UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
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 each 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
-------------------------------------- -----------------------
Florida Progress Corporation:
Common Stock without par value and New York Stock Exchange
Preferred Stock Purchase Rights Pacific Stock Exchange
Florida Power Corporation: None
Securities registered pursuant to Section 12(g) of the Act:
Florida Progress Corporation: None
Florida Power Corporation: Cumulative Preferred Stock,
par value $100 per share
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES X . NO .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of each registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of Florida
Progress Corporation as of December 31, 1996 was $3,075,692,949 (determined by
subtracting the number of shares held by directors and executive officers of
Florida Progress Corporation from the total number of shares outstanding, then
multiplying the difference times the closing sale price from the New York Stock
Exchange Composite Transactions).
The aggregate market value of the voting stock held by non-affiliates of Florida
Power Corporation as of February 28, 1997 was $-0-. As of February 28, 1997,
there were issued and outstanding 100 shares of Florida Power Corporation's
common stock, without par value, all of which were held, beneficially and of
record, by Florida Progress Corporation.
The number of shares of Florida Progress Corporation common stock without par
value outstanding as of December 31, 1996 was 97,007,182.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for Florida Progress Corporation
dated March 10, 1997, relating to the 1997 Annual Meeting of Shareholders, are
incorporated by reference in Part III hereof.
----------------------------
This combined Form 10-K represents separate filings by Florida Progress
Corporation and Florida Power Corporation. Florida Power Corporation makes no
representations as to the information relating to Florida Progress Corporation's
diversified operations.
[THIS SPACE INTENTIONALLY BLANK]
TABLE OF CONTENTS
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PART I.
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . 20
PART II.
Item 5. Market for the Registrants' Common Equity
and Related Stockholder Matters . . . . . . . . . . . 20
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 22
Item 8. Financial Statements and Supplementary Data . . . . . . 32
Combined Report of Independent Certified Public
Accountants . . . . . . . . . . . . . . . . . . . . 32
Consolidated Financial Statements of Florida Progress 33
Financial Statements of Florida Power . . . . . . . . 38
Combined Notes to the Financial Statements. . . . . . 43
Quarterly Financial Data (unaudited). . . . . . . . . 61
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . 62
PART III.
Item 10. Directors and Executive Officers of the Registrants . . 62
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . 64
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . 68
Item 13. Certain Relationships and Related Transactions. . . . . 69
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 69
Signatures - Florida Progress Corporation . . . . . . . . . . . . 75
Signatures - Florida Power Corporation. . . . . . . . . . . . . . 77
Financial Statement Schedules . . . . . . . . . . . . . . . . . . 79
GLOSSARY
When used herein, the following terms will have the meanings indicated:
TERM MEANING
1935 Act. . . . . . . . . . . . .Public Utility Holding Company Act of 1935
Btu . . . . . . . . . . . . . . .British thermal units
CAAA. . . . . . . . . . . . . . .Clean Air Act Amendments of 1990
CERCLA or Superfund . . . . . . .Comprehensive Environmental Response
Compensation and Liability Act
CR3 . . . . . . . . . . . . . . .Florida Power's nuclear generating plant,
Crystal River Unit No. 3
DOE . . . . . . . . . . . . . . .United States Department of Energy
Echelon . . . . . . . . . . . . .Echelon International Corporation
Electric Fuels. . . . . . . . . .Electric Fuels Corporation
EMF . . . . . . . . . . . . . . .electromagnetic fields, or electric and
magnetic fields
EPA . . . . . . . . . . . . . . .United States Environmental Protection Agency
FDEP. . . . . . . . . . . . . . .Florida Department of Environmental Protection
FERC. . . . . . . . . . . . . . .Federal Energy Regulatory Commission
Financial Statements. . . . . . .Florida Progress' Consolidated Financial
Statements and Florida Power's Financial
Statements, for the year ended December 31,
1996 contained under Item 8 herein
Florida Power . . . . . . . . . .Florida Power Corporation
Florida Progress. . . . . . . . .Florida Progress Corporation
FP&L. . . . . . . . . . . . . . .Florida Power & Light Company
FPSC. . . . . . . . . . . . . . .Florida Public Service Commission
FPUC. . . . . . . . . . . . . . .Florida Public Utilities Company
FRCC. . . . . . . . . . . . . . .Florida Reliability Coordinating Council
Georgia Power . . . . . . . . . .Georgia Power Company
KV. . . . . . . . . . . . . . . .kilovolts
KVA . . . . . . . . . . . . . . .kilovolt amperes
KWH . . . . . . . . . . . . . . .kilowatt hours
LTIP. . . . . . . . . . . . . . .Florida Progress Long-Term Incentive Plan
MD&A. . . . . . . . . . . . . . .Management's Discussion and Analysis of
Financial Condition and Results of Operations
Mid-Continent . . . . . . . . . .Mid-Continent Life Insurance Company
MW. . . . . . . . . . . . . . . .megawatts
NERC. . . . . . . . . . . . . . .North American Electric Reliability Council
NRC . . . . . . . . . . . . . . .United States Nuclear Regulatory Commission
NWPA. . . . . . . . . . . . . . .Nuclear Waste Policy Act
PCBs. . . . . . . . . . . . . . .polychlorinated biphenyls
Progress Capital. . . . . . . . .Progress Capital Holdings, Inc.
Progress Credit . . . . . . . . .Progress Credit Corporation
Proxy Statement . . . . . . . . .The definitive proxy statement dated March 10,
1997, relating to Florida Progress' 1997
Annual Meeting of Shareholders
PRP . . . . . . . . . . . . . . .potentially responsible party, as defined in
CERCLA
SBUs. . . . . . . . . . . . . . .Strategic Business Units
SEC . . . . . . . . . . . . . . .United States Securities and Exchange
Commission
SERP. . . . . . . . . . . . . . .Florida Progress Supplemental Employee
Retirement Plan
SOP . . . . . . . . . . . . . . . Statement of Position issued by American
Institute of Certified Public Accountants
Southern. . . . . . . . . . . . .The Southern Company
SNF . . . . . . . . . . . . . . .spent nuclear fuel
the nuclear plant . . . . . . . .Florida Power's nuclear generating plant,
Crystal River Unit No. 3
the utility . . . . . . . . . . .Florida Power Corporation
PART I
ITEM 1. BUSINESS
FLORIDA PROGRESS
Florida Progress Corporation ("Florida Progress", which term includes
consolidated subsidiaries unless otherwise indicated), is a diversified electric
utility holding company. Florida Progress' revenues for the year ended December
31, 1996 were $3.2 billion and assets at year end were $5.3 billion. Its
principal executive offices are located at One Progress Plaza, St. Petersburg,
Florida 33701, telephone number (813) 824-6400. The Florida Progress home page
on the Internet's World Wide Web is located at http://www.fpc.com. Florida
Progress was incorporated in Florida on January 21, 1982.
Florida Progress defines its principal business segments as utility and
diversified operations. Florida Power Corporation ("Florida Power" or "the
utility"), Florida Progress' largest subsidiary, is the utility segment and
encompasses all regulated public utility operations. See Item 1 "Business
Utility Operations - Florida Power". Progress Capital Holdings, Inc. ("Progress
Capital") is the downstream holding company for Florida Progress' diversified
subsidiaries which consolidates the financing of nonutility operations. The
diversified operations segment includes Electric Fuels Corporation ("Electric
Fuels"), an energy and transportation company, and Mid-Continent Life Insurance
Company ("Mid-Continent"), a life insurance company. See Item 1 "Business
Diversified Operations". For information concerning the operating profit and
assets attributable to these business segments, see Note 9 to Florida Progress'
consolidated financial statements and Florida Power's financial statements for
the year ended December 31, 1996 contained herein under Item 8 (the "Financial
Statements").
In December 1996, Florida Progress spun off Echelon International Corporation
("Echelon"). Echelon, successor to Progress Credit Corporation ("Progress
Credit"), was the Florida Progress subsidiary with lending, leasing and real
estate operations. The spin-off was accomplished through a tax-free stock
dividend to Florida Progress' shareholders, thus completing a strategy begun in
1991 to exit those businesses.
Florida Progress is a public utility holding company under the Public Utility
Holding Company Act of 1935 ("1935 Act"). Florida Progress is exempt from
registration with the Securities and Exchange Commission ("SEC") under the 1935
Act and attendant regulation because its utility operations are primarily
intrastate.
UTILITY OPERATIONS - FLORIDA POWER
Florida Power was incorporated in Florida in 1899, and is an operating public
utility engaged in the generation, purchase, transmission, distribution and sale
of electricity. Florida Power has a system generating capacity of 7,341
megawatts ("MW"). In 1996, the utility accounted for 76% of Florida Progress'
consolidated revenues, 92% of its earnings from continuing operations before
nonrecurring items and 80% of its assets.
Florida Power provided electric service during 1996 to an average of 1,292,075
customers in west central Florida from its headquarters in St. Petersburg. The
service area covers approximately 20,000 square miles and includes the densely
populated areas around Orlando, as well as the cities of St. Petersburg and
Clearwater. Of Florida Power's 1996 electric revenues billed, approximately 56%
were derived from residential sales, 23% from commercial sales, 9% from
industrial sales, 5% from other retail sales and 7% from wholesale sales.
Important industries in the territory include phosphate and rock mining and
processing, electronics design and manufacturing, and citrus and other food
processing. Other important commercial activities are tourism, health care,
construction and agriculture.
1
COMPETITION
Florida Power made a number of changes in 1996 to help prepare it for increased
competition. In July 1996, the utility reorganized its operations into strategic
business units ("SBUs"), making it one of the first electric companies in the
country to adopt this operational structure. The three SBUs are Energy Supply,
Energy Delivery and Energy Solutions. Each will focus on a targeted segment of
the overall utility business.
Energy Supply is responsible for strengthening Florida Power's position as an
efficient, low-cost producer of electricity. Energy Delivery oversees the
utility's transmission and distribution lines as well as system operations and
planning. Its mission is to maintain and improve service reliability in the most
cost-effective manner possible. Energy Solutions is focused on customer service,
sales and marketing and finding ways to use emerging technology to develop new
products and services.
For additional information with respect to Florida Power and competition, see
Item 7 "Management's Discussion and Analysis of Financial Condition and
Operating Results ("MD&A") - Operating Results - Florida Power Corporation -
Utility Competition".
FUEL AND PURCHASED POWER
GENERAL: Florida Power's consumption of various types of fuels depends on
several factors, the most important of which are the demand for electricity by
Florida Power's customers, the availability of various generating units, the
availability and cost of fuel, and the requirements of federal and state
regulatory agencies. Florida Power's energy mix for the last three years is
presented in the following table:
ENERGY MIX PERCENTAGES
Fuel Type 1996 1995 1994
--------- ---- ---- ----
Coal 43% 39% 45%
Oil 16% 12% 16%
Nuclear* 6% 19% 17%
Gas 3% 4% 1%
Purchased Power 32% 26% 21%
* See "NUCLEAR" below for information regarding outages at Florida
Power's nuclear generating plant, which negatively impacted nuclear
plant availability in 1996.
Florida Power is permitted to pass the cost of recoverable fuel and purchased
power to its customers through fuel adjustment clauses. (See Note 1 to the
Financial Statements.)
The future prices for and availability of various fuels discussed in this report
cannot be predicted with complete certainty. However, Florida Power believes
that its fuel supply contracts, as described below, will be adequate to meet its
fuel supply needs.
2
Florida Power's average fuel costs per million British thermal units ("Btu") for
each year of the five-year period ended December 31, 1996, were as follows:
AVERAGE FUEL COST
(per million Btu)
1996 1995 1994 1993 1992
Coal $1.91 $1.93 $1.96 $1.96 $1.97
Oil 2.80 2.70 2.39 2.49 2.53
Nuclear .50 .49 .55 .54 .57
Gas 2.78 1.98 2.46 4.27 2.54
Weighted Average 2.04 1.69 1.75 1.79 1.86
OIL AND GAS: Oil is purchased under contracts and in the spot market from
several suppliers. The cost of Florida Power's oil is determined by world market
conditions. Management believes that Florida Power has access to an adequate
supply of oil for the reasonably foreseeable future. Florida Power's natural gas
supply is purchased under firm contracts and in the spot market from numerous
suppliers and is delivered under firm, released firm and interruptible
transportation contracts. Florida Power believes that existing contracts for oil
are sufficient to cover the requirements when natural gas transmission that is
purchased on an interruptible basis is not available.
NUCLEAR: Florida Power has one nuclear generating plant, Crystal River Unit No.
3 ("CR3" or "the nuclear plant"). After completing a record performance in 1995
by achieving a capacity factor of 100%, CR3 was shut down for much of 1996.
Beginning in February 1996, the plant underwent a scheduled refueling outage
that lasted until May 1996, when the plant returned to service. In September
1996, an oil pressure problem in the main turbine forced the plant to shut down
until repairs could be made. When the repairs were completed in October, Florida
Power decided to keep the plant down to address certain backup safety system
design issues. The utility expects to be able to restart the plant by year-end
1997. For more information regarding the current outage and recent performance
at CR3, see Item 7 "MD&A - Operating Results - Florida Power Corporation -
Nuclear Operations."
Nuclear fuel is processed through four distinct stages. Stage I and Stage II
involve the mining and milling of the natural uranium ore to produce a
concentrate and the conversion of this uranium concentrate into uranium
hexafluoride. Stage III and Stage IV entail the enrichment of the uranium
hexafluoride, and the fabrication of the enriched uranium hexafluoride into
usable fuel assemblies. Florida Power has contracts in place which provide for a
supply of enriched uranium and fuel fabrication through 2004.
It will be necessary for Florida Power to enter into future fuel contracts to
cover the differences between the total unit lifetime requirements of CR3 and
the requirements covered by existing contracts. Although no assurances can be
given as to the future availability or costs of such contracts, Florida Power
expects that future contract commitments will be obtained at the appropriate
time.
Spent nuclear fuel ("SNF") is stored at CR3 pending disposal under a contract
with the United States Department of Energy ("DOE"). (See Note 4 to the
Financial Statements and Item 3 "Legal Proceedings", paragraph 9.) At the
present time, Florida Power has facilities on site for the temporary storage of
SNF generated through the year 2010.
COAL: Florida Power anticipates a requirement of approximately 5,400,000 tons of
coal in 1997. Current environmental regulations limit sulfur content, at 12,000
Btu per pound, to 1.2% for Crystal River Unit Nos. 1 and 2, and 0.7% for Unit
Nos. 4 and 5. Most of the coal is expected to be supplied from the Appalachian
coal fields of the United States. Approximately two thirds of the coal is
expected to be delivered by rail and the remainder by barge. The coal is being
supplied by Electric Fuels pursuant to contracts between Florida Power and
Electric Fuels.
3
For 1997, Electric Fuels has long-term contracts with various sources for
approximately 70% of the coal requirements of Florida Power's coal units. These
long-term contracts have price adjustment provisions. Electric Fuels expects to
acquire the remainder in the spot market and under short-term contracts.
Electric Fuels does not anticipate any problem obtaining the remaining Florida
Power requirements with short-term contracts and in the spot market. (See Note
11 to the Financial Statements.)
PURCHASED POWER: Florida Power, along with other Florida utilities, buys and
sells economy power through the Florida energy brokering system. In addition,
Florida Power has long-term contracts for the purchase of approximately 480 MW
of purchased power with other utilities, including a contract with The Southern
Company ("Southern") for approximately 400 MW. Also, Florida Power has entered
into purchased power contracts with certain cogenerators for 1,160 MW of
capacity, of which 1,050 MW have been completed and are currently operating. The
capacity currently available from cogenerators represents about 12% of Florida
Power's total system capacity. (See Item 3 "Legal Proceedings", paragraphs 2
through 8, Item 7 "MD&A - Operating Results - Florida Power Corporation - Fuel
and Purchased Power" and Note 11 to the Financial Statements.)
REGULATORY MATTERS AND FRANCHISES
Florida Power is subject to the jurisdiction of the Florida Public Service
Commission ("FPSC") with respect to retail rates, customer service, planning,
construction of facilities, accounting, issuance of securities and other
matters. In addition, Florida Power is subject to regulation by the Federal
Energy Regulatory Commission ("FERC") with respect to transmission and sales of
wholesale power, accounting and certain other matters. The underlying concept of
utility ratemaking is to set rates at a level that allows the utility to collect
revenues equal to its cost of providing service plus a reasonable rate of return
on its equity.
The FPSC oversees the retail sales of the state's investor-owned utilities. The
FPSC authorizes retail "base rates" that are designed to provide a utility with
the opportunity to earn a specific rate of return on its "rate base", or average
investment in utility plant. These rates are intended to cover all reasonable
and prudent expenses of utility operations and to provide investors with a fair
rate of return. The FPSC allows utilities to recover fuel, purchased power and
conservation costs through an adjustment charge on monthly electric bills.
Beginning in 1995, the FPSC ordered Florida Power to conduct a three-year test
of revenue decoupling for its residential customers. (See Notes 1 and 5 to the
Financial Statements.)
Florida Power is interconnected with 22 municipal electric systems. Florida
Power's wholesale customers include Seminole Electric Cooperative, Inc., the
Florida Municipal Power Agency and 11 municipalities. During 1996, about 7% of
Florida Power's electric revenues were from its wholesale business.
For further information with respect to rates, see Note 5 to the Financial
Statements.
Florida Power's CR3 nuclear plant is subject to regulation by the United States
Nuclear Regulatory Commission ("NRC"). The NRC's jurisdiction encompasses broad
supervisory and regulatory powers over the construction and operation of nuclear
reactors, including matters of health and safety, antitrust considerations and
environmental impact. Florida Power has a 90.4% ownership interest in CR3. (See
Note 4 to the Financial Statements.)
By virtue of state and municipal legislation, Florida Power holds franchises
with varying expiration dates to provide electric service in nearly all
municipalities in which it distributes electric energy. Approximately 99% of
revenues from customers in incorporated areas are covered by franchises. The
4
general effect of these franchises is to grant Florida Power the right to enter
upon and use streets, alleys and other public places for erecting and
maintaining poles, wires and other apparatus for the sale and distribution of
electric energy. All but one of the existing franchises cover a 30-year period
from the date granted, the maximum allowed by Florida law. The one exception is
a franchise that covers a 10-year period from the date granted. There are 112
franchises, of which 32 expire before December 31, 2001, 27 expire between
January 1, 2002 and December 31, 2011, and 53 expire between January 1, 2012 and
December 31, 2026. (For further information concerning these franchise
agreements, see Item 7 "MD&A - Operating Results - Florida Power Corporation
Utility Competition".)
ENVIRONMENTAL MATTERS
Florida Power is subject to federal, state and local regulations dealing with
air and water quality and other environmental matters.
AIR: All of Florida Power's air emission sources meet the air quality standards
currently set by the Florida Department of Environmental Protection ("FDEP")
and/or the United States Environmental Protection Agency ("EPA").
The Clean Air Act Amendments of 1990 ("CAAA"), under Title IV, Acid Rain
Control, require reduction in sulfur dioxide and nitrogen oxide emissions by the
year 2000 and set a permanent cap on those emissions. The reductions are to be
implemented in two phases. Phase I limitations became effective in 1995 and
Phase II limitations are effective by 2000. Florida Power has not been and does
not expect to be materially affected by either Phase I or Phase II. Continuous
emission monitors were installed on most of Florida Power's units by the end of
1994 as required under Title IV at a total cost of $11 million. To meet Phase II
limitations, Florida Power expects to spend about $10 million by 2000 to
implement a strategy based primarily on burning cleaner fuels and installing
burners that reduce nitrogen oxide emissions on some coal units.
Under Title III of the CAAA, the EPA is studying the emission of hazardous air
pollutants and, where appropriate, promulgating emission limitations for
specific source categories. Depending on the results of these studies and the
EPA's determination of the need for additional limitations, Florida Power could
be required to incur additional capital expenditures and operating expenses.
Under Title V of the CAAA, Florida Power is required to pay annual operating
fees based on the previous year's emissions. In 1997, these fees are expected to
total approximately $775,000 and are expected to increase to approximately $1
million by 2000.
Florida Power's construction program includes approximately $7 million of
planned environmental expenditures for air quality projects for the two-year
period ending December 31, 1998.
WATER: To help meet the future electricity needs of its customers, Florida Power
is building a new power plant complex in Polk County, Florida. Florida Power
plans to have the complex's first plant on line in 1998. This plant will use
combined cycle technology and be capable of producing up to 470 MW of power.
(See Item 2, "Properties - Utility Operations - Planned Generation".)
Approximately $26 million was spent through December 31, 1996 on environmental
projects related to site development, mainly for water resource related
facilities. For the two-year period ending December 31, 1998, Florida Power
expects that approximately $1 million will be expended on environmental projects
related to site development. In addition, Florida Power's construction program
includes approximately $4 million of additional environmental expenditures for
water resource projects at other Florida Power facilities for the two-year
period ending December 31, 1998.
5
WASTE MATERIALS: Florida Power is nearing completion of its program to reduce
electrical equipment utilizing polychlorinated biphenyls ("PCB"). All regulatory
compliance dates have been met. All PCB transformers (i.e. those having greater
than 500 ppm PCB) have been removed from all of Florida Power's electric
generating plants, except for one small plant. Removal of PCB transformers from
this final plant will be delayed until Florida Power decides whether and for how
long the plant will remain in operation.
STORAGE TANK PROGRAM: The regulation of underground and above-ground storage
tanks has expanded to affect virtually every Florida Power storage tank with a
capacity of 100 gallons or greater, including vehicular fuel tanks, bulk fuel
storage tanks, mineral acid tanks, hazardous material tanks and compression
vessels. The FDEP's storage tank regulations require the replacement or
upgrading of tanks that are not protected from corrosion, and the installation
of release detection and containment capabilities for spills and leaks. These
requirements must be met by 1999. Florida Power expects the annual expenditures
through 1999 related to compliance with these regulations to be $1 million and
$3 million for operating expense and construction, respectively.
Under a FDEP program, revenues from taxes on imported oil either have been or
are expected to be used to reimburse Florida Power for the majority of past
storage tank contamination cleanup expenditures. In March 1995, the Governor of
Florida ordered a moratorium on this FDEP program. However, Florida Power
expects to receive reimbursement for cleanup activities completed prior to the
moratorium. The expenditures needed to clean up the remaining storage tank
contamination are not expected to be material.
With expansion of regulation and the resulting increased monitoring of tank
systems and oil filled electrical equipment, further expenditures for
contamination cleanup and retrofitting and upgrading equipment are likely, but
these expenditures are not expected to be material to Florida Power.
ELECTROMAGNETIC FIELDS: The potential adverse effect of electromagnetic fields,
or electric and magnetic fields ("EMF"), upon human health continues to be an
important issue in the siting, construction and operation of electric
transmission and distribution systems. EMF from a variety of sources, including
transmission and distribution lines, has been the subject of many studies and
much public discussion in recent years.
Because of its exclusive jurisdiction to regulate EMF associated with electric
transmission and distribution lines and substation facilities in Florida, the
FDEP has adopted rules which establish certain EMF limits for new transmission
lines and substations. The rules also require an annual review of the state of
the scientific research into the potential adverse effects of EMF upon human
health. The staff of the FDEP provided its progress report to the Environmental
Regulation Commission in February 1997; based on its review of the scientific
research, the staff recommended that no revision of the current EMF standards be
made at that time. The Environmental Regulation Commission adopted the staff's
recommendation and made no revision to EMF standards. Florida Power believes
that compliance with these EMF rules, which at present essentially maintain the
status quo with respect to regulated EMF exposure levels, will not have a
material adverse effect on the cost of constructing or maintaining new
transmission lines or substations. However, there always is a potential for
lawsuits brought by plaintiffs alleging damages caused by EMF.
Florida Power's management monitors and reports to Florida Power's Board of
Directors at least annually on developments in research concerning the potential
health effects of EMF, EMF mitigation technologies and procedures, and
significant actions by principal federal and Florida agencies related to EMF.
OTHER ENVIRONMENTAL MATTERS: Florida Power has received notices from the EPA
that it is or could be a potentially responsible party ("PRP") under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA" or
6
"Superfund") and the Superfund Amendment and Reauthorization Act and may be
liable, together with others, for the costs of cleaning up several contaminated
sites identified by the FDEP. In addition to these designated sites, there are
other sites where Florida Progress affiliates may be responsible for additional
environmental cleanup. For further information concerning certain environmental
matters relating to Florida Power, see paragraphs 13 and 14 under Item 3 "Legal
Proceedings" and "Contaminated Site Cleanup" in Note 11 to the Financial
Statements.
EMPLOYEES
As of December 31, 1996, Florida Power had 4,629 full-time employees. The
International Brotherhood of Electrical Workers represents approximately 2,035
of these full-time employees. The current union contract, which was to have
expired in December 1996, was extended one year to December 1997. Florida
Power's management believes that it will eventually agree on a new contract with
Florida Power's union employees.
DIVERSIFIED OPERATIONS
Florida Progress' diversified operations are owned directly or indirectly
through Progress Capital, a Florida corporation and wholly owned subsidiary of
Florida Progress. Progress Capital holds the capital stock of, and provides
funding for, Florida Progress' nonutility subsidiaries, which include the
following:
ELECTRIC FUELS - Formed in 1976, Electric Fuels is an energy and
transportation company with operations organized into three business
units. Electric Fuels' energy and related services business unit supplies
coal to Florida Power's Crystal River Energy Complex and other utility
and industrial customers. Electric Fuels' inland marine transportation
business unit, under the flag of Marine Equipment Management Corporation
("MEMCO"), transports coal and dry-bulk cargoes primarily along the
Mississippi and Ohio rivers. The rail services business unit, led by
Progress Rail Services Corporation, is one of the largest integrated
processors and suppliers of railroad materials in the country. With
operations in 14 states, Progress Rail offers a full range of railcar
parts, rail and other track material, railcar repair facilities, railcar
scrapping and metal recycling as well as railcar sales and leasing.
MID-CONTINENT - Acquired in 1986, Mid-Continent is a life insurance
company headquartered in Oklahoma City, Oklahoma. Mid-Continent has been
in business since 1909. Its principal product is a death benefit policy
which is sold through independent agents. Long-term, Mid Continent does
not fit with the strategic direction of Florida Progress. Accordingly,
Florida Progress is considering divestiture of the business. Florida
Progress expects that it will take three to five years to divest this
business. (For information regarding competition in the life insurance
industry and Mid-Continent's operating results and plans, see the
"COMPETITION" section below and Item 7 "MD&A - Operating Results -
Diversified Operations - Mid-Continent Life Insurance Company".)
As of December 31, 1996, Progress Capital and its subsidiaries had 2,624
full-time employees. (For additional information with respect to Progress
Capital and its subsidiaries, see Item 7 "MD&A - Operating Results - Diversified
Operations".)
COMPETITION
Florida Progress' nonutility subsidiaries compete in their respective
marketplaces in terms of price, service reliability, location and other factors.
Electric Fuels competes in several distinct markets: its coal operations compete
7
in the eastern United States utility and industrial coal markets; its marine
transportation and barge operations compete in the coal, grain and bulk products
transportation markets on the Ohio and lower Mississippi rivers; its marine
equipment repair business competes in the inland river and gulf coast repair
markets; and its rail operations compete in the railcar repair, parts and
associated services markets in the eastern United States and, to a limited
extent, in the midwest and west. Factors contributing to Electric Fuels' success
in these markets include a competitive cost structure, strategic locations and,
in the case of its marine transportation operations, a modern fleet. There are,
however, numerous competitors in each of these markets, although no one
competitor is dominant in any industry. The business of Electric Fuels and its
subsidiaries, taken as a whole, is not subject to significant seasonal
fluctuation.
Mid-Continent competes with other insurance companies in all jurisdictions in
which it is licensed to do business. Many of Mid-Continent's competitors have
more diversified lines of insurance coverage, substantially greater financial
resources and direct sales forces. Over the past few years, the life insurance
industry has become more competitive, resulting in lower sales of new policies
at Mid-Continent.
In an effort to reverse declining sales, Mid-Continent introduced a new
insurance product in early 1996. The new policy replaced Mid-Continent's
principal product, which was determined to be inadequately priced. In December
1996, cost-reduction measures were taken and restructuring occurred at Mid-
Continent in an effort to improve profitability. In 1997, Mid-Continent plans to
begin an orderly process to resolve the pricing issue that is expected to
involve reducing policy dividends and increasing premiums.
For further information with respect to Florida Progress' nonutility
subsidiaries and competition, see Item 7 "MD&A - Operating Results - Diversified
Operations".
ENVIRONMENTAL MATTERS
Electric Fuels is subject to federal, state and local regulations which govern
air and water quality, waste disposal and other environmental matters. The coal
mining business is affected primarily by the Clean Water Act, the Clean Air Act
and the Surface Mining Control and Reclamation Act of 1977. The transportation
and the railcar and marine repair businesses are primarily affected by the
Resource Conservation and Recovery Act, the Emergency Planning and Community
Right-To-Know Act and the Clean Water Act.
The Environmental Affairs Department of Electric Fuels reviews existing and
emerging environmental regulations, disseminates applicable environmental
information throughout the organization and conducts site specific environmental
compliance audits. Transactional environmental assessments are performed on new
acquisitions to determine the potential environmental liabilities associated
with the facilities being considered. Compliance with environmental laws and
regulations has not had a material effect on Electric Fuels' capital
expenditures, earnings or competitive position, and Electric Fuels does not
anticipate making any material capital expenditures for environmental facilities
through the end of 1998.
For further information concerning certain environmental matters relating to
Florida Progress' diversified operations, see paragraph 15 under Item 3 "Legal
Proceedings" and Note 11 to the Financial Statements.
8
EXECUTIVE OFFICERS
Roy A. Anderson, Senior Vice President, Nuclear Operations of Florida Power,
Age 48.
Mr. Anderson became Senior Vice President, Nuclear Operations, effective January
20, 1997. Prior to joining Florida Power, Mr. Anderson was employed by Carolina
Power and Light, where he held numerous executive officer positions since 1993
in the areas of nuclear operations, fossil generation, and distribution and
customer service. From 1987 to 1993, he was employed by Boston Edison Company
where he served as Plant Manager, Vice President and ultimately as Senior Vice
President, Nuclear Operations.
Kenneth E. Armstrong, Vice President and General Counsel of Florida Progress
and Florida Power, Age 49.
Mr. Armstrong has served as General Counsel of Florida Progress since July 1990
and as Vice President since April 1992. In March 1995, he was appointed Vice
President and General Counsel of Florida Power effective April 3, 1995. In
addition to these positions, Mr. Armstrong served as Assistant Secretary of
Florida Progress from April 1992 to April 1993 and as Secretary from April 1993
to April 1996. He also served as Assistant Secretary of Florida Power from 1987
until April 1993 and as Secretary from April 1993 until April 1996.
Dr. Percy M. Beard, Jr., Senior Vice President, Nuclear Operations of Florida
Power, Age 60.
Effective April 1, 1997, Dr. Beard is retiring from the above positions which he
held since November 1989.
Janice B. Case, Vice President, Energy SolutionsSM of Florida Power
Corporation, Age 44.
Mrs. Case was named Vice President, Energy SolutionsSM effective July 1, 1996.
From October 1990 until July 1996, she served as Vice President, Suncoast
Florida Region of Florida Power.
Jack B. Critchfield, Chairman of the Board and Chief Executive Officer of
Florida Progress, Age 63.
Since December 1, 1991, Dr. Critchfield's principal occupation has been as shown
above. Since 1983, he has held numerous executive positions with Florida
Progress and its subsidiaries including President, Chief Operating Officer,
Group Vice President, President of Electric Fuels and Vice President of the
Eastern and Ridge Divisions of Florida Power. He has been a director of Florida
Power since 1988 and served as a director from 1975 through 1978 and as Chairman
of its Board from 1990 until April 1996. He is a director of Barnett Banks,
Inc., Jacksonville.
Michael B. Foley, Jr., Senior Vice President, Energy Delivery of Florida Power,
Age 53.
Mr. Foley became Senior Vice President, Energy Delivery, effective July 1,
1996, after serving as Vice President in that position since February 1995.
From October 1988 until February 1995, Mr. Foley served as Director of
System Planning of Florida Power.
John A. Hancock, Senior Vice President, Energy Supply of Florida Power,
Age 56.
Mr. Hancock became Senior Vice President, Energy Supply, effective January
1993. From September 1989, to January 1993, Mr. Hancock was Senior Vice
President, Power Operations, of Florida Power.
Jeffrey R. Heinicka, Senior Vice President and Chief Financial Officer of
Florida Progress and Florida Power, Age 42.
9
From December 1990 until appointment to his current positions in 1994, Mr.
Heinicka served as Vice President and Treasurer of Florida Progress. Mr.
Heinicka also served as Vice President and Treasurer of Florida Power from April
1993 to March 1994, a position he held concurrently with his Vice President and
Treasurer position at Florida Progress.
Richard D. Keller, Group Vice President, Energy and Transportation of Florida
Progress, and President and Chief Executive Officer, Electric Fuels, Age 43.
Since May 1990, Mr. Keller's principal occupation has been as shown above.
He has served as President and Chief Executive Officer of Electric Fuels since
February 1988.
Richard Korpan, President and Chief Operating Officer of Florida Progress, and
Chairman of the Board and Chief Executive Officer of Florida Power, Age 55.
For more than five years, Mr. Korpan's principal occupation has been President
and Chief Operating Officer of Florida Progress. In April 1996, Mr. Korpan also
became Chairman of the Board and Chief Executive Officer of Florida Power. He
joined Florida Progress in 1989 as Executive Vice President and Chief Financial
Officer. Mr. Korpan is a director of SunTrust Bank of Tampa Bay and Acordia
Central Florida, Inc.
Joseph H. Richardson, Group Vice President, Utility Group of Florida Progress
and President and Chief Operating Officer of Florida Power, Age 47.
Since April 1, 1996, Mr. Richardson's principal occupation has been as shown
above. From April 1995 to April 1996, he served as Senior Vice President, Energy
Distribution of Florida Power. From October 1993 to April 1995, he served as
Senior Vice President, Legal and Administrative Services, and General Counsel of
Florida Power. From August 1991 through April 1995, Mr. Richardson also held the
position of Senior Vice President of Florida Progress. He was President and
Chief Executive Officer of Talquin Corporation, a former subsidiary of Florida
Progress from May 1990 until September 1993. He is a director of Echelon.
There are no family relationships between any director or any executive officer
of Florida Progress or Florida Power. The executive officers serve at the
pleasure of their respective Boards of Directors. Each executive officer is
appointed annually.
ITEM 2. PROPERTIES
Florida Progress believes that its physical properties and those of its
subsidiaries are adequate to carry on its and their businesses as currently
conducted. Florida Progress and its subsidiaries maintain property insurance
against loss or damage by fire or other perils to the extent that such property
is usually insured. (See Note 11 to the Financial Statements.) Substantially all
of Florida Power's utility plant is pledged as collateral for Florida Power's
First Mortgage Bonds. Certain river barges and tug/barge units owned or operated
by Electric Fuels are subject to liens in favor of certain lenders.
UTILITY OPERATIONS
GENERATION: As of December 31, 1996, the total net winter generating capacity of
Florida Power's generating facilities was 7,341 MW. This capacity was generated
by 13 steam units with a capacity of 4,661 MW and 44 combustion turbine peaking
units with a capacity of 2,680 MW. Florida Power's ability to use its generating
units may be adversely impacted by various governmental regulations affecting
nuclear operations and other aspects of Florida Power's business. (See
"Regulatory Matters and Franchises" and "Environmental Matters" under Item 1
10
"Business - Utility Operations - Florida Power.") Operation of these generating
units may also be substantially curtailed by unanticipated equipment failures or
interruption of fuel supplies. On February 5, 1996, Florida Power experienced a
new peak of 8,807 MW. Florida Power met this demand through system generating
capacity, purchased power and demand-side management programs. Florida Power
expects to have sufficient system capacity, access to purchased power and
demand-side management capabilities to meet anticipated future demand.
Florida Power's existing generating plants (all located in Florida) and their
capacities at December 31, 1996 are as follows:
Winter Net
Maximum
Dependable
Primary Location Steam Peaking Capacity
Plants Fuel (County) MW MW MW
- ---------------- ------- ------------- ------- ------- ----------
Crystal River: Citrus
Unit #1 Coal 373 - 373
Unit #2 Coal 469 - 469
Unit #3 Uranium 755* - 755
Unit #4 Coal 717 - 717
Unit #5 Coal 717 - 717
----- -----
3,031 3,031
Anclote: Pasco
Unit #1 Oil 517 - 517
Unit #2 Oil 517 - 517
Bartow Oil Pinellas 449 217 666
Turner Oil Volusia - 200 200
Intercession City Oil Osceola - 744 744
DeBary Oil Volusia - 786 786
Higgins Oil Pinellas - 158 158
Bayboro Oil Pinellas - 232 232
Avon Park Oil Highlands - 64 64
Port St. Joe Oil Gulf - 18 18
Rio Pinar Oil Orange - 18 18
Suwannee River Oil Suwannee 147 201 348
University of Fla. Gas Alachua - 42 42
----- ----- -----
4,661 2,680 7,341
===== ===== =====
* Represents 90.4% of total plant capacity. The remaining 9.6% of capacity
is owned by other parties. The CR3 nuclear plant was shut down in
September 1996 for repairs and remains down to address certain backup
safety system design concerns. Florida Power expects to be able to
restart CR3 by year-end 1997.
Florida Power and Georgia Power Company ("Georgia Power") are co-owners of a
165-MW advanced combustion turbine located at Florida Power's Intercession City
site. The unit went into commercial operation in January 1997. Florida Power
operates and maintains the unit for both owners. Georgia Power has the exclusive
right to the output of this unit during the months of June through September.
Florida Power has that right for the remainder of the year.
PLANNED GENERATION AND ENERGY SALES: Florida Power has agreed to sell between
150 and 400 MW of summer-peaking capacity annually to Georgia Power from 1996
through 1999. Since Florida Power is a winter-peaking utility and Georgia Power
is a summer-peaking utility, this transaction benefits both parties. Florida
Power's generation strategy includes continuing efforts to sign similar energy
agreements with other utilities.
11
In 1992, the FPSC granted Florida Power a certificate of need to build 470 MW of
new generation using combined cycle technology. In September 1994, Florida Power
purchased approximately 8,100 acres of mined-out phosphate land for the new
power plant site. The site is located in Polk County, Florida, approximately 50
miles east of Tampa. Site development activities were completed in 1996.
Commencement of construction of the initial unit began in January 1997. The
first power block is a 470-MW combined cycle unit that is expected to come on
line in 1998. Florida Power plans to use natural gas to fuel the first phase of
the new energy complex in Polk County. (See Item 7 "MD&A - Liquidity and Capital
Resources - Florida Power Corporation".)
Florida Power has obtained capacity on the Florida Gas Transmission Company's
system for the transportation of natural gas to the planned combined cycle plant
in Polk County. The capacity will be released beginning in November 1996 with
all capacity available to Florida Power by March 1998. Florida Power has
contracted for natural gas and its transportation for a portion of the plant's
requirements.
Some of the capacity at the Polk County site will be used to meet the
requirements of a wholesale contract signed in 1995, in which Florida Power
agreed to sell an additional 455 MWs to Seminole Electric Cooperative, beginning
in 1999.
In connection with the construction of new power plants in Florida, the FPSC
requires each investor-owned electric utility to engage in a competitive bidding
process for the construction of new generation, unless the utility demonstrates
on a case-by-case basis that such a process is not in the best interests of the
utility's ratepayers. Although this rule could eventually affect Florida Power's
ability to construct its own power plants, it will not affect the construction
of the gas-fired combined cycle generating unit at Florida Power's site in Polk
County, Florida, because as noted above, the FPSC already has granted Florida
Power a certificate of need for this unit.
NUCLEAR PLANT AND NUCLEAR INSURANCE: Information regarding nuclear plant and
nuclear insurance is contained in Notes 4 and 11 to the Financial Statements.
TRANSMISSION AND DISTRIBUTION: As of December 31, 1996, Florida Power
distributed electricity through 353 substations with an installed transformer
capacity of 41,522,275 kilovolt amperes ("KVA"). Of this capacity, 28,366,750
KVA is located in transmission substations and 13,155,525 KVA in distribution
substations. Florida Power has the second largest transmission network in
Florida. Florida Power has 4,600 circuit miles of transmission lines, of which
2,610 circuit miles are operated at 500, 230, or 115 kilovolts ("KV") and the
balance at 69 KV. Florida Power has 23,914 circuit miles of distribution lines
which operate at various voltages ranging from 2.4 to 25 KV.
Florida Power, along with 12 other electric utilities in the state, formed the
Florida Reliability Coordinating Council ("FRCC") which was approved by the
North American Electric Reliability Council ("NERC") as the tenth region of
NERC. The FRCC will directly address the unique electric reliability needs of
the Florida peninsula electric system rather than participating as a subregion
of the larger Southeastern Electric Reliability Council.
In response to the FERC orders on open access transmission systems, Florida
Power and other major transmission owners in Florida established the Florida
Open Access Same-time Information System, which is a single internet location
where transmission customers may obtain transmission information and submit
requests for service or resell service rights.
12
DIVERSIFIED OPERATIONS
ELECTRIC FUELS
Electric Fuels owns and/or operates approximately 4,000 railcars, 45
locomotives, 700 river barges and 30 river towboats that are used for the
transportation and shipping of coal, steel and other bulk products. Through
joint ventures, Electric Fuels has five oceangoing tug/barge units. An Electric
Fuels subsidiary, through another joint venture, owns one third of a large bulk
products terminal, located on the Mississippi River south of New Orleans, which
handles coal and other products. Electric Fuels provides drydocking and repair
services to towboats, offshore supply vessels and barges through operations it
owns near New Orleans, Louisiana.
Electric Fuels controls, either directly or through subsidiaries, coal reserves
located in eastern Kentucky and southwestern Virginia. Electric Fuels owns, in
fee, properties that contain estimated proven and probable coal reserves of
approximately 170 million tons and controls, through mineral leases, additional
estimated proven and probable coal reserves of approximately 55 million tons.
Electric Fuels also owns a 50% undivided interest in coal reserves located in
West Virginia that currently are being leased to a third party under an
agreement that expires in March 1998. The reserves controlled by Electric Fuels
include substantial quantities of high quality, low sulfur coal that is
appropriate for use at Florida Power's existing generating units. Electric
Fuels' total production of coal during 1996 was approximately 3.7 million tons.
In connection with its coal operations, an Electric Fuels subsidiary, through a
joint venture, has a 50% ownership interest in the operation of an underground
mining complex in southeastern Kentucky and southwestern Virginia. Other
Electric Fuels subsidiaries own and operate surface and underground mines, coal
processing and loadout facilities and a river terminal facility in eastern
Kentucky, a railcar-to-barge loading facility in West Virginia, and three bulk
commodity terminals: one on the Ohio River in Cincinnati, Ohio, and two on the
Kanawha River near Charleston, West Virginia. Electric Fuels and its
subsidiaries employ both company and contract miners in their mining activities.
An Electric Fuels subsidiary owns railroad car repair and parts reconditioning
and rail and trackworks facilities in 14 states, including a railcar hydraulic
cushioning unit manufacturing and reconditioning facility in Fort Worth, Texas.
Electric Fuels subsidiaries are also involved in scrap metal recycling and
railcar leasing.
Another subsidiary of Electric Fuels owns and operates a manufacturing facility
at the Florida Power Energy Complex in Crystal River, Florida. The manufacturing
process utilizes the fly ash generated by the burning of coal as the major raw
material in the production of lightweight aggregate used in construction
building blocks. Electric Fuels also operates an environmental testing
laboratory in Tampa, Florida.
MID-CONTINENT
Mid-Continent owns an office building in Oklahoma City, Oklahoma.
13
ITEM 3. LEGAL PROCEEDINGS
1. In Re: Fuel And Purchased Power Cost Recovery Clause and
Generating Performance Incentive Factor, Florida Public Service
Commission, Docket No. 970001-EI.
Review Of Nuclear Outage At Florida Power Corporation's
Crystal River Unit 3, Florida Public Service Commission,
Docket No. 970261-EI.
On February 19, 1997, the FPSC approved, subject to refund, an increase
of approximately $2 per 1,000 kilowatt hours ("KWH") in the monthly retail
residential customer bills for replacement fuel costs associated with the
extended outage of CR3. This increase covers replacement fuel for the period
from September 2, 1996 through March 31, 1997. At a later time, Florida Power
plans to request FPSC approval of additional replacement fuel charges for the
period from April 1, 1997 to the date the unit eventually restarts, which is
expected to occur by year-end 1997.
In conjunction with approving the $2 adjustment, the FPSC instituted an
investigation concerning the reasons for the current outage. On February 28,
1997, the FPSC issued an order establishing procedures for this docket. On March
19, 1997, Florida Power filed a preliminary report outlining the specific
actions and circumstances that led to the shut-down of CR3 on September 2, 1996,
and the reasons why Florida Power determined that it was necessary to keep CR3
down for an extended outage. The schedule also calls for a hearing in June 1997,
with a final FPSC decision in August 1997.
Purchased Power Contracts
Florida Power has entered into purchased power contracts with certain
cogenerators which provide for capacity and energy payments. Florida Power has
interpreted the pricing provision in these contracts to allow it to pay an as-
available energy price rather than a higher firm energy price when the avoided
unit upon which the contract is based would not have been operated. Four
cogenerators filed suit against Florida Power over the level of payments made by
Florida Power under the contracts. Florida Power has entered into settlement
agreements with three of the four cogenerators, two of which are awaiting
certain approvals from the FPSC and others. The settlement agreements generally
provide for a mutually agreed upon methodology for computing the energy payments
under the contracts, and a reduction of the length of terms of the contracts.
Additional details regarding the legal proceedings with these four cogenerators
are covered in paragraphs 2-5 below:
2. Pasco Cogen, Ltd. v. Florida Power Corporation, Florida
Circuit Court, Sixth Judicial Circuit for Pasco County,
Case No. 94-5331-CA-DIV-Y.
In re: Petition for Expedited Approval of Settlement with
Pasco Cogen, Ltd., Florida Public Service Commission,
Docket No. 961407-EI.
On October 14, 1994, Florida Power was served with a complaint brought by
Pasco Cogen, Ltd. ("Pasco") seeking declaratory relief with respect to the
pricing provision in its cogeneration contract and unspecified damages for
breach of contract and violations of antitrust laws. In October 1996, Florida
Power and Pasco resolved their dispute by executing a final settlement
agreement, subject to approval by the FPSC and lenders to Pasco. On March 20,
1997, the FPSC's staff issued a primary recommendation in favor of approving the
settlement and two alternative recommendations against the settlement. The FPSC
is scheduled to make its decision regarding the petition in April 1997.
14
3. NCP Lake Power, Inc. v. Florida Power Corporation, Florida
Circuit Court, Fifth Judicial Circuit for Lake County,
Case No. 94-2354-CA-01.
In re: Petition for Expedited Approval of Settlement with Lake
Cogen, Ltd., Florida Public Service Commission,
Docket No. 961477-EQ.
Lake Interest Holdings, Inc. v. Lake Cogen, Ltd., NCP Lake
Power, Inc., Lake Investments, L.P. and Florida Power
Corporation, Fifth Judicial Circuit for Lake County, Florida,
Case No. 97-549-CA-01.
In October 1996, Florida Power was served with a complaint brought by NCP
Lake Power, Inc. ("Lake") seeking unspecified damages for breach of contract
with respect to the pricing provision in its cogeneration contract. In December
1996, Florida Power and Lake resolved their dispute by executing a final
settlement agreement, subject to approval by the FPSC and lenders to Lake. The
settlement agreement was executed by NCP Lake Power, Inc., as general partner of
Lake Cogen, Ltd. On March 11, 1997, Florida Power was served with a complaint
filed by Lake Interest Holdings, Inc., a partner of Lake Cogen, Ltd., alleging
among other things that the settlement agreement was signed without authority
and is void and of no force and effect, and seeking declaratory relief,
attorneys fees and costs. On March 21, 1997, Florida Power moved to dismiss Lake
Interest Holdings' claim against Florida Power, to consolidate the two Lake
County circuit court cases, and for an order ratifying and enforcing its
settlement agreement.
4. Orlando Cogen (1), Inc. and Orlando Power Generation I Inc.,
as general partners of and on behalf of Orlando CoGen Limited,
L.P. v. Florida Power Corporation, U.S. District Court, Middle
District of Florida, Orlando Division, Case No. 94-303-CIV-ORL-22.
In re: Petition for approval of an early termination amendment
to negotiated qualifying facility contract with Orlando CoGen
Limited, FPSC Docket No. 970002-EI.
On March 10, 1994, the general partners of Orlando CoGen Limited, L.P.
("OCL") filed suit against Florida Power seeking an order directing Florida
Power to pay the capacity payment under its cogeneration contract and
unspecified damages under federal and state antitrust laws. In February 1996,
the parties executed a final settlement agreement, which was approved by the
FPSC and OCL's lenders. In October 1996, Florida Power filed a petition for
approval of an early termination amendment to reduce the term of the
cogeneration contract from 30 to 20 years, expiring 2013. In January 1997, the
FPSC issued a preliminary order denying the petition to reduce the term of the
contract, citing among other things that the projected benefits of the early
termination were overly sensitive to certain assumptions and would not be
realized until too far into the future. Florida Power has requested a hearing on
this matter.
5. Metropolitan Dade County and Montenay Power Corp. v. Florida
Power Corporation, Circuit Court of the Eleventh Circuit for
Dade County, Florida, Case No 96-09598-CA-30.
Metropolitan Dade County and Montenay Power Corp. v. Florida
Progress Corporation, Florida Power Corporation and Electric
Fuels Corporation, U.S. District Court, Southern District,
Miami Division, Florida, Case No 96-594-CIV-LENARD.
15
On February 13, 1996, Metropolitan Dade County ("Dade") and Montenay
Power Corp. ("Montenay") filed a complaint in the Circuit Court of the Eleventh
Circuit for Dade County, Florida, seeking a declaratory judgment that their
interpretation of the energy pricing provision in the cogeneration contract is
correct, and damages in excess of $1.3 million for breach of that contract. No
court schedule has as yet been set in this case. On May 14, 1996, Dade and
Montenay lodged a complaint against Florida Power in the U.S. District Court for
the Southern District, Miami Division, based on essentially the same facts as
presented in the state court case, but alleging violations of federal antitrust
laws and demanding unspecified treble damages. The current schedule established
by the court contemplates a trial commencing in December 1997. In March 1997,
the plaintiffs amended the federal court case to include Florida Progress and
Electric Fuels.
6. In re: Standard Offer Contract for the purchase of firm
capacity and energy from a qualifying facility between
Panda-Kathleen, L.P. and Florida Power Corporation, FPSC
Docket No. 950110-EI.
On January 23, 1995, Florida Power petitioned the FPSC for a declaratory
statement that Florida Power's standard offer contract is not available to
Panda-Kathleen, L.P. ("Panda L.P.") if it constructs a 115 MW cogeneration
facility. In May 1996, the FPSC ruled that Panda L.P.'s proposed 115 MW facility
does not comply with the 75 MW limitation contained in the FPSC's standard offer
rules, and that Florida Power is required to make capacity payments only for 20
years rather than 30 years. In June 1996, Panda L.P. appealed this order to the
Florida Supreme Court. Oral arguments were held in February 1997 and the Supreme
Court is expected to render a decision in the first half of 1997.
7. Florida Power Corporation v. Panda-Kathleen Corp., United
States District Court for the Middle District of Florida,
Tampa, Division, Case No. 95-2145-CIV-T-25-B.
In late 1995, Panda-Kathleen Corp. ("Panda Corp.") threatened Florida
Power with litigation, alleging that Florida Power tortiously interfered with
Panda Corp.'s rights by contracting with the City of Lakeland, Florida for
certain rights to transport natural gas over an interstate natural gas pipeline.
No legal action was taken by Panda Corp., but on December 27, 1995, Florida
Power filed a complaint in the U.S. District Court for the Middle District of
Florida seeking declaratory and other relief in response to Panda Corp.'s
allegations. The current schedule, which the court is expected to revise, calls
for a trial in the second quarter of 1997.
8. In re: Petition for expedited approval of an agreement to
purchase the Tiger Bay cogeneration facility and terminate the
related purchased power contracts, FPSC Docket No. 970096-EQ.
On January 22, 1997, Florida Power petitioned the FPSC for approval of an
agreement between the Tiger Bay Limited Partnership ("Tiger Bay") and Florida
Power. Tiger Bay is Florida Power's largest cogeneration power supplier,
representing 220 MW (21%) of the 1050 MW of total capacity that it receives from
16 cogenerators. The agreement provides for the purchase of the Tiger Bay
cogeneration facility and related assets by Florida Power, resulting in the
termination of five separate purchased power agreements under which Florida
Power purchases power produced by the facility. Florida Power has requested
authority to recover the purchase price over a period not to exceed five years,
through Florida Power's capacity cost recovery clause. Florida Power also
requested that it be allowed to recover the cost of fuel consumed by the Tiger
Bay facility through Florida Power's fuel and purchased power cost recovery
clause. Florida Power has asked the FPSC to expedite its consideration of this
petition in order to satisfy the conditions precedent for closing the agreement
on or before July 1, 1997. The FPSC has scheduled this matter for hearing in
April 1997, with a decision to be rendered in June 1997.
16
9. Northern States Power Company, et al., v. United States
Department of Energy, Case Number 97-1064, U.S. Court of
Appeals, D.C. Circuit.
On January 31, 1997, Florida Power joined approximately 35 other
utilities with nuclear plants in an action brought against DOE under the Nuclear
Waste Policy Act ("NWPA") to suspend payments to the Nuclear Waste Fund. Under
the NWPA and contracts between utilities (including Florida Power) and DOE,
utilities are required to make payments into the Nuclear Waste Fund based on the
KWH of electricity generated by and sold from nuclear plants. In exchange, the
NWPA and those contracts require DOE to begin accepting utilities' SNF by
January 31, 1998. The U.S. Court of Appeals for the District of Columbia Circuit
recently confirmed DOE's unconditional statutory and contractual responsibility
to take SNF by January 31, 1998. See Indiana Michigan Power Co. v. DOE, 88 F.3d
1272 (D.C. Cir. 1996). In December 1996, DOE announced that it would be unable
to meet its court-affirmed obligation to commence disposing of SNF by January
31, 1998 and conceded that a national high-level waste repository will not be
available until 2010. The utilities request that, in view of DOE's
recent announcement, the court issue a declaration that the utilities are
relieved of their reciprocal obligation to pay fees into the Nuclear Waste Fund
and are authorized to place those fees into escrow accounts unless and until DOE
commences disposing of SNF.
Failure of DOE to accept SNF will not immediately affect Florida Power,
which has sufficient on-site temporary storage capacity for SNF through the year
2010. If, however, DOE does not begin accepting SNF, eventually Florida Power
will be forced to seek other temporary storage options.
10. Florida Power Corp. v. United States, United States Court of
Federal Claims, Case No. 96-702C.
In November 1996, Florida Power filed suit against the United States
alleging breach of contract and illegal taking of property without just
compensation. Florida Power seeks more than $7.5 million in damages, plus
interest, and has requested declaratory and injunctive relief.
The suit arises out of several contracts under which the United States
provided Florida Power uranium enrichment services at fixed prices. After
Florida Power fully paid for all such services under the contracts, the United
States, through congressional legislation enacted in 1992, imposed a retroactive
price increase on the completed enrichment services contracts in order to fund
the decontamination and decommissioning of the United States' gaseous diffusion
uranium enrichment facilities. The United States is collecting this increase
through an annual "special assessment" levied on all utilities that had
enrichment services contracts with the United States. Collection of the special
assessments began in 1992 and is scheduled to continue for a fifteen-year
period.
To date, Florida Power has paid more than $7.5 million in special
assessments. If the payments continue for the full fifteen year period, they
will increase the cost of Florida Power's contracts by a total of more than $23
million. In its complaint, Florida Power is seeking (1) an order declaring that
all special assessments are unlawful, (2) an injunction prohibiting the United
States from collecting future special assessments, and (3) an award of more than
$7.5 million, plus interest, as damages for the United States' wrongful acts.
In December 1996, the court granted the parties' joint motion to stay
proceedings in this matter until 45 days after the entry of a final judgement in
Yankee Atomic Electric Co. v. United States, 33 Fed. Ct. 580 (1995), which is
now on appeal to the U.S. Court of Appeals, No. 96-5021-5025. That case is
similar to Florida Power's suit. A decision in the Yankee Atomic Electric
matter is expected in the second quarter of 1997.
17
11. Wanda L. Adams, et. al. v. Florida Power Corporation and
Florida Progress Corporation, U.S. District Court, Middle
District of Florida, Ocala Division; Case No. 95-123-CIV-OC-10.
In October 1995, Florida Power and Florida Progress were served with a
multi-party lawsuit involving 17 named plaintiffs. Subsequent motions to the
case seek to add 39 additional plaintiffs. If successful, the motions would
increase the total number to 56 named plaintiffs. The plaintiffs, all former
Florida Power employees, generally allege age discrimination in violation of the
Age Discrimination in 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 requested, each
plaintiff seeks back pay, reinstatement or front pay through their projected
dates of normal retirement, costs and attorneys' fees.
In November 1995, Florida Power filed its answer, a motion to dismiss
Florida Progress, and a counterclaim against the plaintiffs who signed a career
transition agreement and general release, promising, among other things, not to
sue Florida Power with respect to this matter.
On October 29, 1996, the court approved a joint stipulation whereby it
provisionally certified the case as a class action. As a result, a notice was
sent to all former employees terminated during Florida Power's recent reduction-
in-force who were over the age of forty at the time of their terminations. The
notice informed those persons of the existence of the lawsuit and of their 90
day right to "opt-in." A status conference is scheduled for April 22, 1997.
12. Gulf Power et al v. United States and the Federal
Communications Commission, U.S. District Court, Northern
District of Florida, Pensacola Division, Case No. 3:96-CV-381-LAC.
On July 30, 1996, Florida Power, together with six other electric
utilities, filed the above-referenced suit against the United States challenging
the constitutionality of the pole attachment amendments to the
Telecommunications Act of 1996. The suit seeks a declaration that the act's
requirements are unconstitutional because they impose a mandatory obligation on
utilities to provide access to poles they own or control to cable television and
telecommunications service providers without providing just compensation for
this use. The suit also seeks a permanent injunction against the Federal
Communications Commission preventing it from enforcing the mandatory access
provision.
On October 11, 1996, the United States and the Federal Communications
Commission filed their answers and asked the court to dismiss the case with
prejudice.
13. Sanford Gasification Plant Site, Sanford, Florida
The Sanford gasification site is a former manufactured gas plant site
located in the city of Sanford, Florida. It began operation in the 1880's and
continued through the early 1950's. Originally owned by Southern Utilities
Company, the plant was purchased in 1924 by the City of Sanford, then sold again
in 1928 to Sanford Gas Company. Sanford Gas Company, which merged into Florida
Power in 1944, operated the plant until 1946 when it was sold to South Atlantic
Gas Company (now known as Atlanta Gas Light Company). The plant was conveyed
three more times, being purchased by the current owner, Florida Public Utilities
Company ("FPUC"), in 1965. The FDEP began investigating the site in 1990. FPUC
subsequently initiated an action styled FPUC v. Florida Power, Florida Power &
18
Light, Atlanta Gas 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, seeking contribution from former owners or operators of the
site, including Florida Power. The complaint alleged that Florida Power's
liability was based on prior ownership and operation of the gasification plant
between the years 1928 and 1946. This action was dismissed without prejudice in
February 1995.
In response to the FDEP, the parties to the action initiated by FPUC had
a contamination assessment conducted. The report of this assessment was
forwarded to FDEP in February 1994. The FDEP reviewed the report and issued its
site prioritization report, scoring the site with regard to the national
priorities list. Currently, the site is evaluated at 25.9 with 28.5 as the
threshold for listing the site on the national priorities list.
The EPA is performing a supplemental study of nearby Lake Monroe to
determine if contamination exists in the water or sediment. If associated
contamination is confirmed, the site could score over the 28.5 threshold,
thereby causing the EPA to add this site to the EPA's National Priorities List
of sites that require cleanup. The EPA is expected to coordinate with the FDEP
in scoring the site.
Florida Power cannot at this time reasonably ascertain its share of the
costs of cleaning up this site because of variables beyond its control,
including: (i) whether the EPA will score nearby Lake Monroe above 28.5, thus
placing the site under federal regulations and possibly requiring a more costly
cleanup; (ii) whether litigation will ensue to determine the allocation of
liability, and if so, among what number of other PRPs; and (iii) the cost of
potential cleanup, monitoring or other work. Although estimates of any
additional costs are not available, the results of the EPA's additional testing
is not expected to have a material effect on Florida Power's financial position,
operations or liquidity. This matter is being reported because liability for the
cleanup of certain sites is technically joint and several and because the extent
to which other parties will ultimately share in the cleanup costs at this site
is not yet determinable. For further information regarding contaminated site
cleanup, see Note 11 to the Financial Statements.
14. Peak Oil Company, Missouri Electric Works, 62nd Street, AKO
Bayside, Bluff Electric and Sidney Mine Superfund Sites.
Florida Power has been notified by the EPA that it is or could be a PRP
with respect to each of the above Superfund sites. Based upon the information
presently available, Florida Power has no reason to believe that its total
liability for the cleanup of these sites will be material or that it will be
required to pay a significantly disproportionate share of those costs. However,
these matters are being reported because liability for cleanup of certain sites
is technically joint and several, and because the extent to which Florida Power
may ultimately have to participate in those cleanup costs is not presently
determinable.
In 1996, Florida Power settled the Sydney Mine Superfund site litigation.
In connection with the settlement, Florida Power paid approximately $56,000 in
exchange for a release from liability in connection with the site. For further
information regarding contaminated site cleanup, see Note 11 to the Financial
Statements.
15. Peak Oil Company and Zellwood Groundwater Superfund Sites.
In 1992, Florida Progress was notified by the EPA that Progress Packaging
Corporation ("Progress Packaging") is or could be a PRP in reference to the
Zellwood Groundwater site. Florida Progress sold the assets of Progress
Packaging in 1988. Based upon the information presently available, Florida
19
Progress believes that its total liability for the cleanup of this site will not
be material. The EPA recently issued Special Notice Letters to newly identified
PRPs. To date, Florida Progress has not received such a letter. Florida Progress
has been advised orally by the EPA that if Florida Progress did not receive such
a letter then Progress Packaging will not be held liable for any damages related
to this matter. Florida Progress is currently awaiting written confirmation from
the EPA that Progress Packaging was not mailed a letter naming it as a PRP, as
none has been received to date. For further information regarding contaminated
site cleanup, see Note 11 to the Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
FLORIDA PROGRESS
Florida Progress' common stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange. The high and low price per share of Florida Progress'
common stock for each quarterly period and the dividends per common share paid
on shares of Florida Progress' common stock during the last two fiscal years
appear in Item 8 on the "Quarterly Financial Data" table for Florida Progress at
the end of the Notes to the Financial Statements, and is incorporated herein by
reference.
In February 1997, Florida Progress' Board announced an increase of about 2% in
the common stock quarterly dividend, which on an annual basis would increase the
dividend from $2.06 to $2.10 per share. In 1996, Florida Progress' dividend
payout ratio from continuing operations was 79% of earnings. Information
concerning the Florida Progress dividend payout ratio and dividend policy is set
forth in Item 7 "MD&A - Liquidity and Capital Resources".
Florida Progress' Restated Articles of Incorporation, as amended, do not limit
the dividends that may be paid on its common stock. However, the primary source
for payment of Florida Progress' dividends consists of dividends paid to it by
Florida Power. Florida Power's Amended Articles of Incorporation, as amended,
and its Indenture dated as of January 1, 1944, as supplemented, under which it
issues first mortgage bonds, contain provisions restricting dividends in certain
circumstances. At December 31, 1996, Florida Power's ability to pay dividends
was not limited by these restrictions.
Florida Progress and Progress Capital have entered into a Second Amended and
Restated Guaranty and Support Agreement dated as of August 7, 1996, pursuant to
which Florida Progress has unconditionally guaranteed the payment of Progress
Capital's debt (as defined in the agreement).
The approximate number of equity security holders of Florida Progress is as
follows:
Number of Registered Holders*
Title of Class as of December 31, 1996
- ------------------------------ ----------------------------
Common Stock without par value 54,195
* The computation of registered holders includes record holders as well as
individual positions in the Progress Plus Stock Plan.
20
FLORIDA POWER
All of Florida Power's common stock is owned by Florida Progress, its corporate
parent, and as a result there is no established public trading market for the
stock. For the past three years, Florida Power has paid quarterly dividends to
Florida Progress totaling the amounts shown in the Statements of Shareholder's
Equity in the Financial Statements.
Florida Power's Amended Articles of Incorporation, as amended, and its Indenture
dated as of January 1, 1944, as supplemented, under which it issues first
mortgage bonds, contain provisions restricting dividends in certain
circumstances. At December 31, 1996, Florida Power's ability to pay dividends
was not limited by these restrictions.
ITEM 6. SELECTED FINANCIAL DATA
Annual Growth Rates
(in percent)
1991-1996 1996 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------
FLORIDA PROGRESS CORPORATION
Summary of operations (in millions)
Utility revenues 6.8 $2,393.6 $2,271.7 $2,080.5 $1,957.6 $1,774.1 $1,718.8
Diversified revenues (continuing) 23.7 764.3 736.1 644.8 430.3 281.1 263.8
Income from continuing operations 8.3 250.7 238.9 212.0 196.0 183.8 167.9
Income (loss) from discontinued
operations and change in accounting (26.3) - - 0.6 (8.1) 4.2
Net income 5.5 224.4 238.9 212.0 196.6 175.7 172.1
------------------------------------------------------------------------------------------------------------------
Balance sheet data (in millions):
Total assets 2.7 $5,348.4 $5,550.4 $5,453.1 $5,338.0 $4,978.8 $4,683.4
Capitalization:
Short-term capital (8.5) $ 39.0 $173.7 $ 99.9 $195.2 $177.6 $60.8
Long-term debt 1.7 1,776.9 1,662.3 1,835.2 1,840.5 1,651.3 1,631.8
Preferred stock (32.0) 33.5 138.5 143.5 148.5 216.0 231.0
Common stock equity 3.9 1,924.2 2,078.1 1,984.4 1,820.5 1,737.6 1,587.7
-------------------------------------------------------------------------------------------------------------------
Total capitalization 1.5 $3,773.6 $4,052.6 $4,063.0 $4,004.7 $3,782.5 $3,511.3
-------------------------------------------------------------------------------------------------------------------
Common stock data:
Average shares outstanding (in millions) 3.7 96.8 95.7 93.0 88.3 85.4 80.8
Earnings per share:
Utility 3.4 $2.40 $2.27 $2.05 $2.06 $1.99 $2.03
Diversified (continuing) 30.6 .19 .23 .23 .16 .16 .05
Discontinued operations and change
in accounting (.27) - - .01 (.09) .05
Consolidated 1.7 2.32 2.50 2.28 2.23 2.06 2.13
Dividends per common share 2.3 2.06 2.02 1.99 1.95 1.905 1.843
Dividend payout 88.9% 81.0% 87.7% 87.6% 93.0% 87.0%
Dividend yield (year-end) 6.4% 5.7% 6.7% 5.9% 5.9% 6.0%
Book value per share of common stock 0.7 $19.84 $21.55 $20.85 $20.40 $19.85 $19.14
Return on common equity 10.9% 11.8% 11.1% 11.1% 10.6% 11.4%
--------------------------------------------------------------------------------------------------------------------
Common stock price per share:
High 36 3/8 35 3/4 33 5/8 36 3/8 33 1/4 31 1/2
Low 31 5/8 29 3/8 24 3/4 31 1/4 27 7/8 24 3/8
Close 0.6 32 1/4 35 3/8 30 33 5/8 32 5/8 31 1/4
Price earnings ratio (year-end) 13.9 14.2 13.2 15.1 15.8 14.7
- ---------------------------------------------------------------------------------------------------------------------
Other year-end data:
Number of employees (0.2) 7,291 7,174 7,394 7,825 7,301 7,350
- ---------------------------------------------------------------------------------------------------------------------
[CONTINUED ON NEXT PAGE]
21
Annual Growth Rates
(in percent)
1991-1996 1996 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------
FLORIDA POWER CORPORATION
Electric sales (million of KWH)
Residential 4.2 15,481.4 14,938.0 13,863.4 13,372.6 12,825.8 12,623.9
Commercial 3.4 8,848.0 8,612.1 8,252.1 7,884.8 7,544.1 7,489.2
Industrial 5.0 4,223.7 3,864.4 3,579.6 3,380.8 3,254.5 3,303.0
Total retail sales 4.1 30,784.8 29,499.5 27,675.2 26,528.3 25,414.0 25,179.1
Total electric sales 4.1 33,492.5 32,402.6 30,014.6 28,647.8 27,375.5 27,350.2
- ---------------------------------------------------------------------------------------------------------------------
Residential service (average annual):
KWH sales per customer 2.0 13,560 13,282 12,597 12,420 12,214 12,257
Revenue per customer 4.8 $1,138 $1,114 $1,038 $983 $884 $899
Revenue per KWH 2.7 $0.0839 $0.0839 $0.0824 $0.0792 $0.0724 $0.0733
- ---------------------------------------------------------------------------------------------------------------------
Financial Data:
Operating revenues 6.8 $2,393.6 $2,271.7 $2,080.5 $1,957.6 $1,774.1 $1,718.8
Net income after dividends
on preferred stock 7.2 $ 232.6 $217.3 $190.7 $181.5 $170.2 $164.1
Total assets 3.2 $4,264.0 $4,284.9 $4,284.5 $4,259.5 $3,980.6 $3,643.2
Long-term debt and preferred stock
subject to mandatory redemption 1.3 $1,296.4 $1,304.1 $1,393.8 $1,433.6 $1,318.3 $1,213.1
Total capitalization including
short-term debt (in millions) 3.4 $3,180.8 $3,202.2 $3,265.4 $3,240.4 $3,029.2 $2,692.2
Capitalization ratios:
Short-term capital (10.6) 0.8% 1.0% 2.8% 5.3% 4.4% 1.4%
Long-term debt (0.3) 40.8% 39.9% 41.7% 43.1% 40.8% 41.4%
Preferred stock (35.0) 1.0% 4.3% 4.4% 4.6% 7.1% 8.6%
Common stock equity 3.4 57.4% 54.8% 51.1% 47.0% 47.7% 48.6%
Ratio of earnings to fixed charges
(SEC method) 4.4 4.80 4.41 3.90 3.83 3.84 3.87
Embedded cost of long-term debt (1.3) 7.2% 7.2% 7.1% 6.8% 7.5% 7.7%
Embedded cost of preferred stock (8.8) 4.6% 6.8% 6.8% 6.8% 7.3% 7.3%
- ---------------------------------------------------------------------------------------------------------------------
Operating Data:
Net system capacity (MW) 2.1 7,341 7,347 7,295 7,563 6,998 6,623
Net system peak load (MW) 7.8 8,807 7,722 6,955 6,729 6,982 6,056
Capital expenditures (in millions) (8.9) $217.3 $283.4 $319.5 $426.4 $472.9 $345.9
Net cash flow to capital expenditures 21.5 175% 125% 103% 63% 52% 66%
Fuel cost per million BTU 1.5 $2.04 $1.69 $1.75 $1.79 $1.86 $1.89
Average number of customers 2.2 1,292,075 1,271,784 1,243,891 1,214,653 1,182,170 1,159,237
Number of full-time employees (4.0) 4,629 4,658 4,972 5,807 5,806 5,677
- ---------------------------------------------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Florida Progress' 1996 consolidated earnings from continuing operations were
$250.7 million, or $252.4 million before nonrecurring items. This compares with
$238.9 million in 1995 and $212 million in 1994. Florida Power earned $232.6
million in 1996, compared with $217.3 million in 1995 and $190.7 million in
1994. Earnings from continuing diversified operations were $19.8 million in
1996, compared with $21.6 million in 1995 and $21.3 million in 1994.
22
EARNINGS PER SHARE
1996 1995 1994
- ------------------------------------------------------------------------------
Florida Power Corporation $2.40 $2.27 $2.05
- ------------------------------------------------------------------------------
Electric Fuels Corporation .28 .25 .25
Mid-Continent Life Insurance Co. .02 .07 .08
Other (.09) (.09) (.10)
- ------------------------------------------------------------------------------
Diversified .21 .23 .23
Continuing operations before
nonrecurring items 2.61 2.50 2.28
Provision for loss on
coal properties (.26) - -
Gain on sale of business .24 - -
- ------------------------------------------------------------------------------
Total continuing operations 2.59 2.50 2.28
Discontinued operations (.27) - -
- ------------------------------------------------------------------------------
Consolidated $2.32 $2.50 $2.28
- ------------------------------------------------------------------------------
Florida Power's 1996 earnings per share were up 5.7% over 1995 primarily due to
continued customer growth. Residential customer growth of about 2% in 1996
continues to have the most significant effect on Florida Power's earnings
growth.
Contributing to Florida Power's 1996 earnings growth were lower interest and
preferred dividend charges for 1996, compared with 1995. Lower debt balances
resulting from improved cash flow and the redemption of preferred stock lowered
these costs by $10 million.
The increase in 1995 earnings per share when compared with 1994 was due in part
to certain charges in 1994 that related to work-force reductions and the
write-off of a proposed natural gas pipeline project. These charges totaled
$15.4 million, or $.16 per share, in 1994.
In 1996, Florida Progress made significant strides toward accomplishing its
objective of divesting itself of businesses that are not strategically related
to its core businesses - Florida Power, the electric utility, and Electric
Fuels, its energy and transportation subsidiary.
In December 1996, Florida Progress completed the divestiture of Echelon,
formerly Progress Credit, through a tax-free stock dividend. As a part of this
transaction, Florida Progress recorded a $26.3-million charge to earnings for
the write-down of certain assets of Echelon and other costs associated with the
divestiture. Echelon is reported as discontinued operations. (See Note 10 to the
Financial Statements.)
In December 1996, Florida Progress sold its 80% interest in Advanced Separation
Technologies, Inc. for $56 million and realized an after-tax gain of $23.5
million, or $.24 per share.
Mid-Continent's earnings have declined in each of the last three years primarily
due to declining sales of its primary life insurance product and higher
death-benefit claims.
In December 1996, Electric Fuels recorded a $25.2-million after-tax charge to
earnings to establish a provision for loss on its unprofitable coal properties,
now available for sale. The provision was necessary because management did not
consider the unfavorable market conditions for low-sulfur coal to be temporary.
23
The financial return on Florida Power's common equity was 12.9% in 1996,
compared with 12.7% in 1995 and 11.9% in 1994. Increases in retail energy sales
and tight control over costs are enabling Florida Power to maintain its return
on equity and continue its earnings growth. Florida Progress' diversification
strategy has centered on growing Electric Fuels. Return on equity from the
energy and transportation subsidiary, before its provision for loss on coal
properties, was 14% in 1996, 13.8% in 1995 and 14.5% in 1994.
FLORIDA POWER CORPORATION
Utility Competition
In 1996, the FERC issued new rules on transmission service to facilitate
competition in wholesale generation on a nationwide basis. The rules give
greater flexibility and more choices to wholesale power customers. (See Note 1
to the Financial Statements.)
Florida Power established a Power Marketing organization as part of its response
to the new rules issued by federal regulators. The rules are designed to
encourage increased competition in the wholesale power market.
In 1995, Florida Power was successful in obtaining a three-year agreement to
provide an additional 455 MW of power to Seminole Electric Cooperative, Inc.,
beginning in 1999. The cooperative is Florida Power's largest wholesale
customer. The contract will increase annual wholesale revenues by more than 40%
and is projected to expand this market segment to about 8% of total sales in
1999.
A major portion of Florida Power's retail business is covered under terms of
franchise agreements with municipalities and counties. In 1996, 15 franchise
customers elected early renewal of their 30-year agreements with Florida Power
while five amended their existing agreements. The utility believes quality
service and competitive rates will continue to be important factors as other
franchise agreements come up for renewal. No franchise agreements representing
significant revenues are due to expire before the year 2000.
The power generation segment of the electric power business is expected to be
the most competitive in a deregulated environment. While Florida Power's total
production costs are comparable with the other investor-owned utilities in
Florida, the utility is committed to further improving the efficiency of its
power plants. In 1998, a new 470-MW natural gas-fired combined-cycle power plant
is planned to be in service. It is expected to be one of the most cost-effective
plants in the country.
The pace of change in the electric utility industry continued to accelerate in
1996. Today, there are a record number of mergers pending in the industry. Many
U.S. electric utilities are merging or forming alliances with utilities overseas
or investing in international projects. Several states are pursuing electric
utility restructuring plans to provide retail customers with a choice for their
energy suppliers.
The momentum for retail competition has not been as strong in Florida as it has
been in other states, where some provisions for retail choice have been passed.
Competitive electric rates and the comparatively small number of large
industrial and commercial customers are the main reasons there has been less
incentive for change in Florida. There is proposed federal legislation that
could be enacted in the next couple of years that would expedite the development
of retail customer choice in all states.
Florida Power is regulated by the FPSC and the FERC. The utility is able to
capitalize or defer certain costs or revenues if it is probable these items will
be recovered through the ratemaking process. In the future, regulatory changes
due to competition or other reasons could result in the write-off of regulatory
assets and liabilities.
24
Florida Power is committed to providing high-quality, cost-competitive service
in order to retain customers while, at the same time, developing new products
and services that will attract new customers.
Utility Revenues and Sales
Florida Power's operating revenues were $2.4 billion in 1996, compared with $2.3
billion in 1995 and $2.1 billion in 1994. Revenues rose in 1996 and in 1995,
primarily because of customer growth and continued improvement in the economy.
The utility's retail KWH sales increased 2.9% in 1996 and 7.8% in 1995.
Residential customer growth was about 2% in 1996 and in 1995. Florida Power's
annual customer growth rate continues to be twice the national average for
electric utilities.
Beginning in 1995, Florida Power was ordered by the FPSC to conduct a three-year
test of residential revenue decoupling. This ratemaking concept is designed to
eliminate the direct link between KWH sales and revenues. Under revenue
decoupling, abnormal weather does not impact earnings from residential sales,
which represents the single-largest customer group for Florida Power. A change
in customer usage due to extreme heating or cooling conditions will not have a
material effect on Florida Power's earnings, whereas customer growth and higher
usage due to nonweather-related factors can affect earnings. (See Note 1 to the
Financial Statements.)
Under Florida Power's revenue decoupling plan, the utility recorded a regulatory
liability of $3.6 million for 1996 and $18.7 million for 1995.
Fuel and Purchased Power
Fuel and purchased power costs primarily are recovered through an adjustment
recovery clause established by state and federal regulators. Fluctuations in
these costs have little impact year to year on net income, but could become
increasingly important in a more competitive environment.
Fuel and purchased power costs increased $152.2 million in 1996. This increase
was offset by the deferral of $82.3 million, which is recorded as a regulatory
asset. The increase resulted primarily from the need for replacement power due
to an extended maintenance outage at the CR3 nuclear plant.
In February 1997, the FPSC approved Florida Power's request to increase fuel
rates to recover the deferred costs of replacement power incurred through March
1997. In conjunction with this approval, the FPSC ordered its staff to begin an
immediate investigation concerning the reasons for CR3's current outage. The
additional revenues generated by the increased fuel rates associated with the
extended outage are subject to refund pending the outcome of this investigation.
Florida Power estimates that replacement fuel costs related to that outage are
approximately $10 million per month, with weather and the availability of
alternative energy sources being the principal factors that can affect actual
costs. Florida Power expects to file an additional request with the FPSC for
replacement power costs that are incurred after March 1997. Management believes
it is probable that the FPSC, after completing its investigation, will approve
the recovery of replacement power costs incurred during the entire outage. For
additional information regarding the FPSC's investigation, see paragraph 1 under
Item 3 "Legal Proceedings".
In 1995, fuel and purchased power costs increased $147.7 million over the
previous year. This was due to increased purchased power costs and higher system
requirements. For 1997, fuel and purchased power costs likely will increase over
1996 because of higher replacement fuel costs associated with the expected
unavailability of CR3 for most of 1997.
25
Florida Power receives 1,050 MW of total capacity from cogeneration facilities.
In 1996, Florida Power spent $222 million for purchased power under these
contracts. This represented 24% of system fuel and purchased power expenses for
the year.
Costs associated with those contracts raised Florida Power's system average cost
for generation in 1995 and 1996, and this trend is expected to continue.
Florida Power is continuing to seek ways to mitigate the impact of escalating
payments from contracts it was obligated to sign under provisions of the federal
Public Utilities Regulatory Policies Act of 1978.
One strategy being pursued is to buy down those contracts that have prices that
are projected to be above future market prices. While paying a discounted price
today for these future obligations increases costs in the short term, the
long-term benefit to ratepayers can be significant.
Florida Power has several purchased power buy-down proposals before state
regulators as well as a petition to recover the costs associated with the
acquisition of the 220-MW Tiger Bay cogeneration facility and to terminate the
purchased power contracts relating to that facility for $445 million. Tiger Bay
is Florida Power's largest cogeneration power supplier, representing more than
20% of the 1,050 MW of total capacity Florida Power receives from cogeneration
facilities.
Other Utility Expenses
Utility operation and maintenance expenses increased by $19.7 million in 1996.
The increase was due primarily to additional costs associated with the extended
maintenance outage of CR3 and expenses related to improving service and
reliability.
In 1995, operation and maintenance expenses decreased by $18.5 million when
compared with the previous year primarily due to companywide cost-reduction
efforts. The utility's commitment to cost control has resulted in minimal
increases in operation and maintenance costs except for nuclear outage expenses.
The utility's goal for 1997 is to limit increases in nonnuclear operation and
maintenance costs to less than the national inflation rate.
Recoverable energy conservation program costs decreased by $21.4 million in 1996
and by $20.3 million in 1995 due to a reduction in the credits paid to customers
who participate in Florida Power's load management program. The reduction began
in April 1995. The change had no significant impact on earnings because Florida
Power recovers substantially all of these costs through a clause in electric
rates similar to the fuel adjustment clause.
Depreciation expense increased by $30.5 million in 1996 and by $32.2 million in
1995. In 1995, Florida Power began amortizing $23.9 million of accumulated costs
for the canceled Lake Tarpon-Kathleen transmission line over a four-year period.
However, the utility chose to accelerate amortization and complete the write-off
in 1996. Florida Power also wrote off two oil-fired power plants in 1996 that
were placed in extended cold shutdown in 1994, increasing depreciation in 1996
by $11.7 million. Other factors contributing to the increase in 1996 were plant
additions, primarily distribution facilities. The increase of $32.2 million in
1995 over 1994 was primarily due to increased nuclear decommissioning costs,
amortization of accumulated costs for the Lake Tarpon-Kathleen line, and plant
additions.
Nuclear Operations
After completing a record performance in 1995 by achieving a capacity factor of
100%, the CR3 nuclear plant was shut down for much of 1996. Beginning in
February, the plant underwent a scheduled refueling outage that lasted until May
when the nuclear plant returned to service.
26
In September, an oil pressure problem in the main turbine forced the plant to
shut down until repairs could be made. When the repairs were completed in
October, Florida Power decided to keep CR3 down to address certain backup safety
system design issues.
The primary issue involves an electrical loading problem with one of the plant's
two emergency diesel generators that are part of the emergency core cooling
system. These generators would be activated in the event there is a loss of
off-site power. The utility is assessing several options to address the diesel
loading issue and expects to be able to restart the plant by year-end 1997. The
NRC established a special panel in late 1996 to provide regulatory oversight to
restarting the nuclear plant.
The NRC was critical of the nuclear plant's overall performance in 1996,
particularly in the areas of management oversight and engineering. In January
1997, the NRC placed the nuclear plant on its "Watch List" as a plant whose
operations will be monitored closely. Florida Power is disappointed with the
NRC's action, but remains committed to implementing safe, reliable and
cost-effective solutions to resolve the issues.
Florida Power hired two senior nuclear officers and added other personnel to
further strengthen the nuclear plant's engineering staff. The utility's nuclear
management and staff have developed a thorough corrective action plan that is
designed to address those areas identified by regulators as needing improvement.
Florida Power's management is confident that its action plan will return CR3 to
top performance.
The new nuclear management team is reviewing previous estimates of the operating
and maintenance expenses and capital costs associated with the outage.
Management believes that it will have sufficient information to provide final
estimates of these costs during the second quarter of 1997.
DIVERSIFIED OPERATIONS
For several years, Florida Progress has been executing an orderly withdrawal
strategy from those diversified operations no longer related to its core utility
and energy and transportation businesses. Two restructuring decisions were made
in 1996 that had a significant impact on earnings from diversified operations.
The spin-off of Echelon resulted in a $26.3-million after-tax charge to earnings
while the sale of Advanced Separation Technologies contributed an after-tax gain
of $23.5 million. Another nonrecurring item that affected 1996 diversified
earnings was the provision for loss on unprofitable coal properties owned by
Electric Fuels. This resulted in an after-tax charge of $25.2 million or $.26 a
share.
Electric Fuels Corporation
Electric Fuels, Florida Progress' energy and transportation subsidiary, has
three principal business units: energy and related services, inland marine
transportation and rail services. Florida Progress continues to build on
Electric Fuels' existing operations through internal expansion and by pursuing
new market opportunities, primarily with its inland marine transportation and
rail services units.
In July 1996, an Electric Fuels subsidiary, Progress Rail Services Corporation
("Progress Rail"), acquired Railcar, Ltd., an Atlanta-based railcar leasing
company. In August 1996, Electric Fuels acquired the assets of Mansbach Metal
Company, a metal recycling and railcar dismantling, repair, and leasing company
based in Ashland, Kentucky. Progress Rail is one of the largest integrated
suppliers of rail services in the United States with locations in 14 states.
Revenues from rail services in 1996 were $355.5 million, an increase of $33.3
million over 1995. The increase is due to recent acquisitions and increased
sales volumes as railroads continue outsourcing portions of their service and
repair needs.
27
Expansion of Electric Fuels' inland marine transportation unit has been achieved
primarily through the purchase of river barges. At the end of 1996, the unit
operated about 700 inland river barges with a commitment to purchase
approximately 200 new high-capacity barges in 1997 and options for additional
units in 1998 and beyond if market demand warrants additional expansion.
Expansion of the fleet is expected to enable Electric Fuels to increase its
market share by focusing on long-term contracts for hauling coal, wood chips,
agricultural products and other dry cargoes.
Electric Fuels began purchasing low-sulfur coal properties in the late 1980s as
part of a strategy to take advantage of the expected increase in demand for
low-sulfur coal. The increase was expected because of more stringent sulfur
dioxide emission requirements imposed on electric utilities by the CAAA. The
supply of inexpensive low-sulfur coal from mines in the western United States
and the low cost of emission allowance credits have kept the price of central
Appalachian low-sulfur coal lower than originally projected.
Because these coal market conditions are not considered by management to be
temporary, Electric Fuels established a provision for loss on its unprofitable
coal properties.
Electric Fuels has a business plan to improve productivity and quality control
in its coal operations in 1997. The plan calls for increasing output from
Electric Fuels' remaining mines and directing production to higher-profit
markets.
Earnings from Electric Fuels in 1996, before the provision for loss on
unprofitable coal properties, were $27.1 million, compared with $24 million in
1995 and $22.6 million in 1994. The $3.1-million increase in 1996 was due
largely to better results from Electric Fuels' energy and related services
operations.
Before the provision for loss on coal properties in 1996, Electric Fuels'
earnings yielded a 22% average annual compound earnings growth rate over the
last three years and averaged a 14.1% return on equity for the same period.
Electric Fuels expects to have a continuation of double-digit earnings growth
for the foreseeable future.
Mid-Continent Life Insurance Company
When Mid-Continent was acquired in 1986, it sold a popular, low-priced
death-benefit insurance policy. Over the last few years, the insurance industry
has become more competitive, resulting in lower sales of new policies at
Mid-Continent.
A new management team at Mid-Continent determined that the old product was not
adequately priced. In 1996, Mid-Continent replaced its existing principal policy
with a new product called "Basic Life." It resembled the old product that had
been Mid-Continent's principal policy, but offered more flexibility and
guarantees to policyholders at a higher price.
Mid-Continent was hoping to rebuild market share and achieve increased
profitability with the "Basic Life" product. Sales of the new policy, however,
have not met management's expectations.
In December, Mid-Continent reduced its work force to be able to compete on a
more focused and cost-efficient basis. In 1997, Mid-Continent plans to begin an
orderly process to resolve the pricing issue that is expected to involve
reducing policy dividends and increasing premiums.
28
Mid-Continent does not fit with the long-term strategic direction of Florida
Progress. It is expected to take three to five years for Mid-Continent's
business plan to result in sufficient value before Florida Progress can
prudently divest this business.
Mid-Continent's earnings in 1996 were $1.9 million, compared with $6.5 million
in 1995 and $7.3 million in 1994. Florida Progress does not expect significant
future earnings contributions from Mid-Continent.
Other
Florida Progress adopted several new accounting standards during the last three
years. (See Note 1 to the Financial Statements.)
Florida Power and a former Florida Progress subsidiary have been notified by the
EPA that each is or may be a PRP for the cleanup costs of several contaminated
sites. (See Note 11 to the Financial Statements.)
Florida Progress has off-balance sheet risk related to debt of unconsolidated
partnerships. (See Note 11 to the Financial Statements.) Even though the
inflation rate has been relatively low during the last three years, inflation
continues to affect Florida Progress by reducing the purchasing power of the
dollar and increasing the cost of replacing assets used in the business. This
has a negative effect on Florida Power because regulators generally do not
consider this economic loss when setting utility rates. However, such losses are
partly offset by the economic gains that result from the repayment of long-term
debt with inflated dollars.
LIQUIDITY AND CAPITAL RESOURCES
Cash from operations has been the primary source of capital for Florida
Progress. Other sources of capital included proceeds from the sales of
properties and businesses, debt financing, issuance of common stock and the
orderly withdrawal from Florida Progress' lending and leasing and real estate
portfolio.
Florida Progress has been issuing new equity in recent years primarily to fund
Florida Power's construction program. Florida Power is forecasting lower
construction expenditures in the years ahead. The utility does not expect
construction to require any significant increase in equity or debt over the next
five years. Because of the reduced equity requirements, Florida Progress' stock
purchase plan, the Progress Plus Stock Plan (the "Stock Purchase Plan"), began
purchasing shares in the open market instead of issuing new shares beginning in
July 1996.
For the first half of 1996 and for all of 1995 and 1994, new equity was issued
through the Stock Purchase Plan. During the last three years, Florida Progress
raised $103 million of equity capital through the Stock Purchase Plan. In a May
1994 public offering, Florida Progress sold 3.6 million shares of common stock
with net proceeds of $92.2 million. In December 1994, Electric Fuels acquired FM
Industries, Inc. for 700,000 shares of Florida Progress common stock.
Florida Progress contributed $12.5 million in 1996, $50 million in 1995 and $130
million in 1994 to Florida Power from the proceeds of Florida Progress' public
stock offerings and the Stock Purchase Plan. These funds were used to further
strengthen Florida Power's financial position.
Florida Progress' capital structure as of December 31, 1996, was 51% common
equity, 48.1% debt and .9% preferred stock of Florida Power. Florida Progress'
goal is to maintain capital structures for its utility and diversified
operations at levels that will enable its subsidiaries to preserve their current
credit ratings.
29
CREDIT RATINGS
Standard Duff &
& Poor's Moody's Phelps
Florida Power Corporation
First mortgage bonds AA- Aa3 AA-
Medium-term notes A+ A1 A+
Commercial paper A-1+ P-1 D-1+
Progress Capital Holdings, Inc.
Medium-term notes A A2
Commercial paper A-1 P-1
Earnings per share growth over the past three years has allowed Florida Progress
to continue its long-standing tradition of increasing the dividend while, at the
same time, following the Florida Progress board of director's strategy of
lowering the dividend payout ratio. The payout from continuing operations was
79% in 1996 and 81% in 1995. This is down significantly from several years ago.
Florida Progress has increased the dividends paid per share each year for 44
consecutive years. Florida Progress' board realizes, however, that the dividend
policy should be evaluated annually, and it does so each February. The board
will continue to re-examine the dividend payout policy to ensure that Florida
Progress' dividend payout and dividend rate are appropriate, given its business
plan and projected earnings growth and the outlook for the electric utility
industry.
Florida Progress anticipates sustained earnings growth in the five-year business
plan. The level of confidence in earnings growth will continue to be one of
several considerations used in setting dividend policy.
In February 1997, Florida Progress' board increased the quarterly cash dividend
on Florida Progress common stock by approximately 2%. This board action
increased the annual dividend by four cents per share, therefore raising the
annual dividend to $2.10 per share.
Florida Power Corporation
Florida Power's construction expenditures in 1996 totaled about $217 million.
This was primarily for distribution lines and other facilities related to the
utility's growing customer base. Florida Power's five-year construction program
totals $1.4 billion for the 1997-2001 forecast period. It includes planned
expenditures of $372 million, $307 million, $252 million, $230 million and $269
million for 1997 through 2001. Florida Power expects construction expenditures
during this period will be financed with internally generated funds.
Florida Power has agreed to acquire the 220-MW Tiger Bay cogeneration facility
and to terminate the purchased power contracts related to that facility for $445
million in 1997, subject to approval by other parties. Tiger Bay is Florida
Power's largest cogeneration power supplier. Florida Power plans on financing
the Tiger Bay acquisition primarily through debt financing.
The CAAA require electric utilities to reduce sulfur dioxide emissions. Florida
Power expects to meet these requirements with minimal capital expenditures.
In 1996, Florida Power's net cash flow to capital expenditures was 175%. In
addition to funding its construction commitments with cash from operations,
Florida Power receives equity from Florida Progress and accesses the capital
markets through the issuance of commercial paper, medium-term notes and first
mortgage bonds.
30
Florida Power has a public $300-million, medium-term note program, providing for
the issuance of either fixed or floating interest rate notes, with maturities
that may range from nine months to 30 years.
Florida Power's interim financing needs are funded primarily through its
commercial paper program. The utility has a 364-day revolving bank credit
facility and a five-year facility, $200 million each, which are used to back up
commercial paper. (See Note 6 to the Financial Statements.)
Florida Power used additional cash generated by operations to redeem $105
million of preferred stock in 1996 and reduced total debt levels by about $145
million in 1995.
Florida Power's embedded cost of long-term debt was 7.2% as of December 31, 1996
and 1995.
Diversified Operations
Progress Capital, the downstream holding company of Florida Progress,
consolidates the collective financial strength of these operations and, with the
benefit of a recently amended guaranty and support agreement with Florida
Progress, helps to lower the cost of capital of the diversified businesses.
Progress Capital funds diversified operations primarily through the issuance of
commercial paper and medium-term notes. (See Note 6 to the Financial
Statements.)
Progress Capital has a private $300-million, medium-term note program for the
issuance of either fixed or floating interest rate notes, with maturities that
may range from nine months to 30 years. In 1996, Progress Capital issued $178
million of medium-term notes with maturities ranging from five to 10 years. The
proceeds were used mainly to repay $140 million of maturing medium-term notes.
Progress Capital also has two revolving bank credit facilities: a 364-day,
$100-million facility and a five-year, $300-million facility. These facilities
are used to back up commercial paper. (See Note 6 to the Financial Statements.)
In 1996, total diversified capital expenditures were about $41 million,
primarily for operations at Electric Fuels. In 1996, Progress Capital received
net proceeds of $53 million from the sale of Advanced Separation Technologies
and expended $54 million related to acquisitions made by Electric Fuels or its
affiliates.
In 1997, diversified capital expenditures are expected to be about $88 million,
with most of these planned expenditures designated for operations of Electric
Fuels. The inland marine transportation unit plans to add new barges in 1997 as
it continues to take advantage of market opportunities that expand its business.
Electric Fuels' rail services unit is expected to continue to grow by expanding
geographically into the midwest and western markets. These expenditures are
expected to be funded through cash generated internally and from outside
financing sources.
FORWARD-LOOKING STATEMENTS
In this report, Florida Progress has projected the population will grow to 5.1
million in Florida Power's service area by the year 2000, sustained earnings
growth of 4% to 5% for Florida Progress over the next five years, and
double-digit earnings growth at Electric Fuels. Florida Power has projected that
it's CR3 nuclear plant will return to service by year-end 1997. Florida Progress
believes that it will take three to five years to rebuild sufficient value in
Mid-Continent before that company can be divested at fair value.
31
Risk Factors
These statements, and any other statements contained in this report that are not
historical facts, are forward-looking statements that are based on a series of
projections and estimates regarding the economy, the electric utility industry
and Florida Progress' other businesses in general, and on key factors which
impact Florida Progress directly. The projections and estimates relate to the
pricing of services, the actions of regulatory bodies, the success of new
products and services, and the effects of competition.
Key factors that have a direct bearing on Florida Progress' ability to attain
these projections include continued annual growth in customers, successful cost
containment efforts and the efficient operation of Florida Power's existing and
future generating units. Also, in developing its forward-looking statements,
Florida Progress has made certain assumptions relating to productivity
improvements and the favorable outcome of various commercial, legal and
regulatory proceedings, and the lack of disruption to its markets.
If Florida Progress' projections and estimates regarding the economy, the
electric utility industry and key factors differ materially from what actually
occurs, or if various proceedings have unfavorable outcomes, Florida Progress'
actual results could vary significantly from the performance projected in the
forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AUDITORS' REPORT
To the Shareholders of Florida Progress Corporation
and Florida Power Corporation:
We have audited the accompanying consolidated balance sheets of Florida Progress
Corporation and subsidiaries, and of Florida Power Corporation, as of December
31, 1996 and 1995, and the related consolidated statements of income, cash
flows, and shareholders' equity for each of the years in the three-year period
ended December 31, 1996. In connection with our audits of the financial
statements, we also have audited the financial statement schedules listed in
Item 14 therein. These financial statements and financial statement schedules
are the responsibility of the respective managements of Florida Progress
Corporation and Florida Power Corporation. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Florida Progress Corporation
and subsidiaries, and Florida Power Corporation, as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedules when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/KPMG Peat Marwick LLP
- ---------------------------
KPMG Peat Marwick LLP
St. Petersburg, Florida
January 27, 1997
32
FLORIDA PROGRESS
Consolidated Financial Statements
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Income
For the years ended December 31, 1996, 1995 and 1994
(In millions, except per share amounts)
1996 1995 1994
--------- --------- ---------
REVENUES:
Electric utility $2,393.6 $2,271.7 $2,080.5
Diversified 764.3 736.1 644.8
--------- --------- ---------
3,157.9 3,007.8 2,725.3
--------- --------- ---------
EXPENSES:
Electric utility:
Fuel 409.7 431.3 425.6
Purchased power 531.6 436.5 294.6
Energy conservation costs 62.6 84.0 104.3
Operation and maintenance 413.4 393.7 412.2
Depreciation 324.2 293.7 261.5
Taxes other than income taxes 183.6 176.2 162.8
--------- --------- ---------
1,925.1 1,815.4 1,661.0
--------- --------- ---------
Diversified:
Cost of sales 642.9 624.6 552.1
Provision for loss on coal properties 40.9 - -
Other 66.6 58.9 51.1
--------- --------- ---------
750.4 683.5 603.2
--------- --------- ---------
INCOME FROM OPERATIONS 482.4 508.9 461.1
--------- --------- ---------
INTEREST EXPENSE AND OTHER:
Interest expense 135.9 139.4 141.5
Allowance for funds used during
construction (7.5) (7.3) (10.9)
Preferred dividend requirements
of Florida Power 5.8 9.7 10.1
Gain on sale of business (44.2) - -
Other expense (income), net (4.2) (9.9) (2.4)
--------- --------- ---------
85.8 131.9 138.3
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 396.6 377.0 322.8
Income taxes 145.9 138.1 110.8
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 250.7 238.9 212.0
DISCONTINUED OPERATIONS, NET OF
INCOME TAXES (26.3) - -
--------- --------- ---------
NET INCOME $ 224.4 $ 238.9 $ 212.0
========= ========= =========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 96.8 95.7 93.0
========= ========= =========
EARNINGS PER AVERAGE COMMON SHARE:
Continuing operations $2.59 $2.50 $2.28
Discontinued operations (.27) - -
--------- --------- ---------
$2.32 $2.50 $2.28
========= ========= =========
The accompanying notes are an integral part of these financial statements.
33
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
December 31, 1996 and 1995
(Dollars in millions)
1996 1995
--------- ---------
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held
for future use $5,965.6 $5,867.5
Less: Accumulated depreciation 2,335.8 2,179.7
Accumulated decommissioning for nuclear plant 193.3 165.2
Accumulated dismantlement for fossil plants 119.6 104.4
--------- ---------
3,316.9 3,418.2
Construction work in progress 140.3 131.8
Nuclear fuel, net of amortization of $356.7
in 1996 and $348.7 in 1995 59.9 59.1
--------- ---------
Net electric utility plant 3,517.1 3,609.1
Other property, net of depreciation of $173.8
in 1996 and $157.3 in 1995 309.3 307.0
--------- ---------
3,826.4 3,916.1
--------- ---------
CURRENT ASSETS:
Cash and equivalents 5.2 4.3
Accounts receivable, net 265.0 307.3
Inventories, primarily at average cost:
Fuel 67.1 63.0
Utility materials and supplies 95.4 101.3
Diversified materials 125.5 111.0
Underrecovery of fuel costs 82.6 .3
Other 48.2 41.6
--------- ---------
689.0 628.8
--------- ---------
DISCONTINUED OPERATIONS:
Advances to discontinued operations - 116.0
Net assets of discontinued operations - 200.8
--------- ---------
- 316.8
--------- ---------
OTHER ASSETS:
Investments:
Loans receivable, net 68.1 31.5
Marketable securities 217.9 188.2
Nuclear plant decommissioning fund 207.8 161.1
Joint ventures and partnerships 41.9 33.9
Deferred insurance policy acquisition costs 120.9 106.4
Other 176.4 167.6
--------- ---------
833.0 688.7
--------- ---------
$5,348.4 $5,550.4
========= =========
The accompanying notes are an integral part of these financial statements.
34
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
December 31, 1996 and 1995
(Dollars in millions)
1996 1995
--------- ---------
CAPITAL AND LIABILITIES
COMMON STOCK EQUITY:
Common stock without par value, 250,000,000 shares
authorized, 97,007,182 shares outstanding in 1996
and 96,420,627 in 1995 $1,208.3 $1,187.6
Retained earnings 716.5 888.4
Unrealized gain (loss) on securities available
for sale (.6) 2.1
--------- ---------
1,924.2 2,078.1
CUMULATIVE PREFERRED STOCK OF FLORIDA POWER:
Without sinking funds 33.5 113.5
With sinking funds - 25.0
LONG-TERM DEBT 1,776.9 1,662.3
--------- ---------
TOTAL CAPITAL 3,734.6 3,878.9
--------- ---------
CURRENT LIABILITIES:
Accounts payable 193.2 165.7
Customers' deposits 81.8 85.3
Taxes payable 41.2 17.3
Accrued interest 48.3 46.9
Other 78.5 97.0
--------- ---------
443.0 412.2
Notes payable 4.1 -
Current portion of long-term debt 34.9 173.7
--------- ---------
482.0 585.9
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 475.4 512.0
Unamortized investment tax credits 93.5 101.5
Insurance policy benefit reserves 325.3 265.0
Other postretirement benefit costs 100.0 84.5
Other 137.6 122.6
--------- ---------
1,131.8 1,085.6
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 11)
--------- ---------
$5,348.4 $5,550.4
========= =========
The accompanying notes are an integral part of these financial statements.
35
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
(In millions)
1996 1995 1994
------ ------ ------
OPERATING ACTIVITIES:
Income from continuing operations $250.7 $238.9 $212.0
Adjustments for noncash items:
Depreciation and amortization 366.7 352.7 316.4
Gain on sale of business (44.2) - -
Provision for loss on coal properties 40.9 - -
Deferred income taxes and investment tax credits, net (56.6) (38.0) (11.7)
Allowance for equity funds used during construction (4.6) (3.8) (6.1)
Increase in accrued postemployment benefit costs 15.5 16.8 20.3
Net change in deferred insurance policy acquisition costs (14.5) (14.5) (10.4)
Net change in insurance policy benefits reserves 60.3 42.5 36.0
Changes in working capital, net of effects from acquisition or sale of
businesses:
Accounts receivable 35.4 (35.2) (18.0)
Inventories (10.9) (29.1) (10.0)
Overrecovery (underrecovery) of fuel cost (82.3) 1.5 5.3
Accounts payable 21.6 16.4 (4.0)
Taxes payable 21.0 (7.6) (13.1)
Other (13.5) 29.0 15.1
Other operating activities (14.6) 11.1 15.7
------ ------ ------
Cash provided by continuing operations 570.9 580.7 547.5
------ ------ ------
Loss from discontinued operations (26.3) - -
Adjustments for noncash items 17.4 (17.6) (15.3)
------ ------ ------
Cash used by discontinued operations (8.9) (17.6) (15.3)
------ ------ ------
562.0 563.1 532.2
------ ------ ------
INVESTING ACTIVITIES:
Property additions (including allowance for borrowed funds used during
construction) (264.0) (331.4) (366.8)
Purchase of loans and securities, net (including issuance of Echelon note) (70.4) (28.9) (31.6)
Acquisition of businesses (53.8) (9.2) (17.1)
Proceeds from sales of properties and businesses 61.1 13.1 9.3
Investing activities of discontinued operations 56.5 69.8 68.9
Other investing activities (37.0) (15.0) (15.6)
------ ------ ------
(307.6) (301.6) (352.9)
------ ------ ------
FINANCING ACTIVITIES:
Issuance of long-term debt 178.0 - 103.9
Repayment of long-term debt (190.4) (45.8) (78.9)
Increase (decrease) in commercial paper with long-term support (15.3) 1.0 (61.2)
Redemption of preferred stock (106.4) (5.0) (5.0)
Sale of common stock 18.5 38.4 138.0
Equity contributions to discontinued operations (23.7) - -
Dividends paid on common stock (199.5) (193.4) (185.9)
Increase (decrease) in short-term debt 4.1 (55.3) (75.6)
Financing activities of discontinued operations 85.2 (9.7) (8.2)
Other financing activities (4.0) (1.2) (1.6)
------ ------ ------
(253.5) (271.0) (174.5)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS .9 (9.5) 4.8
Beginning cash and equivalents 4.3 13.8 9.0
------ ------ ------
ENDING CASH AND EQUIVALENTS $ 5.2 $ 4.3 $ 13.8
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $128.7 $135.5 $135.2
Income taxes (net of refunds) $189.3 $214.7 $171.5
The accompanying notes are an integral part of these financial statements.
36
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1996, 1995 and 1994
(Dollars in millions, except per share amounts)
Cumulative
Unrealized Preferred Stock
Gain of Florida Power
(Loss) on ----------------
Securities Without With
Common Retained Available Sinking Sinking
Stock Earnings for Sale Funds Funds
-----------------------------------------------------------
Balance, December 31, 1993 $ 1,008.3 $812.2 $ - $113.5 $ 35.0
Net income 212.0
Common stock issued - 5,215,788 shares 138.9
Common stock issued in pooling of interests -
700,000 shares .9 4.1
Cash dividends on common stock
($1.99 per share) (185.4)
Unrealized loss on marketable securities
available for sale (6.6)
Preferred stock redeemed - 50,000 shares (5.0)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,148.1 842.9 (6.6) 113.5 30.0
Net income 238.9
Common stock issued - 1,245,267 shares 39.5
Cash dividends on common stock ($2.02 per share) (193.4)
Unrealized gain on marketable securities
available for sale 8.7
Preferred stock redeemed - 50,000 shares (5.0)
- --------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 1,187.6 888.4 2.1 113.5 25.0
Net income 224.4
Common stock issued - 586,555 shares 20.7
Echelon International stock dividend (194.5)
Cash dividends on common stock ($2.06 per share) (199.5)
Unrealized loss on marketable securities
available for sale (2.7)
Preferred stock redeemed - 1,050,000 shares (2.3) (80.0) (25.0)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $1,208.3 $716.5 $ (.6) $ 33.5 $ -
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
37
FLORIDA POWER
Financial Statements
FLORIDA POWER CORPORATION
Statements of Income
For the years ended December, 31 1996, 1995 and 1994
(In millions)
1996 1995 1994
--------- --------- ---------
OPERATING REVENUES: $2,393.6 $2,271.7 $2,080.5
--------- --------- ---------
OPERATING EXPENSES:
Operation:
Fuel used in generation 409.7 431.3 425.6
Purchased power 531.6 436.5 294.6
Energy Conservation Cost Recovery 62.6 84.0 104.3
Operations and maintenance 413.4 393.7 412.2
Depreciation 324.2 293.7 261.5
Taxes other than income taxes 183.6 176.2 162.8
Income taxes 135.8 129.5 114.7
--------- --------- ---------
2,060.9 1,944.9 1,775.7
--------- --------- ---------
OPERATING INCOME 332.7 326.8 304.8
--------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 4.6 3.8 6.1
Miscellaneous other expense, net (3.4) (2.6) (6.5)
--------- --------- ---------
1.2 1.2 (0.4)
--------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 86.6 93.5 96.3
Other interest expense 11.8 11.0 12.1
--------- --------- ---------
98.4 104.5 108.4
Allowance for borrowed funds used
during construction (2.9) (3.5) (4.8)
--------- --------- ---------
95.5 101.0 103.6
--------- --------- ---------
NET INCOME 238.4 227.0 200.8
DIVIDENDS ON PREFERRED STOCK 5.8 9.7 10.1
--------- --------- ---------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $232.6 $217.3 $190.7
========= ========= =========
The accompanying notes are an integral part of these financial statements.
38
FLORIDA POWER CORPORATION
Balance Sheets
For the years ended December 31, 1996 and 1995
(Dollars in millions)
1996 1995
---------- ----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held $5,965.6 $5,867.5
for future use
Less - Accumulated depreciation 2,335.8 2,179.7
Accumulated decommissioning for nuclear plant 193.3 165.2
Accumulated dismantlement for fossil plants 119.6 104.4
---------- ----------
3,316.9 3,418.2
Construction work in progress 140.3 131.8
Nuclear fuel, net of amortization of $356.7
in 1996 and $348.7 in 1995 59.9 59.1
---------- ----------
3,517.1 3,609.1
Other property, net 13.3 23.0
---------- ----------
3,530.4 3,632.1
---------- ----------
CURRENT ASSETS:
Cash and equivalents - 0.8
Accounts receivable, less reserve of $4.1
in 1996 and $5.2 in 1995 174.7 200.7
Inventories at average cost:
Fuel 47.2 40.8
Materials and supplies 95.4 101.3
Underrecovery of fuel cost 82.6 0.3
Deferred income taxes 35.6 32.3
Other 6.2 3.9
---------- ----------
441.7 380.1
---------- ----------
OTHER ASSETS:
Nuclear plant decommissioning fund 207.8 161.1
Unamortized debt expense, being amortized
over term of debt 25.0 27.5
Other 59.1 84.1
---------- ----------
291.9 272.7
---------- ----------
$4,264.0 $4,284.9
========== ==========
The accompanying notes are an integral part of these financial statements.
39
FLORIDA POWER CORPORATION
Balance Sheets
For the years ended December 31, 1996 and 1995
(Dollars in millions)
1996 1995
---------- ----------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock $1,004.4 $992.9
Retained earnings 821.1 761.1
---------- ----------
1,825.5 1,754.0
CUMULATIVE PREFERRED STOCK:
Without sinking funds 33.5 113.5
With sinking funds - 25.0
LONG-TERM DEBT 1,296.4 1,279.1
---------- ----------
TOTAL CAPITAL 3,155.4 3,171.6
---------- ----------
CURRENT LIABILITIES:
Accounts payable 115.5 89.8
Accounts payable to associated companies 21.2 24.8
Customers' deposits 81.7 85.3
Income taxes payable 10.4 8.9
Accrued other taxes 10.0 12.3
Accrued interest 34.8 32.9
Other 47.3 65.1
---------- ----------
320.9 319.1
Notes payable 4.1 -
Current portion of long-term debt 21.3 30.6
---------- ----------
346.3 349.7
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 472.3 483.8
Unamortized investment tax credits 92.8 100.9
Other postretirement benefit costs 96.5 81.5
Other 100.7 97.4
---------- ----------
762.3 763.6
---------- ----------
$4,264.0 $4,284.9
========== ==========
The accompanying notes are an integral part of these financial statements.
40
FLORIDA POWER CORPORATION
Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
(In millions)
1996 1995 1994
--------- --------- ---------
OPERATING ACTIVITIES:
Net income after dividends on preferred stock $232.6 $217.3 $190.7
Adjustments for noncash items:
Depreciation and amortization 341.1 329.7 294.8
Deferred income taxes and investment
tax credits, net (32.8) (29.3) (0.9)
Increase in accrued other postretirement
benefit costs 14.9 16.1 19.2
Allowance for equity funds used during construction (4.6) (3.8) (6.1)
Changes in working capital:
Accounts receivable 16.2 (33.4) 0.9
Inventories (0.5) 14.2 8.1
Overrecovery (underrecovery) of fuel cost (82.3) 1.5 5.3
Accounts payable 25.7 4.8 (21.2)
Accounts payable to associated companies (3.5) 3.4 4.3
Taxes payable (0.8) 2.8 (14.6)
Other (12.1) 39.5 6.9
Other operating activities 3.8 8.6 10.9
--------- --------- ---------
497.7 571.4 498.3
--------- --------- ---------
INVESTING ACTIVITIES:
Construction expenditures (217.3) (283.4) (319.5)
Allowance for borrowed funds used during construction (2.9) (3.5) (4.8)
Additions to nonutility property (2.7) (2.3) (2.9)
Proceeds from sale of properties 5.5 10.8 7.7
Other investing activities (27.6) (11.0) (12.4)
--------- --------- ---------
(245.0) (289.4) (331.9)
--------- --------- ---------
FINANCING ACTIVITIES:
Repayment of long-term debt (47.3) (35.4) (46.0)
Increase (decrease) in commercial paper with
long term support 54.8 (54.8) -
Redemption of preferred stock (106.3) (5.0) (5.0)
Dividends paid on common stock (171.3) (180.7) (175.7)
Equity contributions from parent 12.5 50.0 130.0
Increase (decrease) in short-term debt 4.1 (55.3) (69.7)
--------- --------- ---------
(253.5) (281.2) (166.4)
--------- --------- ---------
NET INCREASE IN CASH AND EQUIVALENTS (0.8) 0.8 -
Beginning cash and equivalents 0.8 - -
--------- --------- ---------
ENDING CASH AND EQUIVALENTS $ - $0.8 $ -
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $90.7 $97.9 $101.5
Income taxes (net of refunds) $166.9 $157.1 $129.8
The accompanying notes are an integral part of these financial statements.
41
FLORIDA POWER CORPORATION
Statements of Shareholder's Equity
For the years ended December 31, 1996, 1995 and 1994
(Dollars in millions, except share amounts)
Cumulative
Preferred Stock
--------------------
Without With
Common Retained Sinking Sinking
Stock Earnings Funds Funds
----------------------------------------
Balance, December 31, 1993 $812.9 $709.5 $113.5 $35.0
Net income after dividends on
preferred stock 190.7
Capital contribution by parent company 130.0
Cash dividends on common stock (175.7)
Preferred stock redeemed -
50,000 shares (5.0)
----------------------------------------
Balance, December 31, 1994 942.9 724.5 113.5 30.0
Net income after dividends on
preferred stock 217.3
Capital contribution by parent company 50.0
Cash dividends on common stock (180.7)
Preferred stock redeemed -
50,000 shares (5.0)
----------------------------------------
Balance, December 31, 1995 992.9 761.1 113.5 25.0
Net income after dividends on
preferred stock 232.6
Capital contribution by parent company 12.5
Cash dividends on common stock (171.3)
Preferred stock redemption costs (1.3)
Premium on preferred stock redemption (1.0)
Preferred stock redeemed -
1,050,000 shares (80.0) (25.0)
----------------------------------------
Balance, December 31, 1996 $1,004.4 $821.1 $33.5 ($0.0)
========================================
The accompanying notes are an integral part of these financial statements.
42
FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - Florida Progress is an exempt holding company under the 1935 Act. Its
largest subsidiary, representing 80% of total assets, is Florida Power, a public
utility engaged in the generation, purchase, transmission, distribution and sale
of electric energy primarily within Florida.
The consolidated financial statements include the financial results of Florida
Progress and its majority-owned operations. All significant intercompany
balances and transactions have been eliminated. Investments in 20%- to 50%-owned
joint ventures are accounted for using the equity method.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
This could affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform to the
current year's presentation.
REGULATION - Florida Power is regulated by the FPSC and the FERC. The utility
follows the accounting practices set forth in Financial Accounting Standard
(FAS) No. 71, "Accounting for the Effects of Certain Types of Regulation" FAS 71
as amended. This standard allows utilities to capitalize or defer certain costs
or revenues based on management's ongoing assessment that it is probable these
items will be recovered through the ratemaking process.
At December 31, 1996, Florida Power had $173.8 million of regulatory assets,
including $82.6 million of underrecovery of fuel costs, and $51.8 million of
regulatory liabilities. The utility expects to fully recover these assets and
refund the liabilities through customer rates under current regulatory practice.
If Florida Power no longer applied FAS No. 71 due to competition, regulatory
changes or other reasons, the utility would make certain adjustments. These
adjustments would include the write-off of all or a portion of its regulatory
assets and liabilities, the evaluation of utility plant, contracts and
commitments and the recognition, if necessary, of any losses to reflect market
conditions.
In April 1996, FERC issued new rules governing open transmission access,
stranded cost issues and electronically offering information on transmission
capacity. The new rules are designed to provide open access to the nation's
interstate transmission network. In July 1996, FERC accepted Florida Power's
nondiscriminatory open access transmission tariff that was filed to comply with
the new rules. The new FERC rules did not have a material effect on the
utility's revenues or earnings.
UTILITY PLANT - Utility plant is stated at the original cost of construction,
which includes payroll and related costs such as taxes, pensions and other
fringe benefits, general and administrative costs, and an allowance for funds
used during construction. Substantially all of the utility plant is pledged as
collateral for Florida Power's first mortgage bonds.
The allowance for funds used during construction represents the estimated cost
of equity and debt for utility plant under construction. Florida Power is
permitted to earn a return on these costs and recover them in the rates charged
for utility services while the plant is in service. The average rate used in
computing the allowance for funds was 7.8%.
43
UTILITY REVENUES, FUEL AND PURCHASED POWER EXPENSES - Revenues include amounts
resulting from fuel, purchased power and energy conservation adjustment clauses,
which are designed to permit full recovery of these costs. The adjustment
factors are based on projected costs for a six- or 12-month period. The
cumulative difference between actual and billed costs is included on the balance
sheet as a current regulatory asset or liability. Any difference is billed or
refunded to customers during the subsequent period.
As ordered by the FPSC, Florida Power is conducting a three-year test for
residential revenue decoupling, which began in January 1995. Decoupling
eliminates the direct link between kilowatt-hour sales and revenues. A nonfuel
revenue target is determined by multiplying a revenue per customer amount by the
total number of residential customers. The difference between target revenues
and actual revenues is included as a current asset or liability on the balance
sheet. The revenue per customer amount is adjusted annually for a growth factor.
Florida Power accrues the nonfuel portion of base revenues for services rendered
but unbilled.
The cost of nuclear fuel is amortized to expense based on the quantity of heat
produced for the generation of electric energy in relation to the quantity of
heat expected to be produced over the life of the nuclear fuel core.
INCOME TAXES - Deferred income taxes are provided on all significant temporary
differences between the financial and tax basis of assets and liabilities using
presently enacted tax rates in accordance with FAS No. 109, "Accounting for
Income Taxes."
Deferred investment tax credits, subject to regulatory accounting practices, are
amortized to income over the lives of the related properties.
DEPRECIATION AND MAINTENANCE - Florida Progress provides for depreciation of the
cost of properties over their estimated useful lives primarily on a
straight-line basis. Florida Power's annual provision for depreciation,
including a provision for nuclear plant decommissioning costs and fossil plant
dismantlement costs, expressed as a percentage of the average balances of
depreciable utility plant, was 4.9% for 1996, 5% for 1995 and 4.8% for 1994.
Florida Power charges maintenance expense with the cost of repairs and minor
renewals of property. The plant accounts are charged with the cost of renewals
and replacements of property units. Accumulated depreciation is charged with the
cost, less the net salvage, of property units retired.
Florida Power accrues a reserve for maintenance and refueling expenses
anticipated to be incurred during scheduled nuclear plant outages.
INSURANCE PREMIUMS, POLICY ACQUISITION COSTS AND BENEFIT RESERVES - Life
insurance premiums are recognized as revenues over the premium-paying periods of
the policies.
Florida Progress defers recoverable costs in its insurance operations that
directly relate to the production of new business. These costs are amortized
over the expected premium-paying period. Benefit reserves are established out of
each premium payment to provide for the present value of future insurance policy
benefits. Florida Progress reviews the adequacy and recoverability of the
deferred acquisition costs and the benefit reserves based on a gross premium
reserve analysis of the in-force business.
Significant assumptions used in this analysis include estimates of future
premium increases, mortality rates, withdrawal rates, expense rates, and
investment yield. The assumptions are based on Florida Progress' actual
experience adjusted for the effect of future actions affecting the in-force
44
business. Although these assumptions are Florida Progress' best estimate of the
future experience, actual results may vary in either direction and could
significantly impact income in the period of change. Management believes
deferred policy acquisition costs are recoverable at December 31, 1996.
ACCOUNTING FOR CERTAIN INVESTMENTS - Florida Progress considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. Florida Progress' investments in debt and equity securities
are classified and accounted for as follows:
Type of Security Accounting Treatment
Debt securities held to maturity Amortized cost
------------------------------------------------------------------------------
Trading securities Fair market value with unrealized
gains and losses included in earnings
------------------------------------------------------------------------------
Securities available for sale Fair market value with unrealized gains
and losses, net of taxes, reported
separately in shareholders' equity
------------------------------------------------------------------------------
See Note 2 for securities held to maturity or available for sale. Florida
Progress had no investments in assets classified as trading securities at
December 31, 1996 and 1995. A decline in the market value of any security
available-for-sale or held-to-maturity that falls below cost results in a
reduction in carrying amount to fair value if the decline is not considered
temporary. The impairment is charged to earnings and a new cost basis for the
security is established. Premiums and discounts are amortized or accreted over
the life of the related held-to-maturity security as an adjustment to yield
using the effective interest method. Dividend and interest income are recognized
when earned.
ACCOUNTING FOR LONG-LIVED ASSETS - Florida Progress adopted the provisions of
FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to undiscounted future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of this statement
in January 1996 did not have a material impact on Florida Progress' financial
position, results of operations, or liquidity.
The Financial Accounting Standards Board has a current project addressing the
accounting for obligations related to the decommissioning of nuclear power
plants. Florida Power records a provision for nuclear decommissioning costs over
the expected life of its nuclear plant. Currently, the accumulated provisions
for nuclear decommissioning costs are recorded as a reduction of Electric Plant
in Service on the balance sheet. One alternative, if adopted, would require
Florida Power's 90.4% share of estimated nuclear decommissioning costs totaling
$385 million in 1996 dollars to be recorded as a liability, with a corresponding
plant asset. There would be no impact on earnings or cash flows.
STOCK-BASED COMPENSATION - Under its Long-Term Incentive Plan ("LTIP"), Florida
Progress grants selected executives performance shares, which upon achievement
of performance criteria for a three-year performance cycle, result in the award
of shares of common stock of Florida Progress, two-thirds of which would be
restricted for periods of time. Florida Progress accounts for its LTIP in
45
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees." On January 1, 1996, Florida
Progress adopted FAS No. 123, "Accounting for Stock-Based Compensation," and
Florida Progress elected to continue to apply the accounting provisions of APB
No. 25. There was no material difference in earnings as a result of this
election.
BUSINESS ACQUISITIONS - Florida Progress and its subsidiaries acquired several
businesses in 1996, 1995 and 1994. All acquisitions were accounted for as
purchases except the acquisition of FM Industries, Inc., in December 1994, which
was accounted for on a pooling of interests basis.
The 1994 Statement of Cash Flows does not reflect the value of the 700,000
shares of common stock issued for the acquisition of FM Industries. The market
value of these shares at the date of issuance was $21.1 million.
COMMITMENTS AND CONTINGENCIES - In October 1996, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities." SOP 96-1 was adopted by Florida
Progress on January 1, 1997 and requires, among other things, environmental
remediation liabilities to be accrued when the criteria of FAS No. 5,
"Accounting for Contingencies," have been met. The SOP also provides guidance
with respect to the measurement of the remediation liabilities. Such accounting
is consistent with Florida Progress' current method of accounting for
environmental remediation costs and, therefore, adoption of this new statement
did not have a material impact on Florida Progress' financial position, results
of operations or liquidity.
NOTE 2 FINANCIAL INSTRUMENTS
Estimated fair value amounts have been determined by Florida Progress using
available market information and discounted cash-flow analysis. Judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates may be different than the amounts that Florida
Progress could realize in a current market exchange.
Florida Progress currently has no derivative financial instruments, such as
futures, forwards, swaps or options contracts. At December 31, 1996 and 1995,
Florida Progress had the following financial instruments with estimated fair
values and carrying amounts:
1996 1995
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
ASSETS:
Loans receivable:
Echelon International $ 32.9 $ 32.9 $ - $ -
Life insurance business:
Loans secured by real estate 4.1 4.4 6.0 7.8
Policy loans 11.0 10.1 9.7 11.1
-------- -------- -------- --------
$ 48.0 $ 47.4 $ 15.7 $ 18.9
======== ======== ======== ========
Marketable securities:
Available for sale $ 352.4 $ 352.4 $ 296.3 $ 296.3
Held to maturity 73.3 76.8 53.0 58.6
CAPITAL AND LIABILITIES:
Florida Power preferred stock
with sinking funds $ - $ - $ 25.0 $ 26.1
Long-term debt:
Florida Power Corporation 1,317.7 1,335.3 1,309.7 1,352.8
Progress Capital Holdings 494.1 497.1 526.2 532.8
46
NOTE 3 INCOME TAXES
FLORIDA PROGRESS
(In millions) 1996 1995 1994
- ----------------------------------------------------------------------------
Components of income tax expense:
Payable currently:
Federal $179.7 $157.3 $109.7
State 23.0 18.8 12.8
- ----------------------------------------------------------------------------
202.7 176.1 122.5
- ----------------------------------------------------------------------------
Deferred, net:
Federal (41.9) (27.5) (1.9)
State (6.9) (2.0) (.2)
- ----------------------------------------------------------------------------
(48.8) (29.5) (2.1)
- ----------------------------------------------------------------------------
Amortization of investment
tax credits, net (8.0) (8.5) (9.6)
- ----------------------------------------------------------------------------
$145.9 $138.1 $110.8
============================================================================
FLORIDA POWER
(In millions) 1996 1995 1994
- ----------------------------------------------------------------------------
Components of income tax expense:
Payable currently:
Federal $143.6 $136.8 $ 95.3
State 24.9 22.1 17.1
- ----------------------------------------------------------------------------
168.5 158.9 112.4
- ----------------------------------------------------------------------------
Deferred, net:
Federal (20.9) (18.9) 7.0
State (4.0) (1.9) .6
- ----------------------------------------------------------------------------
(24.9) (20.8) 7.6
- ----------------------------------------------------------------------------
Amortization of investment
tax credits, net (7.9) (8.5) (8.5)
- ----------------------------------------------------------------------------
Total income tax expense 135.7 129.6 111.5
Less: Amounts charged or (credited)
to non-operating income (.1) .1 (3.2)
- ----------------------------------------------------------------------------
Amounts charged to operating income $135.8 $129.5 $114.7
============================================================================
47
The primary differences between the statutory rates and the effective income tax
rates are detailed below:
FLORIDA PROGRESS
1996 1995 1994
- ----------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
income tax benefits 2.6 2.8 2.5
Amortization of investment tax credits (2.0) (2.2) (2.9)
Other .6 .1 (1.3)
- ----------------------------------------------------------------------------
Effective income tax rates 36.2% 35.7% 33.3%
============================================================================
FLORIDA POWER
1996 1995 1994
- ----------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
income tax benefits 3.6 3.7 3.7
Amortization of investment tax credits (2.2) (2.4) (2.7)
Other - - (.3)
- ----------------------------------------------------------------------------
Effective income tax rates 36.4% 36.3% 35.7%
============================================================================
The following summarizes the components of deferred tax liabilities and assets
at December 31, 1996 and 1995:
FLORIDA PROGRESS
(In millions) 1996 1995
- ---------------------------------------------------------------------------
Difference in tax basis of property,
plant and equipment $544.1 $550.8
Deferred acquisition costs 35.9 37.2
Investment in partnerships 20.1 20.9
Other 35.6 41.6
- ---------------------------------------------------------------------------
Total deferred tax liabilities $635.7 $650.5
===========================================================================
Deferred tax assets:
Loss reserves not currently deductible $ 69.5 $ 41.2
Accrued book expenses 90.6 79.2
Unbilled revenues 17.6 20.8
Other 18.2 29.6
- ---------------------------------------------------------------------------
Total deferred tax assets $195.9 $170.8
===========================================================================
At December 31, 1996 and 1995, Florida Progress had net noncurrent deferred tax
liabilities of $475.4 million and $512 million and net current deferred tax
assets of $35.6 million and $32.3 million, respectively. Florida Progress
expects the results of future operations will generate sufficient taxable income
to allow for the utilization of deferred tax assets.
48
FLORIDA POWER
(In millions) 1996 1995
- --------------------------------------------------------------------------
Deferred tax liabilities:
Difference in tax basis of property,
plant and equipment $516.0 $526.0
Deferred book expenses 12.7 19.9
Under recovery of fuel 2.8 2.8
Carrying value of securities over cost 7.7 4.5
- --------------------------------------------------------------------------
Total deferred tax liabilities $539.2 $553.2
==========================================================================
Deferred tax assets:
Accrued book expenses $ 76.5 $ 64.4
Unbilled revenues 17.6 20.8
Regulatory liability for deferred income taxes 4.4 13.4
Other 4.0 3.1
- --------------------------------------------------------------------------
Total deferred tax assets $102.5 $101.7
==========================================================================
At December 31, 1996 and 1995, Florida Power had net noncurrent deferred tax
liabilities of $472.3 million and $483.8 million and net current deferred tax
assets of $35.6 million and $32.3 million, respectively. Florida Power expects
the results of future operations will generate sufficient taxable income to
allow the utilization of deferred tax assets.
NOTE 4 NUCLEAR OPERATIONS
JOINTLY OWNED PLANT - The following information relates to Florida Power's 90.4%
proportionate share of the Crystal River nuclear plant at December 31, 1996 and
1995:
(In millions) 1996 1995
- ------------------------------------------------------------
Utility plant in service $643.6 $656.6
Construction work in progress 14.8 18.3
Unamortized nuclear fuel 59.9 59.1
Accumulated depreciation 309.5 310.9
Accumulated decommissioning 193.3 165.2
============================================================
Net capital additions/(retirements) for Florida Power were $(16.5) million in
1996 and $7.8 million in 1995, and depreciation expense, exclusive of nuclear
decommissioning, was $28.3 million in 1996 and $28.4 million in 1995. Each
co-owner provides for its own financing. Florida Power's share of the asset
balances and operating costs is included in the appropriate consolidated
financial statements. Amounts exclude any allocation of costs related to common
facilities.
DECOMMISSIONING COSTS - Florida Power's nuclear plant depreciation expenses
include a provision for future decommissioning costs, which are recoverable
through rates charged to customers. Florida Power is placing amounts collected
in an externally managed trust fund. The recovery from customers, plus income
earned on the trust fund, is intended to be sufficient to cover Florida Power's
share of the future dismantlement, removal and land restoration costs. Florida
Power has a license to operate the nuclear unit through December 3, 2016, and
contemplates decommissioning beginning at that time.
In November 1995, the FPSC approved a new site-specific study that estimated
total future decommissioning costs at approximately $2.0 billion, which
corresponds to $425.4 million in 1996 dollars. Florida Power increased its share
of the retail portion of annual decommissioning expense to the FPSC-approved
49
level of $20.5 million, effective January 1995. Funding of the approved increase
occurred during the first quarter of 1996, upon receipt in January 1996 of the
FPSC's final order, effective retroactively to January 1995. Florida Power also
has adjusted the wholesale portion of this expense in a comparable manner,
increasing it to $1.2 million annually.
Under the previous study, Florida Power's share of total annual decommissioning
expense, as authorized by the FPSC and the FERC, was $11.9 million for 1994.
FUEL DISPOSAL COSTS - Florida Power has entered into a contract with the DOE for
the transportation and disposal of SNF. Disposal costs for nuclear fuel consumed
are being collected from customers through the fuel adjustment clause at a rate
of $.001 per net nuclear KWH sold and are paid to the DOE quarterly. Florida
Power currently is storing SNF on site and has sufficient storage capacity in
place or under construction for fuel consumed through the year 2010.
NOTE 5 RATES
Florida Power's retail rates are set by the FPSC. Florida Power's last general
rate case was approved in 1992 and allowed a 12% regulatory return on equity
with an allowed range between 11% and 13%. The utility's retail regulatory
return was 12.3% for 1996.
Under Florida Power's revenue decoupling plan (See Note 1), Florida Power has
recorded a regulatory liability of $3.6 million for the 1996 time period and
$18.7 million for the 1995 time period.
The extended maintenance outage at the Crystal River nuclear plant requires
Florida Power to incur higher replacement power costs. The cost of this
replacement power exceeds the amount currently being recovered in Florida
Power's rates. As a result, Florida Power has an underrecovery of fuel and
purchased power costs of approximately $82.6 million at December 31, 1996. In
January 1997, Florida Power petitioned the FPSC for an increase in its rates to
recover, over a 12-month period beginning April 1997, the current balance of
deferred fuel together with an estimate of under-recoveries through March 1997.
The FPSC is scheduled to have hearings in February 1997. Management believes
that the FPSC will approve the increase in rates.
[THIS SPACE INTENTIONALLY BLANK]
50
NOTE 6 DEBT
Florida Progress' long-term debt at December 31, 1996 and 1995, is scheduled to
mature as follows:
Interest
Rate 1996 1995
- --------------------------------------------------------------------------------------------------------------
Florida Power Corporation:
(In millions)
First mortgage bonds:
Maturing in 1997 and 1999 6.50% $ 75.0 $ 91.7
Maturing 2002 and 2003 6.50%(a) 280.0 280.0
Maturing 2008 6.88% 80.0 80.0
Maturing 2021 through 2023 7.98%(a) 400.0 400.0
Pollution control revenue bonds:
Maturing 2014 through 2027 6.59%(a) 240.9 240.9
Notes maturing:
1996-1997 8.44%(a) 21.3 51.9
1998-2008 6.67% 26.0 26.0
Commercial paper, supported by revolver maturing November 30, 2001 5.53%(a) 200.0 145.2
Discount, net of premium, being amortized over term of bonds (5.5) (6.0)
- --------------------------------------------------------------------------------------------------------------
1,317.7 1,309.7
Progress Capital Holdings:
Notes maturing:
1996-1997 9.35% 10.0 150.0
1998-2006 7.01%(a) 304.0 126.0
Commercial paper, supported by revolver maturing November 30, 2001 5.71%(a) 169.4 239.6
Other debt, maturing through 2006 6.81%(a) 10.7 10.7
- --------------------------------------------------------------------------------------------------------------
1,811.8 1,836.0
Less: Current portion of long-term debt 34.9 173.7
- --------------------------------------------------------------------------------------------------------------
$1,776.9 $1,662.3
==============================================================================================================
(a) Weighted average interest rate at December 31, 1996.
Florida Progress' consolidated subsidiaries have lines of credit totaling $800
million, which are used to support commercial paper. The lines of credit were
not drawn on as of December 31, 1996. Interest rate options under the line of
credit arrangements vary from subprime or money market rates to the prime rate.
Banks providing lines of credit are compensated through fees. Commitment fees on
lines of credit vary between .06 and .10 of 1%.
The lines of credit consist of four revolving bank credit facilities, two each
for Florida Power and Progress Capital. The Florida Power facilities, $200
million each, are for terms of 364 days and five years. The Progress Capital
facilities consist of $100 million with a 364-day term and $300 million with a
five-year term. In 1996, both 364-day facilities were extended to November 1997.
In addition, both five-year facilities were extended to November 2001. Based on
the duration of the underlying backup credit facilities, $369.4 million of
outstanding commercial paper at December 31, 1996, and $384.8 million of
outstanding commercial paper at December 31, 1995, are classified as long-term
debt. Florida Power had another $4.1 million of outstanding commercial paper at
December 31, 1996, which was classified as short-term debt.
Florida Power has a public $300-million, medium-term note program providing for
the issuance of either fixed or floating interest rate notes. These notes have
maturities ranging from nine months to 30 years. All $300 million is available
for issuance.
51
Florida Power has registered $370 million of first mortgage bonds which are
unissued and available for issuance.
Progress Capital has a private $300-million, medium-term note program providing
for the issuance of either fixed or floating interest rate notes, with
maturities ranging from nine months to 30 years. A balance of $122 million is
available for issuance under this program at either fixed or floating rates.
The combined aggregate maturities of long-term debt for 1997 through 2001 are
$34.9 million, $15 million, $128.6 million, $2.7 million and $472.4 million,
respectively. In addition, about 12% of Florida Power's outstanding first
mortgage bonds have an annual 1% sinking fund requirement. These requirements,
which total $1 million annually for 1997 through 2000, are expected to be
satisfied with property additions.
Florida Progress and Progress Capital entered into an amended guaranty and
support agreement in 1996, pursuant to which Florida Progress has
unconditionally guaranteed the payment of Progress Capital's debt as defined in
the agreement.
NOTE 7 PREFERRED AND PREFERENCE STOCK AND SHAREHOLDER RIGHTS
A summary of outstanding Cumulative Preferred Stock of Florida Power follows:
Current Outstanding
Dividend Redemption Shares December 31
Rate Price Authorized Outstanding 1996 1995
- --------------------------------------------------------------------------------------------------------
(In millions)
Without sinking funds, not subject to mandatory redemption:
4.00% $104.25 40,000 39,980 $ 4.0 $ 4.0
4.40% $102.00 75,000 75,000 7.5 7.5
4.58% $101.00 100,000 99,990 10.0 10.0
4.60% $103.25 40,000 39,997 4.0 4.0
4.75% $102.00 80,000 80,000 8.0 8.0
7.40% $102.48 300,000 - - 30.0
7.76% $102.21 500,000 - - 50.0
- --------------------------------------------------------------------------------------------------------
334,967 $ 33.5 $ 113.5
- --------------------------------------------------------------------------------------------------------
With sinking funds, subject to mandatory redemption:
7.08% $102.36 500,000 - $ - $ 25.0
========================================================================================================
The authorized capital stock of Florida Progress includes 10 million shares of
preferred stock, without par value, including 2 million shares designated as
Series A Junior Participating Preferred Stock. No shares of Florida Progress'
preferred stock are issued and outstanding. However, under Florida Progress'
Shareholder Rights Agreement, each share of common stock has associated with it
approximately two-thirds of one right to purchase one one-hundredth of a share
of Series A Junior Participating Preferred Stock, subject to adjustment, which
is exercisable in the event of certain attempted business combinations. If
exercised, the rights would cause substantial dilution of ownership, thus
adversely affecting any attempt to acquire Florida Progress on terms not
approved by Florida Progress' Board of Directors. The rights have no voting or
dividend rights and expire in December 2001, unless redeemed earlier by Florida
Progress.
52
The authorized capital stock of Florida Power includes three classes of
preferred stock: 4 million shares of Cumulative Preferred Stock, $100 par value;
5 million shares of Cumulative Preferred Stock, without par value; and 1 million
shares of Preference Stock, $100 par value. No shares of Florida Power's
Cumulative Preferred Stock, without par value, or Preference Stock are issued
and outstanding, while a total of 334,967 shares of the Cumulative Preferred
Stock, $100 par value, are issued and outstanding in various series as detailed
in the table above.
During 1996, Florida Power redeemed 1,050,000 shares of its Cumulative Preferred
Stock. Florida Power also redeemed 50,000 shares in 1995 and 850,000 shares in
1994.
NOTE 8 RETIREMENT BENEFIT PLANS
STAFF REDUCTIONS - Florida Progress recognized pension and other postretirement
benefit expenses of $15.5 million in 1994 related to an early retirement option.
In addition, in late 1994, Florida Power eliminated approximately 300 positions.
As a result, Florida Progress recognized severance costs of $5 million, which
was partially offset by a reduction of $1.8 million in related accrued pension
and postretirement benefit costs.
PENSION BENEFITS - Florida Progress and certain of its subsidiaries have a
noncontributory defined benefit pension plan covering most employees. The
benefits are based on length of service, compensation and Social Security
benefits. The participating companies make annual contributions to the plan
based on an actuarial determination and consideration of tax regulations and
funding requirements under federal law. Based on actuarial calculations and the
funded status of the pension plan, Florida Progress was not required to
contribute to the plan for 1996, 1995 or 1994.
Shown below are the components of the net pension expense calculations for those
years:
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------
Service cost $ 16.2 $ 13.4 $ 17.2
Interest cost 31.3 30.1 29.3
Actual losses (earnings) on plan assets (88.0) (124.4) 6.6
Net amortization and deferral 29.5 77.7 (54.3)
- --------------------------------------------------------------------------
Net pension cost (benefit) (11.0) (3.2) (1.2)
Staff reduction cost, net - - 10.0
- --------------------------------------------------------------------------
Net pension cost (benefit) recognized $(11.0) $ (3.2) $ 8.8
==========================================================================
Florida Power's share of the plan's net pension costs (benefits) for 1996, 1995
and 1994 was $(10.3) million, $(3) million and $9 million, respectively.
The following weighted average actuarial assumptions at January 1 were used in
the calculation of pension expense:
1996 1995 1994
Discount rate 7.25% 8.25% 7.25%
Expected long-term rate of return 9.00% 9.00% 9.00%
Rate of compensation increase 4.50% 5.00% 5.00%
53
The following summarizes the funded status of the pension plan at December 31,
1996 and 1995:
(In millions) 1996 1995
- -------------------------------------------------------------------
Accumulated benefit obligation:
Vested $326.1 $315.8
Nonvested 31.5 30.6
- -------------------------------------------------------------------
357.6 346.4
Effect of projected compensation increases 94.4 94.7
- -------------------------------------------------------------------
Projected benefit obligation 452.0 441.1
Plan assets at market value, primarily listed
stocks and bonds 655.0 585.0
- -------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation $203.0 $143.9
===================================================================
Consisting of the following components:
Unrecognized transition asset $ 30.4 $ 35.4
Unrecognized prior service cost (6.3) (6.9)
Unrecognized net actuarial gains 176.4 123.9
(Accrued)/prepaid pension costs 2.5 (8.5)
- -------------------------------------------------------------------
$203.0 $143.9
===================================================================
Due to changes in interest rates, Florida Progress used a discount rate of 7.5%
to calculate the pension plan's 1996 year-end funded status. The change in the
discount rate from 7.25% at December 31, 1995, to 7.5% at December 31, 1996,
decreased the projected benefit obligation by $16.5 million and is expected to
decrease the annual pension costs by $2.1 million, beginning in 1997.
OTHER POSTRETIREMENT BENEFITS - Florida Progress and some of its subsidiaries
provide certain health care and life insurance benefits for retired employees.
Employees become eligible for these benefits when they reach normal retirement
age while working for Florida Progress.
The net postretirement benefit costs for 1996, 1995 and 1994 are detailed below:
(In millions) 1996 1995 1994
- -------------------------------------------------------------------
Service cost $ 5.3 $ 5.1 $ 5.3
Interest cost 12.4 13.5 12.9
Amortization of unrecognized
transition obligation 6.1 6.1 6.1
Actual earnings on plan assets (.3) (.3) -
Staff reduction cost - - 3.7
- -------------------------------------------------------------------
$23.5 $24.4 $28.0
===================================================================
54
The following summarizes the plan's status, reconciled with amounts recognized
in Florida Progress' balance sheet at December 31, 1996 and 1995:
(In millions) 1996 1995
- -------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $100.4 $ 96.6
Fully eligible active plan participants 3.1 2.6
Other active plan participants 81.2 91.4
Plan assets at fair value (4.7) (3.2)
- -------------------------------------------------------------------
180.0 187.4
Unrecognized transition obligation (97.2) (103.6)
Unrecognized net gains 17.2 1.0
- -------------------------------------------------------------------
Accrued postretirement benefit cost $100.0 $ 84.8
===================================================================
Florida Power's share of the plan's net postretirement benefit cost for 1996,
1995 and 1994 was $22.7 million, $23.5 million and $27.1 million, respectively.
The following weighted average actuarial assumptions were used in the
calculation of the year-end status of other postretirement benefits:
1996 1995
- ------------------------------------------------------------------
Discount rate 7.50% 7.25%
Rate of compensation increase 4.50% 4.50%
Health care cost trend rates:
Pre-Medicare 9.50%-5.25% 11.50%-5.00%
Post-Medicare 7.50%-5.00% 8.25%-4.75%
==================================================================
The transition obligation is being accrued through 2012. A one-percentage point
increase in the assumed health care cost trend rate for each future year would
have increased the 1996 current service and interest cost by approximately $3
million and the accumulated postretirement benefit obligation as of December 31,
1996, by about $26.2 million. The change in the discount rate from 7.25% at
December 31, 1995, to 7.5% at December 31, 1996, decreased the projected benefit
obligation by $6 million and is expected to decrease annual postretirement
benefit costs by $.5 million, beginning in 1997.
Due to different retail and wholesale regulatory rate requirements, Florida
Power began making quarterly contributions in 1995 to an irrevocable external
trust fund for wholesale ratemaking, while continuing to accrue postretirement
benefit costs to an unfunded reserve for retail ratemaking. Florida Power
contributed approximately $1.3 million in 1996 and $1.4 million in 1995 to the
trust fund.
NOTE 9 BUSINESS SEGMENTS
Florida Progress' principal business segments are utility and diversified
operations. The utility is engaged in the generation, purchase, transmission,
distribution and sale of electric energy. Electric Fuels' operations include
bulk commodities transportation, rail products and services and the mining,
procurement and transportation of coal to Florida Power and other unaffiliated
customers. Other diversified operations include ownership of a life insurance
subsidiary.
55
Florida Progress' business segment information for 1996, 1995 and 1994 is
summarized below. No single customer accounted for 10% or more of unaffiliated
revenues.
(In millions) 1996 1995 1994
7Revenues:
Utility $2,393.6 $2,271.7 $2,080.5
Diversified:
Electric Fuels, combined:
Coal sales to electric utility 272.1 236.8 249.4
Sales to external customers 609.0 607.0 534.1
Other 155.3 129.1 110.7
- ------------------------------------------------------------------------------
3,430.0 3,244.6 2,974.7
Eliminations (272.1) (236.8) (249.4)
- ------------------------------------------------------------------------------
Revenues from external customers $3,157.9 $3,007.8 $2,725.3
==============================================================================
Income from operations:
Utility $ 468.5 $ 456.3 $ 419.5
Diversified:
Electric Fuels recurring, combined 61.4 52.1 41.6
Electric Fuels loss provision (40.9) - -
Other (6.6) .5 -
- ------------------------------------------------------------------------------
482.4 508.9 461.1
Interest and other expense 85.8 131.9 138.3
- ------------------------------------------------------------------------------
Income from continuing operations
before income taxes $ 396.6 $ 377.0 $ 322.8
==============================================================================
Identifiable assets:
Utility $4,263.7 $4,284.7 $4,284.0
Diversified:
Electric Fuels, combined 619.8 573.6 489.4
Other 464.9 692.1 679.7
- ------------------------------------------------------------------------------
$5,348.4 $5,550.4 $5,453.1
==============================================================================
Depreciation and amortization:
Utility $ 341.1 $ 329.7 $ 294.8
Diversified:
Electric Fuels, combined 23.5 21.2 19.7
Other 2.1 1.8 1.9
- ------------------------------------------------------------------------------
$ 366.7 $ 352.7 $ 316.4
==============================================================================
Capital additions:
Utility $ 222.9 $ 289.2 $ 327.2
Diversified:
Electric Fuels, combined 40.6 40.5 38.1
Other .5 1.7 1.5
- ------------------------------------------------------------------------------
$ 264.0 $ 331.4 $ 366.8
==============================================================================
In December 1996, Electric Fuels revised its assessment that low-sulfur
coal market prices were depressed temporarily. Electric Fuels decided to close
and dispose of its unprofitable coal operations and recorded a provision for
loss of $40.9 million, as shown above.
56
NOTE 10 DISCONTINUED OPERATIONS
On November 21, 1996, Florida Progress' Board of Directors declared a spin-off
distribution to common shareholders of record on December 5, 1996, of the common
shares of Echelon International Corporation, which comprised Florida Progress'
lending, leasing and real estate operations. Common shares were distributed on
the basis of one share of Echelon common stock for every 15 shares of Florida
Progress' common stock.
In connection with the spin-off, Florida Progress has presented Echelon as a
discontinued operation in the accompanying Consolidated Statements of Income. As
of the date of the spin-off, the net assets of Echelon were $194.5 million. This
amount has been charged against Florida Progress' retained earnings in the
accompanying December 31, 1996 Consolidated Balance Sheet to reflect the
distribution of Echelon common shares on December 18, 1996. A summary of net
assets distributed is as follows:
(In millions)
- ------------------------------------------------------------------
Cash and equivalents $ 53.8
Assets held for sale 26.8
Leases and loans receivable, net 272.0
Property and equipment, net 126.0
Other assets 39.9
- ------------------------------------------------------------------
Total assets 518.5
Total liabilities (324.0)
- ------------------------------------------------------------------
Net assets distributed $ 194.5
==================================================================
Summarized income statement information relating to Echelon's results of
operations (as reported in discontinued operations) is as follows:
Year ended December 31,
(In millions) 1996 1995 1994
- ------------------------------------------------------------------------------
Sales and revenues $63.2 $50.0 $48.8
==============================================================================
Loss from operations (net of income tax) - - -
Provision for loss on
disposition of assets (net
of income tax benefits of $11.3) (18.0) - -
Spin-off transaction costs (net
of income tax benefits of $1.8) (8.3) - -
- ------------------------------------------------------------------------------
Total discontinued operations ($26.3) $ - $ -
==============================================================================
Fiscal year 1996 includes results of operations through December 18, 1996.
Results of operations include allocated interest expense of $8.7 million, $11.7
million and $12.4 million for 1996, 1995 and 1994, respectively.
NOTE 11 COMMITMENTS AND CONTINGENCIES
FUEL, COAL AND PURCHASED POWER COMMITMENTS - Florida Power has entered into
various long-term contracts to provide the fossil and nuclear fuel requirements
of its generating plants and to reserve pipeline capacity for natural gas. In
most cases, such contracts contain provisions for price escalation, minimum
purchase levels and other financial commitments. Estimated annual payments,
based on current market prices, for Florida Power's firm commitments for fuel
57
purchases and transportation costs, excluding delivered coal and purchased
power, are $8 million, $28 million, $36 million, $33 million and $29 million for
1997 through 2001, respectively, and $324 million in total thereafter.
Additional commitments will be required in the future to supply Florida Power's
fuel needs.
Electric Fuels has entered into several contracts with outside parties for the
purchase of coal. Electric Fuels also has entered into several operating leases,
and rental or royalty agreements, relating to transportation equipment and coal
procurement and processing. The annual obligations under these contracts and
leases, including transportation costs, are $278.6 million, $131.6 million,
$108.5 million, $77.3 million and $75.4 million for 1997 through 2001,
respectively, and $85.6 million in total thereafter. The total cost incurred for
these commitments was $221.4 million in 1996, $235.2 million in 1995 and $199.2
million in 1994.
Florida Power has long-term contracts for about 480 MW of purchased power with
other utilities, including a contract with Southern for approximately 400 MW of
purchased power annually through 2010. This represents 4.5% of Florida Power's
total current installed system capacity. Florida Power has an option to lower
these Southern purchases to approximately 200 MW annually, beginning in 2000,
with a three-year notice. The purchased power from Southern is supplied by
generating units with a capacity of approximately 3,500 MW and is guaranteed by
Southern's entire system, totaling more than 30,000 MW.
As of December 31, 1996, Florida Power had entered into purchased power
contracts with certain cogenerators for about 1,160 MW of capacity with
expiration dates ranging from 2002 to 2025. The purchased power contracts
provide for capacity and energy payments. Energy payments are based on the
actual power taken under these contracts. Capacity payments are subject to the
qualifying facilities meeting certain contract performance obligations. In most
cases, these contracts account for 100% of the generating capacity of each of
the facilities. Of the 1,160 MW under contract, 1,050 MW currently are available
to Florida Power. All commitments have been approved by the FPSC. Florida Power
does not plan to increase the level of purchased power currently under contract.
The FPSC allows the capacity payments to be recovered through a capacity cost
recovery clause, which is similar to, and works in conjunction with, energy
payments recovered through the fuel adjustment clause.
Florida Power incurred purchased power capacity costs totaling $284 million in
1996, $260.1 million in 1995 and $138.6 million in 1994. The following table
shows minimum expected future capacity payments for purchased power commitments.
Because the purchased power commitments have relatively long durations, the
total present value of these payments using a 10% discount rate also is
presented. These amounts assume that all units are brought into service as
contracted and meet contract performance requirements:
Purchased Power Capacity Payments
(In millions) Utilities Cogenerators Total
- ----------------------------------------------------------------
1997 $ 64 $ 233 $ 297
1998 63 245 308
1999 64 256 320
2000 36 270 306
2001 36 281 317
2002-2025 324 9,293 9,617
- ----------------------------------------------------------------
Total $587 $10,578 $11,165
================================================================
Total net present value $ 3,350
================================================================
58
As part of Florida Power's strategy to mitigate its exposure to these expensive
cogeneration contracts, Florida Power has agreed, subject to FPSC approval, to
acquire a 220-MW cogeneration facility for $445 million.
The cogeneration purchased power contracts employ separate pricing methodologies
for capacity payments and energy payments. Four cogenerators filed suit against
Florida Power over the contract payment terms. Florida Power entered into
settlement agreements with three of the four cogenerators. One of those
agreements already has been finalized and litigation terminated. The other two
agreements are awaiting certain approvals from the FPSC and others before being
finalized. Management does not expect that the results of these legal actions
will have a material impact on Florida Power's financial position, operations or
liquidity.
Florida Power was threatened in late 1995 with litigation from another
cogeneration developer, which claimed interference involving an effort to obtain
a gas transportation contract with a third party. However, no legal action has
been taken by the developer.
UTILITY CONSTRUCTION PROGRAM - Substantial commitments have been made in
connection with Florida Power's construction program. In 1997, total
construction expenditures of $372 million are projected, primarily for electric
plant and nuclear fuel.
OFF-BALANCE SHEET RISK - Several of Florida Progress' subsidiaries are general
partners in unconsolidated partnerships and joint ventures. Florida Progress or
subsidiaries have agreed to support certain loan agreements of the partnerships
and joint ventures. These credit risks are not material to the financial
statements and Florida Progress considers these credit risks to be minimal,
based upon the asset values supporting the partnership liabilities.
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. Pursuant to a regulatory order,
Florida Power is accruing $6 million annually to a storm damage reserve and may
defer any losses in excess of the reserve.
Under the provisions of the Price Anderson Act, which limits liability for
accidents at nuclear power plants, 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 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 $2.5 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
59
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 a maximum
of $10.3 million in any policy year if losses in excess of NEIL's available
surplus are incurred.
Florida Power has never been assessed under these nuclear indemnities or
insurance policies.
CONTAMINATED SITE CLEANUP - Florida Progress is subject to regulation with
respect to the environmental effects of its operations. Florida Progress'
disposal of hazardous waste through third-party vendors can result in costs to
clean up facilities found to be contaminated. Federal and state statutes
authorize governmental agencies to compel responsible parties to pay for cleanup
of these hazardous waste sites.
Florida Power and former subsidiaries of Florida Progress, whose properties were
sold in prior years, have been identified by the EPA as PRPs at certain sites.
In addition to these designated sites, there are other sites where affiliates
may be responsible for additional environmental cleanup, including a coal
gasification plant site that Florida Power previously owned and operated. There
are five parties that have been identified as potentially responsible for this
gas site, including Florida Power. Liability for the cleanup costs of these
sites is joint and several.
Florida Progress believes that its subsidiaries will not be required to pay a
disproportionate share of the costs for cleanup of these sites. Florida
Progress' best estimates indicate that its proportionate share of liability for
cleaning up all sites ranges from $3.7 million to $5.4 million. It has reserved
$3.7 million against these potential costs. The EPA is expected to further study
the coal gasification plant site, which could cause Florida Power to increase
its reserve for its portion of liability for cleanup costs. Although estimates
of any additional costs are not available, the results of the tests are not
expected to have a material effect on Florida Progress' financial position,
results of operations or liquidity.
AGE DISCRIMINATION SUIT - Florida Power and Florida Progress have been served
with an age discrimination lawsuit involving 56 former Florida Power employees.
While no dollar amount was requested, each plaintiff seeks back pay,
reinstatement or front pay through their projected dates of normal retirement,
costs and attorneys' fees. In October 1996, the court approved an agreement
between parties to provisionally certify this case as a class action suit under
the Age Discrimination in Employment Act. A notice was sent to eligible former
employees informing them of their right to become a party to this provisional
class action within 90 days. Estimates of the potential liability associated
with this lawsuit cannot be determined until the size of the potential class has
been determined.
60
QUARTERLY FINANCIAL DATA
FLORIDA PROGRESS CORPORATION
(Unaudited)
Three Months Ended
(In millions, except per share amounts) March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------------------
1996
OPERATING RESULTS
Revenues from continuing operations $ 730.4 $ 773.6 $ 879.0 $ 774.9
Income from continuing operations 48.3 58.7 98.1 45.6
Loss from discontinued operations - (25.0) - (1.3)
Net income 48.3 33.7 98.1 44.3
DATA PER SHARE
Earnings:
Continuing operations .50 .61 1.01 .47
Discontinued operations - (.26) - (.01)
Consolidated .50 .35 1.01 .46
Dividends per common share .515 .515 .515 .515
Common stock price per share:
High 36 3/8 34 3/4 35 1/8 34 1/2
Low 33 32 1/2 33 1/2 31 5/8
- --------------------------------------------------------------------------------------------------------------
1995
OPERATING RESULTS
Revenues from continuing operations $ 693.0 $ 731.3 $ 852.4 $ 731.1
Income from continuing operations 46.6 55.2 91.1 46.0
Income (loss) from discontinued operations - - - -
Net income 46.6 55.2 91.1 46.0
DATA PER SHARE
Earnings:
Continuing operations .49 .58 .95 .48
Discontinued operations - - - -
Consolidated .49 .58 .95 .48
Dividends per common share .505 .505 .505 .505
Common stock price per share:
High 32 5/8 32 3/8 32 1/2 35 3/4
Low 29 3/8 29 1/2 29 3/4 32 3/8
- --------------------------------------------------------------------------------------------------------------
FLORIDA POWER CORPORATION
(Unaudited)
- -------------------------------------------------------------------------------------------------------------
Three Months Ended
(In millions) March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------------
1996
Operating revenues $547.3 $588.7 $694.7 $562.9
Net income $45.2 $56.0 $93.9 $43.3
Earnings on common stock $42.9 $53.9 $93.1 $42.7
1995
Operating revenues $515.9 $550.5 $671.8 $533.5
Net income $43.3 $53.0 $87.1 $43.6
Earnings on common stock $40.8 $50.6 $84.7 $41.2
The business of Florida Power is seasonal in nature and comparisons of
earnings for the quarters do not give a true indication of overall trends and
changes in operations. The divestiture of Echelon is reflected in the loss from
discontinued operations.
61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
FLORIDA PROGRESS
Information concerning the Directors of Florida Progress is included under the
headings "Information as to Nominees" and "Information as to Continuing
Directors" in Florida Progress' Proxy Statement and is incorporated herein by
reference. Information concerning the executive officers of Florida Progress is
set forth in Part I, Item 1 hereof under the heading "Executive Officers". With
respect to compliance by Florida Progress' directors and officers, and persons
who own more than 10% of Florida Progress' common stock, with the reporting
requirements of Section 16(a) of the Securities Act of 1934, there were no
reporting delinquencies.
FLORIDA POWER
DIRECTORS
R. Mark Bostick, Age 42, Director since 1992.
Member - Executive Committee, Compliance Committee.
Since January 1989, Mr. Bostick's principal occupation has been President of
COMCAR Industries, Inc., a privately held, diversified transportation company.
Mr. Bostick is a director of NationsBank, N.A. South.
Jack B. Critchfield, Age 63, Director 1975-1978 and since 1988.
Member - Executive Committee.
Information concerning Dr. Critchfield is set forth in Part I, Item 1 hereof
under the heading "Executive Officers."
Allen J. Keesler, Jr., Age 58, Director since 1988.
In April of 1996, Mr. Keesler retired as Group Vice President, Utility Group of
Florida Progress, and President and Chief Executive Officer of Florida Power,
positions he held since 1988. He is currently President and Chief Executive
Officer of E. R. Jahna Industries, Inc., a management consulting company. He
serves as director of SouthTrust Corporation and Cameron-Ashley Building
Products, Inc.
Richard Korpan, Age 55, Director since 1989. Chairman - Executive Committee
effective April 1, 1996.
Information concerning Mr. Korpan is set forth in Part I, Item 1 hereof under
the heading "Executive Officers".
Frank C. Logan, Age 61, Director since 1994.
Member - Executive Committee, Chairman - Compliance Committee.
Mr. Logan has practiced law since 1962, primarily in the areas of estate
planning, probate, corporate and business law. Since September 1994, Mr. Logan
has been a partner in the law firm of Harris, Barrett, Mann & Dew, Clearwater,
Florida. Previously, he was with the Clearwater firm of McMullen, Everett,
Logan, Marquardt & Cline which became MacFarlane, Ausley, Ferguson & McMullen
after a 1993 merger with a Tampa firm.
62
Clarence V. McKee, Esquire, Age 54, Director since 1988.
Mr. McKee's principal occupation is Chairman and Chief Executive Officer of
McKee Communications, Inc., Tampa, Florida, a firm involved in the acquisition
and management of television and radio stations. He served as Counsel to Pepper
& Corazinni, a Washington, D.C. communications law firm, from 1980 until 1987
when he became a co-owner of WTVT Holdings, Inc., where he held the position of
Chairman and Chief Executive Officer until 1992. He is a director of Barnett
Banks, Inc., American Heritage Life Insurance Company, and Checkers Drive In
Restaurants, Inc.
Joseph H. Richardson, Age 47, Director since 1996.
Member - Executive Committee.
Information concerning Mr. Richardson is set forth in Part I, Item 1 hereof
under the heading "Executive Officers."
Joan D. Ruffier, Age 57, Director since 1991.
Ms. Ruffier's principal occupation for more than five years has been as general
partner of Sunshine Cafes, Ltd., Orlando, Florida, a food and beverage
concession business at major Florida airports. Previously, she practiced public
accounting with the firm of Colley, Trumbower & Howell. She also serves on the
boards of directors of Cyprus Equity Fund and INVEST, Inc.
Jean Giles Wittner, Age 62, Director since 1977.
Mrs. Wittner's principal occupation is President of Wittner & Co., Wittner
Securities, Inc., and Wittner & Associates, Inc., St. Petersburg, Florida, firms
involved in real estate management, insurance brokerage and consulting,
positions she has held for more than five years. She previously served as
President and Chief Executive Officer of a savings association until it was sold
in 1986. She serves on the board of Raymond James Bank, F.S.B.
All of the directors except Mr. Bostick, Mr. Logan, Mr. Keesler and Mr.
Richardson are directors of Florida Progress. Each director holds office until
the next Annual Meeting of Shareholders and until the election and qualification
of a successor.
EXECUTIVE OFFICERS
Information concerning the executive officers of Florida Power is set forth in
Part I, Item 1 hereof under the heading "Executive Officers" and is incorporated
herein by reference.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on a review of the copies of Section 16(a) forms furnished to
Florida Power during 1996, or written representations that no forms were
required, Florida Power believes that all persons who at any time during 1996
were officers, directors or greater than 10% beneficial owners of Florida
Power's preferred stock, filed their applicable Section 16(a) reports on a
timely basis during 1996 and prior fiscal years, except that Florida Power's
Vice Presidents, Janice B. Case and Michael B. Foley, Jr., failed to timely file
a Form 3 within 10 days of becoming an executive officer. Both of these forms
were filed 27 days after they became executive officers.
63
ITEM 11. EXECUTIVE COMPENSATION
FLORIDA PROGRESS
The information under the headings "Compensation of Directors", "Compensation
Committee Interlocks and Insider Participation", "Executive Compensation",
"Pension Plan Table" and "Employment Contracts" in Florida Progress' Proxy
Statement is incorporated herein by reference.
FLORIDA POWER
COMPENSATION OF DIRECTORS
For 1996, compensation for all directors of Florida Power (excluding employees
of Florida Progress or subsidiaries) was $1,500 for attendance at each meeting
of the Florida Power Board of Directors. Messrs. Bostick and Logan, and
effective April 1, 1996, Mr. Keesler received $20,000 per year as a retainer fee
and a meeting fee of $750 for attendance at each committee meeting.
The foregoing retainer fees were paid in accordance with the terms of the Stock
Plan for Non-Employee Directors of Florida Progress and Subsidiaries as approved
by the shareholders of Florida Progress at the 1996 Annual Meeting of
Shareholders. As approved, 75% of the directors' retainer fees was paid in
Florida Progress common stock. Only the cash portion of directors' compensation
is allowed to be deferred.
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64
EXECUTIVE COMPENSATION
The following table contains information with respect to compensation awarded,
earned or paid during the years 1994-1996 to (i) each person who served as the
Chief Executive Officer, and (ii) the other four most highly compensated
executive officers of Florida Power (collectively the "Named Executive
Officers") in 1996, whose total remuneration paid in 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation(1) ------------
Name and Principal ------------------------- LTIP All Other
Position Year Salary Bonus Payouts(2) Compensation(3)
- -------------------------- ----- ------ ----- ------------ ---------------
ALLEN J. KEESLER, JR. (4) 1996 $155,386 $ 81,500 $207,802(5) $245,304(6)
Former President and 1995 397,848 240,000 260,419 16,785
Chief Executive Officer 1994 383,011 172,500 178,904 15,837
RICHARD KORPAN 1996 $535,610 $333,500 $339,107(5) $ 18,900
Chairman and Chief 1995 440,003 257,000 284,109 19,800
Executive Officer 1994 432,311 232,500 206,455 18,060
JOSEPH H. RICHARDSON 1996 $288,884 $214,000 $128,858(5) $ 16,585(7)
President and Chief 1995 215,009 113,000 110,473 8,835
Operating Officer 1994 212,122 88,500 81,326 4,226
JEFFREY R. HEINICKA 1996 $258,456 $169,000 $113,139(5) $ 8,595
Senior Vice President and 1995 211,200 100,000 N/A 8,325
Chief Financial Officer 1994 174,723 76,000 N/A 7,943
KENNETH E. ARMSTRONG 1996 $212,785 $144,500 $101,748(5) $ 8,010
Vice President and 1995 197,995 77,000 N/A 8,910
General Counsel 1994 196,459 70,000 N/A 8,436
JOHN A. HANCOCK 1996 $217,385 $115,000 $130,787(5) $ 8,400
Senior Vice President, 1995 199,992 105,000 109,974 8,550
Energy Supply 1994 197,088 72,500 74,786 8,700
(1) All other annual compensation paid to the Named Executive Officers
during 1996, other than salary and annual incentive compensation,
does not exceed the minimum amounts required to be reported
pursuant to SEC rules.
(2) Unless otherwise noted, the number of shares of restricted Common
Stock held by Named Executive Officers as of December 31, 1996 as a
result of awards earned under the 1992-1994 and 1993-1995
performance cycles and the value of such shares as of that date, is
as follows: Allen J. Keesler, Jr. 5,876 shares, $189,501; Richard
Korpan 6,527 shares, $210,496; Joseph H. Richardson 2,548 shares,
$82,173; Jeffrey R. Heinicka -0-; Kenneth E. Armstrong -0-; and
John A. Hancock 2,473 shares, $79,754.
(3) Represents contributions to the Savings Plan of Florida Progress
and/or the Executive Optional Deferred Compensation Plan on behalf
of the Chief Executive Officer and the Named Executive Officers.
(4) Allen J. Keesler, Jr. retired as President and Chief Executive
Officer of Florida Power on April 1, 1996.
65
(5) Represents the dollar value as of the date of award, of shares of
Common Stock of Florida Progress earned under the 1994-1996
performance cycle ("Cycle IV") of the LTIP, two-thirds of which are
restricted except that none of the shares awarded Allen J. Keesler,
Jr. are restricted. The total number of shares earned are as
follows: Allen J. Keesler, Jr. 6,898 shares; Richard Korpan 10,895
shares; Joseph H. Richardson 4,140 shares; Jeffrey R. Heinicka
3,635 shares; Kenneth E. Armstrong 3,269 shares; and John A.
Hancock 4,202 shares. The vesting schedule for the restricted stock
is 50% on January 1, 1998 and 50% on January 1, 1999. Dividends are
payable on the restricted Common Stock to the extent and on the
same date as dividends are paid on all other shares of Florida
Progress Common Stock. In the event of a change in control of
Florida Progress, all restrictions on all shares of restricted
stock lapse.
The payouts listed for Richard Korpan, Joseph H. Richardson,
Jeffrey R. Heinicka and Kenneth E. Armstrong are the result of (i)
the Florida Progress Compensation Committee's determination that
the results exceeded the Cycle IV goals, after taking into account
the exclusion of a provision for loss on coal properties for
Electric Fuels' return-on- equity, (ii) the application of a
mathematical formula converting the goal level achieved into the
number of performance shares earned and (iii) adding dividend
equivalents on shares earned for the period of the performance
cycle.
(6) Represents $4,712 in Company Contributions to the Savings Plan of
Florida Progress and/or the Executive Optional Deferred
Compensation Plan and $240,592 in Nondiscrimination Plan and
Supplemental Executive Retirement Plan payments.
(7) Represents $8,835 in Company Contributions to the Savings Plan of
Florida Progress and/or the Executive Optional Deferred
Compensation Plan and $7,750 of director fees for services as a
director of Echelon, a former subsidiary of Florida Progress.
The following table contains information with respect to Performance Shares
granted in 1996 to each of the Named Executive Officers of Florida Power for the
1996-1998 performance cycle of the LTIP:
LONG-TERM INCENTIVE PLAN(1)
AWARDS IN 1996
Number of Performance Estimated Payout in Shares at End of Period(3)
Performance Period ---------------------------------------------
Name Shares(2) Covered Threshold Target Maximum
- ---------------------- ---------- --------- --------- ------ --------
Allen J. Keesler, Jr. 0 1996-1998 0 0 0
Richard Korpan 7,719 1996-1998 3,860 7,719 11,579
Joseph H. Richardson 4,211 1996-1998 2,106 4,211 6,317
Jeffrey R. Heinicka 2,975 1996-1998 1,488 2,975 4,463
Kenneth E. Armstrong 2,414 1996-1998 1,207 2,414 3,621
John A. Hancock 2,470 1996-1998 1,235 2,470 3,705
(1) The LTIP is a Common Stock based incentive plan to reward participants for
long-term growth and performance of Florida Progress. It was approved by
the Florida Progress shareholders in 1990.
66
(2) Performance shares granted under the LTIP which, upon achievement of
performance criteria established by the Compensation Committee of the Board
of Directors of Florida Progress, would result in the payout of shares of
Florida Progress Common Stock, two-thirds of which would be restricted for
periods of time. Payouts of shares of Florida Progress Common Stock are
made for achieving financial goals equal to or exceeding the thresholds
established by the Compensation Committee. In the event of a change in
control of Florida Progress, 150% of all performance shares granted
under the LTIP and then outstanding would automatically be considered
earned and would be paid in shares of unrestricted Florida Progress
Common Stock together with shares of unrestricted Florida Progress
Common Stock payable for dividend equivalents accrued to the change in
control on performance shares awarded for performance cycles starting
after December 31, 1992. Also, all restrictions on shares of restricted
Florida Progress Common Stock previously awarded and then held would
lapse.
(3) Grants of performance shares are earned upon achievement of Florida
Progress and/or subsidiary financial goals for the three-year
performance cycle.
Pension Plan Table
The table below illustrates the estimated annual benefits (computed as a
straight life annuity beginning at retirement at age 65) payable under the
Florida Progress Corporation Retirement Plan and Nondiscrimination Plan for
specified final average compensation and years of service levels. As explained
below, the table also provides information about the estimated lifetime annual
benefits payable under the Florida Progress Corporation Supplemental Executive
Retirement Plan ("SERP").
Estimated Annual Retirement Benefits Payable Under
the Retirement Plan and Nondiscrimination Plan
--------------------------------------------------
Average Annual
Compensation Service Years
- ---------------------------------------------------------------------------------------------------------
5 10 15 20 25 30 35 or more
$ 200,000 $ 18,000 $ 36,000 $ 54,000 $ 72,000 $ 90,000 $108,000 $126,000
300,000 27,000 54,000 81,000 108,000 135,000 162,000 189,000
400,000 36,000 72,000 108,000 144,000 180,000 216,000 252,000
500,000 45,000 90,000 135,000 180,000 225,000 270,000 315,000
600,000 54,000 108,000 162,000 216,000 270,000 324,000 378,000
700,000 63,000 126,000 189,000 252,000 315,000 378,000 441,000
800,000 72,000 144,000 216,000 288,000 360,000 432,000 504,000
900,000 81,000 162,000 243,000 324,000 405,000 486,000 567,000
1,000,000 90,000 180,000 270,000 360,000 450,000 540,000 630,000
1,100,000 99,000 198,000 297,000 396,000 495,000 594,000 693,000
Under the Retirement Plan and the Nondiscrimination Plan, the compensation taken
into account in calculating benefits is salary only. The years of credited
service that would be used in calculating benefits under the Retirement Plan and
the Nondiscrimination Plan for the Named Executive Officers in the summary
compensation table are as follows: Mr. Keesler, 33 years of service; Mr. Korpan,
8 years of service; Mr. Richardson, 21 years of service; Mr. Heinicka, 19 years
of service; Mr. Armstrong, 10 years of service and Mr. Hancock, 30 years of
service. The benefits under the Retirement Plan and the Nondiscrimination Plan
are subject to offset by an amount equal to 1 1/7% of a participant's primary
Social Security benefit for each year of service (with a maximum offset of 40%).
67
The Named Executive Officers are also entitled to benefits under the SERP. These
benefits are offset by the benefits payable under the Retirement Plan and the
Nondiscrimination Plan, as well as 100% of the executive's primary Social
Security benefit. The estimated annual SERP benefit for the Named Executive
Officers (prior to any offsets) may be determined using the table set forth
above for the Retirement Plan and the Nondiscrimination Plan. For these
purposes, the current compensation for each executive that would be used in
calculating benefits under the SERP is substantially the same as that reported
as salary and bonus in the summary compensation table, and the number of years
of deemed credited service that would be used in calculating benefits under the
SERP for each such executive is as follows: Mr. Korpan 35 years of service; Mr.
Richardson 21 years of service; Mr. Heinicka, 19 years of service; Mr.
Armstrong, 15 years of service; and Mr. Hancock, 30 years of service.
Accrued benefits may also be paid under each of the Retirement Plan,
Nondiscrimination Plan and the SERP if a participant terminates employment
before age 65 and meets the requirements for early retirement, disability, death
or other termination of employment benefits after becoming vested under the
rules of the particular plan.
The SERP also provides for a lump sum benefit payable in the event of a change
in control. In most instances, this benefit is equal to the sum of (i) two times
the executive's current annual salary and bonus, (ii) the value of the
executive's prospective award under the SERP if he were to continue to work
until age 65 (including amounts that later would have been payable to any
surviving spouse) and (iii) the amount of any federal excise taxes (and income
taxes on any reimbursement under this provision) imposed on the executive under
Section 4999 of the Internal Revenue Code with respect to all compensation plans
and arrangements of Florida Progress.
Mr. Keesler retired effective April 1, 1996, pursuant to the "special early
retirement" provisions of the SERP which are separate and in lieu of those
mentioned above. Under this arrangement, Mr. Keesler receives until age 62, an
annual retirement benefit of $368,753. After age 62, the annual benefit will be
reduced by $11,856, the amount of his annual Social Security benefit. After his
death, his spouse will receive an annual survivor benefit of $254,931.
Approximately 62% of the benefits are payable pursuant to the SERP, with the
balance payable under the Retirement and Nondiscrimination Plans. Florida
Progress also pays 95% of his medical insurance premiums and 71% of his
spouse's.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
FLORIDA PROGRESS
The information included under the headings "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in Florida Progress'
Proxy Statement is incorporated herein by reference.
FLORIDA POWER
All of Florida Power's common stock is held beneficially and of record by
Florida Progress. None of Florida Power's directors or executive officers owns
any shares of Florida Power's common or preferred stock. Information concerning
shares of Florida Progress common stock that are held by persons known to
Florida Progress to be the beneficial owners of more than 5% of Florida
Progress' common stock is set forth in the table under the heading "Security
Ownership of Certain Beneficial Owners" in the Florida Progress Proxy Statement
and is incorporated herein by reference.
68
The table below sets forth as of December 31, 1996, the number of shares of
common stock of Florida Progress owned by Florida Power's directors, Chief
Executive Officer and Named Executive Officers individually and the directors
and executive officers of Florida Power as a group.
Florida Power Number of Shares Percent of
Officer or Director Name Beneficially Owned (1) Class (2)
- ------------------------ ---------------------- ----------
R. M. Bostick 654
Jack B. Critchfield 38,377
Allen J. Keesler, Jr. 41,779
Richard Korpan 17,339
Frank C. Logan 1,754
Clarence V. McKee 2,436
Joan D. Ruffier 3,750
Jean Giles Wittner 9,444
Kenneth E. Armstrong 2,335
Joseph H. Richardson 10,062
Jeffrey R. Heinicka 2,339
John A. Hancock 19,184
All 15 directors, Named
Executive Officers and executive
officers as a group, including
those named above 162,517 .17
(1) As used in this table, "beneficial ownership" means the direct or indirect,
sole or shared power to vote, or to direct the voting of, a security and/or
investment power with respect to a security.
(2) Unless otherwise noted, less than 1% per individual.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FLORIDA PROGRESS
The information included under the heading "Certain Relationships and Related
Transactions" in Florida Progress' Proxy Statement is incorporated herein by
reference.
FLORIDA POWER
With respect to Florida Power, there are no relationships or related
transactions required to be reported under this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FOR FLORIDA PROGRESS AND FLORIDA POWER
(a) 1. Financial Statements, notes to Financial Statements and report
thereon of KPMG Peat Marwick LLP are found in Item 8 "Financial
Statements and Supplementary Data", herein.
2. The following Financial Statement Schedules and
reports are included herein:
Florida Progress
II-Valuation and Qualifying Accounts
for the years ended December 31,
1996, 1995 and 1994
69
Florida Power
II-Valuation and Qualifying Accounts
for the years ended December 31,
1996, 1995 and 1994
All other schedules are not submitted because they are not
applicable or not required or because the required information is
included in the financial statements or notes thereto.
3. Exhibits filed herewith:
Florida Florida
Number Exhibit Progress Power
------ ------- -------- -------
4.(a) Amendment to Shareholder Rights
Agreement dated February 20, 1997,
between Florida Progress and The First
National Bank of Boston. X
4.(b) Form of Certificate representing shares of
Florida Progress Common Stock. X
10.(a) Management Incentive Compensation Plan X X
of Florida Progress Corporation, as amended
to date.*
10.(b) Florida Progress Supplemental Executive X X
Retirement Plan.*
10.(c) Executive Optional Deferred Compensation
Plan.* X X
12 Statement of Computation of Ratios. X
21 Subsidiaries of Florida Progress. X
23.(a) Consent of Independent Certified Public X
Accountants to the incorporation by reference
of their report on the financial statements
into the following registration statements of
Florida Progress: Form S-3 (No. 33-51573)
(relating to the registration of 4.5 million
shares of common stock and filed with the SEC
on December 17, 1993); Form S-8 (Nos. 33-53939
and 333-19037)(relating to the Savings Plan for
Employees of Florida Progress and filed with the
SEC on June 1, 1994 and December 31, 1996,
respectively); Form S-3 (Nos. 33-45044 and
333-07853) (relating to the Progress Plus Plan
and filed with the SEC on January 13, 1992 and
July 10, 1996, respectively); Form S-8 (No.
33-47623) (relating to Florida Progress'
Long-Term Incentive Plan and filed with the SEC
on May 1, 1992); Form S-8 (No. 33-39153) (also
relating to the Long-Term Incentive Plan and
filed with the SEC on February 26, 1991); Form
S-3 (No. 2-93111)(relating to the acquisition
of Better Business Forms and filed with the SEC
on September 5, 1984; Form S-3 (No. 33-56873)
(relating to the resale of shares by the former
shareholders of F.M. Industries, Inc. ("FMI")
and filed with the SEC on December 15, 1994); and
Form S-3 (No. 333-00547) (also relating to the
resale of shares held by the FMI shareholders
and filed with the SEC on January 30, 1996).
70
23.(b) Consent of Independent Certified Public X
Accountants to the incorporation by reference
of their report on the financial statements
into Florida Power's registration statements
on Form S-3 (No. 33-62210 and 33-55273)(relating
to Florida Power's first mortgage bond shelf)
and Form S-3 (Nos. 33-50908 and 333-02549)
(relating to Florida Power's medium-term note
shelf).
27.(a) Florida Progress Financial Data Schedule X
27.(b) Florida Power Financial Data Schedule X
4. Exhibits incorporated herein by reference:
Florida Florida
Number Exhibit Progress Power
------ ------- -------- -------
3.(a) Bylaws of Florida Progress, as amended to X
date. (Filed as Exhibit 3(a) to the Florida
Progress Form 10-K for the year ended
December 31, 1995, as filed with the SEC on
March 20, 1996.)
3.(b) Bylaws of Florida Power, as amended to date. X
(Filed as Exhibit 3.(b) to the Florida Power
Form 10-K for the year ended December 31, 1995,
as filed with the SEC on March 20, 1996.)
3.(c) Restated Articles of Incorporation, as amended, X
of Florida Progress. (Filed as Exhibit 3(a) to
Florida Progress' Form 10-K for the year ended
December 31, 1991, as filed with the SEC on
March 30, 1992.)
3.(d) Amended Articles of Incorporation, as amended, X X
of Florida Power. (Filed as Exhibit 3(a) to the
Florida Power Form 10-K for the year ended
December 31, 1991, as filed with the SEC
(File No. 1-3274) on March 30, 1992).
4.(c) Rights Agreement, dated as of November 21, X
1991, between Florida Progress and
Manufacturers Hanover Trust Company,
including as Exhibit A the form of Rights
Certificate. (Filed as Exhibit 4(a) to
Florida Progress' Form 8-K dated November
21, 1991, as filed with the SEC on November
27, 1991).
4.(d) Indenture, dated as of January 1, 1944 (the X X
"Indenture"), between Florida Power and
Guaranty Trust Company of New York and The
Florida National Bank of Jacksonville, as
Trustees. (Filed as Exhibit B-18 to Florida
Power's Registration Statement on Form A-2
(No. 2-5293) filed with the SEC on January
24, 1944).
71
4.(e) Seventh Supplemental Indenture, dated as of X X
July 1, 1956, between Florida Power and
Guaranty Trust Company of New York and The
Florida National Bank of Jacksonville, as
Trustees, with reference to the modification
and amendment of the Indenture. (Filed as
Exhibit 4(b) to Florida Power's Registration
Statement on Form S-3 (No. 33-16788) filed
with the SEC on September 27, 1991).
4.(f) Eighth Supplemental Indenture, dated as of X X
July 1, 1958, between Florida Power and
Guaranty Trust Company of New York and The
Florida National Bank of Jacksonville, as
Trustees, with reference to the modification
and amendment of the Indenture. (Filed as
Exhibit 4(c) to Florida Power's Registration
Statement on Form S-3 (No. 33-16788) filed
with the SEC on September 27, 1991).
4.(g) Sixteenth Supplemental Indenture, dated as of X X
February 1, 1970, between Florida Power and
Morgan Guaranty Trust Company of New York and
The Florida National Bank of Jacksonville, as
Trustees, with reference to the modification
and amendment of the Indenture. (Filed as
Exhibit 4(d) to Florida Power's Registration
Statement on Form S-3 (No. 33-16788) filed
with the SEC on September 27, 1991).
4.(h) Twenty-Ninth Supplemental Indenture, dated as X X
of September 1, 1982, between Florida Power
and Morgan Guaranty Trust Company of New York
and Florida National Bank, as Trustees, with
reference to the modification and amendment
of the Indenture. (Filed as Exhibit 4(c) to
Florida Power's Registration Statement on
Form S-3 (No. 2-79832) filed with the SEC on
September 17, 1982).
4.(i) Thirty-Eighth Supplemental Indenture dated as X X
of July 25, 1994, between Florida Power and
First Chicago Trust Company of New York, as
successor Trustee, Morgan Guaranty Trust
Company of New York, as resigning Trustee,
and First Union National Bank of Florida, as
resigning Co-Trustee, with reference to
confirmation of First Chicago Trust Company
of New York as successor Trustee under the
Indenture. (Filed as exhibit 4.(f) to Florida
Power's Registration Statement on Form S-3
(No. 33-55273) as filed with the SEC on August
29, 1994.)
10.(d) Second Amended and Restated Guaranty and X
Support Agreement dated as of August 7, 1996.
(Filed as Exhibit 4 to Florida Progress' Form
10-Q for the quarter ended June 30, 1996).
10.(e) Florida Progress Corporation Long-Term X X
Incentive Plan, approved by Florida Progress'
Shareholders on April 19, 1990. (Filed as
Exhibit 10(d) to Florida Progress' Form 10-Q
for the quarter ended March 31, 1990, as
filed with the SEC on May 14, 1990). *
72
10.(f) Stock Plan for Non-Employee Directors of X X
Florida Progress Corporation and Subsidiaries.
(Filed as Exhibit 4.(k) to the Florida Progress
Registration Statement on Form S-8 (No. 333-
02619) as filed with the SEC on April 18, 1996.)*
X = Exhibit is filed for that respective company.
* = Exhibit constitutes an executive compensation plan or arrangement.
In reliance upon Item 601(b)(4)(iii) of Regulation S-K, certain instruments
defining the rights of holders of long-term debt of Florida Progress and its
consolidated subsidiaries are not being filed herewith, because the total amount
authorized thereunder does not exceed 10% of the total assets of Florida
Progress and its subsidiaries on a consolidated basis. Florida Progress hereby
agrees to furnish a copy of any such instruments to the SEC upon request.
(b) Reports on Form 8-K:
During the fourth quarter of the year ended December 31, 1996,
Florida Progress and Florida Power filed the following reports
on Form 8-K:
Form 8-K dated October 17, 1996, reporting under Item
5 "Other Events" a press release and related Investor
Information Report reporting Florida Progress' and
Florida Power's third quarter 1996 earnings.
Form 8-K dated October 22, 1996, reporting under Item
5 "Other Events" a news release regarding Florida
Power's CR3 maintenance outage.
Form 8-K dated November 21, 1996, reporting under
Item 5 "Other Events" a press release announcing the
approval of the spin-off of Echelon to shareholders.
Florida Progress also issued an investor news release
dated November 22, 1996 updating Florida Power's
CR3 outage.
Form 8-K dated December 5, 1996, reporting under Item
5 "Other Events" an investor news release to provide
an update regarding Florida Power's CR3, and another
investor news release dated December 12, 1996
announcing several strategic decisions regarding
Florida Progress' diversified businesses.
Form 8-K dated December 18, 1996, reporting under
Item 5 "Other Events" a news release announcing the
spin-off of Echelon.
In addition, Florida Progress and Florida Power filed the
following reports on Form 8-K subsequent to the fourth quarter
of 1996:
Form 8-K dated January 7, 1997, reporting under Item
5 "Other Events" a press release dated January 7,
1997 announcing the replacements in top nuclear
positions at Florida Power, and an investor news
release dated January 14, 1997 relating to CR3.
Florida Power also issued another news release dated
January 14, 1997 regarding its request to recover
higher fuel costs.
73
Form 8-K dated January 23, 1997, reporting under Item
5 "Other Events" a news release and related Investor
News report reporting the signing of an agreement to
acquire the Tiger Bay Cogeneration facility. Florida
Progress also issued a news release reporting 1996
earnings.
Form 8-K dated January 29, 1997, reporting under Item
5 "Other Events" a news release reporting Florida
Power's CR3 being added to NRC watch list. Florida
Progress also issued an investor news release dated
January 29, 1997 relating to CR3.
Form 8-K dated February 20, 1997, reporting under
Item 5 "Other Events" the approval by the board of a
dividend increase and the approval by the FPSC of an
increase in Florida Power's fuel costs.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
May 16, 1997 /s/ Jack B. Critchfield
----------------------------
Jack B. Critchfield,
Chairman of the Board
and Chief Executive Officer
KNOWN BY ALL MEN BY THESE PRESENTS that each of the undersigned officers
and directors of Florida Progress Corporation (the "Company"), a Florida
corporation, for himself or herself and not for one another, does hereby
constitute and appoint KENNETH E. ARMSTRONG, JAMES V. SMALLWOOD and DOUGLAS E.
WENTZ, and each of them, a true and lawful attorney in his or her name, place
and stead, in any and all capacities, to sign his or her name to any and all
amendments to this report, and to cause the same to be filed with the Securities
and Exchange Commission, granting unto said attorneys and each of them full
power and authority to do and perform any act and thing necessary and proper to
be done in the premises, as fully to all intents and purposes as the undersigned
could do if personally present, and each of the undersigned for himself or
herself hereby ratifies and confirms all that said attorneys or any one of them
shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Jack B. Critchfield Chairman of the Board, May 16, 1997
- ----------------------------- Chief Executive Officer
Jack B. Critchfield and Director
Principal Executive Officer
/s/ Jeffrey R. Heinicka Senior Vice President and May 16, 1997
- ----------------------------- Chief Financial Officer
Jeffrey R. Heinicka
Principal Financial Officer
/s/ John Scardino, Jr. Vice President and May 16, 1997
- ----------------------------- Controller
John Scardino, Jr.
Principal Accounting Officer
(Continued)
75
Signature Title Date
--------- ----- ----
/s/ Willard D. Frederick, Jr. Director May 16, 1997
- -----------------------------
Willard D. Frederick, Jr.
/s/ Michael P. Graney Director May 16, 1997
- -----------------------------
Michael P. Graney
/s/ Richard Korpan Director May 16, 1997
- -----------------------------
Richard Korpan
/s/ Frank C. Logan Director May 16, 1997
- -----------------------------
Frank C. Logan
/s/ Clarence V. McKee Director May 16, 1997
- -----------------------------
Clarence V. McKee
/s/ Vincent J. Naimoli Director May 16, 1997
- -----------------------------
Vincent J. Naimoli
Director
- -----------------------------
Richard A. Nunis
/s/ Charles B. Reed Director May 16, 1997
- -----------------------------
Charles B. Reed
/s/ Joan D. Ruffier Director May 16, 1997
- -----------------------------
Joan D. Ruffier
Director
- -----------------------------
Robert T. Stuart, Jr.
/s/ Jean Giles Wittner Director May 16, 1997
- -----------------------------
Jean Giles Wittner
76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. The signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company.
FLORIDA POWER CORPORATION
May 16, 1997 /s/ Joseph H. Richardson
---------------------------------
Joseph H. Richardson, President
and Chief Operating Officer
KNOWN BY ALL MEN BY THESE PRESENTS that each of the undersigned officers
and directors of Florida Power Corporation (the "Company"), a Florida
corporation, for himself or herself and not for one another, does hereby
constitute and appoint KENNETH E. ARMSTRONG, JAMES V. SMALLWOOD and DOUGLAS E.
WENTZ, and each of them, a true and lawful attorney in his or her name, place
and stead, in any and all capacities, to sign his or her name to any and all
amendments to this report, and to cause the same to be filed with the Securities
and Exchange Commission, granting unto said attorneys and each of them full
power and authority to do and perform any act and thing necessary and proper to
be done in the premises, as fully to all intents and purposes as the undersigned
could do if personally present, and each of the undersigned for himself or
herself hereby ratifies and confirms all that said attorneys or any one of them
shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Richard Korpan Chairman of the Board, May 16, 1997
- ------------------------- Chief Executive Officer
Richard Korpan and Director
/s/ Jeffrey R. Heinicka Senior Vice President May 16, 1997
- ------------------------- and
Jeffrey R. Heinicka Chief Financial Officer
Principal Financial Officer
/s/ John Scardino, Jr. Vice President May 16, 1997
- ------------------------- and Controller
John Scardino, Jr.
Principal Accounting Officer
(Continued)
77
Signature Title Date
--------- ----- ----
/s/ Jack B. Critchfield Director May 16, 1997
- --------------------------
Jack B. Critchfield
/s/ Willard D. Frederick, Jr. Director May 16, 1997
- -----------------------------
Willard D. Frederick, Jr.
/s/ Michael P. Graney Director May 16, 1997
- -----------------------------
Michael P. Graney
/s/ Frank C. Logan Director May 16, 1997
- -------------------------
Frank C. Logan
/s/ Clarence V. McKee Director May 16, 1997
- -------------------------
Clarence V. McKee
/s/ Vincent J. Naimoli Director May 16, 1997
- -----------------------------
Vincent J. Naimoli
Director
- -----------------------------
Richard A. Nunis
/s/ Charles B. Reed Director May 16, 1997
- -----------------------------
Charles B. Reed
/s/ Joseph H. Richardson Director May 16, 1997
- --------------------------
Joseph H. Richardson
/s/ Joan D. Ruffier Director May 16, 1997
- -------------------------
Joan D. Ruffier
Director
- -----------------------------
Robert T. Stuart, Jr.
/s/ Jean Giles Wittner Director May 16, 1997
- -------------------------
Jean Giles Wittner
78
Schedule II
FLORIDA PROGRESS CORPORATION
Valuation and Qualifying Accounts
For the Years Ended December 31, 1996, 1995, and 1994
(In millions)
Balance at Additions Balance at
Beginning Charged to Other End of
Description of Period Expense Deductions Add (Ded) Period
- --------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
Nuclear Refueling Outage Reserve $14.7 $17.4 $23.4 $ - $8.7
======= ======= ======= ======= =======
Insurance policy benefit reserves $265.0 $60.3 $ - $ - $325.3
======= ======= ======= ======= =======
Reserve for mine closure/reclamation $0.0 $40.9 $ - $ - $40.9
======= ======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1995
Nuclear Refueling Outage Reserve $6.4 $12.7 $4.4 $ - $14.7
======= ======= ======= ======= =======
Insurance policy benefit reserves $222.5 $42.5 $ - $ - $265.0
======= ======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1994
Nuclear Refueling Outage Reserve $11.5 $12.6 $17.7 $ - $6.4
======= ======= ======= ======= =======
Insurance policy benefit reserves $186.5 $36.0 $ - $ - $222.5
======= ======= ======= ======= =======
79
Schedule II
FLORIDA POWER CORPORATION
Valuation and Qualifying Accounts
For the Years Ended December 31, 1996, 1995, and 1994
(In millions)
Balance at Additions Balance at
Beginning Charged to Deductions End of
Description of Period Expense (See Note) Period
- ----------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
1996 Nuclear Refueling Outage Reserve (#10) $14.7 $9.2 $23.4 $0.5
1998 Nuclear Refueling Outage Reserve (#11) $0.0 $8.2 $0.0 $8.2
------- ------- ------- -------
$14.7 $17.4 $23.4 $8.7
======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1995
1996 Nuclear Refueling Outage Reserve (#10) $6.4 $12.7 $4.4 14.7
------- ------- ------- -------
$6.4 $12.7 $4.4 $14.7
======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1994
1993 Nuclear Midcycle Outage Reserve (#9) ($0.7) $0.7 $0.0 $0.0
1994 Nuclear Refueling Outage Reserve (#9) 12.2 5.5 17.7 0.0
1996 Nuclear Refueling Outage Reserve (#10) 0.0 6.4 0.0 6.4
------- ------- ------- -------
$11.5 $12.6 $17.7 $6.4
======= ======= ======= =======
Note: Deductions are payments of actual expenditures related to the outage.
80