UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Exact name of Registrant as specified in I.R.S. Employer
Commission its charter, state of incorporation, address Identification
File No. of principal executive offices, telephone Number
------------ -------------------------------------------- ---------------
1-8349 FLORIDA PROGRESS CORPORATION 59-2147112
A Florida Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Telephone (813) 824-6400
1-3274 FLORIDA POWER CORPORATION 59-0247770
A Florida Corporation
3201 34th Street South
St. Petersburg, Florida 33711
Telephone (813) 866-5151
Indicate by check mark whether each registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Description of Shares Outstanding
Registrant Class at June 30, 1998
---------- -------------- ------------------
Florida Progress Corporation Common Stock,
without par value 97,046,179
Florida Power Corporation Common Stock,
without par value 100 (all of which were
held by Florida
Progress Corporation)
This combined Form 10-Q represents separate filings by Florida Progress
Corporation and Florida Power Corporation. Florida Power makes no
representations as to the information relating to Florida Progress' diversified
operations.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Income
(In millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------- ------- ------- -------
(Unaudited) (Unaudited)
REVENUES:
Electric utility $663.8 $597.2 $1,229.0 $1,151.0
Diversified 239.3 200.1 461.6 393.8
------- ------- ------- -------
903.1 797.3 1,690.6 1,544.8
EXPENSES: ------- ------- ------- -------
Electric utility:
Fuel 135.9 118.8 245.1 213.7
Purchased power 110.8 116.8 209.8 244.0
Energy conservation cost 19.0 16.6 35.6 27.6
Operations and maintenance 116.2 110.7 218.6 213.1
Extended nuclear outage - O&M
and replacement power costs - 89.9 5.1 97.8
Depreciation and amortization 90.4 74.2 171.4 148.5
Taxes other than income taxes 51.4 48.6 100.9 96.7
------- ------- ------- -------
523.7 575.6 986.5 1,041.4
------- ------- ------- -------
Diversified:
Cost of sales 192.8 169.1 386.6 340.9
Other 19.0 14.8 31.8 29.7
------- ------- ------- -------
211.8 183.9 418.4 370.6
------- ------- ------- -------
INCOME FROM OPERATIONS 167.6 37.8 285.7 132.8
------- ------- ------- -------
INTEREST EXPENSE AND OTHER:
Interest expense 47.7 35.8 95.0 70.1
Allowance for funds used during
construction (4.1) (2.3) (8.0) (4.4)
Preferred dividend requirements of
Florida Power .4 .4 .8 .8
Other expense (income), net .6 (.7) .1 (.3)
------- ------- -------- -------
44.6 33.2 87.9 66.2
------- ------- -------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 123.0 4.6 197.8 66.6
Income Taxes 45.2 (1.7) 69.5 18.3
------- -------- -------- -------
NET INCOME $77.8 $6.3 $128.3 $48.3
======= ======== ======== =======
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 97.0 97.1 97.1 97.0
======= ======== ======== =======
EARNINGS PER AVERAGE COMMON SHARE $ .80 $ .07 $ 1.32 $ .50
======= ========= ======== ========
DIVIDENDS PER COMMON SHARE $ .535 $ .525 $ 1.07 $ 1.05
======== ========= ======== ========
The accompanying notes are an integral part of these financial statements.
2
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(In millions)
June 30, December 31,
1998 1997
---------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held $ 6,210.6 $ 6,166.8
for future use
Less - Accumulated depreciation 2,621.2 2,511.0
Accumulated decommissioning for nuclear plant 238.4 223.7
Accumulated dismantlement for fossil plants 129.5 128.5
-------- --------
3,221.5 3,303.6
Construction work in progress 345.8 279.4
Nuclear fuel, net of amortization of $365.6
in 1998 and $356.7 in 1997 57.5 66.5
-------- --------
Net electric utility property 3,624.8 3,649.5
Other property, net of depreciation of $225.7
in 1998 and $219.3 in 1997 533.2 437.7
-------- --------
4,158.0 4,087.2
-------- --------
CURRENT ASSETS:
Cash and equivalents 9.7 3.1
Accounts receivable, net 425.5 373.7
Inventories at average cost:
Fuel 78.9 77.6
Materials and supplies 92.6 91.9
Diversified materials 129.5 126.8
Underrecovery of fuel cost 39.6 34.5
Income taxes receivable -- 16.8
Deferred income taxes 40.8 5.8
Other 47.9 45.1
-------- --------
864.5 775.3
-------- --------
OTHER ASSETS:
Investments:
Loans receivable, net 31.0 24.0
Nuclear plant decommissioning fund 295.9 266.7
Joint ventures and partnerships 56.2 54.6
Deferred purchased power contract termination costs 336.7 348.2
Other 338.6 204.0
-------- --------
1,058.4 897.5
-------- --------
$ 6,080.9 $ 5,760.0
======== ========
Note: The accompanying notes are an integral part of these financial statements.
3
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(In millions)
June 30, December 31,
1998 1997
----------- -----------
CAPITAL AND LIABILITIES (Unaudited)
COMMON STOCK EQUITY:
Common stock $ 1,208.4 $ 1,209.0
Retained earnings 591.4 567.0
-------- --------
1,799.8 1,776.0
CUMULATIVE PREFERRED STOCK OF FLORIDA POWER:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 2,372.1 2,377.8
-------- --------
TOTAL CAPITAL 4,205.4 4,187.3
-------- --------
CURRENT LIABILITIES:
Accounts payable 254.6 253.2
Customers' deposits 100.4 97.1
Income taxes payable 63.4 --
Accrued other taxes 55.3 12.0
Accrued interest 60.4 56.8
Other 59.2 74.8
-------- --------
593.3 493.9
Notes payable 330.4 214.8
Current portion of long-term debt 56.3 15.2
-------- --------
980.0 723.9
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 489.4 471.2
Unamortized investment tax credits 81.7 85.7
Other postretirement benefit costs 111.7 107.4
Other 212.7 184.5
-------- --------
895.5 848.8
-------- --------
$ 6,080.9 $ 5,760.0
======== ========
Note: The accompanying notes are an integral part of these financial statements.
4
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Cash Flows
(In millions)
Six Months Ended
June 30,
1998 1997
------- -------
(Unaudited)
OPERATING ACTIVITIES:
Income from continuing operations $128.3 $48.3
Adjustments for noncash items:
Depreciation and amortization 208.9 166.3
Extended nuclear outage - replacement power cost - 70.2
Deferred income taxes and
investment tax credits, net (27.1) (20.9)
Increase in accrued other postretirement
benefit costs 4.3 3.9
Net change in deferred insurance policy
acquisition costs - (3.0)
Net change in insurance policy benefit reserves - 30.8
Changes in working capital, net of effects from acquisition or sale of
businesses:
Accounts receivable (27.9) (59.4)
Inventories 18.0 (30.0)
Underrecovery of fuel cost (10.1) (46.6)
Accounts payable (15.2) 21.8
Income taxes payable 80.6 (16.9)
Accrued other taxes 43.0 38.2
Other (14.4) (13.1)
Other operating activities (4.3) 5.8
-------- -------
384.1 195.4
-------- -------
INVESTING ACTIVITIES:
Property additions (including allowance for
borrowed funds used during construction) (217.1) (188.5)
Sales (Purchases) of loans and securities, net (7.1) 11.8
Proceeds from sale of properties 6.7 4.2
Acquisition of businesses (104.3) (14.3)
Investments in joint ventures and partnerships, net (2.0) (12.6)
Other investing activities (82.5) (9.7)
-------- --------
(406.3) (209.1)
-------- --------
FINANCING ACTIVITIES:
Issuance of long-term debt 189.1 -
Repayment of long-term debt (170.1) (22.2)
Increase in commercial paper with
long-term support - 61.7
Dividends paid on common stock (103.9) (101.9)
Increase in short-term debt 115.6 90.1
Other financing activities (1.9) (.1)
-------- --------
28.8 27.6
-------- --------
NET INCREASE IN CASH AND EQUIVALENTS 6.6 13.9
Beginning cash and equivalents 3.1 5.2
-------- --------
ENDING CASH AND EQUIVALENTS $9.7 $19.1
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $86.0 $78.0
Income taxes (net of refunds) $16.4 $56.5
The accompanying notes are an integral part of these financial statements.
5
Statements of Changes in Equity For the periods ended June 30, 1998 and 1997
(Dollars in millions)
Cumulative
Preferred Stock
Accumulated --------------
Other Without With
Common Retained Comprehensive Sinking Sinking
Total Stock Earnings Income Funds Funds
------ ------- -------- ------------ ------- -------
Balance, December 31, 1996 $1,957.7 $1,208.3 $716.5 $(0.6) $ 33.5 $ -
Comprehensive income
Net income 48.3 48.3
Unrealized loss on securities
net of $0.4 income tax expense (0.6) (0.6)
-------- -------- ------- ------- ------- -------
47.7 - 48.3 (0.6) - -
Common stock issued 0.7 0.7
Cash dividends on common stock (101.9) (101.9)
-------- -------- ------- ------- ------- -------
Balance, June 30, 1997 $1,904.2 $1,209.0 $662.9 $ (1.2) $ 33.5 $ -
======== ======== ======= ======== ======= =======
Balance, December 31, 1997 1,809.5 $1,209.0 $567.0 $ - $ 33.5 $ -
Comprehensive income
Net income 128.3 128.3
Other comprehensive income - -
------- -------- ------- -------- ------- -------
128.3 - 128.3 - - -
Common stock (redeemed) (0.6) (0.6)
Cash dividends on common stock (103.9) (103.9)
------- -------- ------- -------- ------- -------
Balance, June 30, 1998 $1,833.3 $1,208.4 $ 591.4 $ - $33.5 $ -
======= ======== ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
6
FLORIDA POWER CORPORATION
FINANCIAL STATEMENTS
FLORIDA POWER CORPORATION
Statements of Income
(In millions) Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
(Unaudited) (Unaudited)
OPERATING REVENUES:
Residential $335.5 $306.3 $644.2 $597.0
Commercial 153.7 145.4 277.4 269.6
Industrial 55.2 55.1 103.0 107.0
Sales for resale 43.8 20.3 80.7 57.4
Other 75.6 70.1 123.7 120.0
-------- -------- --------- --------
663.8 597.2 1,229.0 1,151.0
-------- -------- --------- --------
OPERATING EXPENSES:
Operation:
Fuel 135.9 118.8 245.1 213.7
Purchased power 110.8 116.8 209.8 244.0
Energy conservation cost 19.0 16.6 35.6 27.6
Operations and maintenance 116.2 110.7 218.6 213.1
Extended nuclear outage - O&M
and replacement power costs - 89.9 5.1 97.8
Depreciation and amortization 90.4 74.2 171.4 148.5
Taxes other than income taxes 51.4 48.6 100.9 96.7
-------- -------- -------- --------
523.7 575.6 986.5 1,041.4
-------- -------- -------- --------
Income taxes:
Currently payable 61.4 3.8 93.9 36.0
Deferred, net (19.2) (5.3) (25.5) (13.3)
Investment tax credits, net (1.9) (1.9) (3.9) (3.9)
-------- -------- -------- --------
40.3 (3.4) 64.5 18.8
-------- -------- -------- --------
564.0 572.2 1,051.0 1,060.2
-------- -------- -------- --------
OPERATING INCOME 99.8 25.0 178.0 90.8
-------- -------- -------- --------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 2.2 1.4 4.4 2.7
Miscellaneous other expense, net (.6) .1 (.6) (.9)
-------- -------- -------- --------
1.6 1.5 3.8 1.8
-------- -------- -------- --------
INTEREST CHARGES
Interest on long-term debt 29.0 22.4 59.6 44.7
Other interest expense 6.2 3.7 11.5 6.7
-------- -------- -------- --------
35.2 26.1 71.1 51.4
Allowance for borrowed funds used
during construction (1.9) (.9) (3.6) (1.7)
-------- -------- -------- --------
33.3 25.2 67.5 49.7
-------- -------- -------- --------
NET INCOME 68.1 1.3 114.3 42.9
DIVIDENDS ON PREFERRED STOCK .4 .4 .8 .8
-------- -------- -------- --------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $67.7 $0.9 $113.5 $42.1
======== ======== ========= ========
The accompanying notes are an integral part of these financial statements.
7
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
June 30, December 31,
1998 1997
----------- -----------
ASSETS (Unaudited)
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held $6,210.6 $6,166.8
for future use
Less - Accumulated depreciation 2,621.2 2,511.0
Accumulated decommissioning for nuclear plant 238.4 223.7
Accumulated dismantlement for fossil plants 129.5 128.5
----------- -----------
3,221.5 3,303.6
Construction work in progress 345.8 279.4
Nuclear fuel, net of amortization of $365.6
in 1998 and $356.7 in 1997 57.5 66.5
----------- -----------
3,624.8 3,649.5
Other property, net 34.7 33.2
----------- -----------
3,659.5 3,682.7
----------- -----------
CURRENT ASSETS:
Cash and equivalents 9.4 -
Accounts receivable, less reserve of $3.5
in 1998 and $3.2 in 1997 272.9 243.9
Inventories at average cost:
Fuel 51.0 44.0
Materials and supplies 92.6 91.9
Underrecovery of fuel cost 39.6 34.5
Income tax receivable - 13.5
Deferred income taxes 40.8 5.8
Other 32.6 32.2
----------- ----------
538.9 465.8
---------- ----------
OTHER ASSETS:
Nuclear plant decommissioning fund 295.9 266.7
Unamortized debt expense, being amortized
over term of debt 38.6 25.0
Deferred purchased power contract termination costs 336.7 348.2
Other 143.5 112.4
---------- ----------
814.7 752.3
---------- ----------
$5,013.1 $4,900.8
========== ===========
The accompanying notes are an integral part of these financial statements.
8
FLORIDA POWER CORPORATION
Balance Sheets
(In millions)
June 30, December 31,
1998 1997
---------- ----------
CAPITALIZATION AND LIABILITIES (Unaudited)
CAPITALIZATION:
Common stock $1,004.4 $1,004.4
Retained earnings 778.6 763.1
---------- ----------
1,783.0 1,767.5
CUMULATIVE PREFERRED STOCK:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 1,746.3 1,745.4
---------- ----------
TOTAL CAPITAL 3,562.8 3,546.4
---------- ----------
CURRENT LIABILITIES:
Accounts payable 153.9 161.9
Accounts payable to associated companies 21.8 26.5
Customers' deposits 100.4 97.1
Income taxes payable 65.7 -
Accrued other taxes 51.2 7.9
Accrued interest 48.2 45.7
Other 32.1 59.2
---------- ----------
473.3 398.3
Notes payable 159.4 179.8
Current portion of long-term debt 1.6 1.5
---------- ----------
634.3 579.6
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 466.8 451.3
Unamortized investment tax credits 81.2 85.1
Other postretirement benefit costs 108.6 104.7
Other 159.4 133.7
---------- ----------
816.0 774.8
---------- ----------
$5,013.1 $4,900.8
========== ==========
The accompanying notes are an integral part of these financial statements.
9
FLORIDA POWER CORPORATION
Statements of Cash Flows (In millions)
Six Months Ended
June 30,
1998 1997
-------- --------
(Unaudited)
OPERATING ACTIVITIES:
Net income after dividends on preferred stock $113.5 $42.1
Adjustments for noncash items:
Depreciation and amortization 189.9 152.3
Extended nuclear outage - replacement power cost - 70.2
Deferred income taxes and investment
tax credits, net (29.8) (17.2)
Increase in accrued other postretirement
benefit costs 3.9 3.7
Allowance for equity funds used during construction (4.4) (2.7)
Changes in working capital:
Accounts receivable (29.1) (43.9)
Inventories (7.7) (5.8)
Underrecovery of fuel cost (10.1) (46.6)
Accounts payable (8.0) 5.6
Accounts payable to associated companies (4.7) 2.2
Income taxes payable 79.2 2.8
Accrued other taxes 43.3 38.1
Other (21.6) (4.0)
Other operating activities 9.4 5.8
--------- ---------
323.8 202.6
--------- ---------
INVESTING ACTIVITIES:
Construction expenditures (125.1) (151.8)
Allowance for borrowed funds used during construction (3.6) (1.7)
Additions to nonutility property (4.8) (1.7)
Proceeds from sale of properties 3.1 3.2
Other investing activities (51.2) (9.7)
--------- ---------
(181.6) (161.7)
--------- ---------
FINANCING ACTIVITIES:
Issuance of long-term debt 144.1 -
Repayment of long-term debt (158.6) (20.6)
Dividends paid on common stock (98.0) (96.3)
Increase (decrease) in short-term debt (20.3) 90.1
--------- ---------
(132.8) (26.8)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 9.4 14.1
Beginning cash and equivalents - -
--------- ---------
ENDING CASH AND EQUIVALENTS $9.4 $14.1
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $63.2 $55.8
Income taxes (net of refunds) $15.2 $32.4
The accompanying notes are an integral part of these financial statements.
10
FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
1) As previously reported in their combined Form 8-K dated June 2, 1998,
Florida Progress Corporation ("Florida Progress") and Florida Power
Corporation ("Florida Power") amended the combined Form 10-Q of Florida
Progress and Florida Power for the quarters ended June 30, 1997 and
September 30, 1997 (the "second quarter 1997 Form 10-Q" and "third quarter
1997 Form 10-Q" respectively) and the combined Form 10-K of Florida
Progress and Florida Power for the year ended December 31, 1997 (the "1997
Form 10-K") in response to comments received from the Securities and
Exchange Commission ("SEC"). The SEC comments contended that Florida Power
should have recognized the operations and maintenance ("O&M") costs
associated with the extended outage of the Crystal River Nuclear Plant
("CR3") as those costs were incurred during 1997. In June 1997, Florida
Power recorded a $72.4 million accrual for O&M costs that it expected to
incur for the remaining six months of 1997. The accrual was based on
commitments and obligations associated with outage-related work planned for
the remainder of the year.
The financial results for the second, third and fourth quarters of 1997
have been restated to reflect the recognition of nuclear outage O&M costs
as incurred. The change affected the financial results for the interim
reporting periods but did not have any impact on the results of the fiscal
year ended 1997. The following table details the restated and originally
reported financial results for Florida Progress and Florida Power for the
three and six months ended June 30, 1997:
(In millions, except per share amounts) Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
1997 as amended:
Florida Progress
Net income $6.3 $48.3
Earnings per share-basic & fully diluted .07 .50
Florida Power
Net income .9 42.1
1997 as originally reported:
Florida Progress
Net income (loss) $(38.2) $3.8
Earnings (loss) per share-basic & fully diluted (.39) .04
Florida Power
Net income (loss) (43.6) (2.4)
2) In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and
reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities on the Balance Sheet and measure those instruments at fair
values. Florida Progress will be required to adopt this standard for
financial statements issued beginning the first quarter of the year 2000.
Florida Progress is currently evaluating the effect the standard would have
on its financial statements.
3) In December 1997, Florida Power ended the three-year test period for
residential revenue decoupling which was ordered by the Florida Public
Service Commission ("FPSC") and began in January 1995. The difference
between target revenues and actual revenues is included as a current asset
on the balance sheet for the period ended December 31, 1997. The regulatory
asset of $21.8 million, at December 31, 1997, will be recovered from
customers over a two year period, ending April 2000, through the energy
conservation cost recovery clause as directed by the FPSC decoupling order.
Revenue decoupling increased residential revenues by $4.7 million and $12.2
million for the three and six month periods ended June 30, 1997.
11
4) CONTINGENCIES
PURCHASED POWER COMMITMENTS - The purchased power contracts with qualifying
facilities ("QFs") employ separate pricing methodologies for capacity
payments 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 applicable contract is based would not have been operated.
Four cogenerators filed individual suits in state court against Florida
Power over contract payment terms, one of which also filed suit in Federal
Court. Two of the suits have been settled, and the Federal case was
dismissed, although the plaintiff has filed a motion for reconsideration.
Currently trial dates are set for late 1998 and mid 1999 for the two
remaining suits. Management does not expect the results of these legal
actions will have a material impact on Florida Power's financial position,
operations or liquidity.
OFF-BALANCE SHEET RISK - Several of Florida Progress' subsidiaries are
general partners in unconsolidated partnerships and joint ventures. Florida
Progress or its subsidiaries have agreed to support certain loan agreements
of the partnerships and joint ventures. Those credit risks are not material
to the financial statements of Florida Progress and are considered minimal,
based upon the asset values supporting the liabilities of these entities.
MID-CONTINENT LIFE INSURANCE COMPANY -- A series of events in 1997
significantly jeopardized the ability of Mid-Continent Life Insurance
Company ("Mid-Continent"), Florida Progress' wholly owned subsidiary, to
implement a plan to eliminate a projected reserve deficiency, resulting in
the impairment of Florida Progress' investment in Mid-Continent.
On April 14, 1997, the Insurance Commissioner of the State of Oklahoma
("Commissioner") received court approval to temporarily seize control of
the operations of Mid-Continent, and in May 1997, the Oklahoma County
District Court granted the Commissioner's application to place Mid-
Continent into receivership. The Commissioner had alleged that Mid-
Continent's reserves were understated by more than $125 million, thus
causing Mid-Continent to be statutorily impaired. The Commissioner further
alleged that Mid-Continent had violated Oklahoma law relating to deceptive
trade practices in connection with the sale of its "Extra Life" insurance
policies and was not entitled to raise premiums, a key element of
Mid-Continent's plan to address the projected reserve deficiency. While
sustaining the receivership, the court also ruled that premiums could be
raised. Both sides appealed the decision to the Oklahoma Supreme Court, and
that appeal is still pending.
Even though the appeal is still pending, the Oklahoma District Court
continues to hear motions and conduct other proceedings relating to the
receivership. At a hearing on June 17, 1998, the judge rejected both the
Commissioner's and Mid-Continent's rehabilitation plans. The judge invited
both parties to submit simplified plans that include premium increases. In
the annual statement filed by the Commissioner on behalf of Mid-Continent,
the estimated reserve deficiency was revised upward to $348 million.
Florida Progress believes that this new figure is untenable and not based
on sound actuarial principles.
In a ruling on July 17, 1998, the Court ordered the Commissioner to provide
actuarial data to Mid-Continent. This information, which was previously
withheld, will enable Mid-Continent to further develop rehabilitation
plans. At the same time, the Judge denied a Florida Progress motion to
disqualify Commissioner Crawford as a receiver due to conflict of interest.
In December 1997, the Commissioner filed a lawsuit against Florida
Progress, certain of its directors and officers and certain former Mid-
12
Continent officers, making a number of allegations (as detailed in
paragraph 10 under Item 3 "Legal Proceedings" in the 1997 Form 10-K), and
seeking access to Florida Progress' assets to satisfy policyholder and
creditor claims. On April 17, 1998, the court granted motions to dismiss
the individual defendants, leaving Florida Progress as the sole remaining
defendant in the lawsuit. Florida Progress believes the Commissioner's
lawsuit is without merit, and intends to vigorously defend itself against
these charges. The ultimate outcome of the matter cannot presently be
determined. Accordingly, Florida Progress has made no provision for any
loss for this matter.
As a result of the Commissioner's actions and other factors described under
the heading "Mid-Continent Life Insurance Company" in Note 11 to the
financial statements in the 1997 Form 10-K, Florida Progress believed the
full amount of its $86.9 million investment in Mid-Continent at December
31, 1997 was impaired. Therefore, Florida Progress recorded a provision for
loss on investment of $86.9 million in 1997. In addition, tax benefits of
approximately $11 million related to the excess of the tax basis over the
book value in the investment in Mid-Continent as of December 31, 1997, were
not recorded because of uncertainties associated with the timing of a tax
deduction. Florida Progress also recorded an accrual at December 31, 1997
for legal fees associated with defending its position in current
Mid-Continent legal proceedings.
Mid-Continent's financial statements have been deconsolidated effective
December 31, 1997. Prospectively, the investment will be accounted for
under the cost method.
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 an FPSC
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 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 $83.9 million per incident, with a
maximum assessment of $10 million per year.
Florida Power is a member of the Nuclear Electric Insurance, Ltd. ("NEIL"),
an industry mutual insurer, which provides business interruption and extra
expense coverage in the event of a major accidental outage at a covered
nuclear power plant. Florida Power is subject to a retroactive premium
assessment by NEIL under this policy in the event loss experience exceeds
NEIL's available surplus. Florida Power's present maximum share of any such
retroactive assessment is $2.7 million per policy year.
Florida Power also maintains nuclear property damage insurance and
decontamination and decommissioning liability insurance totaling $2.1
billion. The first layer of $500 million is purchased in the commercial
insurance market with the remaining excess coverage purchased from NEIL.
Florida Power is self-insured for any losses that are in excess of this
coverage. Under the terms of the NEIL policy, Florida Power could be
assessed up to a maximum of $9.5 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.
13
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 Environmental
Protection Agency ("EPA") as potentially responsible parties ("PRPs") at
certain sites, including a coal gasification plant site in Sanford, Florida
("Sanford site") that Florida Power previously owned and operated. There
are five parties, including Florida Power, that have been identified as
PRPs at the Sanford site. Liability for the cleanup costs at these sites is
joint and several.
Negotiations are ongoing with the EPA to define the scope of the Risk
Investigation and Feasibility Study ("RI/FS") as outlined in the
Administrative Order on Consent. The PRP's, at the Sanford site, have
agreed to spend up to $1.5 million to perform the RI/FS, and Florida Power
is liable for 39.7% of those costs. Upon completion of the RI/FS, the EPA
will advise the PRP's and Florida Power to what extent the contamination
may be attributable to previous operations at the site. The RI/FS field
work will be completed by the end of 1998 with a final Treatability Study
report expected to be finalized by August 1999.
The discussions and resolution of liability for cleanup costs could cause
Florida Power to increase its estimate of its liability for those costs.
Although estimates of any additional costs are not currently available, the
outcome is not expected to have a material effect on Florida Progress'
financial position, results of operations or liquidity.
In addition to these designated sites, there are other sites where
affiliates may be responsible for additional environmental cleanup.
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' current estimates indicate that its proportionate share of
liability for cleaning up all sites ranges from $2.5 million to $7.5
million. It has reserved $4.7 million against these potential costs.
ADVANCED SEPARATION TECHNOLOGIES ("AST")- In 1996, Florida Progress sold
its 80% interest in AST to Calgon Carbon Corporation ("Calgon") for $56
million cash. Calgon filed a lawsuit in January 1998, and amended it in
April 1998, alleging misstatement of AST's 1996 revenues, assets and
liabilities, seeking damages and the right to rescind the sale. The lawsuit
also accuses Florida Progress of failing to disclose flaws in AST's
manufacturing process and a lack of quality control. Florida Progress
intends to vigorously defend itself against this lawsuit. No projection of
an outcome or estimate of a potential liability, if any, can be determined
at this time.
AGE DISCRIMINATION SUIT - Florida Power and Florida Progress have been
named defendants in an age discrimination lawsuit involving 112 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 to provisionally certify this case as
a class action suit under the Age Discrimination in Employment Act.
Estimates of the potential liability associated with this lawsuit cannot be
made until the final decision on whether to certify the case as a class
action suit has been made. A decision is not expected until late 1998.
4) In the opinion of management, the accompanying financial statements include
all adjustments deemed necessary to summarize fairly and reflect the
financial position and results of operations of Florida Progress and
Florida Power for the interim periods presented. Quarterly results are not
necessarily indicative of results for the full year. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto in the 1997 Form 10-K.
14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OPERATING RESULTS
In June 1998, Florida Progress and Florida Power amended their combined second
and third quarter 1997 Form 10-Qs and 1997 Form 10-K in response to comments
received by the SEC. The SEC comments contended that Florida Power should have
recognized the O&M costs associated with the extended nuclear outage as those
costs were incurred during 1997. Financial results contained herein for 1997
have been restated to comply with those comments. (See Note 1 to the Financial
Statements).
Florida Progress' earnings for the three month period ended June 30, 1998, were
$.80 per share compared to earnings of $.07 cents per share for the same period
in 1997. The increase resulted primarily from Florida Power, Florida Progress'
largest operating unit, which reported earnings of $.70 per share compared to
earnings of $.01 per share for the same period last year. Earnings per share for
Florida Progress for the six month period were $1.32 compared to $.50 for the
same period last year. The increase for both the three and six month periods is
primarily due to hotter than normal weather experienced during the second
quarter of 1998 as compared to the same period in the prior year. Also in 1997,
Florida Power's earnings were adversely affected by the extended outage at CR3.
(See Note 1 to the Financial Statements).
Diversified earnings per share were $.10 for the second quarter of 1998, $.04
higher than the same quarter last year, due primarily to improved earnings at
Electric Fuels Corporation ("Electric Fuels"), Florida Progress' energy and
transportation subsidiary, and to a one-time gain realized from the buy-out of a
purchase power contract associated with a cogeneration facility in which a
Florida Progress subsidiary is a minority partner. For the six months ended June
30, 1998, earnings per share from diversified operations of $.15 were $.09
higher than the same period in 1997 due to the gain on the purchased power
contract and higher earnings at Electric Fuels. The improvement in earnings at
Electric Fuels was due primarily to acquisitions in 1998 and 1997 and improved
operations at its Inland Marine Transportation Group.
Florida Power - Operating Revenues
Florida Power's operating revenues were $66.6 million (11.2%) and $78.0 million
(6.8%) higher for the three and six month periods ended June 30, 1998, compared
to the same periods in 1997. Increased customer usage, primarily due to hotter
than normal weather throughout the second quarter, was the main reason for the
increase. Temperature records were set throughout Florida Power's service
territory and the state, particularly during the month of June. In addition to
higher customer usage, strong retail customer growth also contributed to the
increase in retail sales.
Florida Power - Operating Expenses
Fuel and purchased power costs were $11.1 million (4.7%) higher for the three
month period and $2.8 million (.01%) lower for the six month period ended June
30, 1998, compared to the same periods in 1997. The increase for the quarter was
due primarily to the increase in system requirements due to the hot weather. The
decrease for the six month period was due primarily to lower fuel costs
resulting from CR3's return to service in mid-February 1998. In June 1997, in
accordance with the terms of the stipulation and settlement agreement, Florida
Power recorded $70.2 million in replacement power costs in connection with the
extended outage at CR3. Except for the $70.2 million in replacement power costs
resulting from the extended nuclear outage, Florida Power recovers substantially
all of its fuel and purchased power costs through a FPSC ordered fuel adjustment
clause, thereby eliminating any impact on net income. The disallowed replacement
power costs of $70.2 million related to the extended nuclear outage were not
recovered through the fuel adjustment clause, as a result of the 1997
settlement.
15
Other operation and maintenance expenses, excluding the impact of the extended
outage, increased $5.5 million for both the three and six months ended June 30,
1998. The increase was due primarily to an unplanned 32-day outage of a
coal-fired, base load plant, as well as to the additional operating costs
associated with the Tiger Bay cogeneration facility that was purchased in July
1997.
Depreciation and amortization expense was $16.2 million and $22.9 higher for the
three and six months ended June 30, 1998, compared to the same periods last
year. Florida Power accelerated the amortization of regulatory assets in the
amount of $14 million in the second quarter of 1998, in accordance with the
terms of applicable regulatory orders. Approximately half of the amortization
was attributable to termination costs associated with the Tiger Bay purchased
power contracts. The remainder was attributable to deferred carrying charges on
plant assets which had previously been placed in extended cold shutdown.
Excluding the accelerated amortization of the regulatory assets, the increase in
depreciation and amortization expense was due to a higher overall plant balance,
primarily resulting from the addition of the Tiger Bay facility.
Interest expense increased $9.1 million and $19.7 million for the three and six
month periods ended June 30, 1998 compared to the same periods in 1997. The
increase for both periods was a result of higher debt balances during 1998 due
primarily to the issuance of $450 million of medium-term notes in July 1997 to
fund the Tiger Bay acquisition and increased costs associated with the nuclear
outage.
Florida Progress Diversified Operations
Florida Progress' revenues from diversified operations were $39.2 million and
$67.8 million higher for the three and six months ended June 30, 1998 compared
to the same periods last year due primarily to increased revenues at Electric
Fuels. In addition, diversified revenues for both the quarter and six months
ended June 30, 1998 reflect the absence of revenues from Mid-Continent, which
was placed into receivership in the second quarter of 1997. (See Note 4,
"Contingencies - Mid-Continent Life Insurance Company" contained herein.)
Electric Fuels earned $10.6 million, or $.11 per share, during the second
quarter, compared with $9.2 million or $.10 per share, in 1997. The increase in
earnings came from improved results from its Rail Services and Energy and
Related Services business units.
Improved second quarter results for the Rail Services group stemmed from
continued strong sales of track works and railcar parts and services. Also
contributing to the $1.1 million increase in earnings for the group were higher
volumes and operating margins resulting from acquisitions completed in both 1997
and 1998. Earnings for Electric Fuels' Energy and Related Services group were up
$.7 million in the second quarter. The improvement in earnings was due primarily
to increased deliveries by its offshore barge transportation division and lower
operating costs. The increased offshore barge deliveries resulted largely from
higher volumes of coal transported to Florida Power's Crystal River Energy
Complex. The Inland Marine group experienced slightly lower earnings for the
quarter when compared to 1997. Earnings from this group were down $.4 million
due primarily to weak export market conditions that have lowered freight rates
in 1998 when compared with 1997.
For the six month period ending June 30, 1998 Electric Fuels had earnings of
$18.8 million, or $.13 per share, an increase in earnings of $6.3 million, or
$.06 per share, over the same period in the prior year. Electric Fuels'
acquisitions in its Rail Services group in 1998 and 1997, along with increased
sales in track work and railcar parts and services contributed to the increase.
Improved operations and increased offshore barge deliveries from the Energy &
Related Services group also contributed to the increase. In the first quarter of
1997, flooding along the Ohio and Mississippi Rivers significantly affected
earnings for the Inland Marine Transportation Group. Normal operating conditions
thus far in 1998 combined with a larger fleet have also increased earnings when
compared to the same period in the prior year.
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NUCLEAR OPERATIONS
On July 29, 1998, the Nuclear Regulatory Commission ("NRC") removed CR3 from the
NRC "watch list". Earlier in July 1998, the NRC gave CR3 an overall report of
good performance and improvements in all areas assessed for the agency's
Systematic Assessment of Licensee Performance ("SALP") ratings. CR3 received an
NRC rating of "good" or a grade of "2" in each of the four SALP functional
areas: Plant Operations, Maintenance, Engineering and Plant Support. The current
report covers the period from October 6, 1997, through May 9, 1998. CR3 has been
functioning at or near full capacity since it came on-line in February of 1998.
YEAR 2000
Florida Progress does not anticipate that the costs incurred in preparing its
computer information systems and embedded technology to address the year 2000
problem will have a material adverse impact on its financial statements. The
anticipated date of completion of integration testing for year 2000 readiness is
the end of the third quarter of 1999. Florida Progress is currently working with
vendors to remedy year 2000 issues and to develop contingency plans by the end
of the third quarter of 1999. Florida Progress' current estimate of the total
costs of addressing year 2000 issues, including expenses to remedy both embedded
systems and computer information systems, is between $15 million and $25
million.
LIQUIDITY AND CAPITAL RESOURCES
Florida Power budgeted $294 million, excluding allowance for funds used during
construction, for its 1998 construction program. This is expected to be financed
by internally generated funds. During the first six months of 1998, $125.1
million was spent on the construction program, financed primarily with funds
from operations.
Florida Power's ratio of earnings to fixed charges was 3.36 for the twelve
months ended June 30, 1998. (See Exhibit 12 filed herewith).
Progress Capital Holdings, Inc.("Progress Capital"), a wholly owned subsidiary
of Florida Progress, has a private $300 million medium-term note program
providing for the issuance of notes with maturities ranging from nine months to
30 years. In May 1998, Progress Capital issued $45 million of ten year, 6.46%
fixed-rate medium-term notes. The proceeds are expected to be used for general
corporate purposes of Florida Progress.
On August 6, 1998, MEMCO Barge Line, Inc.("MEMCO"), a wholly-owned subsidiary of
Electric Fuels, entered into a synthetic lease financing of an aggregate of
approximately $175 million of inland river barges and $25 million of tow boats.
The cost of the barges and tow boats will be 100% financed by secured notes and
trust certificates issued by MEMCO Barge Line 1998 Trust ("MEMCO Trust"). On
August 6, 1998, MEMCO Trust issued $69.3 million of secured notes with a coupon
of 6.95% and a maturity date of June 30, 2014, and received certificate holder
contributions of $40.7 million in respect of trust certificates yielding 7.70%
with a maturity of June 30, 2014. Charter (lease) payments to be made by MEMCO
will be sufficient to cover the interest on the notes, yield on certificates and
principal repayments during the term of the charter. Charter payments are 100%
guaranteed by Progress Capital. A second closing in respect of the balance of
$56.7 million of notes and $33.3 million of certificate holder contributions is
expected to be held in December 1998.
On June 16, 1998, Progress Rail Services Corporation, a subsidiary of Electric
Fuels, purchased the assets of Blue Industrial Group, which is based in
Louisville, Kentucky. The acquisition includes substantially all of the assets
and operations of Louisville Scrap Material Company, Inc., KYRailquip, Inc.,
LSM-Roanoke, Inc. and Indigo Rail Resources, LLC. These companies are primarily
engaged in commercial metals recycling and brokerage, railcar dismantling, the
reconditioning of parts for railroad freight cars and railcar resale and
leasing. In addition to Blue Industrial Group, EFC has made other smaller
acquisitions to strategically grow the business.
17
On June 22, 1998, Florida Progress received a favorable ruling from the Internal
Revenue Service ("IRS") National Office, regarding the Tiger Bay Cogeneration
("Tiger Bay") purchase in 1997. The ruling announced a conclusion of law that
Florida Power may deduct in 1997 that portion of the $445 million paid to Tiger
Bay Limited Partnership that was properly allocable to termination of the power
purchase agreement, or approximately $281 million. As a result, Florida Progress
expects to receive a $93.8 million refund from the IRS in August 1998.
Florida Progress and Florida Power believe their available sources of liquidity
will be sufficient to fund their long-term and short-term capital requirements.
"SAFE HARBOR" STATEMENT UNDER
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward looking statements, including projections
regarding the proportionate liability for cleaning up certain environmental
sites; the effect of certain legal proceedings on the operations of
Mid-Continent; and the costs associated with preparing computers for the year
2000 problem.
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 business
and Florida Progress' other businesses in general, and on factors which impact
Florida Progress directly. The projections and estimates relate to the pricing
of services, the actions of regulatory bodies and the effects of competition.
Key factors that have a direct impact on the 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. In addition, in developing its forward-looking statements,
Florida Progress has made certain assumptions relating to information technology
and productivity improvements, the favorable outcome of various commercial,
legal and regulatory proceedings and the lack of disruption to its markets.
If Florida Progress' and Florida Power's projections and estimates regarding the
economy, the electric utility business and other factors differ materially from
what actually occurs, or if various proceedings have unfavorable outcomes, then
actual results could vary significantly from the performance projected in the
forward-looking statements.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Florida Progress is exposed to changes in interest rates primarily as a result
of its borrowing activities.
A hypothetical 56 basis point increase in interest rates (10% of Florida
Progress weighted average interest rate) affecting its variable rate debt
($830.4 million at June 30, 1998) would have an immaterial effect on Florida
Progress' pre-tax earnings over the next fiscal year. A hypothetical 10%
decrease in interest rates would also have an immaterial effect on the estimated
fair value of Florida Progress' long-term debt at June 30, 1998.
Commodity Price Risk
Currently, at Florida Power, commodity price risk due to changes in market
conditions for fuel and purchased power are recovered through the fuel
adjustment clause, with no effect on earnings.
Electric Fuels is exposed to commodity price risk through coal sales. A 10%
change in the market price of coal would have an immaterial effect on the
earnings of Florida Progress.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1. In re: Conservation Cost Recovery Clause, Florida Public Service
Commission, Docket NO. 961184-EQ In re: Petition for approval of early
termination amendment to negotiated qualifying facility contract with
Orlando Cogen, Limited, Ltd.("Orlando Cogen"), Florida Public Service
Commission, Docket
No. 961184-EQ.
See prior discussion of this matter in the 1997 Form 10-K, Item 3,
paragraph 1. On March 16, 1998, the FPSC entered a final order denying the
Settlement Agreement between Florida Power and Orlando Cogen. This report
concludes this matter for reporting purposes.
2. In re: Standard Offer Contract for the purchase of firm capacity and
energy from a qualifying facility between Panda-Kathleen, L.P. ("Panda")
and Florida Power Corporation, FPSC Docket No. 950110-EI.
See prior discussion of this matter in the 1997 Form 10-K, Item 3,
paragraph 4 and the first quarter 1998 Form 10-Q, Part 2, Item 1, paragraph
1. On July 2, 1998, the Florida Supreme Court lifted the previously issued
stay, and on July 10, 1998, Florida Power presented for payment the letter
of credit which had been posted by Panda to secure performance.
3. Metropolitan Dade County ("Dade") and Montenay Power Corp. ("Montenay") 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.
In re: Petition for Declaratory Statement That Energy Payments Are Limited
to Analysis of Avoided Unit's Contractually Specified Characteristics,
Florida Public Service Commission, Docket No. 980283-EQ
See prior discussion of this matter in the 1997 Form 10-K, Item 3,
paragraph 2 and the first quarter 1998 Form 10-Q, Part 2, Item 1, paragraph
2. In the District Court action, on June 25, 1998, the judge granted
Florida Power, Florida Progress and Electric Fuels' Motion for Summary
Judgment and dismissed the case. On July 10, 1998, Dade and Montenay filed
a motion for Reconsideration.
4. 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-C.V.-OC-10.
See prior discussion of this matter in the 1997 Form 10-K, Item 3,
paragraph 5. On June 19, 1998, the Judge issued an order on several pending
motions. The motion to dismiss Florida Progress was denied. The motion to
dismiss ERISA Claims against Florida Progress was granted. The Motion for
Summary Judgment on Defendants' Counterclaim relating to the state law
claims was granted. The Motion to Dismiss four plaintiffs based upon
statute of limitations violations was granted. As the case presently
stands, 112 plaintiffs remain.
19
5. Northern States Power Company et al. v. United States Department of Energy
("DOE"), U.S. Court of Appeals for the D.C. Circuit, Case No. 97-1065.
See prior discussion of this matter in the 1997 Form 10-K, Item 3,
paragraph 5. On May 5, 1998, the Court denied Florida Power's and 40 other
utilities' Motion to Enforce the previously issued mandate. The utilities
were seeking, among other things, an order to bar the use by the DOE of
Nuclear Waste Fund fees.
6. Florida Power Corporation v. United States, U.S. Court of Federal Claims,
Civil Action No. 96-702C.
Consolidated Edison Co., et al v. United States, United States District
Court, Southern District of New York, Case No.98-CIV-4115.
See prior discussion of the Court of Claims case in the 1997 Form 10-K,
Item 3, paragraph 6. In a related case, on June 30, 1998, the U.S. Supreme
Court denied the Petition for a Writ of Ceriorari in the Yankee Atomic
case. Consequently, the original District Court opinion in the Yankee
Atomic case, that the decontamination and decommissioning fee was a lawful
tax, stands.
On June 12, 1998, Florida Power, Consolidated Edison Co. and 15 other
utilities filed a declaratory judgment action in the Southern District of
New York against the United States Government, challenging the
constitutionality of the $2.25 billion retroactive assessment imposed by
the federal government on domestic nuclear power companies to fund the
decommissioning and decontamination of the government's uranium enrichment
facilities.
7. Gulf Power, et al v. United States of America and the Federal
Communications Commission, U.S. District Court, Northern District of
Florida, Pensacola Division, Case No. 3: 96-CV-381-LAC.
See prior discussion of this matter in the 1997 Form 10-K, Item 3,
paragraph 7. On March 17, 1998, several subsidiaries of the Southern
Company and Duke Power Company filed a Notice of Appeal and on June 3,
1998, the United States filed a Notice of Cross Appeal. Florida Power has
decided not to join in the appeal of this matter. This report concludes
this matter for reporting purposes.
8. State of Oklahoma, ex rel. John P. Crawford, Insurance Commissioner v.
Mid-Continent Life Insurance Company, District Court of Oklahoma County,
State of Oklahoma, Case No. CJ-97-2518-62.
State of Oklahoma, ex rel, John P. Crawford, Insurance Commissioner as
Receiver for Mid-Continent Life Insurance Company v. Florida Progress
Corporation, a Florida corporation, District Court of Oklahoma County,
State of Oklahoma. Case No. CJ-97-2518-62.
See prior discussion in this matter in the 1997 Form 10-K, Item 3,
paragraph 10 and the first quarter 1998 Form 10-Q, Part 2, Item 1,
paragraph 5 and Notes to the Financial Statements - "Contingencies"
contained herein. In a ruling on July 17, 1998, the Court granted
Mid-Continents' motion to proceed with a rehabilitation plan and ordered
the Commissioner to provide necessary actuarial data to Mid-Continent, so
that a detailed plan can be submitted to the Court.
9. Florida Power Corporation and Seminole Electric Cooperative v. Ronald J.
Schultz, Circuit Court for Citrus County, Case No.97-3383.
See prior discussion of this matter in the 1997 Form 10-K, Item 3,
paragraph 14. On June 25, 1998, the parties filed a joint stipulation of
dismissal after having executed a settlement agreement which fully resolves
all litigated issues. The parties agreed upon a methodology to be used in
determining appropriate values to be placed on utility property for tax
assessment purposes. This report concludes this matter for reporting
purposes.
20
10. ABC Rail Products Corporation v. Progress Rail Services Corporation and
Louisville Scrap Material Co., Inc., U.S. District Court, Northern District
of Illinois, Eastern Division, Civ. Action No. 98C3663.
On June 12, 1998, ABC Rail Products Corporation ("ABC") brought an action
against Progress Rail Services Corporation ("Progress Rail") and Louisville
Scrap Material Co. ("Louisville") seeking injunctive and declaratory relief
and treble damages based on alleged violations of federal and state
antitrust statutes as well as damages under other state law claims. The
complaint sought to enjoin Progress Rail's acquisition of certain assets
and business of Louisville and several affiliated corporations known as the
Blue Industrial Group. ABC alleged that Progress Rail and Louisville have
conspired to deny ABC an adequate supply of used railcar wheelsets. The
complaint also alleges Progress Rail would acquire monopoly power over the
supply of used wheelsets by virtue of the acquisition. The court denied
ABC's motion for a temporary restraining order and Progress Rail acquired
the Blue Industrial Group's assets and business. Pursuant to the court's
order, Progress Rail continues to provide ABC with used wheelsets.
ABC has filed a motion for a preliminary injunction, pending trial,
requiring Progress Rail (1) to continue providing ABC with used wheelsets
and (2) to hold the assets of Louisville separate so as to enable
divestiture to be an adequate remedy if the acquisition is found to violate
the antitrust laws. Discovery concerning this motion is ongoing. ABC has
asked for an evidentiary hearing on its motion.
On July 10, 1998, Progress Rail filed a denial of ABC's monopolization
claim and counter claims against ABC under the Clayton Act for monopoly in
the track works/new wheel set business, and under the Robinson-Patman Act
for attempting to monopolize through a freight equalization agreement with
GE Railcar that was not afforded to Progress Rail.
11. Calgon Carbon Corporation v. Potomac Capital Investment Corporation,
Potomac Electric Power Company, Progress Capital Holdings, Inc., and
Florida Progress Corporation, United States District Court for the Western
District of Pennsylvania, Civil Action No. 98-0072.
See prior discussion of this matter in the 1997 Form 10-K, Item 3,
paragraph 15. The defendants have filed a motion to dismiss all claims,
which has been responded to by the plaintiff.
Item 4. Submission of Matters to be a Vote of Security Holders.
The results of the matters submitted to the Shareholders of Florida
Progress at the Annual Meeting of Shareholders held on April 17, 1998, were
previously reported in the first quarter 1998 Form 10-Q, Item 4.
Item 5 . Other Information.
1. EXECUTIVE AND OFFICER CHANGES
As previously reported in the combined Florida Progress/Florida Power Form
8-K dated April 17, 1998, Dr. Jack Critchfield retired as Chairman of the
Board of Florida Progress effective June 30, 1998, and President and Chief
Executive Officer Richard Korpan succeeded Critchfield as Chairman
effective July 1, 1998. In conjunction with Dr. Critchfield's retirement,
the Board amended the Florida Progress Bylaws to reduce the total number of
directors from 11 to 10, effective July 1, 1998. A copy of the Florida
Progress Bylaws as amended is filed herewith as Exhibit 3.(a). In other
management changes, James Smallwood, Vice President and Treasurer of both
Florida Progress and Florida Power, was named Vice President - Mergers and
Acquisitions of Florida Progress and Pamela Saari, Assistant Treasurer of
Florida Progress and Florida Power, was named Treasurer of both Florida
Progress and Florida Power, effective June 18, 1998.
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2. STRATEGIC ALLIANCES
In May 1998, Florida Power formed a power marketing alliance with Houston
based Dynegy Inc. ("Dynegy")(formerly NGC Corporation), one of the nation's
largest power marketers. The expertise and technology of both companies
will be combined to conduct power marketing activities. Dynegy provides
additional expertise and knowledge on national trading that should allow
Florida Power to make additional sales from its generating assets.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Florida Florida
Number Exhibit Progress Power
------ ------- -------- -------
3.(a) Bylaws of Florida Progress, as amended X
to date.
12 Statement Regarding Computation of Ratio X
of Earnings to Fixed Charges for Florida
Power.
27.(a) Florida Progress Financial Data Schedule. X
27.(b) Florida Power Financial Data Schedule. X
X = Exhibit is filed for that respective company.
(b) Reports on Form 8-K:
During the second quarter 1998, Florida Progress and Florida Power
filed the following reports on Form 8-K:
Form 8-K dated April 17, 1998, reporting under Item 5, "Other Events"
the first quarter 1998 earnings, and Dr. Jack Critchfield's retirement
as Chairman and election of Richard Korpan to succeed Critchfield as
Chairman effective July 1, 1998.
Form 8-K dated June 2, 1998, reporting under Item 5, "Other Events"
the filing of amended second and third quarter 1997 Form 10-Q's and an
amendment to the 1997 Form 10-K to reflect a change in the recording
of nuclear outage costs.
In addition, Florida Progress and Florida Power filed the following
report on Form 8-K subsequent to the second quarter 1998:
Form 8-K dated July 16, 1998, reporting under Item 5 "Other Events"
the second quarter 1998 earnings and a litigation update.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized. The signature of each of the
undersigned on behalf of each listed company shall be deemed to relate
only to matters having reference to such company.
FLORIDA PROGRESS CORPORATION
FLORIDA POWER CORPORATION
Date: August 13, 1998 /s/ John Scardino, Jr.
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John Scardino, Jr.
Vice President and Controller
Date: August 13, 1998 /s/ Jeffrey R. Heinicka
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Jeffrey R. Heinicka
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Number Exhibit Progress Power
------ ------- -------- -------
3.(a) Bylaws of Florida Progress, as amended X
to date.
12 Statement Regarding Computation of Ratio X
of Earnings to Fixed Charges for Florida
Power.
27.(a) Florida Progress Financial Data Schedule. X
27.(b) Florida Power Financial Data Schedule. X
X = Exhibit is filed for that respective company.