EXHIBIT 13.2
ITEM 1. FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
REVENUES:
Electric utility $ 914.5 $ 794.9 $ 2,237.8 $ 2,037.3
Diversified 399.4 312.4 1,119.7 866.7
---------- ---------- ---------- ----------
1,313.9 1,107.3 3,357.5 2,904.0
---------- ---------- ---------- ----------
EXPENSES:
Electric utility:
Fuel 213.2 191.5 501.4 448.7
Purchased power 166.3 106.7 389.7 305.4
Energy conservation costs 20.0 25.4 50.0 61.9
Operation and maintenance 98.7 108.0 308.2 325.9
Depreciation and amortization 135.5 86.8 313.3 260.8
Taxes other than income taxes 59.4 56.9 165.3 159.9
---------- ---------- ---------- ----------
693.1 575.3 1,727.9 1,562.6
---------- ---------- ---------- ----------
Diversified:
Cost of sales 389.1 273.6 1,070.7 768.4
Loss related to life insurance subsidiary 12.8 -- 12.8 --
Other 21.8 30.3 63.7 60.7
---------- ---------- ---------- ----------
423.7 303.9 1,147.2 829.1
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 197.1 228.1 482.4 512.3
---------- ---------- ---------- ----------
INTEREST EXPENSE AND OTHER:
Interest expense 46.1 42.3 139.5 131.2
Allowance for funds used during construction (1.1) (.4) (3.0) (6.7)
Distributions on company obligated mandatorily
redeemable preferred securities 5.3 5.3 16.0 9.9
Other expense / (income), net (4.8) (7.5) (8.4) (10.8)
---------- ---------- ---------- ----------
45.5 39.7 144.1 123.6
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 151.6 188.4 338.3 388.7
Income taxes 1.3 51.1 1.6 107.2
---------- ---------- ---------- ----------
NET INCOME $ 150.3 $ 137.3 $ 336.7 $ 281.5
========== ========== ========== ==========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING 98.6 98.3 98.6 97.9
========== ========== ========== ==========
EARNINGS PER AVERAGE COMMON SHARE
(Basic and Diluted): $ 1.53 $ 1.40 $ 3.42 $ 2.87
========== ========== ========== ==========
DIVIDENDS PER COMMON SHARE $ .555 $ .545 $ 1.665 $ 1.635
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(Dollars in millions)
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held for future use $ 6,868.6 $ 6,784.8
Less - Accumulated depreciation 3,095.2 2,923.8
Accumulated decommissioning for nuclear plant 313.6 285.0
Accumulated dismantlement for fossil plants 134.0 132.5
------------- ------------
3,325.8 3,443.5
Construction work in progress 194.3 139.7
Nuclear fuel, net of amortization of $417.5
in 2000 and $401.0 in 1999 45.7 68.7
------------- ------------
Net electric utility plant 3,565.8 3,651.9
Other property, at cost, net of depreciation of $314.1
in 2000 and $275.0 in 1999 709.9 703.4
------------- ------------
4,275.7 4,355.3
------------- ------------
CURRENT ASSETS:
Cash and equivalents 4.0 9.6
Accounts receivable, less allowance for doubtful accounts of
$6.9 in 2000 and $5.8 in 1999 559.6 420.6
Inventories, primarily at average cost:
Fuel 77.7 76.4
Utility materials and supplies 96.7 90.8
Diversified operations 264.3 209.3
Underrecovered utility fuel costs 70.9 --
Deferred income taxes 14.8 41.3
Prepayments and other 169.2 113.7
------------- ------------
1,257.2 961.7
------------- ------------
DEFERRED CHARGES AND OTHER ASSETS:
Costs deferred pursuant to regulation:
Deferred purchased power contract termination costs 232.2 297.8
Other 76.1 94.0
Investments in nuclear plant decommissioning fund 409.5 377.2
Goodwill 243.8 171.1
Joint ventures and partnerships 88.8 66.2
Other 262.8 204.9
------------- ------------
1,313.2 1,211.2
------------- ------------
$ 6,846.1 $ 6,528.2
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
(Dollars in millions)
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
CAPITAL AND LIABILITIES
COMMON STOCK EQUITY:
Common stock $ 1,274.2 $ 1,267.3
Retained earnings 914.3 741.8
Other comprehensive income (.7) (.4)
------------- ------------
2,187.8 2,008.7
PREFERRED SECURITIES:
Cumulative preferred stock of Florida Power without sinking funds 33.5 33.5
Company-obligated mandatorily redeemable quarterly income preferred
securities (QUIPS) of a subsidiary trust holding solely Florida Progress
guaranteed junior subordinated deferrable interest notes 300.0 300.0
LONG-TERM DEBT 2,041.9 2,154.1
------------- ------------
TOTAL CAPITAL 4,563.2 4,496.3
------------- ------------
CURRENT LIABILITIES:
Accounts payable 306.7 309.0
Customers' deposits 107.7 105.6
Taxes payable 76.8 10.3
Accrued interest 58.5 77.4
Overrecovered utility fuel costs -- 31.6
Other 104.0 112.4
------------- ------------
653.7 646.3
Notes payable 332.5 153.1
Current portion of long-term debt 275.9 163.2
------------- ------------
1,262.1 962.6
------------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 538.9 565.3
Unamortized investment tax credits 64.1 70.0
Other postretirement benefit costs 127.8 123.1
Other 290.0 310.9
------------- ------------
1,020.8 1,069.3
------------- ------------
$ 6,846.1 $ 6,528.2
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Cash Flows
(Dollars in millions)
Nine Months Ended
September 30,
2000 1999
----------- ----------
(Unaudited)
OPERATING ACTIVITIES:
Net income $ 336.7 $ 281.5
Adjustments for noncash items:
Depreciation and amortization 389.1 326.9
Provision for loss on investment in life insurance subsidiary 12.8 --
Deferred income taxes and investment tax credits, net (11.6) (35.2)
Changes in working capital, net of effects from sale or acquisition of
businesses:
Accounts receivable (138.3) (70.9)
Inventories (24.5) (82.6)
Overrecovered/underrecovered utility fuel costs (102.5) 15.5
Accounts payable (1.7) (27.8)
Taxes payable 16.0 148.7
Prepayments and other (95.7) (44.9)
Other operating activities (23.2) 8.6
----------- ----------
357.1 519.8
----------- ----------
INVESTING ACTIVITIES:
Property additions (including allowance for
borrowed funds used during construction) (254.2) (417.2)
Acquisition of businesses (47.0) (8.2)
Proceeds from sale of properties and businesses 4.3 27.2
Proceeds from sale and leaseback -- 47.0
Other investing activities (21.3) (39.3)
----------- ----------
(318.2) (390.5)
----------- ----------
FINANCING ACTIVITIES:
Issuance of long-term debt -- 50.0
Repayment of long-term debt (76.7) (68.6)
Increase/(decrease) in commercial paper with long-term support 16.5 (46.5)
Issuance of company obligated mandatorily redeemable preferred securities -- 300.0
Sale of common stock -- 43.2
Dividends paid on common stock (164.2) (160.4)
Increase/(decrease) in short-term debt 179.4 (236.2)
Other financing activities .5 (2.0)
----------- ----------
(44.5) (120.5)
----------- ----------
NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS (5.6) 8.8
Beginning cash and equivalents 9.6 2.5
----------- ----------
ENDING CASH AND EQUIVALENTS $ 4.0 $ 11.3
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 154.8 $ 137.9
Income taxes (net of refunds) $ 120.0 $ 86.4
The accompanying notes are an integral part of these consolidated financial
statements.
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Common Equity and Comprehensive Income (Unaudited)
For the periods ended September 30, 2000 and 1999
(Dollars in millions, except per share amounts)
Accumulated
Other
Common Retained Comprehensive
Total Stock Earnings Income
-------------- ------------- ------------- ---------------
Balance, December 31, 1998 $ 1,862.0 $ 1,221.1 $ 640.9 $ --
Net income 281.5 281.5
Common stock issued 46.2 46.2
Cash dividends on common stock (160.4) (160.4)
-------------- ------------- ------------- ---------------
Balance, September 30, 1999 2,029.3 1,267.3 762.0 --
============== ============= ============= ===============
Balance, December 31, 1999 2,008.7 1,267.3 741.8 (.4)
Net income 336.7 336.7
Foreign currency translation adjustment (.3) (.3)
-------------- ------------- ------------- ---------------
Comprehensive income 336.4 -- 336.7 (.3)
Common stock issued 6.9 6.9
Cash dividends on common stock (164.2) (164.2)
-------------- ------------- ------------- ---------------
Balance, September 30, 2000 $ 2,187.8 $ 1,274.2 $ 914.3 $ (.7)
============== ============= ============= ===============
The accompanying notes are an integral part of these consolidated financial
statements.
FLORIDA POWER CORPORATION
Statements of Income
(Dollars in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- ---------- ----------
(Unaudited) (Unaudited)
OPERATING REVENUES:
Residential $ 468.7 $ 446.9 $ 1,135.0 $ 1,072.5
Commercial 197.0 180.0 498.2 464.7
Industrial 55.8 54.8 160.3 155.8
Sales for resale 81.7 72.1 195.7 164.7
Other 111.3 41.1 248.6 179.6
--------- --------- ---------- ----------
914.5 794.9 2,237.8 2,037.3
--------- --------- ---------- ----------
OPERATING EXPENSES:
Operation:
Fuel 213.2 191.5 501.4 448.7
Purchased power 166.3 106.7 389.7 305.4
Energy conservation costs 20.0 25.4 50.0 61.9
Operation and maintenance 98.7 108.0 308.2 325.9
Depreciation and amortization 135.5 86.8 313.3 260.8
Taxes other than income taxes 59.4 56.9 165.3 159.9
--------- --------- ---------- ----------
693.1 575.3 1,727.9 1,562.6
--------- --------- ---------- ----------
Income taxes:
Currently payable 83.6 87.2 181.0 182.7
Deferred, net (11.3) (14.4) (22.3) (35.1)
Investment tax credits, net (2.0) (2.0) (5.9) (5.9)
--------- --------- ---------- ----------
70.3 70.8 152.8 141.7
--------- --------- ---------- ----------
763.4 646.1 1,880.7 1,704.3
--------- --------- ---------- ----------
INCOME FROM OPERATIONS 151.1 148.8 357.1 333.0
--------- --------- ---------- ----------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during construction .6 .2 1.6 3.0
Other income, net 1.9 3.1 2.4 3.8
--------- --------- ---------- ----------
2.5 3.3 4.0 6.8
--------- --------- ---------- ----------
INTEREST CHARGES
Interest on long-term debt 25.1 26.5 77.1 80.1
Other interest expense 6.8 4.5 19.5 13.4
--------- --------- ---------- ----------
31.9 31.0 96.6 93.5
Allowance for borrowed funds used during construction (.5) (.2) (1.4) (3.7)
--------- --------- ---------- ----------
31.4 30.8 95.2 89.8
--------- --------- ---------- ----------
NET INCOME 122.2 121.3 265.9 250.0
DIVIDENDS ON PREFERRED STOCK .3 .3 1.1 1.1
--------- --------- ---------- ----------
NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 121.9 $ 121.0 $ 264.8 $ 248.9
========= ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
FLORIDA POWER CORPORATION
Balance Sheets
(Dollars in millions)
September 30, December 3
2000 1999
------------- ------------
(Unaudited)
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held for future use $ 6,868.6 $ 6,784.8
Less - Accumulated depreciation 3,095.2 2,923.8
Accumulated decommissioning for nuclear plant 313.6 285.0
Accumulated dismantlement for fossil plants 134.0 132.5
------------ -------------
3,325.8 3,443.5
Construction work in progress 194.3 139.7
Nuclear fuel, net of amortization of $417.5
in 2000 and $401.0 in 1999 45.7 68.7
------------ -------------
3,565.8 3,651.9
Other property, net 9.3 10.0
------------ -------------
3,575.1 3,661.9
------------ -------------
CURRENT ASSETS:
Cash and equivalents 2.2 --
Accounts receivable, less allowance for doubtful accounts of $4.9
in 2000 and $4.0 in 1999 304.9 210.8
Inventories, primarily at average cost:
Fuel 77.7 76.4
Materials and supplies 96.7 90.8
Underrecovered utility fuel costs 70.9 --
Deferred income taxes 14.8 41.4
Prepayments and other 127.0 101.3
------------ -------------
694.2 520.7
------------ -------------
DEFERRED CHARGES AND OTHER ASSETS:
Costs deferred pursuant to regulation:
Deferred purchased power contract termination costs 232.2 297.8
Other 76.1 94.0
Investments in nuclear plant decommissioning fund 409.5 377.2
Other 51.4 50.9
------------ -------------
769.2 819.9
------------ -------------
$ 5,038.5 $ 5,002.5
============ =============
The accompanying notes are an integral part of these financial statements.
FLORIDA POWER CORPORATION
Balance Sheets
(Dollars in millions)
September 30, December 3
2000 1999
------------- -------------
(Unaudited)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock $ 1,004.4 $ 1,004.4
Retained earnings 991.7 880.6
------------ -------------
1,996.1 1,885.0
CUMULATIVE PREFERRED STOCK:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 1,398.0 1,478.8
------------ -------------
TOTAL CAPITAL 3,427.6 3,397.3
------------ -------------
CURRENT LIABILITIES:
Accounts payable 147.5 152.9
Accounts payable to associated companies 15.2 23.1
Customers' deposits 107.7 105.6
Income taxes payable 56.2 --
Accrued other taxes 69.6 5.8
Accrued interest 47.8 59.6
Overrecovered utility fuel costs -- 31.6
Other 41.0 79.3
------------ -------------
485.0 457.9
Notes payable 200.5 153.1
Current portion of long-term debt 81.9 76.8
------------ -------------
767.4 687.8
------------ -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 467.5 509.9
Unamortized investment tax credits 63.6 69.5
Other postretirement benefit costs 123.7 119.4
Other 188.7 218.6
------------ -------------
843.5 917.4
------------ -------------
$ 5,038.5 $ 5,002.5
============ =============
The accompanying notes are an integral part of these financial statements.
FLORIDA POWER CORPORATION
Statements of Cash Flows
(Dollars in millions)
Nine Months Ended
September 30,
2000 1999
----------- -----------
(Unaudited)
OPERATING ACTIVITIES:
Net income after dividends on preferred stock $ 264.8 $ 248.9
Adjustments for noncash items:
Depreciation and amortization 338.9 280.4
Deferred income taxes and investment tax credits, net (28.2) (41.0)
Changes in working capital:
Accounts receivable (94.1) (85.3)
Inventories (7.2) (39.0)
Overrecovered/underrecovered utility fuel costs (102.6) 15.5
Accounts payable (13.3) (5.6)
Taxes payable 130.2 145.9
Prepayments and other (83.8) (40.0)
Other operating activities (18.8) 13.7
----------- -----------
385.9 493.5
----------- -----------
INVESTING ACTIVITIES:
Construction expenditures (186.1) (252.6)
Allowance for borrowed funds used during construction (1.4) (3.7)
Other investing activities (14.0) (12.9)
----------- -----------
(201.5) (269.2)
----------- -----------
FINANCING ACTIVITIES:
Repayment of long-term debt (75.9) (15.8)
Decrease in commercial paper with long-term support -- (6.4)
Dividends paid on common stock (153.7) (150.3)
Increase/(decrease) in short-term debt 47.4 (47.3)
----------- -----------
(182.2) (219.8)
----------- -----------
NET INCREASE IN CASH AND EQUIVALENTS 2.2 4.5
Beginning cash and equivalents -- --
----------- -----------
ENDING CASH AND EQUIVALENTS $ 2.2 $ 4.5
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 104.8 $ 95.8
Income taxes (net of refunds) $ 117.8 $ 107.6
The accompanying notes are an integral part of these financial statements.
FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
1) Florida Progress Corporation's ("Florida Progress" or the "Company")
principal business segment is its Utility segment. Florida Power
Corporation ("Florida Power"), the largest subsidiary of Florida Progress,
engages in the generation, purchase, transmission, distribution and sale of
electricity. Florida Progress' other reportable business segments are
Electric Fuels Corporation's ("Electric Fuels") Energy and Related
Services, Rail Services and Inland Marine Transportation units. Financial
data for business segments for the periods covered in this Form 10-Q are
presented in the table below:
Energy and Rail Inland Marine
(In millions) Utility Related Services Service Transportation Other Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------------
Three months ended
September 30, 2000:
Revenues $ 914.5 $ 97.7 $ 250.2 $ 42.8 $ 7.7 $ 1.0 $ 1,313.9
Intersegment revenues -- 57.9 .2 4.3 (2.1) (60.3) --
Income tax expense (benefit) 72.1 (62.9) 1.0 2.0 (10.8) (.1) 1.3
Segment net income (loss) 121.9 42.6 .1 3.1 (17.3) (.1) 150.3
Nine months ended
September 30, 2000:
Revenues $ 2,237.8 $ 203.7 $ 775.2 $ 124.3 $ 13.2 $ 3.3 $ 3,357.5
Intersegment revenues -- 188.9 .5 13.8 (7.1) (196.1) --
Income tax expense (benefit) 155.9 (141.7) 4.4 5.0 (21.7) (.3) 1.6
Segment net income (loss) 264.8 95.9 2.9 7.9 (34.3) (.5) 336.7
Total assets 5,038.5 685.5 852.7 104.0 496.9 (331.5) 6,846.1
Three months ended
September 30, 1999:
Revenues $ 794.9 $ 47.5 $ 223.5 $ 38.2 $ 2.1 $ 1.1 $ 1,107.3
Intersegment revenues -- 69.1 .3 3.0 (.9) (71.5) --
Income tax expense (benefit) 73.6 (20.6) 4.7 2.1 (8.4) (.3) 51.1
Segment net income (loss) 121.0 17.2 5.6 3.3 (9.3) (.5) 137.3
Nine months ended
September 30, 1999:
Revenues $ 2,037.3 $ 135.1 $ 622.0 $ 101.9 $ 4.2 $ 3.5 $ 2,904.0
Intersegment revenues -- 197.2 1.3 11.1 (7.4) (202.2) --
Income tax expense (benefit) 145.3 (32.3) 10.1 3.9 (19.5) (.3) 107.2
Segment net income (loss) 248.9 33.6 11.8 6.2 (18.5) (.5) 281.5
Total assets 5,050.1 350.9 752.0 102.9 534.5 (377.4) 6,413.0
2) In November 1999, Florida Power received approval from the Florida Public
Service Commission ("FPSC") to defer nonfuel revenues towards the
development of a plan that would allow customers to realize the benefits
earlier than if they are used to accelerate the amortization of the Tiger
Bay regulatory asset. The approval required that a plan be submitted to the
FPSC by August 1, 2000. On July 31, 2000, Florida Power filed a motion with
the FPSC requesting a two-month extension. The plan was required to be
filed by October 2, 2000. Florida Power was unable to identify a
satisfactory rate initiative that might allow its ratepayers to receive
these benefits sooner and, therefore, applied
the deferred revenues of $44.4 million, plus accrued interest, to the
amortization of the Tiger Bay regulatory asset for the month ended September
30, 2000. There was no impact to earnings.
3) FLORIDA PROGRESS OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE QUARTERLY INCOME
PREFERRED SECURITIES (QUIPS) OF A SUBSIDIARY TRUST HOLDING SOLELY FLORIDA
PROGRESS GUARANTEED SUBORDINATED DEFERRABLE INTEREST NOTES
In April 1999, FPC Capital I ("the Trust"), an indirect wholly owned
subsidiary of Florida Progress, issued 12 million shares of $25 par
cumulative Company-obligated mandatorily redeemable preferred securities
("Preferred Securities") due 2039, with an aggregate liquidation value of
$300 million and a quarterly distribution rate of 7.10%. Currently, all 12
million shares of the Preferred Securities that were issued are outstanding.
Concurrent with the issuance of the Preferred Securities, the Trust issued to
Florida Progress Funding Corporation ("Funding Corp.") all of the common
securities of the Trust (371,135 shares), for $9.3 million. Funding Corp. is
a direct wholly owned subsidiary of the Company.
The existence of the Trust is for the sole purpose of issuing the Preferred
Securities and the common securities and using the proceeds thereof to
purchase from Funding Corp. its 7.10% Junior Subordinated Deferrable Interest
Notes ("subordinated notes") due 2039, for a principal amount of $309.3
million. The subordinated notes and the Notes Guarantee (as discussed below)
are the sole assets of the Trust. Funding Corp.'s proceeds from the sale of
the subordinated notes were advanced to Progress Capital Holdings, Inc.
("PCH"), a subsidiary of Florida Progress that provides financing for Florida
Progress' diversified operations, and used for general corporate purposes
including the repayment of a portion of certain outstanding short-term bank
loans and commercial paper.
The Company has fully and unconditionally guaranteed the obligations of
Funding Corp. under the subordinated notes (the "Notes Guarantee"). In
addition, the Company has guaranteed the payment of all distributions
required to be made by the Trust, but only to the extent that the Trust has
funds available for such distributions ("Preferred Securities Guarantee").
The Preferred Securities Guarantee, considered together with the Notes
Guarantee, constitutes a full and unconditional guarantee by the Company of
the Trust's obligations under the Preferred Securities.
The subordinated notes may be redeemed at the option of Funding Corp.
beginning in 2004 at par value plus accrued interest through the redemption
date. The proceeds of any redemption of the subordinated notes will be used
by the Trust to redeem proportional amounts of the Preferred Securities and
common securities in accordance with their terms. Upon liquidation or
dissolution of Funding Corp., holders of the Preferred Securities would be
entitled to the liquidation preference of $25 per share plus all accrued and
unpaid dividends thereon to the date of payment.
4) CONTINGENCIES -
Insurance -- Florida Progress and its subsidiaries utilize various risk
management techniques to protect certain assets from risk of loss, including
the purchase of insurance. Risk avoidance, risk transfer and self-insurance
techniques are utilized depending on the Company's 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. The reserve balances at September 30, 2000 and 1999 were $30.1 million
and $28.6 million, respectively.
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 $88.1 million per incident, with a maximum
assessment of $10 million per year.
Florida Power also maintains nuclear property damage insurance and
decontamination and decommissioning liability insurance. Effective October 1,
1999, the total limit purchased for this type of insurance was reduced from $2.1
billion to $1.6 billion. The reduction was based on a review of the potential
property damage exposure, the legal minimum required to be carried, and the
amount of insurance being purchased by other owners of single unit nuclear
sites. The full amount of insurance is purchased from Nuclear Electric Insurance
Ltd. ("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 $8.7 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 -- The Company is subject to regulation with respect
to the environmental impact of its operations. The Company's disposal of
hazardous waste through third-party vendors or through a release of hazardous
materials to the environment 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 the Company, whose properties were sold
in prior years, have been identified by the U.S. Environmental Protection Agency
("EPA") as Potentially Responsible Parties ("PRPs") at certain sites. Liability
for the cleanup of costs at these sites is joint and several.
One of the sites that Florida Power previously owned and operated is located in
Sanford, Florida. There are five parties, including Florida Power, that have
been identified as PRPs at the Sanford site. A Participation Agreement was
signed, and subsequently amended, among the PRPs of the Sanford site to allocate
$1.9 million to perform a Remedial Investigation, Baseline Risk Assessment and
Feasibility Study ("RI/FS") for phases one and two of the cleanup. Florida Power
is liable for approximately 40% of the costs for the RI/FS as agreed to in the
Participation Agreement. In March 2000, the EPA selected a "preferred" remedy
for the cleanup of the contaminated soils at the site, which was documented in a
Record of Decision on July 5, 2000.
Cleanup will be addressed in three phases for project management purposes. A
second participation agreement was negotiated in late summer 2000 that defined
and allocated Remedial Design and Remedial Action costs among the participants
for all three phases of the cleanup. Florida Power's future cost share
allocation is approximately 43%. The discussions and resolution of liability for
cleanup costs could cause Florida Power to increase the estimate of its
liability for those costs. The range of any additional costs are not expected to
have a material effect on Florida Progress' or Florida Power's financial
position, results of operations or liquidity.
In December 1998, the EPA conducted an Expanded Site Inspection at a former
Florida Power plant site near Inglis, Florida. Soil and groundwater samples were
obtained from the Florida Power property, as well as sediment samples from the
adjacent Withlacoochee River. A final copy of the report, along with a Request
for Information under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA" or "Superfund") was received in December 1999. Upon
review of Florida Power's reply and further testing at the site, the EPA's
conclusions may change the current hazard ranking and ultimately result in the
Inglis site being placed on the National Priorities List ("NPL"). If this
property is placed on the NPL, then the EPA could conduct remediation actions at
the site and seek repayment of those costs as well as investigative costs from
any PRPs. Past costs currently exceed $3.5 million with Florida Power identified
as the only major viable business associated with this site. In June 2000,
Florida Power received confirmation that the EPA intends to issue a Consent
Order, which would require Florida Power to enter into an agreement to conduct
an RI/FS on the property. After the EPA has reviewed the findings associated
with the Expanded Site Investigation conducted in December 1998, and some
additional sediment sampling in the Withlacoochee River that it will conduct in
the fourth quarter of 2000, negotiations with respect to Florida Power's
participation will take place late in the fourth quarter of 2000. The results of
such sampling could expand the scope, and thus the cost, of any required
cleanup.
In addition to these designated sites, there are other sites where Florida
Progress may be responsible for additional environmental cleanup. Florida
Progress estimates that its share of liability for cleaning up all designated
sites ranges from $9 million to $13 million. It has accrued $9 million against
these potential costs. There can be no assurance that the Company's estimates
will not change in the future.
Age Discrimination Suit -- Florida Power and Florida Progress have been named
defendants in an age discrimination lawsuit. The number of plaintiffs remains at
116, but four of those plaintiffs have had their federal claims dismissed and 74
others have had their state age claims dismissed. 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 Federal Court approved an agreement between the parties to
provisionally certify this case as a class action suit under the Age
Discrimination in Employment Act. Florida Power filed a motion to decertify the
class and in August 1999, the Court granted Florida Power's motion. In October
1999, the judge certified the question of whether the case should be tried as a
class action to the Eleventh Circuit Court of Appeals for immediate appellate
review. In December 1999, the Court of Appeals agreed to review the judge's
order decertifying the class and scheduled oral arguments for December 2000. In
anticipation of a potential ruling decertifying the case as a class action,
plaintiffs filed a virtually identical lawsuit which identified all opt-in
plaintiffs as named plaintiffs. This case had been held in abeyance until
reactivated in July 2000 upon motion of the plaintiffs.
In December 1998, during mediation in this age discrimination suit, plaintiffs
alleged damages of $100 million. Company management, while not believing
plaintiffs' claim to have merit, offered $5 million in an attempt to settle all
claims. Plaintiffs rejected that offer. Florida Power and the plaintiffs engaged
in informal settlement discussions, which terminated on December 22, 1998. As a
result of the plaintiffs' claims, management has identified a probable range of
$5 million to $100 million with no amount within that range a better estimate of
probable loss than any other amount; accordingly, Florida Power has accrued $5
million. In December 1999, Florida Power also recorded an accrual of $4.8
million for legal fees associated with defending its position in these
proceedings. There can be no assurance that this litigation will be settled, or
if settled, that the settlement will not exceed $5 million. Additionally, the
ultimate outcome, if litigated, cannot presently be determined.
Advanced Separation Technologies ("AST") -- In 1996, Florida Progress sold its
80% interest in AST to Calgon Carbon Corporation ("Calgon") for net proceeds of
$56 million in cash. In January 1998, Calgon filed a lawsuit against Florida
Progress and the other selling shareholder and amended it in April 1998,
alleging misstatement of AST's 1996 revenues, assets and liabilities, seeking
damages and granting Calgon the right to rescind the sale. The lawsuit also
accused the sellers of failing to disclose flaws in AST's manufacturing process
and a lack of quality control. Florida Progress believes that the aggregate
total of all legitimate warranty claims by customers of AST for which it is
probable that Florida Progress will be responsible for under the Stock Purchase
Agreement with Calgon is approximately $3.2 million, and accordingly, accrued
$3.2 million in the third quarter of 1999 as an estimate of probable loss.
Qualifying Facilities Contracts -- Florida Power's purchased power contracts
with qualifying facilities 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.
The owners of four qualifying facilities filed suits against Florida Power in
state court over the contract payment terms, and one owner also filed suit in
federal court. Three of the state court suits have been settled, and the federal
case was dismissed. The most recent case to settle involved Dade County/Dade
Cogen. In May 1999, the parties reached an agreement to settle their dispute in
its entirety, including all of the ongoing litigation. The definitive settlement
agreement was approved by the Dade County Commission in December 1999 and by the
FPSC in June 2000.
In the remaining state court suit, the trial regarding NCP Lake Power ("Lake")
concluded in December 1998. In April 1999, the judge entered an order granting
Lake's breach of contract claim and ruled that Lake is entitled to receive
"firm" energy payments during on-peak hours, but for all other hours, Lake is
entitled to the "as-available" rate. The Court also ruled that for purposes of
calculating damages, the breach of contract occurred at the inception of the
contract. In August 1999, a Final Judgment was entered for Lake for
approximately $4.5 million and Lake filed a Notice of Appeal. Oral argument was
heard by the 5th District court of Appeals in September 2000, and in an unusual
action, the court suggested that the parties again attempt mediation. The
parties have agreed to do so and have attempted to schedule a mutually
convenient time. Also in this case, in April 1998, Florida Power filed a
petition with the FPSC for a Declaratory Statement that the contract between the
parties limits energy payments thereunder to the avoided costs based upon an
analysis of a hypothetical unit having the characteristics specified in the
contract. In October 1998, the FPSC denied the petition, but Florida Power
appealed to the Florida Supreme Court.
Management does not expect that the results of these legal actions will have a
material impact on Florida Power's financial position, results of operations or
liquidity. Florida Power anticipates that all fuel and capacity expenses,
including any settlement amounts incurred as a result of the matters discussed
above, will be recovered from its customers.
Mid-Continent Life Insurance Company ("Mid-Continent") -- As discussed below, a
series of events in 1997 significantly jeopardized the ability of Mid-Continent
to implement a plan to eliminate a projected reserve deficiency, resulting in
the impairment of Florida Progress' investment in Mid-Continent. Therefore,
Florida Progress recorded a provision for loss on investment of $86.9 million in
1997. Florida Progress also recorded an accrual at December 31, 1997, for legal
fees associated with defending its position in current Mid-Continent legal
proceedings.
In the spring of 1997, the Oklahoma State Insurance Commissioner
("Commissioner") received court approval to seize control as receiver of the
operations of Mid-Continent. 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. Although both sides appealed the decision to the
Oklahoma Supreme Court, those appeals were withdrawn in early 1999.
In December 1997, the receiver filed a lawsuit against Florida Progress, certain
of its directors and officers, and certain former Mid-Continent officers, making
a number of allegations and seeking access to Florida Progress' assets to
satisfy policyholder and creditor claims. In April 1998, the court granted
motions to dismiss the individual defendants, leaving Florida Progress as the
sole remaining defendant in the lawsuit.
A new Commissioner was elected in November 1998 and has stated his intention to
work with Florida Progress and others to develop a plan to rehabilitate Mid-
Continent rather than pursue litigation against Florida Progress. Based on data
through December 31, 1998, Florida Progress' actuarial estimate of the
additional assets necessary to fund the reserve, after applying Mid-Continent's
statutory surplus is in the range of $100 million. The amount put forth by the
actuary hired by the former Commissioner was in the range of $350 million.
Florida Progress believes that any estimate of the projected reserve deficiency
would affect only the assets of Mid-Continent, because Florida Progress has
legal defenses to any claims asserted against it. Florida Progress is working
with the new Commissioner to develop a viable plan to rehabilitate Mid-
Continent, which would include the sale of that company or assumption of its
policies.
In January 1999, five Mid-Continent policyholders filed a purported class action
against Mid-Continent and the same defendants named in the case filed by the
former Commissioner. The complaint contains substantially the same factual
allegations as those made by the former Commissioner. The suit asserts "Extra
Life" policyholders have been injured as a result of representations made in
connection with the sale of that policy. The suit seeks actual and punitive
damages.
On April 17, 2000, Florida Progress filed an answer in the purported
policyholder class action. That answer denied all material allegations of the
petition. On April 27, 2000, Florida Progress filed an amended answer and third
party petition, which asserted claims for indemnity and contribution against
John P. Crawford in his capacity as a prior actuary to Mid-Continent and Lewis &
Ellis, Inc., the actuarial firm that designed the Mid-Continent "Extra Life"
policy. The Commissioner has filed a motion in the rehabilitation court
proceeding to enjoin the policyholder action.
Proposals for a plan of rehabilitation were received and opened in June 1999. In
October 1999, the new Commissioner signed a Letter of Intent, subject to
approval by the Oklahoma District Court, with Iowa-based Life Investors
Insurance Company of America, a wholly owned subsidiary of AEGON USA, Inc.,
concerning the assumption of all policies of Mid-Continent. In a letter of
intent in connection with the proposed plan of rehabilitation, Florida Progress
agreed to assign all of Mid-Continent's stock to the receiver, and contribute
$10 million to help offset future premium rate increases or coverage reductions,
provided that, among other things, Florida Progress receives a full release from
liability, and the receiver's action against Florida Progress is dismissed, with
prejudice. The $10 million was proposed to be held in escrow by the Commissioner
for a period of 10 years and
invested for the benefit of the policyholders. Any proposed premium increases
would have been offset by this fund until it was exhausted. The Mid-Continent
plan was originally scheduled to be considered by the Oklahoma County District
Court in December 1999, but the Court postponed its consideration. Florida
Progress accrued an additional provision for loss of $10 million in December
1999. The loss was more than offset by the recognition of tax benefits of
approximately $11 million, related to the excess of the tax basis over the
current book value of the investment in Mid-Continent, and thus, did not have a
material impact on Florida Progress' consolidated financial position, results of
operations, or liquidity. This benefit had not been recorded earlier due to
uncertainties associated with the timing of the tax deduction.
The Court ordered the filing of new proposals by May 22, 2000. The Commissioner
recommended the proposal submitted by American Fidelity Assurance Company
("American Fidelity"). In September 2000, the Oklahoma County District Court
began a hearing to approve the rehabilitation plan proposed by the Oklahoma
Insurance Commissioner, under which American Fidelity would acquire Mid-
Continent's policies. On September 26, 2000, the Court approved acquisition of
the Mid-Continent policies by American Fidelity. In addition, Florida Progress
reached a settlement to resolve the policyholder litigation relating to Mid-
Continent. Under the terms of the settlement, Florida Progress agreed to
contribute an additional $7.5 million, plus attorney's fees and expenses up to
$4.875 million, towards protecting policyholders in the event that future
premium rate increases are necessary. Florida Progress also agreed with the
Commisioner to provide approximately $.6 million to fund welfare benefits for
retired Mid-Continent employees. Accordingly Florida Progress accrued $12.8
million in September 2000. The settlement of the policyholder litigation is
subject to approval by the Oklahoma County District Court. The additional $7.5
million brings the total contribution by Florida Progress to $17.5 million. In
the event that future premium rate increases are necessary, the $17.5 million,
plus interest accrued, will offset increases until the fund is exhausted.
Dismissal of the 1997 lawsuit filed by the receiver is part of the settlement.
The policyholder case has been transferred to the rehabilitation court.
Share Exchange Litigation -- In August 1999, Florida Progress announced that it
entered into an Agreement and Plan of Exchange with Carolina Power & Light
Company ("CP&L"), and CP&L Energy, Inc., a wholly owned subsidiary of CP&L. A
lawsuit was filed in September 1999, against Florida Progress and its directors
seeking class action status, an unspecified amount of damages and injunctive
relief, including a declaration that the agreement and plan of exchange was
entered into in breach of the fiduciary duties of the Florida Progress board of
directors, and enjoining Florida Progress from proceeding with the share
exchange. The complaint also seeks an award of costs and attorney's fees. In
September, Florida Progress and the individual defendants filed an answer to the
complaint, which denied all material allegations of the complaint. Florida
Progress believes this suit is without merit and intends to vigorously defend
itself against this action. Management does not expect that the result of this
legal action will have a material adverse impact on Florida Progress' financial
position, results of operations or liquidity. Accordingly, no provision for loss
has been recorded pertaining to this matter.
Easement Litigation -- In December 1998, Florida Power was served with a class
action lawsuit seeking damages, declaratory and injunctive relief for the
alleged improper use of electric transmission easements. The plaintiffs contend
that the licensing of fiber optic telecommunications lines to third parties or
telecommunications companies for other than Florida Power's internal use along
the electric transmission line right-of-way exceeds the authority granted in the
easements. In June 1999, plaintiffs amended their complaint to add Progress
Telecommunications Corporation, an indirect wholly owned subsidiary of Florida
Progress, as a defendant and to add counts for unjust enrichment and
constructive trust. In January 2000, the court conditionally certified the class
statewide. In a mediation held in March 2000, the parties reached a
tentative settlement of this claim, which is subject to the resolution of
procedural issues relating to class matters as well as court approval.
Management does not expect that the results of these legal actions will have
a material impact on Florida Progress' financial position, results of
operations or liquidity. Accordingly, no provision for loss has been
recorded pertaining to this matter.
Other Legal Matters -- Florida Progress and Florida Power are involved in
various other claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect upon either company's
consolidated financial position, results of operations or liquidity.
5) 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. These financial
statements should be read in conjunction with the financial statements and
notes thereto in the combined Annual Report on Form 10-K of Florida Progress
and Florida Power for the year ended December 31, 1999 (the "1999 Form 10-
K").