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 September 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 September 30, 1995
---------- -------------- ------------------
Florida Progress Corporation Common Stock,
without par value 96,147,060
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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
-------- -------- -------- --------
(Unaudited) (Unaudited)
REVENUES:
Electric utility $671.8 $586.5 $1,738.2 $1,587.0
Diversified 190.8 169.7 570.5 501.6
--------- --------- --------- ---------
862.6 756.2 2,308.7 2,088.6
EXPENSES: --------- --------- --------- ---------
Electric utility:
Fuel used in generation 144.1 127.6 335.8 346.2
Purchased power 120.1 80.2 330.9 216.9
Deferred fuel 1.8 (0.3) 0.6 (19.7)
Other operation 95.2 99.1 268.3 307.5
--------- --------- --------- ---------
Operation 361.2 306.6 935.6 850.9
Maintenance 23.8 27.5 84.9 90.9
Depreciation 75.8 65.5 217.3 194.9
Taxes other than income taxes 48.4 43.2 136.2 124.2
--------- --------- --------- ---------
509.2 442.8 1,374.0 1,260.9
--------- --------- --------- ---------
Diversified:
Cost of sales 155.1 139.8 467.6 413.5
Other 17.4 18.4 52.3 45.9
--------- --------- --------- ---------
172.5 158.2 519.9 459.4
--------- --------- --------- ---------
INCOME FROM OPERATIONS 180.9 155.2 414.8 368.3
--------- --------- --------- ---------
INTEREST EXPENSE AND OTHER:
Interest expense 34.9 36.1 107.5 108.9
Allowance for funds used during
construction (1.8) (2.8) (5.6) (8.3)
Preferred dividend requirements of
Florida Power 2.4 2.6 7.3 7.6
Other expense, net 0.8 6.0 2.1 7.6
--------- --------- --------- ---------
36.3 41.9 111.3 115.8
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 144.6 113.3 303.5 252.5
Income Taxes 53.5 37.5 110.6 86.5
--------- --------- --------- ---------
NET INCOME $91.1 $75.8 $192.9 $166.0
========= ========= ========= =========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 95.9 94.6 95.6 92.3
========= ========= ========= =========
EARNINGS PER AVERAGE COMMON SHARE $0.95 $0.80 $2.02 $1.80
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE $0.505 $0.495 $1.515 $1.485
========= ========= ========= =========
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)
September 30, December 31,
1995 1994
----------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held
for future use $5,794.9 $5,603.4
Less - Accumulated depreciation 2,138.2 1,981.6
Accumulated decommissioning for nuclear plant 155.5 135.2
Accumulated dismantlement for fossil plants 100.2 92.4
---------- ----------
3,401.0 3,394.2
Construction work in progress 150.7 222.1
Nuclear fuel, net of amortization of $342.2
in 1995 and $322.8 in 1994 37.0 52.9
---------- ----------
Net electric utility property 3,588.7 3,669.2
Other property, net of depreciation of $182.1
in 1995 and $163.5 in 1994 427.5 420.9
---------- ----------
4,016.2 4,090.1
---------- ----------
CURRENT ASSETS:
Cash and equivalents 9.4 14.4
Accounts receivable, net 338.6 262.2
Current portion of leases and loans receivable 16.2 15.3
Inventories at average cost:
Fuel 58.5 75.2
Materials and supplies 108.7 110.4
Diversified materials 83.7 68.1
Underrecovery of fuel cost 8.5 1.8
Deferred income taxes 29.3 28.8
Other 15.6 12.2
---------- ----------
668.5 588.4
---------- ----------
OTHER ASSETS:
Investments:
Leases and loans receivable, net 384.2 438.0
Marketable securities 172.6 148.3
Nuclear plant decommissioning fund 148.5 123.6
Joint ventures and partnerships 75.7 74.5
Deferred insurance policy acquisition costs 103.6 91.9
Other 180.1 163.9
---------- ----------
1,064.7 1,040.2
---------- ----------
$5,749.4 $5,718.7
========== ==========
Note: The accompanying notes are an integral part of these financial statements.
4
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(In millions)
September 30, December 31,
1995 1994
----------- -----------
CAPITAL AND LIABILITIES (Unaudited)
COMMON STOCK EQUITY:
Common stock $1,178.0 $1,148.1
Retained earnings 890.9 842.9
Unrealized loss on securities available for sale (0.7) (6.6)
---------- ----------
2,068.2 1,984.4
CUMULATIVE PREFERRED STOCK OF FLORIDA POWER:
Without sinking funds 113.5 113.5
With sinking funds 25.0 30.0
LONG-TERM DEBT 1,579.2 1,859.6
---------- ----------
TOTAL CAPITAL 3,785.9 3,987.5
---------- ----------
CURRENT LIABILITIES:
Accounts payable 165.1 147.1
Customers' deposits 82.5 76.9
Income taxes payable 56.3 12.7
Accrued other taxes 71.4 14.8
Accrued interest 44.0 47.3
Other 93.6 69.3
---------- ----------
512.9 368.1
Notes payable - 55.3
Current portion of long-term debt
and preferred stock 196.7 52.9
---------- ----------
709.6 476.3
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 687.8 744.1
Unamortized investment tax credits 103.7 110.0
Insurance policy benefit reserves 253.9 222.5
Other postretirement benefit costs 80.7 67.8
Other 127.8 110.5
---------- ----------
1,253.9 1,254.9
---------- ----------
$5,749.4 $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)
Nine Months Ended
September 30,
1995 1994
-------- --------
(Unaudited)
OPERATING ACTIVITIES:
Net income $192.9 $166.0
Adjustments for noncash items:
Depreciation and amortization 265.9 238.0
Deferred income taxes and investment tax credits, net (73.2) (40.5)
Increase in accrued other postretirement benefit costs 12.9 17.6
Net change in deferred insurance policy acquisition costs (11.7) (11.7)
Net change in insurance policy benefit reserves 31.4 30.5
Changes in working capital, net of effects
from acquisition or sale of businesses:
Accounts receivable (74.3) (41.8)
Inventories - (4.3)
Underrecovery of fuel cost (6.7) (24.7)
Accounts payable 16.0 (22.0)
Income taxes payable 44.1 3.0
Accrued other taxes 56.4 48.3
Other 23.2 9.5
Other operating activities 20.8 28.4
--------- ---------
497.7 396.3
--------- ---------
INVESTING ACTIVITIES:
Property additions (including allowance for
borrowed funds used during construction) (214.2) (246.2)
Proceeds from sale of properties and businesses 10.3 14.3
Purchase of leases, loans and securities (36.1) (69.0)
Proceeds from sale or collection of leases,
loans and securities 70.5 67.7
Acquisition of businesses (5.9) (17.1)
Other investing activities (11.5) (12.9)
--------- ---------
(186.9) (263.2)
--------- ---------
FINANCING ACTIVITIES:
Issuance of long-term debt - 103.6
Repayment of long-term debt (39.2) (55.6)
Decrease in commercial paper with long-term support (105.0) (68.6)
Sale of common stock 28.8 128.4
Dividends paid on common stock (144.8) (138.0)
Decrease in short-term debt (55.3) (103.0)
Other financing activities (0.3) (0.7)
--------- ---------
(315.8) (133.9)
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (5.0) (0.8)
Beginning cash and equivalents 14.4 9.1
--------- ---------
ENDING CASH AND EQUIVALENTS $9.4 $8.3
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $106.4 $111.2
Income taxes (net of refunds) $140.2 $124.0
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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
-------- -------- -------- --------
(Unaudited) (Unaudited)
OPERATING REVENUES:
Residential $374.8 $336.6 $959.7 $876.9
Commercial 147.2 133.4 386.7 358.6
Industrial 48.8 44.5 140.3 128.2
Sales for resale 56.0 38.7 110.8 96.2
Other 45.0 33.3 140.7 127.1
--------- --------- --------- ---------
671.8 586.5 1,738.2 1,587.0
--------- --------- --------- ---------
OPERATING EXPENSES:
Operation:
Fuel used in generation 144.1 127.6 335.8 346.2
Purchased power 120.1 80.2 330.9 216.9
Deferred fuel 1.8 (0.3) 0.6 (19.7)
Other 95.2 99.1 268.3 307.5
--------- --------- --------- ---------
361.2 306.6 935.6 850.9
--------- --------- --------- ---------
Maintenance 23.8 27.5 84.9 90.9
Depreciation 75.8 65.5 217.3 194.9
Taxes other than income taxes 48.4 43.2 136.2 124.2
Income taxes:
Currently payable 69.0 49.0 141.1 102.6
Deferred, net (15.6) (5.6) (29.2) (8.1)
Investment tax credits, net (2.0) (2.2) (6.2) (6.4)
--------- --------- --------- ---------
51.4 41.2 105.7 88.1
--------- --------- --------- ---------
560.6 484.0 1,479.7 1,349.0
--------- --------- --------- ---------
OPERATING INCOME 111.2 102.5 258.5 238.0
--------- --------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 1.0 1.5 3.1 4.6
Miscellaneous other expense, net - (6.4) (1.0) (7.9)
--------- --------- --------- ---------
1.0 (4.9) 2.1 (3.3)
--------- --------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 23.3 24.2 71.4 72.4
Other interest expense 2.6 2.7 8.3 9.6
--------- --------- --------- ---------
25.9 26.9 79.7 82.0
Allowance for borrowed funds used
during construction (0.8) (1.3) (2.5) (3.7)
--------- --------- --------- ---------
25.1 25.6 77.2 78.3
--------- --------- --------- ---------
NET INCOME 87.1 72.0 183.4 156.4
DIVIDENDS ON PREFERRED STOCK 2.4 2.6 7.3 7.6
--------- --------- --------- ---------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $84.7 $69.4 $176.1 $148.8
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
7
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
September 30, December 31,
1995 1994
----------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held
for future use $5,794.9 $5,603.4
Less - Accumulated depreciation 2,138.2 1,981.6
Accumulated decommissioning for nuclear plant 155.5 135.2
Accumulated dismantlement for fossil plants 100.2 92.4
---------- ----------
3,401.0 3,394.2
Construction work in progress 150.7 222.1
Nuclear fuel, net of amortization of $342.2
in 1995 and $322.8 in 1994 37.0 52.9
---------- ----------
3,588.7 3,669.2
Other property, net 19.5 24.2
---------- ----------
3,608.2 3,693.4
---------- ----------
CURRENT ASSETS:
Cash and equivalents 4.7 -
Accounts receivable, less reserve of $3.7
in 1995 and $2.3 in 1994 245.7 167.3
Inventories at average cost:
Fuel 34.4 52.6
Materials and supplies 108.7 110.4
Underrecovery of fuel cost 8.5 1.8
Deferred income taxes 29.3 28.8
Other 5.1 5.8
---------- ----------
436.4 366.7
---------- ----------
OTHER ASSETS:
Nuclear plant decommissioning fund 148.5 123.6
Unamortized debt expense, being amortized
over term of debt 28.2 29.6
Other 87.6 71.2
---------- ----------
264.3 224.4
---------- ----------
$4,308.9 $4,284.5
========== ==========
The accompanying notes are an integral part of these financial statements.
8
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
September 30, December 31,
1995 1994
----------- -----------
CAPITALIZATION AND LIABILITIES (Unaudited)
CAPITALIZATION:
Common stock $967.9 $942.9
Retained earnings 765.9 724.5
---------- ----------
1,733.8 1,667.4
CUMULATIVE PREFERRED STOCK:
Without sinking funds 113.5 113.5
With sinking funds 25.0 30.0
LONG-TERM DEBT 1,257.0 1,363.8
---------- ----------
TOTAL CAPITAL 3,129.3 3,174.7
---------- ----------
CURRENT LIABILITIES:
Accounts payable 90.5 85.0
Accounts payable to associated companies 15.4 21.4
Customers' deposits 82.5 76.9
Income taxes payable 34.0 7.1
Accrued other taxes 66.2 11.3
Accrued interest 34.9 32.6
Other 58.5 36.2
---------- ----------
382.0 270.5
Notes payable - 55.3
Current portion of long-term debt
and preferred stock 51.3 35.4
---------- ----------
433.3 361.2
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 465.9 488.0
Unamortized investment tax credits 103.1 109.3
Other postretirement benefit costs 77.6 65.4
Other 99.7 85.9
---------- ----------
746.3 748.6
---------- ----------
$4,308.9 $4,284.5
========== ==========
The accompanying notes are an integral part of these financial statements.
9
FLORIDA POWER CORPORATION
Statements of Cash Flows
(In millions)
Nine Months Ended
September 30,
1995 1994
-------- --------
(Unaudited)
OPERATING ACTIVITIES:
Net income after dividends on preferred stock $176.1 $148.8
Adjustments for noncash items:
Depreciation and amortization 244.3 219.0
Deferred income taxes and investment tax credits, net (35.4) (14.5)
Increase in accrued other postretirement benefit costs 12.2 16.6
Allowance for equity funds used during construction (3.1) (4.6)
Changes in working capital:
Accounts receivable (78.4) (36.6)
Inventories 17.4 2.9
Underrecovery of fuel cost (6.7) (24.7)
Accounts payable 5.5 (33.7)
Accounts payable to associated companies (6.0) 2.1
Income taxes payable 26.9 7.5
Accrued other taxes 54.9 46.2
Other 30.9 15.1
Other operating activities 13.0 20.9
--------- ---------
451.6 365.0
--------- ---------
INVESTING ACTIVITIES:
Construction expenditures (181.4) (215.8)
Allowance for borrowed funds used during construction (2.5) (3.7)
Additions to nonutility property (1.4) (2.3)
Proceeds from sale of properties 8.1 6.0
Other investing activities (8.2) (9.7)
--------- ---------
(185.4) (225.5)
--------- ---------
FINANCING ACTIVITIES:
Repayment of long-term debt (19.2) (20.6)
Decrease in commercial paper with long term support (77.3) -
Dividends paid on common stock (134.7) (130.1)
Equity contributions from parent 25.0 114.7
Decrease in short-term debt (55.3) (102.0)
--------- ---------
(261.5) (138.0)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 4.7 1.5
Beginning cash and equivalents - -
--------- ---------
ENDING CASH AND EQUIVALENTS $4.7 $1.5
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $73.0 $74.9
Income taxes (net of refunds) $114.1 $94.7
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", which
term includes consolidated subsidiaries unless otherwise indicated)
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 nine
months ended September 30, 1994, the acquisition of FMI increased
previously reported revenues by $11.2 million and $32.8 million, and net
income by $.7 million and $2.2 million, respectively.
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. Residential
revenue decoupling reduced revenues by $7.0 million and $18.4 million for
the three and nine-month periods in 1995, respectively.
3) In September 1995, the FPSC approved Florida Power's petition for the
amortization of approximately $23 million in accumulated costs for the
cancelled, 500-kilovolt Lake Tarpon-Kathleen transmission ("LTK") line.
The costs are being amortized over 4 years effective retroactively to
January 1, 1995. In the third quarter 1995, Florida Power recognized
after-tax charges of $3.4 million, or $.03 per share, to begin the
amortization of the LTK line.
4) In December 1994, Florida Power filed a new site-specific study with the
FPSC that estimated an increase in total future decommissioning costs. On
October 26, 1995, the FPSC staff recommended higher estimated total future
decommissioning costs than that presented in Florida Power's filing. The
staff recommendation estimated total future decommissioning costs of
approximately $2.0 billion, which corresponds to $404.6 million in 1995
dollars. In addition, the FPSC staff recommended that the retail portion
of annual decommissioning expense be increased to $20.6 million, beginning
in January 1995, compared to the $17.7 million per year that Florida Power
filed and began expensing effective retroactively to January 1995.
Beginning in October 1995, Florida Power increased the retail portion of
its annual decommissioning expense to match the FPSC staff recommendation,
effective retroactively to January 1995. Florida Power has also adjusted
the wholesale portion of this expense in a comparable manner, increasing
it to $1.2 million. Florida Power is not seeking an increase in rates to
recover the higher costs. The FPSC is expected to rule on this petition
by the end of 1995.
5) For the three and nine months ended September 30, 1994, Florida Progress
recognized after-tax charges of $4.4 million and $13.9 million,
respectively, or $.05 per share and $.15 per share, respectively, related
to an early retirement option offered late in 1993 and the elimination of
approximately 300 additional positions in 1994.
6) In September 1994, Florida Power recorded an after-tax charge of $3.9
million, or $.04 per share, related to the write-off of its investments in
the Sunshine Pipeline.
7) 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
11
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 an unfunded, storm damage reserve and may
defer any losses in excess of the reserve.
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 at a
covered nuclear power plant 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.
12
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 to the sites where Florida
Progress subsidiaries have been named a PRP, there are other sites where
Florida Progress affiliates are possibly responsible for additional
environmental cleanup, including a coal gasification plant site that
Florida Power previously owned and operated in Sanford, Florida (the
"Sanford site"). Florida Power is negotiating with the Florida Department
of Environmental Protection ("FDEP") with respect to the Sanford site.
There are five parties which have been identified as possibly responsible
for this site, including Florida Power. The FDEP has planned
environmental tests for an area surrounding the Sanford site. The results
of these tests will determine whether the area would be referred to the
U.S. Environmental Protection Agency ("EPA") or remain the responsibility
of the FDEP. At this point, it is too early to predict the outcome of the
tests. Liability for the cleanup costs of the PRP sites and the Sanford
site 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 EPA. In September 1995, Florida Progress made the
settlement payment to the EPA, which was accrued in a prior period,
bringing 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.
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 Sanford 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, Inc. ("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. On September 19, 1995,
the U.S. Court of Appeals reversed the U.S. District Court and held that
sufficient "state action" by the FPSC existed to allow Florida Power and
FP&L to divide service territories in the county in which Praxair is
located without violating antitrust laws governing restraints of trade.
On October 9, 1995, Praxair filed a request to rehear the September 19th
order.
COGENERATORS - During 1994, a dispute occurred over the price paid to
cogenerators for purchased power. 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
13
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 under 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.
8) 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"), 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") and the combined Form 10-Q of Florida
Progress and Florida Power for the quarter ended June 30, 1995 (the
"Second Quarter 1995 Form 10-Q").
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OPERATING RESULTS
Florida Progress' earnings per share for the three and nine months ended
September 30, 1995, were $.95 and $2.02, respectively, which represents an
increase of $.15 and $.22, respectively, compared to the same periods in 1994.
The increase for the both periods resulted from higher earnings at Florida
Power, Florida Progress' largest operating unit, which realized an increase in
earnings per share for the three and nine-month period of $.15 and $.23,
respectively. Diversified earnings per share for the three-month period were
comparable to the operating results during the same period in 1994 and were
$.18 per share for the nine-month period ended September 30, 1995, compared to
$.19 per share for the same period last year.
Florida Power - Operating Revenues
Florida Power's operating revenues increased $85.3 million (14.5%) and $151.2
million (9.5%) in the three and nine-month periods ended September 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
$49.6 million and $107.3 million for the three and nine-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 nine months ended September 30, 1995, due to warmer than normal weather,
customer growth and a stronger economy. Residential revenue decoupling
adjustments partially offset the higher revenues from increased KWH sales by
$7.0 million and $18.4 million for the three and nine months ended September 30,
1995, compared to the same periods last year. (See Note 2 to the Financial
Statements.)
PAGE> 14
Florida Power - Operating Expenses
Fuel and purchased power costs, including deferred fuel expense, increased $58.5
million (28.2%) and $123.9 million (22.8%) in the three and nine-month periods
ended September 30, 1995, compared to the same periods in 1994. This was due
primarily to higher purchased power costs resulting from increased capacity
payments and increased system requirements. 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
eliminating any significant impact on net income.
Other operation and maintenance expenses for the three and nine months ended
September 30, 1995, decreased $7.6 million (6.0%) and $45.2 million (11.3%) from
the same periods last year. The lower expenses were primarily the result of
lower recoverable energy conservation program costs of $4.7 million and $17.1
million for the three and nine-month periods, respectively, and provisions for
early retirement and restructuring costs of $7.2 million and $22.7 million for
the three and nine-month periods, respectively, that were recorded in 1994. (See
Note 5 to the Financial Statements.) Similar to the recovery of fuel costs
mentioned above, Florida Power recovers substantially all of its energy
conservation program costs through an adjustment clause, thereby eliminating any
significant impact on net income.
Depreciation expense increased $10.3 million (15.7%) and $22.4 million (11.5%)
in the three and nine-month periods compared to last year due primarily to plant
additions, a higher provision for nuclear decommissioning in 1995 and additional
amortization recorded for the LTK line. (See Note 3 to the Financial
Statements.)
Florida Power - Other Operating Results
In September 1995, the FPSC approved Florida Power's petition seeking approval
of the prudence of actions taken with regard to the cancelled LTK line and the
amortization of accumulated costs. (See Note 3 to the Financial Statements,
herein, and the Second Quarter 1995 Form 10-Q, Part I, Item 2, under the heading
"Florida Power - Other Operating Results".)
As previously reported in the Second Quarter 1995 Form 10-Q, Part I, Item 2,
under the heading "Florida Power - Other Operating Results", Florida Power is
cooperating with the NRC as it conducts a formal review of unauthorized tests
performed by control room operators at the Crystal River Nuclear Plant. Florida
Power has taken various disciplinary actions against the six control room
operators involved in the tests. The discipline ranged from termination of
employment, to reassignment to non-control room responsibilities, to counseling.
These individuals had previously been placed on administrative leave. Florida
Power does not expect this NRC review to have a material effect on earnings.
As previously reported in the Second Quarter 1995 Form 10-Q, Part I, Item 2,
under the heading "Florida Power - Other Operating Results", in March 1995, the
FERC proposed new rules that may require the electric industry to provide open
access to the nation's interstate transmission network. If the rules are
adopted in their present form, each utility under FERC jurisdiction would be
required to file a non-discriminatory open access transmission tariff, thereby
making its transmission system available to all wholesale buyers and sellers of
electric energy. In February 1995, Florida Power filed such a tariff with the
FERC. After receiving comments on its filing from the FERC and intervenors,
Florida Power filed a revised comparability tariff in August 1995. In October
1995, the FERC accepted this revised tariff for implementation, subject to
refund, in November 1995. Florida Power expects that the FERC will hold
hearings to review the proposed tariff by the end of the second quarter 1996.
Florida Power does not expect that the new tariff as filed will significantly
change Florida Power's revenues or earnings.
15
Late in 1994, Florida Power and the Orlando Utilities Commission, a municipal
utility, negotiated a new 10-year territorial agreement that specifically
defines electric service boundaries within Orange County, including areas around
Orlando. The agreement replaced the previous 20-year contract that expired in
July 1994. In February 1995, the Orlando City Council approved a 10-year
franchise agreement allowing Florida Power to operate in the City of Orlando.
This will allow Florida Power to continue to serve those areas and customers
that are annexed into the City of Orlando in the future. In April 1995, the
FPSC approved the new territorial agreement. (See the 1994 Form 10-K, Part I,
Item 7, under the heading "Utility Regulatory Matters".)
In October 1995, Florida Power entered into an agreement with the Seminole
Electric Cooperative, Inc. ("Seminole Electric") to sell Seminole Electric an
additional 455 MW of power beginning in 1999. Seminole Electric is an electric
cooperative based in Tampa, Florida. The agreement is for a period of three
years.
Florida Progress Diversified Operations
Florida Progress' diversified revenues increased $21.1 million and $68.9
million, respectively, for the three and nine-month periods ended September 30,
1995 compared to the same periods in 1994. This increase is due primarily to
higher volumes in rail services and inland marine operations, which also
increased gross margins by $5.8 million and $14.8 million for the three and
nine-month periods, respectively, compared to the same periods in 1994.
Progress Credit Corporation's portfolio includes aircraft loans to Pegasus
Capital Corporation ("Pegasus"), a company in which Progress Credit Corporation
has a minority interest. One of these loans to Pegasus is secured by a lease to
Trans-World Airlines ("TWA"). TWA filed for bankruptcy on June 30, 1995 and
emerged from bankruptcy on August 23, 1995. Florida Progress believes these
events will not have a significant impact on the status of this loan.
LIQUIDITY AND CAPITAL RESOURCES
Florida Power budgeted $330 million, excluding allowance for funds used during
construction, for its 1995 construction program. The actual construction
expenditures during the first nine months of the year of $186.7 million were
23% below budget. These expenditures were financed primarily with funds from
operations. Florida Power has recently reduced its aggregate construction
forecast for the five-year period from 1995 through 1999 by approximately $200
million to approximately $1.6 billion. This reduction is due primarily to the
cancellations of the LTK line project and Anclote power plant gas conversion
project, and a decrease in the estimated cost to build the planned power plants
at Florida Power's Polk County site.
In 1995, Florida Power's Anclote power plant began running at lower levels of
power to help with the proper economic dispatch of Florida Power's entire
system. This change increased the amount of ash being emitted into the air
surrounding the plant. While the plant is not in violation of its air emissions
permits, Florida Power plans to spend approximately $4 million in 1996 for
capital equipment to reduce the amount of ash being emitted.
On October 2, 1995, Florida Progress contributed $12.5 million of equity to
Florida Power primarily 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 has called for redemption on November 16, 1995, 50,000 shares of
its 7.08% series preferred stock, with an aggregate par value of $5 million.
This redemption will satisfy the 1996 mandatory sinking fund requirement for
25,000 shares, and also reflects the optional redemption of an additional 25,000
shares.
16
Florida Power's ratio of earnings to fixed charges was 4.36 and 3.73 for the
twelve-month periods ended September 30, 1995 and 1994, respectively. (See
Exhibit 12 filed herewith.)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1) Florida Power Corporation, FERC Docket Nos. ER95-469-000 and ER95-457-000.
See prior discussion of this matter in the 1994 Form 10-K, Part I, Item 3,
paragraph 2. In March 1995, FERC accepted Florida Power's 1995 wholesale
settlement agreement, which included all but one customer. On September
14, 1995, FERC issued an order approving Florida Power's separate
settlement agreement with the remaining customer. The new rates for this
customer will increase annual revenues about $.8 million, effective
retroactively to January 2, 1995. This matter is now considered concluded
for reporting purposes.
2) In Re: Petition for approval of accounting treatment for funds expended on
Lake Tarpon-Kathleen transmission line, FPSC Docket No. 950270-EI.
In October 1995, the FPSC issued an order approving Florida Power's
petition for the amortization of approximately $23 million in accumulated
costs for the cancelled LTK line. The costs will be amortized over 4
years effective retroactively to January 1, 1995. (See Note 3 to the
Financial Statements.)
3) In Re: Petition for determination that the plan for curtailing purchases
from qualifying facilities in minimum load conditions is consistent with
Rule 25-17.086, F.A.C., FPSC Docket No. 941101-EQ.
See prior discussion of this matter in the 1994 Form 10-K, Part I, Item 3,
paragraph 7, and the Second Quarter 1995 Form 10-Q, Part II, Item 1,
paragraph 2. On August 1, 1995, the FPSC voted to approve Florida Power's
curtailment plan as being in compliance with the FPSC's rules. The FPSC
ruled that the qualifying facility ("QF") contracts are not "must take"
and do not have priority over Florida Power's existing long-term
contractual obligations to purchase from other utilities. The FPSC
rejected similar arguments that Florida Power should sell energy
off-system and below-cost in order to avoid curtailment of the QFs. The
FPSC also found that Florida Power's plan allocates curtailments among QFs
in a fair and nondiscriminatory manner and was implemented properly from
October 1994 through January 1995. This matter is now considered
concluded for reporting purposes.
4) In Re: Standard Offer Contract for the purchase of firm capacity and
energy from a qualifying facility between Panda-Kathleen, L.P. ("Panda")
and Florida Power Corporation, FPSC Docket NO. 950110-EI.
See prior discussion of this matter in the 1994 Form 10-K, Part I, Item 3,
paragraph 8. Panda intervened in the proceeding and filed its own
declaratory statement petition on the issues raised by Florida Power, and
raised additional issues regarding postponement of significant milestone
dates in the contract pending the FPSC's resolution of the proceeding. On
June 29, 1995, Panda filed a petition for formal evidentiary proceeding
and full commission hearing, alleging that there are material issues of
fact in dispute which must be resolved in a fact-finding evidentiary
hearing rather than through a declaratory order proceeding. On August 16,
1995, the FPSC issued an order granting a formal evidentiary hearing in
this case, which currently is scheduled for February 19, 1996.
17
5) 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).
See prior discussion of this matter in the Second Quarter 1995 Form 10-Q,
Part II, Item 1, paragraph 1. On August 7, 1995, Panda filed plantiff's
amended complaint, application for injunctive relief, and demand for jury
trial. This amendment deletes one of the counts in the complaint but
maintains all other counts. The deleted count asked for a declaratory
judgment that (a) the FPSC actions sought by Florida Power are contrary to
Panda's right to be exempt from state regulation, (b) Panda is entitled to
proceed to perform the contract without obstacles being raised by Florida
Power, (c) Panda has a right to construct a plant larger than 75
megawatts, (d) Panda is entitled to receive capacity payments for 30 years
rather than 20 years, (e) Florida Power's conduct has necessitated Panda's
request for extensions of time and Florida Power must grant extensions as
necessary, and (g) Panda is entitled to receive capacity rates on a
calendar year basis starting in the year Panda achieves in-service status.
On August 10, 1995, the FPSC moved to intervene in this case. On August
21, 1995, Panda objected to this motion. On August 29, 1995, the court
issued an order providing that the evidentiary hearing on Panda's request
for a preliminary injunction will be continued until after the court has
ruled on the FPSC's motion to intervene.
6) Praxair, Inc. ("Praxair") v. Florida Power & Light Company ("FP&L") and
Florida Power Corporation, U.S. District Court for the Middle District of
Florida, Tampa Division, Civil Action No. 88-1672-CIV-T-13C.
See prior discussion of this matter in the 1994 Form 10-K, Part I, Item
3, paragraph 12. On September 19, 1995, the U.S. Court of Appeals for the
11th Circuit reversed the U.S. District Court for the Middle District of
Florida, holding that sufficient "state action" by the FPSC existed to
allow Florida Power and FP&L to divide service territories in the county
in which Praxair, formerly a part of Union Carbide Corporation, is located
without violating antitrust laws governing restraints of trade. On
October 9, 1995, Praxair filed a request to rehear the September 19th
order.
7) Wanda L. Adams, et. al. vs. Florida Power Corporation and Florida Progress
Corporation, U.S. District Court, Middle District of Florida, Ocala
Division; Case No. 95-123-Civ-Oc-10.
On September 28, 1995, 17 former Florida Power employees filed this
lawsuit generally alleging age discrimination in violation of the Age
Discrimination and Employment Act and wrongful interference with pension
rights in violation of the Employee Retirement Income Security Act as a
result of their involuntary terminations. While no dollar amount is
specified, each Plaintiff seeks back pay, reinstatement or front pay
through their projected dates of normal retirement, miscellaneous costs
and attorney's fees.
8) In Re: Petition of Florida Power Corporation for approval to increase
accrual for nuclear decommissioning costs, FPSC Docket No. 941352-EI.
See prior discussion of this matter in the 1994 Form 10-K, Part I, Item 3,
paragraph 9. On October 26, 1995, the FPSC staff recommended higher
estimated total future decommissioning costs than that presented in
Florida Power's filing. (See Note 4 to the Financial Statements.)
18
9) Simon v. Mid-Continent Life Insurance Company ("Mid-Continent") and
Florida Progress Corporation, United States District Court for the Western
District of Oklahoma, Case No. CIV-94-1834-C.
See prior discussion of this matter in the Second Quarter 1995 Form 10-Q,
Part II, Item 1, paragraph 4. This action has been settled to the mutual
satisfaction of all parties and is therefore considered concluded for
reporting purposes. The settlement will not have a material affect on
Mid-Continent's or Florida Progress' liquidity, financial position, or
operating results.
Item 5. Other
In October 1995, the NRC reported the results of its recent Systematic
Assessment of License Performance ("SALP") review of Florida Power's
nuclear power plant for the period from February 20, 1994 through
September 16, 1995. The NRC gave the Plant Support area a Category 1
rating which is the best of three possible ratings. The other three areas
rated, Plant Operations, Maintenance, and Engineering, received the
Category 2 rating which is the second best of the three possible ratings.
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 third quarter 1995, Florida Progress and Florida Power
filed the following combined report on Form 8-K:
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.
In addition, Florida Progress and Florida Power filed the following
combined report on Form 8-K subsequent to the third quarter 1995:
Form 8-K dated October 19, 1995, reporting under Item 5
"Other Events" (i) a press release and related Investor
Information report reporting Florida Progress' and
Florida Power's third quarter 1995 earnings, and (ii)
the appointment of The First National Bank of Chicago
as successor trustee under Florida Power's medium-term
note indentures.
19
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: November 13, 1995 /s/ John Scardino, Jr.
-----------------------------
John Scardino, Jr.
Vice President and Controller
Date: November 13, 1995 /s/ James V. Smallwood
-----------------------------
James V. Smallwood
Treasurer
20
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.