- ----------
$4,326.8 $4,284.5
========== ==========
The accompanying notes are an integral part of these financial statements.
9
FLORIDA POWER CORPORATION
Statements of Cash Flows
(In millions)
Six Months Ended
June 30,
1995 1994
---------- ----------
(Unaudited)
OPERATING ACTIVITIES:
Net income after dividends on preferred stock $91.4 $79.4
Adjustments for noncash items:
Depreciation and amortization 159.6 144.0
Deferred income taxes and investment
tax credits, net (17.8) (6.7)
Increase in accrued other postretirement
benefit costs 7.9 10.0
Allowance for equity funds used during construction (2.1) (3.1)
Changes in working capital:
Accounts receivable (39.7) (18.0)
Inventories (11.8) (8.0)
Underrecovery of fuel cost (6.6) (24.8)
Accounts payable 4.9 (11.1)
Accounts payable to associated companies 1.1 6.6
Income taxes payable 3.2 (12.9)
Accrued other taxes 32.7 31.8
Other 14.8 (1.2)
Other operating activities 4.6 14.9
--------- ---------
242.2 200.9
--------- ---------
INVESTING ACTIVITIES:
Construction expenditures (125.3) (145.0)
Allowance for borrowed funds used during construction (1.7) (2.4)
Additions to nonutility property (0.9) (1.4)
Proceeds from sale of properties 6.0 4.4
Other investing activities (5.5) (7.0)
--------- ---------
(127.4) (151.4)
--------- ---------
FINANCING ACTIVITIES:
Repayment of long-term debt (19.2) (0.5)
Dividends paid on common stock (88.8) (85.9)
Equity contributions from parent 12.5 107.2
Decrease in short-term debt (14.2) (62.4)
--------- ---------
(109.7) (41.6)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 5.1 7.9
Beginning cash and equivalents - -
--------- ---------
ENDING CASH AND EQUIVALENTS $5.1 $7.9
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $48.5 $53.0
Income taxes (net of refunds) $68.6 $66.0
The accompanying notes are an integral part of these financial statements.
10
FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
1) In December 1994, Florida Progress Corporation ("Florida Progress")
acquired FM Industries, Inc. ("FMI") which was accounted for on a pooling
of interests basis. The accompanying financial statements for 1994 have
been restated to reflect the inclusion of FMI. For the three and
six-month periods ended June 30, 1994, the acquisition of FMI increased
previously reported revenues by $11.7 million and $21.6 million, and net
income by $.8 million and $1.5 million, respectively. (As used herein,
the term Florida Progress includes its consolidated subsidiaries unless
otherwise indicated.)
2) As ordered by the Florida Public Service Commission ("FPSC"), Florida
Power Corporation ("Florida Power") is conducting a three-year test of
residential revenue decoupling which began in January 1995. The
difference between target revenues and actual revenues is included as a
current asset or current liability on the balance sheet and will be billed
or refunded to residential customers over a 12-month period beginning
in 1996. Residential revenue decoupling reduced revenues by $13.0 million
and $11.4 million for the three and six-month periods, respectively.
3) Progress Credit Corporation ("Progress Credit") is continuing its planned
orderly withdrawal from the lending and leasing business. In connection
with this strategy, for the six-month period ending June 30, 1995,
Progress Credit has reduced its loan and lease portfolio by $44.2 million.
Of this amount, $35.2 million represents prepayments of loans and lease
obligations by borrowers and lessees in advance of their maturity dates.
The payoff of these loans and leases had no material impact on earnings.
4) For the three and six-month periods ended June 30, 1994, Florida Progress
recognized after-tax charges of $1.6 million and $9.5 million, or $.02
and $.11 per share, respectively, related to an early retirement option
offered in late 1993.
5) CONTINGENCIES
THERMO-LAG FIRE BARRIER - Florida Power's nuclear plant uses a
fire-retardant material called Thermo-Lag as a fire barrier around
electrical conduits and cables. The United States Nuclear Regulatory
Commission ("NRC") has indicated its intention to seek the removal or
upgrade of this material because it does not provide the full fire
protection originally claimed by the manufacturer. Although the most
costly option of removing and replacing all of the Thermo-Lag would total
about $40 million, management believes there are more effective options
available that would cost less than $5 million. The resolution of this
matter is subject to NRC review and approval. Until there is a permanent
resolution, Florida Power has implemented surveillance procedures to
continuously inspect the areas protected by Thermo-Lag. Florida Power does
not expect to have to replace all of the Thermo-Lag at its plant.
INSURANCE - Florida Progress and its subsidiaries utilize various risk
management techniques to protect assets from risk of loss, including the
purchase of insurance. Risk avoidance, risk transfer and self-insurance
techniques are utilized depending on Florida Progress' ability to assume
risk, the relative cost and availability of methods for transferring risk
to third parties, and the requirements of applicable regulatory bodies.
Florida Power self-insures its transmission and distribution lines against
loss due to storm damage and other natural disasters. Florida Power is
accruing $6 million annually to a storm damage reserve and may defer any
losses in excess of the reserve.
11
Under the provisions of the Price Anderson Act, Florida Power, 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. If total third-party claims relating to a
single nuclear incident exceed $200 million (the amount of currently
available commercial liability insurance), Florida Power could be assessed
up to $79.3 million per incident, with a maximum assessment of $10 million
per year.
Florida Power is a member of Nuclear Electric Insurance, Ltd. ("NEIL"), an
industry mutual insurer, which provides business interruption and extra
expense coverage in the event of a major accidental outage at a covered
nuclear power plant. Florida Power is subject to a retroactive premium
assessment under this policy in the event of adverse loss experience.
Florida Power's present maximum share of any such retroactive assessment
is $2.6 million per policy year.
Florida Power also maintains nuclear property damage insurance and
decontamination and decommissioning liability insurance totaling $2.1
billion. The first layer of $500 million is purchased in the commercial
insurance market with the remaining excess coverage purchased from NEIL.
Florida Power is self-insured for any losses that are in excess of this
coverage. Under the terms of the NEIL policy agreements, Florida Power
could be assessed up to $8.4 million in any policy year if a loss in
excess of NEIL's available surplus is incurred. In the event of multiple
losses in any policy year, Florida Power's retroactive premium could total
up to $15.8 million.
Florida Power has never been retroactively assessed under any of these
nuclear indemnities or insurance policies.
CONTAMINATED SITE CLEANUP - Florida Progress is subject to regulation with
respect to the environmental effects of its operations. The disposal of
company-generated hazardous waste can result in costs to clean up
facilities found to be contaminated due to past disposal practices.
Federal and state statutes authorize governmental agencies to compel
responsible parties to clean up certain abandoned or uncontrolled
hazardous waste sites.
Florida Power and former subsidiaries of Florida Progress, whose
properties were sold in prior years, are potentially responsible parties
("PRPs") at certain sites. In addition, Florida Power is negotiating with
the Florida Department of Environment Protection ("FDEP") with respect to
a coal gasification plant previously operated in Sanford, Florida. In
February 1995, a state court dismissed a lawsuit brought against four
prior owners of the coal gasification plant site, including Florida Power.
Nevertheless, Florida Power anticipates an extended period of negotiation
with the FDEP. Liability for the cleanup costs of these sites is joint
and several.
The cost of cleaning up one of the PRP sites related to a former
subsidiary of Florida Progress has been determined in a settlement
agreement with the United States Environmental Protection Agency. Florida
Progress expects that the settlement payment, which was accrued in a prior
period, will bring this matter to a final conclusion. Based upon
information currently available, Florida Progress has no reason to believe
that its subsidiaries will be required to pay a significantly
disproportionate share of the costs for cleanup of the remaining PRP
sites. In addition to the sites where its subsidiaries have been named a
PRP, Florida Progress affiliates are also responsible for additional
environmental cleanup at other sites.
12
The best estimates currently available to Florida Progress indicate that
its consolidated proportionate share of liability for cleaning up all
sites ranges from $1.0 million to $2.7 million, and it has reserved $1.8
million against these potential costs. It is likely that additional costs
will be incurred to further study the coal gasification plant site which
could eventually lead to increasing Florida Power's cleanup costs.
Currently, no estimates of these additional study costs or any cleanup
costs are available.
PRAXAIR LAWSUIT - Florida Power and Florida Power & Light Company
("FP&L") are co-defendants in an antitrust action. Praxair (formerly a
part of Union Carbide Corporation) is a customer of FP&L and is seeking
injunctive relief and damages. The suit challenges a long-standing
territorial agreement between the two unaffiliated, neighboring utilities,
notwithstanding the defendants' contention that the agreement was clearly
authorized by state law and approved by the FPSC. Florida Power believes
that the state action exemption from the antitrust laws is applicable to
the agreement and to Florida Power's consequent refusal to provide
electricity to the customer. Management believes it has a strong defense
and intends to vigorously defend against this action.
COGENERATORS - During 1994, a dispute occurred over the price paid for
purchased power to cogenerators. In accordance with certain contract
pricing provisions, Florida Power began paying "as available" prices for
purchased power during certain periods. As available prices are lower
than the firm energy prices previously paid. The revised pricing reduces
payments to cogenerators by about $15 million annually. Two cogenerators
filed suit against Florida Power in state court challenging this pricing
methodology. A third cogenerator amended its complaint in a pending
lawsuit in federal court regarding a backup fuel dispute with Florida
Power to include the pricing issue. Two of these three lawsuits involve
antitrust claims.
A fourth cogenerator entered into a "standard offer" cogeneration contract
with Florida Power and subsequently indicated its intention to build a
115 megawatt ("MW") facility. The FPSC's rules limit standard offer
cogeneration projects to 75 MWs, and Florida Power filed a petition
seeking an FPSC ruling that Florida Power's standard offer contract is not
available if the cogenerator constructs the 115 MW facility. The
cogenerator filed suit in federal court seeking injunctive relief and
damages, including damages for alleged breach of contract and violation of
antitrust laws.
6) In the opinion of management, the accompanying financial statements
include all adjustments deemed necessary to summarize fairly and reflect
the financial position and results of operations of Florida Progress and
Florida Power for the interim periods presented. Results for these
interim periods are not necessarily indicative of results for the full
year. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto in the
combined Form 10-K of Florida Progress and Florida Power for the year
ended December 31, 1994 (the "1994 Form 10-K") and the combined Form 10-Q
of Florida Progress and Florida Power for the quarter ended March 31, 1995
(the "First Quarter 1995 Form 10-Q").
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OPERATING RESULTS
Florida Progress' earnings were $1.07 per share for the six-month period ended
June 30, 1995, an increase of $.08 per share compared to the same period in
1994. Earnings per share of $.58 for the current quarter remained constant
compared to last year. The increase for the six-month period resulted primarily
from Florida Power, Florida Progress' largest operating unit, which contributed
earnings of $.96 per share compared to $.87 per share for the same period last
year. Diversified earnings were $.11 per share for the six-month period ended
June 30, 1995, compared to $.12 per share last year.
Florida Power - Operating Revenues
Florida Power's operating revenues were $33.5 million (or 6.5%) and $65.9
million (or 6.6%) higher for the three and six-month periods ended June 30,
1995, compared to the same periods in 1994, due to increases in recoverable fuel
revenues and kilowatt hour ("KWH") sales. Recoverable fuel revenues increased
$34.5 million and $57.7 million for the three and six-month periods as a result
of the corresponding increase in fuel and purchased power expenses discussed
below. Retail KWH sales were higher than last year for both the three and six-
month periods ended June 30, 1995, due to abnormally hot weather, customer
growth and a stronger economy. Although KWH sales were higher, the residential
revenue decoupling adjustments largely offset these increases. (See Note 2 of
Notes to Financial Statements.)
Florida Power - Operating Expenses
Fuel and purchased power costs, including deferred fuel expense, were $38.3
million and $65.4 million higher for the three and six-month periods ended June
30, 1995, compared to the same periods in 1994. This was due primarily to
higher purchased power costs in 1995 resulting from increased capacity payments
and increased system requirements and under-billing for fuel in 1994. Florida
Power recovers substantially all of its fuel and purchased power costs through
FPSC and Federal Energy Regulatory Commission ("FERC") ordered fuel adjustment
clauses, thereby minimizing any impact on net income.
Other operation and maintenance expenses for the three and six-month periods
ended June 30, 1995, were $19.7 million (or 14.8%) and $37.6 million (or 13.8%)
lower, respectively, than the same periods last year. Lower recoverable energy
conservation program costs of $4.6 million and $12.4 million for the three and
six-month periods, respectively, and current year savings from cost control
initiatives contributed to the lower expenses. Also, a provision for early
retirement costs of $2.6 million and $15.5 million for the three and six-month
periods, respectively, was recorded in 1994. (See Note 4 of Notes to Financial
Statements.) Similar to the recovery of fuel costs mentioned above, Florida
Power recovers substantially all of its energy conservation program costs,
thereby minimizing any impact on net income.
Depreciation expense was $5.9 million (or 9.1%) and $12.1 million (or 9.4%)
higher for the three and six-month periods compared to last year due to a higher
provision for nuclear decommissioning in 1995 and plant additions.
Florida Power - Other Operating Results
In March 1995, the FERC proposed new rules that will require the electric
industry to provide open access to the nation's interstate transmission network.
Each utility under FERC jurisdiction would be required to file a
non-discriminatory open access transmission tariff, thereby making its
14
transmission system available to all wholesale buyers and sellers of electric
energy. Florida Power has already filed such a tariff with the FERC. Florida
Power will implement this new proposed tariff, subject to refund, in November
1995 after a five-month, FERC-ordered suspension expires. The FERC has
scheduled hearings to review the proposed tariff in December 1995. Florida
Power does not expect that the new tariff as filed will significantly change
Florida Power's revenues or earnings. Under the proposed rules, utilities under
certain circumstances would be given the opportunity to recover certain so
called "stranded costs." However, the rules as presently drafted may not afford
Florida Power that benefit. Florida Power is continuing to analyze the proposed
FERC rules and the extent to which Florida Power may have stranded investment,
if any.
As reported in Note 3 of Notes to Financial Statements of the First Quarter 1995
Form 10-Q, in March 1995, the FERC accepted Florida Power's 1995 wholesale
settlement agreement, which included all but one customer. On August 1, 1995,
the FERC also accepted Florida Power's separate settlement agreement with the
remaining customer. The new rates for this customer will increase annual
revenues about $.8 million, effective January 2, 1995.
On May 3, 1995, Florida Power and Auburndale Power Partners ("Auburndale")
entered into a settlement agreement resolving a dispute over the energy payments
to be made under a 1991 agreement for the sale to Florida Power of approximately
114 MWs from Auburndale's cogeneration facility. The settlement provides for
the resolution of the energy pricing dispute, including a reduction in the
escalation rate of the variable operating and maintenance payment to be made to
Auburndale. Auburndale has agreed to reduce by 11 years the duration of Florida
Power's obligation to purchase approximately 17 MWs of power, in return for
monthly termination payments from Florida Power. The settlement also provides
for Auburndale to curtail the output of its facility during certain off-peak
periods. Florida Power expects net savings of approximately $12 million over
the life of the contract. The settlement agreement was approved by the FPSC on
August 1, 1995.
Florida Power has indefinitely deferred construction of a 500 kilovolt
transmission line that would have connected its Lake Tarpon substation in
Pinellas County to its Kathleen substation in Polk County (the "LTK line"). Due
to numerous legal and regulatory delays, the total projected costs for the LTK
line increased to more than $85 million, up from the initial estimate of $30
million. On March 10, 1995, Florida Power filed a petition seeking approval of
the prudence of actions with regard to the LTK line and the amortization of
accumulated costs of about $23 million. Florida Power believes it has
demonstrated that its actions related to the LTK line were prudent and expects
to be allowed to amortize these costs. It is recognized, however, that no such
approval is assured. The FPSC is expected to issue a decision in August 1995.
Florida Power is cooperating with the United States Nuclear Regulatory
Commission ("NRC") as it conducts a formal review of unauthorized tests
performed by control room operators at the Crystal River Nuclear Plant. The
tests were performed in September 1994 and violated normal operating procedures
at the plant as well as requirements set by the NRC. Florida Power identified
the violations, reported them to the NRC and took corrective action to prevent
reoccurrence. The control room operators have been placed on administrative
leave. Florida Power does not expect any fine from this NRC review to have a
material effect on earnings.
Florida Progress Diversified Operations
Florida Progress' diversified revenues increased $16.2 million and $47.8
million, respectively, for the three and six-month periods ended June 30, 1995,
compared to the same periods in 1994. This increase is due primarily to
increased coal sales, as sales in the prior year were negatively impacted by
15
severe winter weather, and higher volumes in rail services and marine
operations. Gross margins remained fairly constant for the quarter and
increased $9.0 million for the six-month period, compared to the same periods in
1994, due to the above referenced revenue increases and the negative impact of a
lease restructuring at Progress Credit in 1994.
Progress Credit's portfolio includes aircraft loans to Pegasus Capital
Corporation ("Pegasus"), a company in which Progress Credit has a minority
interest. One of these loans to Pegasus is secured by a lease to Trans-World
Airlines ("TWA"). Although TWA filed for bankruptcy on June 30, 1995, Florida
Progress believes this will have no significant impact on the status of this
loan.
As noted under the heading "Operating Results - Florida Progress Diversified
Operations" in Item 2 of the First Quarter 1995 Form 10-Q, in April 1995,
Progress Credit reached a tentative agreement to restructure an aircraft lease
with Continental Airlines. In July 1995, Progress Credit and Continental
Airlines completed this restructuring agreement, which will not have a material
impact on earnings.
Earnings from Mid-Continent Life Insurance Company ("Mid-Continent") declined in
1994, when compared to 1993, due to increased competition in its market segment.
In March 1995, James L. Harlin was named President of Mid-Continent. Mr. Harlin
was previously President of the life insurance subsidiary of Deere and Company.
His 25 years of insurance experience includes being the Chief Actuary for Horace
Mann Insurance Companies. Mid-Continent is re-assessing its competitive
position within the industry and is working to develop new insurance products
and services to better position itself in a more competitive environment.
Management does not expect a significant earnings improvement in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Florida Power budgeted $330 million, excluding allowance for funds used during
construction, for its 1995 construction program, of which $125.3 million was
spent during the first six months of the year. These expenditures were
financed primarily with funds from operations.
On July 7, 1995, Florida Progress contributed $12.5 million to Florida Power
from the sale of common stock through Florida Progress' dividend reinvestment
and stock purchase plan. These funds were used to repay commercial paper and
for general corporate purposes.
Florida Power's ratio of earnings to fixed charges was 4.12 and 3.92 for the
twelve-month periods ended June 30, 1995 and 1994, respectively. (See Exhibit
12 filed herewith.)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1) Panda-Kathleen, L.P. v. Florida Power Corporation, United States District
Court for the Middle District of Florida, Tampa Division, Case No.
95-992-CIV-T-24(C).
Panda-Kathleen, L.P. ("Panda") entered into a standard offer cogeneration
contract with Florida Power on November 25, 1991. The FPSC's rules limit
"standard offer" cogeneration projects to 75 MWs. In January 1995, after
16
learning that Panda was planning to build a 115 MW facility, Florida Power
filed a petition seeking an FPSC ruling that Florida Power's standard
offer contract is not available to Panda if it constructs the 115 MW
facility. (See prior discussion of this petition in the 1994 Form 10-K,
Part I, Item 3, paragraph 8.) Panda then instituted the above-referenced
proceeding against Florida Power on June 26, 1995, in the U.S. District
Court for the Middle District of Florida. Panda seeks to enjoin Florida
Power from (i) pursuing its petition before the FPSC, (ii) executing an
agreement with Lakeland Electric and Water Board ("Lakeland") to acquire
firm gas transportation capacity, (iii) interfering (allegedly) with
Panda's business relationships with Lakeland and (iv) pursuing other
actions which delay or obstruct Panda's performance of its contract with
Florida Power. On June 29, 1995, the Court issued an order denying
Panda's motion for a temporary restraining order, but set for hearing on
September 5, 1995, Panda's alternative request for a preliminary
injunction. Panda's complaint also alleges, among other things, breach of
contract, violation of state and federal antitrust laws, unfair
competition and tortious interference with a business relationship. Panda
seeks, among other things, a declaratory judgement that the FPSC order
sought by Florida Power would be contrary to Panda's right to be exempt
from state regulation, specific performance of the contract with Florida
Power (or contract damages in excess of $325 million), antitrust damages
in excess of $325 million (which would be trebled), tortuous interference
damages in excess of $325 million, and attorneys' fees and costs of
litigation. Management believes it has a strong defense and intends to
vigorously defend against this action.
2) In re: Petition of Florida Power Corporation for determination that its
plan for curtailing purchases from Qualifying Facilities in minimum load
conditions is consistent with Rule 25-17.086, F.A.C., Florida Public
Service Commission, Docket No. 941101-EQ.
See prior discussion of this matter in the 1994 Form 10-K, Item 3,
paragraph 7. On October 14, 1994, Florida Power placed into effect a
generation curtailment plan, and filed the above-referenced petition with
the FPSC to seek a determination that the curtailment plan is consistent
with FPSC rules. The FPSC staff has issued a recommendation that supports
Florida Power's petition. The staff does not believe that Florida Power's
contracts are "moot take" obligations during minimum load conditions.
A decision from the FPSC is expected in August 1995.
3) Florida Public Utilities Company v. Florida Power Corporation, Florida
Power & Light Company, Atlanta Gas Light Company, and City of Sanford
Florida, United States District Court for the Middle District of Florida,
Orlando Division, Civil Action No. 92-115-CIV-ORL-19.
See prior discussion of this matter in the 1994 Form 10-K, Part I, Item 3,
paragraph 14. On February 17, 1995, the court dismissed this case without
prejudice and, accordingly, it is now considered terminated for reporting
purposes. Florida Power anticipates an extended period of negotiation
with the FDEP regarding this site despite the dismissal. (See Note 5 of
Notes to Financial Statements.)
4) Simon v. Mid-Continent Life Insurance Company and Florida Progress
Corporation, United States District Court for the Western District of
Oklahoma, Case No. CIV-94-1834-C.
Riley Simon, Mid-Continent's past President and Chief Executive Officer,
brought this action for breach of an alleged employment agreement,
promissory estoppel, invasion of privacy, defamation, intentional
infliction of emotional distress, and trespass to chattels, all arising
17
out of the termination of his employment. Mr. Simon is seeking $5 million
in compensatory damages from each defendant and $5 million and $200
million in punitive damages from Mid-Continent and Florida Progress,
respectively. Management believes the defendants have strong defenses and
intend to vigorously defend against this action.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Description
Number
12 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges for Florida Power.
27.(a) Florida Progress Financial Data Schedule.
27.(b) Florida Power Financial Data Schedule.
(b) Reports on Form 8-K:
During the second quarter 1995, Florida Progress and Florida Power
filed the following combined report on Form 8-K:
Form 8-K dated April 20, 1995, reporting under Item 5
"Other Events" a press release and related Investor
Information report reporting Florida Progress' and
Florida Power's first quarter 1995 earnings.
In addition, Florida Progress and Florida Power filed the following
combined report on Form 8-K subsequent to the second quarter 1995:
Form 8-K dated July 20, 1995, reporting under Item 5
"Other Events" a press release and related Investor
Information report reporting Florida Progress' and
Florida Power's second quarter 1995 earnings.
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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.
FLORIDA PROGRESS CORPORATION
FLORIDA POWER CORPORATION
Date: August 11, 1995 /s/ John Scardino, Jr.
-----------------------------
John Scardino, Jr.
Vice President and Controller
Date: August 11, 1995 /s/ James V. Smallwood
-----------------------------
James V. Smallwood
Treasurer
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Exhibit Index
Exhibit
Number Description
- ------- -------------------------------------------------------------------
12 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges for Florida Power.
27.(a) Florida Progress Financial Data Schedule.
27.(b) Florida Power Financial Data Schedule.