UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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I.R.S.
Exact name of each Registrant as specified in 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
410 South Wilmington Street
Raleigh, North Carolina 27601-
Telephone (919) 546-6111
1-3274 FLORIDA POWER CORPORATION 59-0247770
A Florida Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Telephone (727) 820-5151
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
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Title of each class Name of each exchange on which registered
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Florida Progress Corporation:
7.10% Cumulative Quarterly Income Preferred Securities, New York Stock Exchange
Series A, of FPC Capital I (and the Guarantee of Florida
Progress with respect thereto)
Florida Power Corporation: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
----------------------------------------------------------
Florida Progress Corporation: None
Florida Power Corporation: Cumulative Preferred Stock,
par value $100 per share
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of each registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
1
This combined Form 10-K is filed separately by two registrants: Florida Progress
Corporation and Florida Power Corporation. Information contained herein relating
to either individual registrant is filed by such registrant solely on its own
behalf. Each registrant makes no representation as to information relating
exclusively to the other registrant.
As of February 28, 2002, the aggregate market value of the voting stock held by
non-affiliates of Florida Progress Corporation as of February 28, 2002 was $-0-.
All of the common stock of Florida Progress Corporation is owned by Progress
Energy, Inc.
As of February 28, 2002, the aggregate market value of the voting stock held by
non-affiliates of Florida Power Corporation as of February 28, 2002 was $-0-.
All of the common stock of Florida Power Corporation is owned by Florida
Progress Corporation.
As of February 28, 2002, each registrant had the following shares of common
stock outstanding:
Registrant Description Shares
---------- ----------- ------
Florida Progress Corporation Common Stock (without par value) 98,616,658
Florida Power Corporation Common Stock (without par value) 100
2
TABLE OF CONTENTS
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GLOSSARY
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
PART I.
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
PART II.
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
3
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined FORM
10-K are defined below:
TERM MEANING
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AFUDC.....................................Allowance for funds used during construction
AOC.......................................Administrative Order on Consent
AST.......................................Advanced Separation Technologies
Btu.......................................British thermal units
CAAA......................................Clean Air Act Amendments of 1990
CERCLA or Superfund.......................Comprehensive Environmental Response Compensation & Liability Act
CVO.......................................Contingent Value Obligation
Company or Florida Progress...............Florida Progress Corporation
CP&L......................................Carolina Power and Light Company
CP&L Energy...............................CP&L Energy, Inc.
CR3.......................................Florida Power's nuclear generating plant, Crystal River Unit No. 3
DOE.......................................United States Department of Energy
EPA.......................................United States Environmental Protection Agency
ERISA.....................................Employee Retirement Income Security Act of 1974
FASB......................................Financial Accounting Standards Board
FDEP......................................Florida Department of Environmental Protection
FERC......................................Federal Energy Regulatory Commission
Financial Statements......................Florida Progress' Financial Statements
and Florida Power's Financial Statements, for the year
ended December 31, 2001 contained under Item
8 herein
Florida Power or the Utility..............Florida Power Corporation
Florida Progress or the Company...........Florida Progress Corporation
FPSC......................................Florida Public Service Commission
FRCC......................................Florida Reliability Coordinating Council
Funding Corp..............................Florida Progress Funding Corporation
Georgia Power.............................Georgia Power Company
IRS.......................................Internal Revenue Service
KV........................................Kilovolts
kVA.......................................Kilovolt Amperes
LTIP......................................Florida Progress Long-Term Incentive Plan
MD&A......................................Management's Discussion and Analysis of Financial Condition
and Results of Operations
MEMCO.....................................MEMCO Barge Line, Inc.
MGP.......................................Manufactured Gas Plant
Mid-Continent.............................Mid-Continent Life Insurance Company
MW........................................megawatts
NEIL......................................Nuclear Electric Insurance Limited
NERC......................................North American Electric Reliability Council
NPL.......................................National Priorities List
NRC.......................................United States Nuclear Regulatory Commission
PLR.......................................Private Letter Ruling
Preferred Securities......................7.10% Cumulative Quarterly Income Preferred Securities, Series A,
of FPC Capital I, fully and unconditionally guaranteed by Florida
Progress
Preferred Stock...........................Florida Power Cumulative Preferred Stock, $100 par value
Progress Capital..........................Progress Capital Holdings, Inc.
Progress Energy...........................Progress Energy, Inc.
Progress Fuels............................Progress Fuels Corporation, formerly referred to as Electric Fuels
Corporation
Progress Rail.............................Progress Rail Services Corporation
Progress Telecom..........................Progress Telecom Corporation
Progress Telecommunications...............Progress Telecommunications Corporation
4
Progress Ventures.........................Progress Ventures, Inc., formerly referred to as Energy Ventures, a
business segment of Progress Energy
PRP.......................................potentially responsible party, as defined in CERCLA
PUHCA.....................................Public Utility Holding Company Act of 1935, as amended
PURPA.....................................Public Utility Regulatory Policies Act of 1978
QFs.......................................Qualifying facilities
Retirement Plan...........................Florida Progress Corporation Retirement Plan for Exempt and
Nonexempt Employees
RTO.......................................Regional Transmission Organization
SEC.......................................United States Securities and Exchange Commission
SECI......................................Seminole Electric Cooperative Inc.
Section 29................................Section 29 of the Internal Revenue Service Code
Seminole or Seminole Electric.............Seminole Electric Cooperative, Inc.
SERP......................................Florida Progress Corporation Supplemental Executive Retirement Plan
SFAS......................................Statements of Financial Accounting Standards
TECO......................................Tampa Electric Company
the Trust.................................FPC Capital I
5
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements made throughout this Form 10-K that are not statements of historical
facts are forward-looking statements and, accordingly, involve estimates,
projections, goals, forecasts, assumptions, risks and uncertainties that could
cause actual results or outcomes to differ materially from those expressed in
the forward-looking statements.
For example, forward-looking statements are made in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" including, but not
limited to, statements under the sub-heading "Other Matters" concerning
synthetic fuel tax credits and regulatory developments.
Any forward-looking statement speaks only as of the date on which such statement
is made, and Florida Progress and Florida Power undertake no obligation to
update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made.
Examples of factors that you should consider with respect to any forward-looking
statements made throughout this document include, but are not limited to, the
following: governmental policies and regulatory actions (including those of the
Federal Energy Regulatory Commission, the Environmental Protection Agency, the
Nuclear Regulatory Commission, the Department of Energy, the Securities and
Exchange Commission under the Public Utility Holding Company Act of 1935, as
amended and the Florida Public Service Commission), particularly legislative and
regulatory initiatives that may impact the speed and degree of the restructuring
of the electricity industry and the results of negotiations related to the
expiration of Florida Power's rate stipulation; the outcome of legal and
administrative proceedings, including proceedings before our principal
regulators; risks associated with operating nuclear power facilities,
availability of nuclear waste storage facilities, and nuclear decommissioning
costs; terrorist threats and activities, particularly with respect to our
facilities, economic uncertainty caused by recent terror attacks on the United
States, and potential adverse reactions to United States anti-terrorism
activities; changes in the economy of areas served by Florida Progress; the
extent to which we are able to obtain adequate and timely rate recovery of
costs, including potential stranded costs arising from the restructuring of the
electricity industry; weather conditions and catastrophic weather-related
damage; general industry trends, realization of cost savings related to
synergies resulting from acquisition by Progress Energy, increased competition
from energy and gas suppliers, and market demand for energy; inflation and
capital market conditions; the success of our direct and indirect subsidiaries;
the extent to which we are able to use tax credits associated with the
operations of the synthetic fuel facilities; and unanticipated changes in
operating expenses and capital expenditures.
All such factors are difficult to predict, contain uncertainties that may
materially affect actual results, and may be beyond the control of Florida
Progress or Florida Power. New factors emerge from time to time, and it is not
possible for management to predict all such factors, nor can it assess the
effect of each such factor on Florida Progress or Florida Power.
6
PART I
ITEM 1. BUSINESS
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GENERAL
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COMPANY
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Florida Progress Corporation (Florida Progress or the Company, which term
includes consolidated subsidiaries unless otherwise indicated) is a wholly owned
subsidiary of Progress Energy, Inc. (Progress Energy), a registered holding
company under the Public Utility Holding Company Act (PUHCA) of 1935. Progress
Energy and its subsidiaries, including Florida Progress, are subject to the
regulatory provisions of PUHCA. Florida Progress is the parent company of
Florida Power Corporation (Florida Power or the Utility) and certain other
subsidiaries. Progress Energy controls Florida Power Corporation and the other
Florida Progress subsidiaries through its ownership of Florida Progress.
On November 30, 2000, the acquisition of Florida Progress by CP&L Energy, Inc.
(CP&L Energy) became effective. On December 4, 2000, CP&L Energy was renamed
Progress Energy.
Florida Progress' revenues for the year ended December 31, 2001, were $4.6
billion, and assets at year-end were $6.3 billion. Its principal executive
offices are located at 410 South Wilmington Street, Raleigh, North Carolina
27601-1748, telephone number (919) 546-6111. Information about Florida Progress
and its subsidiaries can be found at Progress Energy's home page on the Internet
at http://www.progress-energy.com, the contents of which are not a part of this
document. Florida Progress was incorporated in Florida on January 21, 1982.
Florida Progress' principal business segment is Florida Power, which encompasses
all regulated public utility operations (See Item 1 "Business - Utility
Operations - Florida Power"). Florida Progress' other business segments,
including Energy and Related Services, Rail Services, and Other, represent its
diversified operations (See Item 1 "Business - Diversified Operations").
Progress Capital Holdings, Inc. (Progress Capital) is the downstream holding
company for Florida Progress' diversified subsidiaries and provides a portion of
the financing for the non-utility operations. Diversified operations includes
Progress Fuels Corporation (Progress Fuels), formerly Electric Fuels Corporation
(Electric Fuels), and Progress Telecommunications Corporation (Progress
Telecommunications). On January 2, 2002, Electric Fuels changed its name to
Progress Fuels. Progress Fuels is a diversified non-utility energy company,
whose principal business segments are Energy and Related Services and Rail
Services. Florida Progress' Other category consists primarily of Progress
Telecommunications, the Company's Investment in FPC Capital Trust, and the
holding company, Florida Progress. Progress Telecommunications is a provider of
wholesale telecommunications services.
After the acquisition of Florida Progress, Progress Energy hired a financial
adviser to assist Florida Progress in evaluating its strategic alternatives with
respect to Progress Fuels' Inland Marine Transportation and Rail Services
segments. On November 1, 2001, the Inland Marine Transportation segment was sold
to AEP Resources, Inc. During 2001, Progress Energy decided to retain the Rail
Services segment in the near term.
ACQUISITION
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On November 30, 2000, CP&L Energy, which subsequently changed its name to
Progress Energy, acquired all of the outstanding shares of Florida Progress'
common stock in accordance with the Amended and Restated Plan of Exchange,
including the related Plan of Share Exchange, dated as of August 22, 1999, as
amended and restated as of March 3, 2000, among CP&L Energy, Florida Progress
and Carolina Power & Light Company (CP&L). Florida Progress Shareholders
received $54.00 in cash or shares of Progress Energy common stock, subject to
proration, and one contingent value obligation (CVO) in exchange for each of
their shares of Florida Progress common stock. The exchange ratio for the shares
of Progress Energy common stock issued to Florida Progress shareholders was
1.3473. Each CVO represents the right to receive contingent payments based upon
the net after-tax cash flow to Progress Energy generated by four synthetic fuel
facilities purchased by subsidiaries of Florida Progress in 1999. A Securities
and Exchange Commission (SEC) order approving the merger of Florida Progress
with Progress Energy requires Progress Energy divest of Rail Services and
certain immaterial, non-regulated investments of Florida Progress by November
30, 2003.
7
ENVIRONMENTAL
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General
In the areas of air quality, water quality, control of toxic substances and
hazardous and solid wastes and other environmental matters, the Company is
subject to regulation by various federal, state and local authorities. The
Company considers itself to be in substantial compliance with those
environmental regulations currently applicable to its business and operations
and believes it has all necessary permits to conduct such operations.
Environmental laws and regulations constantly evolve and the ultimate costs of
compliance cannot always be accurately estimated.
Clean Air Legislation
The 1990 amendments to the Clean Air Act require substantial reductions in
sulfur dioxide and nitrogen oxide emissions from fossil-fueled electric
generating plants. The Clean Air Act required Florida Power to meet more
stringent provisions effective January 1, 2000. The Company meets the sulfur
dioxide emissions requirements by fuel switching and maintaining sufficient
sulfur dioxide emission allowances. Installation of additional equipment was
necessary to reduce nitrogen oxide emissions. Increased operation and
maintenance costs, including emission allowance expense, installation of
additional equipment and increased fuel costs are not expected to be material to
the financial position or results of operations of the Company.
The U.S. Environmental Protection Agency (EPA) has been conducting an
enforcement initiative related to a number of coal-fired utility power plants in
an effort to determine whether modifications at those facilities were subject to
New Source Review requirements or New Source Performance Standards under the
Clean Air Act. Florida Power was asked to provide information to the EPA as part
of this initiative and has cooperated in providing the requested information.
The EPA has initiated enforcement actions against other unaffiliated utilities
as part of this initiative, some of which have resulted in or may result in
settlement agreements calling for expenditures, ranging from $1.0 billion to
$1.4 billion. A utility that was not subject to a civil enforcement action
settled its New Source review issues with the EPA for $300 million. These
settlement agreements have generally called for expenditures to be made over
extended time periods, and some of the companies may seek recovery of the
related costs through rate adjustments. The Company cannot predict the outcome
of this matter.
Superfund
The provisions of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (CERCLA), authorize the EPA to require the
clean up of hazardous waste sites. This statute imposes retroactive joint and
several liability. Some states have similar types of legislation. There are
presently several sites with respect to which the Company has been notified by
the EPA, the State of Florida or other state agencies with respect to potential
liability, as described below in greater detail.
Various organic materials associated with the production of manufactured gas,
generally referred to as coal tar, are regulated under various federal and state
laws. The lead or sole regulatory agency that is responsible for a particular
former coal tar site depends largely upon the state in which the site is
located. There are several manufactured gas plant (MGP) sites to which Florida
Power has some connection. In this regard, Florida Power, with other potentially
responsible parties, is participating in investigating and, if necessary,
remediating former coal tar sites with several regulatory agencies, including,
but not limited to, the EPA and the Florida Department of Environmental
Protection (FDEP). Although Florida Power may incur costs at these sites about
which it has been notified, based upon current status of these sites, Florida
Power does not expect those costs to be material to the financial position or
results of operations of the Florida Power. The Company has accrued amounts to
address known costs at certain of these sites.
The Company is periodically notified by regulators such as the EPA and various
state agencies of their involvement or potential involvement in sites, other
than MGP sites, that may require investigation and/or remediation. Although the
Company may incur costs at the sites about which they have been notified, based
upon the current status of these sites, the Company does not expect those costs
to be material to the financial position or results of operations of the
Company.
8
Other Environmental Matters
On November 1, 2001, the Company completed the sale of the Inland Marine
Transportation segment to AEP Resources, Inc. In connection with the sale, the
Company entered into environmental indemnification provisions covering both
unknown and known sites. The Company has recorded an accrual to cover estimated
probable future environmental expenditures. The Company believes that it is
reasonably possible that additional costs, which cannot be currently estimated,
may be incurred related to the environmental indemnification provision beyond
the amounts accrued. The Company cannot predict the outcome of this matter.
Florida Power has filed claims with the Company's general liability insurance
carriers to recover costs arising out of actual or potential environmental
liabilities. Some claims have settled and others are still pending. While
management cannot predict the outcome of these matters, the outcome is not
expected to have a material effect on the financial position or results of
operations.
EMPLOYEES
- ---------
As of February 28, 2002, Florida Power had approximately 4,000 regular full-time
employees. The International Brotherhood of Electrical Workers represents
approximately 2,100 of these full-time employees. The current union contract was
ratified in December 1999 and expires in December 2002. As of February 28, 2002,
Progress Capital and its subsidiaries had approximately 4,200 regular full-time
employees.
UTILITY OPERATIONS - FLORIDA POWER
- ----------------------------------
GENERAL
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Florida Power was incorporated in Florida in 1899, and is an operating public
utility engaged in the generation, purchase, transmission, distribution and sale
of electricity. At December 31, 2001, Florida Power had a total summer
generating capacity (including jointly-owned capacity) of approximately 8,012
megawatts (MW). In 2001, the utility accounted for 70.0% of Florida Progress'
consolidated revenues, 79.2% of its assets and 77.0% of its income from
continuing operations before goodwill and other long-lived asset impairment
costs, loss on sale of assets, and other one-time charges.
Florida Power provided electric service during 2001 to an average of 1.4 million
customers in west central Florida. Its service area covers approximately 20,000
square miles and includes the densely populated areas around Orlando, as well as
the cities of St. Petersburg and Clearwater. Florida Power is interconnected
with 20 municipal and 9 rural electric cooperative systems. Major wholesale
power sales customers include Seminole Electric Cooperative, Inc. (Seminole) and
Florida Municipal Power Agency. Florida Power is subject to the rules and
regulations of the Federal Energy Regulatory Commission (FERC) and the Florida
Public Service Commission (FPSC). For further information with respect to rates,
see Note 15 to the Financial Statements.
BILLED ELECTRIC REVENUES
- ------------------------
Florida Power's electric revenues billed by customer class, for the last three
years, are shown as a percentage of total electric revenues in the table below:
BILLED ELECTRIC REVENUES
Revenue Class 2001 2000 1999
- ------------- ---- ---- ----
Residential 54% 53% 54%
Commercial 24% 24% 24%
Industrial 7% 8% 8%
Governmental 6% 5% 5%
Wholesale 9% 10% 9%
9
Important industries in the territory include phosphate and rock mining and
processing, electronics design and manufacturing, and citrus and other food
processing. Other important commercial activities are tourism, health care,
construction and agriculture.
FUEL AND PURCHASED POWER
- ------------------------
General
Florida Power's consumption of various types of fuel depends on several factors,
the most important of which are the demand for electricity by Florida Power's
customers, the availability of various generating units, the availability and
cost of fuel and the requirements of federal and state regulatory agencies.
Florida Power's energy mix for the last three years is presented in the
following table:
ENERGY MIX PERCENTAGES
Fuel Type 2001 2000 1999
- --------- ---- ---- ----
Coal (1) 33% 34% 35%
Oil 16% 15% 17%
Nuclear 15% 15% 14%
Gas 14% 14% 13%
Purchased Power 22% 22% 21%
(1) Includes synthetic fuel from unrelated third parties and petroleum coke.
Florida Power is generally permitted to pass the cost of recoverable fuel and
purchased power to its customers through fuel adjustment clauses. The future
prices for and availability of various fuels discussed in this report cannot be
predicted with complete certainty. However, Florida Power believes that its fuel
supply contracts, as described below, will be adequate to meet its fuel supply
needs.
Florida Power's average fuel costs per million British thermal units (Btu) for
each year of the three-year period ended December 31, 2001, were as follows:
AVERAGE FUEL COST
(per million Btu)
2001 2000 1999
----- ----- -----
Coal (1) $2.16 $1.89 $1.86
Oil (2) 3.81 4.15 2.36
Nuclear .47 .47 .43
Gas (2) 4.52 4.32 3.18
Weighted Average 2.59 2.46 1.91
(1) Includes synthetic fuel from unrelated third parties and petroleum coke.
(2) Changes in the unit price for coal, oil and gas are due to market
conditions. Since these costs are primarily recovered through recovery
clauses established by regulators, the fluctuation does not materially
affect net income.
Coal
Florida Power anticipates a combined requirement of approximately 5.5 million to
6.0 million tons of coal and synthetic fuel in 2002. Most of the coal is
expected to be supplied from the Appalachian coal fields of the United States.
Approximately two-thirds of the fuel is expected to be delivered by rail and the
remainder by barge. The fuel is supplied by Progress Fuels pursuant to contracts
between Florida Power and Progress Fuels. (See Note 16 to the Financial
Statements.)
10
For 2002, Progress Fuels has medium and long-term contracts with various sources
for approximately 100% of the fuel requirements of Florida Power's coal units.
These contracts have price adjustment provisions. All the coal to be purchased
for FPC is considered to be low sulphur coal by industry standards.
Oil and Gas
Oil is purchased under contracts and in the spot market from several suppliers.
The cost of Florida Power's oil and gas is determined by market conditions.
Management believes that Florida Power has access to an adequate supply of oil
for the reasonably foreseeable future. Florida Power's natural gas supply is
purchased under firm contracts and in the spot market from numerous suppliers
and is delivered under firm, released firm and interruptible transportation
contracts. Florida Power believes that existing contracts for oil are sufficient
to cover its requirements when natural gas transmission purchased on an
interruptible basis is not available.
Nuclear
Nuclear fuel is processed through four distinct stages. Stages I and II involve
the mining and milling of the natural uranium ore to produce a concentrate and
the conversion of this uranium concentrate into uranium hexafluoride. Stages III
and IV entail the enrichment of the uranium hexafluoride and the fabrication of
the enriched uranium hexafluoride into usable fuel assemblies.
Florida Power expects to meet its future nuclear fuel requirements from
inventory on hand and amounts received under contract. Although Florida Power
cannot predict the future availability of uranium and nuclear fuel services,
Florida Power does not currently expect to have difficulty obtaining uranium
oxide concentrate and the services necessary for its conversion, enrichment and
fabrication into nuclear fuel.
Purchased Power
Florida Power, along with other Florida utilities, buys and sells economy power
through the Florida energy brokering system. Florida Power also purchases 1,304
MW of firm power under a variety of purchase power agreements. As of December
31, 2001, Florida Power had long-term contracts for the purchase of about 460 MW
of purchased power with other investor-owned utilities, including a contract
with The Southern Company for approximately 400 MW. Florida Power also purchased
831 MW of its total capacity from certain qualifying facilities (QFs). The
capacity currently available from QFs represents about 10% of Florida Power's
total installed system capacity.
COMPETITION
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Electric Industry Restructuring
Florida Power continues to monitor progress toward a more competitive
environment and has actively participated in regulatory reform deliberations in
Florida. Movement toward deregulation in this state has been affected by recent
developments related to deregulation of the electric industry in California.
On January 31, 2001, the Florida 2020 Study Commission voted to forward a
"proposed outline for wholesale restructuring" to the Florida legislature for
its consideration in the 2001 session. The wholesale restructuring outline is
intended to facilitate the evolution of a more robust wholesale marketplace in
Florida. On December 11, 2001, the study commission issued its final report. The
report covered a number of issues with recommendations in the areas of wholesale
competition and reliability, efficiency, transmission infrastructure,
environmental issues and new technologies. One key recommendation related to
wholesale competition & reliability is to permit the transfer or sale of
existing generation assets as follows:
. Sales and transfers of generation assets and related timing are
discretionary on the part of the investor-owned utility on a
plant-by-plant basis.
. Transfers of generation assets are recorded at book value.
. Load-serving entities (LSE's) have the right to a 6-year cost based
transition contract on all transferred capacity with unilateral
cancellation rights and a share of the profits from off-system sales.
. Gains on sales of existing plants or those transferred and still under
transition contracts must be shared 50/50 with customers.
11
. Losses on sales must be absorbed fully by shareholder.
. New units under construction and included in the company's 10-Year
Site Plan are subject to 6-year transition contract requirement but
not the gain/loss sharing.
. The FPSC has the authority to review LSE's decision to terminate
transition contracts, including prior to actual termination.
Although Florida Power believes that the current system of regulation in Florida
is working well, Florida Power supported the study commission's efforts. While
Florida Power does not see any compelling reason to change, the study
commission's proposal is generally consistent with principles the Company
believes any sound restructuring plan should adhere to if the state does decide
to restructure.
The Florida legislature did not take any action on the proposed outline or final
report during the 2001 session. There is no way for Florida Power to know what
restructuring legislation will be enacted or if the Company would be able to
support it in its final form.
Regional Transmission Organizations
On December 20, 1999, Federal Energy Regulatory Commission (FERC) issued Order
No. 2000 on Regional Transmission Organizations (RTO). The Order required public
utilities that own, operate or control interstate electricity transmission
facilities to have filed, by October 2000, either a proposal to participate in
an RTO or an alternative filing describing efforts and plans to participate in
an RTO.
In October 2000, Florida Power, along with Florida Power & Light Company and
Tampa Electric Company filed with FERC an application for approval of a regional
transmission organization, or RTO, for peninsular Florida, currently named
GridFlorida. On March 28, 2001, FERC issued an order provisionally granting
GridFlorida RTO status and directing the GridFlorida applicants to make certain
changes in the RTO documents and to file such changes within 60 days. On May 29,
2001, the GridFlorida applicants made the compliance filing as directed by FERC,
but FERC has not yet issued an order on that compliance filing.
On May 16, 2001, the Florida Public Service Commission (FPSC) initiated dockets
to review the prudence of the GridFlorida applicants' decision to form and
participate in the GridFlorida RTO. The GridFlorida applicants have announced
that they will hold GridFlorida development activities in abeyance. On June 27,
2001, the FPSC issued an order establishing a two-phase process for addressing
these GridFlorida RTO issues in the context of Florida Power's pending rate
case. In the first phase, the FPSC addressed the general issues associated with
the prudence of the GridFlorida RTO on an expedited basis. FPSC hearings were
held in October 2001 on the phase one issues, and the FPSC issued an order in
December 2001. The order states, among other things, that the GridFlorida
applicants acted prudently in moving to establish an RTO for Florida. However,
the order also directs the GridFlorida applicants to make certain changes to the
proposed GridFlorida structure and refile with the FPSC within 90 days of the
order. The GridFlorida applicants made the required changes to GridFlorida and
refiled the application with the FPSC on March 20, 2002. The second phase will
address ratemaking issues and will be decided as part of the general rate
proceeding. The Company cannot predict the outcome or impact of these matters.
Merchant Plants
In August 1998, Duke Energy filed a petition to build Florida's first merchant
power plant, a 514-megawatt facility to be located in Volusia County, Florida.
The plant would provide 30 megawatts of energy to the Utilities Commission of
the City of New Smyrna Beach and the remaining capacity would be available for
wholesale sales.
In a move Florida Power believed to be contrary to the existing state law, the
Florida Public Service Commission (FPSC) granted Duke Energy's petition. Florida
Power and other Florida utilities filed an appeal of the FPSC's decision with
the Florida Supreme Court. In April 2000, the Florida Supreme Court ruled in
favor of Florida Power and other utilities and reversed the FPSC's order. In
December 2000, Duke Energy filed a petition for certiorari with the U.S. Supreme
Court. On March 5, 2001, the U.S. Supreme Court denied Duke Energy's petition
for certiorari.
12
Franchise Agreements
By virtue of municipal legislation, Florida Power holds franchises with varying
expiration dates in most of the municipalities in which it distributes electric
energy. However, Florida Power does serve within a number of municipalities and
in all its unincorporated areas without existing franchise ordinances. The
general effect of franchises is to provide for the manner in which Florida Power
occupies rights-of-way in incorporated areas of municipalities for the purpose
of constructing, operating and maintaining an energy transmission and
distribution system.
Approximately 39% of Florida Power's total utility revenues for 2001 were from
the incorporated areas of the 109 municipalities that had franchise ordinances
during the year. Of the 18 franchises that expired during 2001, four
municipalities have not yet renewed.
A new franchise ordinance was enacted during January 2002 with a municipality
that did not previously have a franchise with Florida Power bringing the current
number of existing franchises to 106. All but 17 of the existing franchises
cover a 30-year period from the date enacted. The exceptions are 15 franchises
each with a term of 10 years and expiring between 2011 and 2012; one 30-year
franchise that was extended in 1999 for five years expiring in 2005; and one
franchise with a term of 20 years expiring in 2020. Of the 106 franchises, 11
expire during 2002, 34 expire between January 1, 2003 and December 31, 2012 and
61 expire between January 1, 2013 and December 31, 2031.
Ongoing negotiations are taking place with the municipalities to reach agreement
on franchise terms and to enact new franchise ordinances. (See Item 7 "MD&A -
Franchise Litigation")
Stranded Costs
An important issue encompassed by industry restructuring is the recovery of
"stranded costs." Stranded costs primarily include the generation assets of
utilities whose value in a competitive marketplace would be less than their
current book value, as well as above-market purchased power commitments to QFs.
Thus far, all states that have passed restructuring legislation have provided
for the opportunity to recover a substantial portion of stranded costs.
Assessing the amount of stranded costs for a utility requires various
assumptions about future market conditions, including the future price of
electricity. For Florida Power, the single largest stranded cost exposure is its
commitment to QFs.
Florida Power has taken a proactive approach to this industry issue. Since 1996,
Florida Power has been seeking ways to address the impact of escalating payments
from contracts it was obligated to sign under provisions of Public Utility
Regulatory Policies Act of 1978 (PURPA).
These efforts have resulted in Florida Power successfully mitigating, through
buy-outs and buy-downs of these contracts, more than 25% of its purchased power
commitments to QFs.
REGULATORY MATTERS
- ------------------
General
Florida Power is subject to the jurisdiction of the FPSC with respect to, among
other things, retail rates and issuance of securities. In addition, Florida
Power is subject to regulation by FERC with respect to transmission and sales of
wholesale power, accounting and certain other matters. The underlying concept of
utility ratemaking is to set rates at a level that allows the utility to collect
revenues equal to its cost of providing service including a reasonable rate of
return on its equity. Increased competition, as a result of industry
restructuring, may affect the ratemaking process. (See Item 7 "MD&A - Electric
Industry Restructuring.")
Retail Rates
The FPSC authorizes retail "base rates" that are designed to provide a utility
with the opportunity to earn a specific rate of return on its "rate base", or
average investment in utility plant. These rates are intended to cover all
reasonable and prudent expenses of utility operations and to provide investors
with a fair rate of return. The FPSC
13
has authorized a return on equity range for Florida Power of 11-13% and its
retail base rates are based on the mid-point of that range - 12%.
Florida Power previously operated under an agreement committing several parties
not to seek any reduction in its base rates or authorized return on equity. That
agreement expired on June 30, 2001. During 2001, the FPSC required Florida Power
to submit minimum filing requirements, based on a 2002 projected test year, to
initiate a rate proceeding regarding its future base rates.
On September 14, 2001, Florida Power submitted its required rate filing,
including its revenue requirements and supporting testimony. Florida Power filed
supplemental minimum filing requirements and testimony on November 15, 2001.
Hearings were scheduled to begin on March 20, 2002, but were postponed to
accommodate pending settlement negotiations between the parties.
On March 27, 2002, the parties in Florida Power's rate case entered into a
Stipulation and Settlement Agreement (the Agreement) related to retail rate
matters. The Agreement is to be effective from May 1, 2002 through 2005;
provided, however, that if Florida Power's base rate earnings fall below a 10%
return on equity, Florida Power may petition the FPSC to amend its base rates.
The Agreement provides that Florida Power will reduce its retail revenues from
the sale of electricity by $125 million annually through 2005. The Agreement
also provides that Florida Power will operate under a Revenue Sharing Incentive
Plan (the Plan) that establishes revenue caps and sharing thresholds for the
years 2002 through 2005. The Plan provides that retail base rate revenues
between the sharing thresholds and the retail base rate revenue caps will be
divided into two shares - a 1/3 share to be received by Florida Power's
shareholders, and a 2/3 share to be refunded to Florida Power's retail
customers; provided, however, that for the year 2002 only, the refund to
customers will be limited to 67.1% of the 2/3 customer share. The retail base
rate revenue sharing threshold amounts for 2002, 2003, 2004 and 2005 will be
$1,296 million, $1,333 million, $1,370 million, and $1,407 million,
respectively. The Plan also provides that all retail base rate revenues above
the retail base rate revenue caps established for the years 2003, 2004 and 2005
will be refunded to retail customers on an annual basis. For 2002, the refund to
customers will be limited to 67.1% of the retail base rate revenues that exceed
the 2002 cap. The retail base revenue caps for 2002, 2003, 2004 and 2005 will be
$1,356 million, $1,393 million, $1,430 million, and $1,467 million,
respectively.
The Agreement also provides that beginning with the in-service date of Florida
Power's Hines Unit 2 and continuing through December 31, 2005, Florida Power
will be allowed to recover through the fuel cost recovery clause a return on
average investment and depreciation expense for Hines Unit 2, to the extent such
costs do not exceed the Unit's cumulative fuel savings over the recovery period.
Additionally, the Agreement provides that Florida Power will effect a mid-course
correction of its fuel cost recovery clause to reduce the fuel factor by $50
million for the remainder of 2002. The fuel cost recovery clause will operate as
it normally does, including, but not limited to any additional mid-course
adjustments that may become necessary, and the calculation of true-ups to actual
fuel clause expenses.
During the term of the Agreement, Florida Power will suspend accruals on its
reserves for nuclear decommissioning and fossil dismantlement. Additionally, for
each calendar year during the term of the Agreement, Florida Power will record a
$62.5 million depreciation expense reduction, and may, at its option, record up
to an equal annual amount as an offsetting accelerated depreciation expense. In
addition, Florida Power is authorized, at its discretion, to accelerate the
amortization of certain regulatory assets over the term of the Agreement.
Under the terms of the Agreement, Florida Power agreed to continue the
implementation of its four-year Commitment to Excellence Reliability Plan and
expects to achieve a 20% improvement in its annual System Average Interruption
Duration Index by no later than 2004. If this improvement level is not achieved
for calendar years 2004 or 2005, Florida Power will provide a refund of $3
million for each year the level is not achieved to 10% of its total retail
customers served by its worst performing distribution feeder lines.
The Agreement also provides that Florida Power will refund to customers $35
million of the $98 million in interim revenues Florida Power has collected
subject to refund since March 13, 2001. No other interim revenues that were
collected during that period will continue to be held subject to refund.
14
The Agreement was filed with the FPSC for approval on March 27, 2002. If the
FPSC approves the Agreement, the new rates will take effect May 1, 2002. The
Company cannot predict the outcome of this matter.
Other Matters
In December 2000, Florida Power received approval from the FPSC to establish a
regulatory liability to defer 2000 revenues for disposition by April 2, 2001.
(See Note 15 to the Financial Statements.)
NUCLEAR MATTERS
- ---------------
Florida Power has one nuclear generating plant, Crystal River Unit No. 3 (CR3),
which is subject to regulation by the Nuclear Regulatory Commission (NRC). The
NRC's jurisdiction encompasses broad supervisory and regulatory powers over the
construction and operation of nuclear reactors, including matters of health and
safety, antitrust considerations and environmental impact. Florida Power has a
license to operate the nuclear plant through December 3, 2016. In May 2000, the
NRC consented to the indirect transfer of control of the CR3 operating license
that occurred as a result of the acquisition by Progress Energy. Florida Power
currently has a 91.8% ownership interest in CR3. (See Note 8 to the Financial
Statements.)
Spent nuclear fuel is stored at CR3 pending disposal under a contract with the
United States Department of Energy (DOE). (See Note 8 to the Financial
Statements.) At the present time, Florida Power has facilities on site for the
temporary storage of spent nuclear fuel generated through the end of the license
in 2016.
In August 2001, the NRC issued Bulletin 2001-01, "Circumferential Cracking of
Reactor Vessel Head Penetration Nozzles," requesting that all pressurized water
reactors (PWR) provide their plans for inspecting the reactor vessel head for
the conditions described in the bulletin. While performing this inspection,
FirstEnergy Corp.'s Davis Besse plant in Ohio found three penetrations with
evidence of leakage and further evidence of some wastage of the reactor vessel
head around two of these penetrations. As a result of finding the wastage of the
vessel head, the NRC issued Bulletin 2002-01, requesting licensees to assess
previous inspections of the reactor head and determine the potential for the
existence of conditions similar to that found at the Davis Besse plant.
Florida Power's CR3 has completed the inspections requested by Bulletin 2001-01.
Any indications of leakage have been inspected and repaired, and no wastage of
the reactor vessel head has been observed. Based on these inspections, responses
to Bulletin 2002-01 are being prepared. The Company does not anticipate any
adverse impact from this regulatory action.
Enrichment Facilities Decontamination
Florida Power and a number of other utilities are involved in litigation against
the United States challenging certain retroactive assessments imposed by the
federal government on domestic nuclear power companies to fund the
decommissioning and decontamination of the government's uranium enrichment
facilities.
On November 1, 1996, Florida Power filed suit against the U.S. Government in the
U.S. Court of Claims alleging breach of contract and illegal taking of property
without just compensation. The suit arises out of several contracts under which
the government provided uranium enrichment services at fixed prices. After
Florida Power paid for all services provided under the contracts, the
government, through federal legislation enacted in 1992, imposed a retroactive
price increase in order to fund the decontamination and decommissioning of the
government's gaseous diffusion uranium enrichment facilities. The government is
collecting this increase through an annual "special assessment" levied upon all
utilities that had enrichment services contracts with the government. Collection
of the special assessments began in 1992 and is scheduled to continue for a
fifteen-year period.
To date, Florida Power has paid approximately $18 million in special
assessments, including its co-owner's share of approximately $1.5 million, and
if continued throughout the anticipated fifteen-year remaining license life, the
special assessments would increase the cost of Florida Power's contracts by more
than $23 million. Florida Power seeks an order declaring that all such special
assessments are unlawful, and an injunction prohibiting the government from
collecting future special assessments and damages.
In June 1998, Florida Power, Consolidated Edison Co. and 15 other utilities
filed an action for declaratory judgement against the United States in the
Southern District Court of New York, challenging the constitutionality of
15
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. In August 1998, the utilities
filed an amended complaint adding several additional utilities as plaintiffs.
In February 1999, the court granted Florida Power's motion to stay the Claims
Court action, pending resolution of the District Court case. In April 1999, the
District Court ruled that it had subject matter jurisdiction, and denied the
government's motion to transfer the action to the Claims Court. The government
appealed the decision to the U.S. Court of Appeals for the Federal Circuit,
which ultimately reversed the District Court's denial of the motion to transfer.
The matter was stayed pending the utilities' petition for a writ of certiorari
to the Supreme Court. The Supreme Court denied the utilities' petition for
certiorari on December 3, 2001. Consequently, on December 22, 2001, the Federal
Circuit issued a mandate remanding the case to the District Court with
instructions to transfer the case to the Court of Federal Claims.
DIVERSIFIED OPERATIONS
- ----------------------
GENERAL
- -------
Florida Progress' diversified operations are owned directly or indirectly
through Progress Capital, a Florida corporation and wholly owned subsidiary of
Florida Progress. Progress Capital holds the capital stock of, and provides the
financing for, Florida Progress' non-utility subsidiaries. Its primary
subsidiary is Progress Fuels, formerly Electric Fuels. On January 2, 2002,
Electric Fuels changed its name to Progress Fuels.
Formed in 1976, Progress Fuels is an energy and transportation company. When the
Inland Marine Transportation unit was sold in November 2001, Progress Fuels was
reorganized into two business units, Energy and Related Services and Rail
Services. Progress Fuels' energy and related services business unit supplies
coal to Florida Power's Crystal River Energy Complex and other utility and
industrial customers. This business unit also produces and sells natural gas and
synthetic fuel along with operating terminal services and offshore marine
transportation. Progress Fuels also manages all of Progress Energy's synthetic
fuel facilities. The rail services business unit, led by Progress Rail Services
Corporation (Progress Rail), is one of the largest integrated processors and
suppliers of railroad materials in the country. With operations in 26 states,
Canada and Mexico, Progress Rail offers a full range of railcar parts,
maintenance-of-way equipment, rail and other track material, railcar repair
facilities, railcar scrapping and metal recycling as well as railcar sales and
leasing.
After the acquisition of Florida Progress, Progress Energy hired a financial
adviser to assist Florida Progress in evaluating its strategic alternatives with
respect to Progress Fuels' Inland Marine Transportation and Rail Services
segments. On July 23, 2001, Progress Energy announced the disposition of the
Inland Marine Transportation segment of the Company, which was operated by MEMCO
Barge Line, Inc. Inland Marine provided transportation of coal, agricultural and
other dry-bulk commodities as well as fleet management services. Progress Energy
entered into a contract to sell MEMCO Barge Line, Inc., to AEP Resources, Inc.,
a wholly owned subsidiary of American Electric Power. On November 1, 2001, the
Company completed the sale of the Inland Marine Transportation segment (See Note
4 to the Financial Statements). During 2001, Progress Energy decided to retain
the Rail Services segment in the near term. A SEC order approving the merger of
Florida Progress with Progress Energy requires Progress Energy divest of Rail
Services and certain immaterial, non-regulated investments of Florida Progress
by November 30, 2003.
In October 1998, Florida Progress formed a new subsidiary, Progress
Telecommunications Corporation (Progress Telecommunications). Progress
Telecommunications has data fiber network transport capabilities that stretch
from New York to Miami, Florida, with gateways to Latin America and conducts
primarily a carrier's carrier business. Progress Telecommunications markets
wholesale fiber-optic-based capacity service in the Eastern United States to
long-distance carriers, internet service providers and other telecommunications
companies. Progress Telecommunications also markets wireless structure
attachments to wireless communication companies and governmental entities. As of
December 31, 2001, Progress Telecommunications owned and managed approximately
7,200 route miles and more than 130,000 fiber miles of fiber optic cable. In
December 2001, Progress Telecom Corporation (Progress Telecom) was formed.
Assets, liabilities, and existing contracts of Progress Telecommunications and
Caronet, Inc., a subsidiary of Progress Energy, will be transferred to Progress
Telecom upon regulatory approval. Regulatory approval is expected during the
first half of 2002.
16
COMPETITION
- -----------
Florida Progress' non-utility subsidiaries compete in their respective
marketplaces in terms of price, quality of service, location and other factors.
Progress Fuels competes in several distinct markets. Its coal and synthetic fuel
operations compete in the eastern United States utility and industrial coal
markets, and its rail operations compete in the railcar repair, parts and
associated services markets primarily in the eastern United States, but also in
the midwest and west. Factors contributing to Progress Fuels' success in these
markets include a competitive cost structure and strategic locations. There are
numerous competitors in each of these markets, although no one competitor is
dominant in any industry. The business of Progress Fuels and its subsidiaries,
taken as a whole, is not subject to significant seasonal fluctuation.
17
ITEM 2. PROPERTIES
- ------------------
GENERAL
- -------
Florida Progress believes that its physical properties and those of its
subsidiaries are adequate to carry on its and their businesses as currently
conducted. Florida Progress and its subsidiaries maintain property insurance
against loss or damage by fire or other perils to the extent that such property
is usually insured.
UTILITY OPERATIONS
- ------------------
As of December 31, 2001, the total summer generating capacity (including
jointly-owned capacity) of Florida Power's generating facilities was 8,012 MW.
Florida Power's generating plants (all located in Florida) and their summer
capacities gross of co-ownership interests at December 31, 2001, are as follows:
- ----------------------------------------------------------------------------------------------------
Summer
Facility Location No. of In-Service Fuel Net
Units Date Capability
(a)(in MW)
- ----------------------------------------------------------------------------------------------------
STEAM TURBINES
Anclote Holiday, FL 2 1974-1978 Gas/Oil 993
Bartow St. Petersburg, FL 3 1958-1963 Gas/Oil 444
Crystal River Crystal River, FL 4 1966-1984 Coal 2,302
Suwannee River Live Oak, FL 3 1953-1956 Gas/Oil 143
-- -----
Total 12 3,882
COMBINED CYCLE
Hines Bartow, FL 1 1999 Gas/Oil 482
Tiger Bay Fort Meade, FL 1 1997 Gas 207
-- ----
Total 2 689
COMBUSTION TURBINES
Avon Park Avon Park, FL 2 1968 Gas/Oil 52
Bartow St. Petersburg, FL 4 1958-1972 Gas/Oil 187
Bayboro St. Petersburg, FL 4 1973 Oil 184
DeBary DeBary, FL 10 1975-1992 Gas/Oil 667
Higgins Oldsmar, FL 4 1969-1970 Gas 122
Intercession City Intercession City, FL 14 1974-2000 Gas/Oil 1,029 (b)
Rio Pinar Rio Pinar, FL 1 1970 Oil 13
Suwannee River Live Oak, FL 3 1980 Gas/Oil 164
Turner Enterprise, FL 4 1970-1974 Oil 154
University of Florida Cogen. Gainesville, FL 1 1994 Gas 35
-- -----
Total 47 2,607
NUCLEAR
Crystal River Crystal River, FL 1 1977 Uranium 834 (c)
-- -----
Total 1 834
TOTAL 62 8,012
- ----------------------------------------------------------------------------------------------------
(a) Represents Florida Power's net summer peak rating, gross of
co-ownership interest in plant capacity.
(b) Florida Power and Georgia Power Company ("Georgia Power") are
co-owners of a 143 MW advanced combustion turbine located at Florida
Power's Intercession City site. Georgia Power has the exclusive right
to the output of this unit during the months of June through
September. Florida Power has that right for the remainder of the year.
(c) Represents 100% gross of co-owners total plant capacity. Florida
Power's ownership percentage is approximately 91.8%.
As of December 31, 2001, including both the total generating capacity of 8,012
MW and the total firm contracts for purchased power of 1,304 MW, Florida Power
had total capacity resources of approximately 9,316 MW.
18
Substantially all of Florida Power's utility plant is pledged as collateral for
Florida Power's First Mortgage Bonds.
As of December 31, 2001, Florida Power distributed electricity through 358
substations with an installed transformer capacity of 50,800,000 kVA. Of this
capacity, 37,243,000 kVA is located in transmission substations and 13,557,000
kVA in distribution substations. Florida Power has the second largest
transmission network in Florida. Florida Power has 4,696 circuit miles of
transmission lines, of which 2,577 circuit miles are operated at 500, 230, or
115 kV and the balance at 69 kV. Florida Power has 26,806 circuit miles of
distribution lines, which operate at various voltages ranging from 2.4 to 25 kV.
DIVERSIFIED OPERATIONS
- ----------------------
Progress Fuels owns and/or operates approximately 5,300 railcars and 100
locomotives that are used for the transportation and shipping of coal, steel,
and other bulk products. Through a joint venture, Progress Fuels has four
oceangoing tug/barge units.
Progress Fuels controls, either directly or through subsidiaries, coal reserves
located in eastern Kentucky and southwestern Virginia. Progress Fuels owns
properties that contain estimated coal reserves of approximately 13 million tons
and controls, through mineral leases, additional estimated coal reserves of
approximately 20 million tons. The reserves controlled by Progress Fuels include
substantial quantities of high quality, low sulfur coal that is appropriate for
use at Florida Power's existing generating units. Progress Fuels' total
production of coal during 2001 was approximately 3.1 million tons.
In connection with its coal operations, Progress Fuels subsidiaries own and
operate an underground mining complex located in southeastern Kentucky and
southwestern Virginia. Other Progress Fuels subsidiaries own and operate surface
and underground mines, coal processing and loadout facilities and a river
terminal facility in eastern Kentucky, a railcar-to-barge loading facility in
West Virginia, and three bulk commodity terminals: one on the Ohio River in
Cincinnati, Ohio, and two on the Kanawha River near Charleston, West Virginia.
Progress Fuels and its subsidiaries employ both company and contract miners in
their mining activities.
Progress Fuels, through its subsidiaries, owns a majority interest in three
synthetic fuel entities, two located in Kentucky, the other located in West
Virginia. Progress Fuels has a minority interest in three other synthetic fuel
entities, each of which is located in West Virginia, Virginia and Kentucky.
Progress Ventures, a wholly owned subsidiary of Progress Energy, own a 90%
interest in two of these entities, which are located in Kentucky and West
Virginia. Progress Fuels production and sales from synthetic fuels operations
totaled approximately 8.1 million tons.
A subsidiary of Progress Fuels has oil and gas leases on about 20,000 acres in
Garfield and Mesa Counties, Colorado, containing proven natural gas net reserves
of 67.5 billion cubic feet. This subsidiary currently operates 70 gas wells on
the properties. Progress Fuels' natural gas production in 2001 was 4.7 billion
cubic feet.
Progress Rail, a Progress Fuels subsidiary, is one of the largest integrated
processors of railroad materials in the United States, and is a leading supplier
of new and reconditioned freight car parts, rail, rail welding and track work
components, railcar repair facilities, railcar and locomotive leasing,
maintenance-of-way equipment and scrap metal recycling. It has facilities and
offices in 26 states, Mexico and Canada.
Another subsidiary of Progress Fuels owns and operates a manufacturing facility
at the Florida Power Energy Complex in Crystal River, Florida. The manufacturing
process utilizes the fly ash generated by the burning of coal as the major raw
material in the production of lightweight aggregate used in construction
building blocks.
Progress Telecommunications provides wholesale telecommunications services
throughout the Eastern United States. Progress Telecommunications incorporates
more than 130,000 fiber miles in its network including over 150
Points-of-Presence.
As a result of the acquisition by Progress Energy, Progress Telecommunications
now manages the fiber optic network of Caronet, Inc. (Caronet), a subsidiary of
Progress Energy, stretching from Atlanta to Washington, D. C. Progress
Telecommunications combined its fiber network with Caronet's fiber network in
2001.
19
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
1. NCP Lake Power, Inc. v. Florida Power Corporation, Florida Circuit Court,
Fifth Judicial Circuit for Lake County, Case No. 94-2354-CA-01
In re: Petition for Declaratory Statement Regarding the Negotiated Contract
for Purchase of Firm Capacity and Energy between Florida Power Corporation
and Lake Cogen, LTD., Florida Public Service Commission, Docket No.
980509-EQ.
Florida Power's 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 its
qualifying facility contracts to allow it to pay an as-available energy
price rather than a higher firm energy price when the avoided unit upon
which the contract is based would not have been operated.
On October 21, 1994, NCP Lake Cogen, Inc. (Lake), a general partner of Lake
Cogen, Ltd., filed the above-referenced suit against Florida Power
asserting breach of its QF contract and requesting a declaratory judgment.
In December 1996, Florida Power filed a petition with the FPSC seeking
approval of a settlement agreement between Florida Power and Lake. In
November 1997, the FPSC declined approval, finding the proposed settlement
would exceed Florida Power's avoided costs.
On April 9, 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. In January 1999, Florida Power
filed a Notice of Appeal of this FPSC order with the Florida Supreme Court,
which subsequently upheld the FPSC.
Trial on Lake's action was held in Circuit Court in November and December
1998. In April 1999, the judge entered a non-final trial order. The judge
granted Lake's breach of contract claim and ruled that Lake is entitled to
receive "firm" energy payments during the 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. The judge denied Lake's breach of
contract claim relating to a coal-pricing dispute, denied Lake's claim for
injunctive relief and denied the Florida Power counterclaims. The court
reserved jurisdiction to enable the parties to present evidence on damages.
After hearing evidence on damages, in August 1999, the court issued a Final
Judgment awarding Lake historic damages in the amount of $4,480,247. Lake
filed a Notice of Appeal, and in September 1999, Florida Power filed a
notice of cross appeal. The 5th District Court of Appeals heard oral
argument in September 2000, and in an unusual action, the Court suggested
that the parties again attempt mediation. The parties met but did not
resolve their dispute.
On January 26, 2001, the District Court of Appeals reversed the trial
court's order and held that the contract requires Florida Power to pay Lake
the firm energy rate for all hours that the avoided unit operates, less any
maintenance shut-down hours. The District Court of Appeals remanded the
case to the trial court for a new trial to determine the appropriate amount
of damages consistent with the appellate court's ruling. Florida Power
sought rehearing of the District Court of Appeal's decision, which
subsequently confirmed its initial decision. On remand, Florida Power
entered a stipulation on issues of fact that resulted in the issuance of a
Final Judgement awarding damages to Lake of approximately $20 million,
which Florida Power recorded as a charge to purchased power expense, in the
third quarter of 2001.
(See Note 16 to the Financial Statements - Commitments and Contingencies -
Legal Matters - Qualifying Facilities Contracts.)
2. 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.
On October 13, 1995, Florida Power and Florida Progress were served with a
multi-party lawsuit involving 17 former Florida Power employees. The
plaintiffs generally alleged discrimination in violation of the Age
Discrimination and Employment Act and wrongful interference with pension
rights in violation of the
20
Employee Retirement Income Security Act of 1974 ("ERISA") as a result of
their involuntary terminations during Florida Power's reduction in force.
While no dollar amount is specified, each Plaintiff seeks back pay,
reinstatement or front pay through their projected dates of normal
retirement, costs and attorney's fees. The Plaintiffs subsequently filed
motions adding 39 additional plaintiffs.
In November 1995, Florida Power filed its answer, a motion to dismiss
Florida Progress, and a counterclaim against five of the plaintiffs who
signed releases, promising, among other things, not to sue Florida Power
with respect to matters involving their employment or termination. The
counterclaim sought enforcement of the agreement, dismissal of plaintiffs'
complaints, and an award of attorney's fees and costs of litigation.
In October 1996, the court approved a joint stipulation to provisionally
certify the case as a class action pursuant to the Age Discrimination in
Employment Act. By May 28, 1997, the final day for individuals to "opt
into" this action, 61 additional former employees elected to do so, for a
total of 116 plaintiffs (although, as noted below, four of those plaintiffs
have had their federal claims dismissed and 74 others have had their state
age claims dismissed).
In June 1998, the judge issued an order on several pending motions. The
motion to dismiss Florida Progress was denied, but all the ERISA claims
were dismissed and the state age claims of 5 plaintiffs were dismissed. The
Motion to Dismiss 4 plaintiffs' federal age claims based on Statute of
Limitations violations was granted.
In December 1998, Florida Power and the plaintiffs engaged in informal
settlement discussions, which were terminated on December 22, 1998.
However, the plaintiffs have filed a motion to enforce a purported $11
million oral settlement agreement. Florida Power denied that such an
agreement existed and filed responsive pleadings to that effect.
In August 1999, the Court dismissed the state law claims of an additional
69 plaintiffs who executed releases upon termination (bringing the total
number of state law claims dismissed to 74), granted the Florida Power
motion to decertify the class, and denied the plaintiff's motion to enforce
the alleged $11 million oral settlement agreement. 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 Eleventh Circuit Court of Appeals agreed to
review the judge's order decertifying the class, and oral arguments were
held in January 2001.
In anticipation of a potential ruling decertifying the case as a class
action, in March 2000 the plaintiffs filed a motion with the District Court
to reopen the case of Akin, et al. vs. Florida Power, which identified all
------------------------------
opt-in plaintiffs as named plaintiffs, and to dismiss the Adams case. The
-----
Akin case was originally filed in an effort to preserve the litigation
----
rights of the 61 plaintiffs who opted into the Adams case. The Court had
-----
previously stayed the Akin case pending a ruling on Florida Power's motion
----
to decertify the class. Oral arguments were held in January 2001. On July
5, 2001, the Eleventh Circuit Court of Appeals ruled that as a matter of
law, disparate claims cannot be brought under the Americans with
Disabilities Act (ADEA). This ruling has the effect of decertifying the
Akin case as a class action. On October 3, 2001, the plaintiffs filed a
----
petition in the United States Supreme Court, requesting a hearing of the
case, on the issue of whether disparate claims can be brought under the
ADEA. On December 3, 2001, the United States Supreme Court agreed to hear
the case. Oral arguments on the issue were held on March 20, 2002. As of
this date, the trial court has not stayed the litigation pending the
outcome of the Supreme Court. The Company cannot predict the outcome of
this matter.
(See Note 16 to the Financial Statements - Commitments and Contingencies -
Legal Matters - Age Discrimination Suit.)
3. 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.
Calgon Carbon Corporation (Calgon) filed a complaint on January 12, 1998,
asserting securities fraud, breach of contract and other claims in
connection with the sale to it by two of the defendants in December
21
1996 of their interests in Advanced Separation Technologies, Incorporated
(AST), a corporation engaged in the business of designing and assembling
proprietary separation equipment. Prior to closing, Progress Capital, a
wholly owned subsidiary of Florida Progress, owned 80% of the outstanding
stock of AST and Potomac Capital Investment Corporation (an entity
unaffiliated with Progress Capital or Florida Progress) owned 20%. Calgon
paid Progress Capital an aggregate of approximately $57.5 million
(producing net proceeds of approximately $56 million after certain fees and
expenses) in respect of Progress Capital's share of AST's stock. Calgon
claims that AST's assets and revenues were overstated and liabilities and
expenses were understated for 1996. Calgon also alleges undisclosed facts
relating to accounting methodology, poor products, manufacturing and
quality control problems and undisclosed warranty claims. Calgon seeks
damages, punitive damages and the right to rescind the purchase. The
defendants have filed a motion for summary judgement, which is pending. As
a result of documents recently produced by the plaintiff which Florida
Progress believes undercut several of Calgon's claims, discovery has been
reopened. Defendants will be allowed to supplement their motion. (See Note
16 to the Financial Statements - Commitments and Contingencies - Legal
Matters - Advanced Separation Technologies.)
4. Wallace Bentley, et al. v. City of Tallahassee, Interstate Fibernet, Inc.
and Florida Power Corporation, Circuit Court for Leon County, Florida. Case
No. 98-7107.
In December 1998, Florida Power was served with this 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 Telecom as a defendant and adding counts for unjust
enrichment and constructive trust. In January 2000, the court conditionally
certified the class statewide. In mediation held in March 2000, the parties
reached a tentative settlement of this claim. In January 2001, the Court
preliminarily approved the amended settlement agreement, certified the
settlement class and approved the class notice. On November 16, 2001, the
Court issued a final order approving the settlement. Several objectors to
the settlement appealed the order to the 1st District Court of Appeal. If
the order approving settlement is ultimately upheld on appeal, the
settlement would not have a material adverse impact on the financial
position, results of operations or liquidity of Florida Power or Progress
Telecom.
(See Note 16 to the Financial Statements - Commitments and Contingencies -
Legal Matters - Easement Litigation.)
22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable
23
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
- -------------------------------------------------------------------------
MATTERS
-------
FLORIDA PROGRESS
- ----------------
Prior to the acquisition of Florida Progress by CP&L Energy on November 30,
2000, which was subsequently renamed Progress Energy, Florida Progress' common
stock was listed on the New York Stock Exchange and the Pacific Stock Exchange.
Subsequent to the acquisition, all of the Florida Progress common stock is owned
by Progress Energy, and as a result there is no established public trading
market for the stock.
Florida Progress receives dividends from Florida Power. Florida Power's Amended
Articles of Incorporation and its Indenture dated as of January 1, 1944, under
which it issues first mortgage bonds, contain provisions restricting dividends
in certain circumstances. At December 31, 2001, Florida Power's ability to pay
dividends was not limited by these restrictions.
Florida Progress and Progress Capital have entered into a Second Amended and
Restated Guaranty and Support Agreement dated as of August 7, 1996, pursuant to
which Florida Progress has unconditionally guaranteed the payment of Progress
Capital's debt (as defined in the agreement).
Florida Progress did not issue any equity securities during 2001 that were not
registered under the Securities Act. Progress Capital, however, has a privately
placed medium-term note program. (See Item 7 "MD&A-Liquidity and Capital
Resources -Diversified Operations" and Note 11 to the Financial Statements.)
FLORIDA POWER
- -------------
All of Florida Power's common stock is owned by Florida Progress, and as a
result there is no established public trading market for the stock. For the past
three years, Florida Power has paid quarterly dividends to Florida Progress
totaling the amounts shown in the Statements of Common Equity in the Financial
Statements. Florida Power's amended articles of incorporation, and its Indenture
dated as of January 1, 1944, as supplemented, under which it issues first
mortgage bonds, contain provisions restricting dividends in certain
circumstances. At December 31, 2001, Florida Power's ability to pay dividends
was not limited by these restrictions.
24
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
FLORIDA PROGRESS CORPORATION
- ----------------------------
The consolidated financial data should be read in conjunction with the financial
statements and the notes thereto included elsewhere in this report.
Years Ended December 31,
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(in millions except ratios)
Operating results
- -----------------
Utility revenues $3,212.8 $2,871.6 $2,649.4 $2,664.5 $2,448.4
Diversified revenues 1,378.3 1,404.0 1,086.1 837.1 762.5
Income from continuing operations 265.4 135.3/(2)/ 304.2 271.4 48.4/(1)/
Income (loss) from discontinued operations /(3)/ (21.1) 8.9 10.7 10.3 5.9
Net income $ 244.3 $ 144.2 $ 314.9 $ 281.7 $ 54.3
Assets $6,308.8 $6,492.6 $6,308.2 $6,061.3 $5,621.1
- ------
Capitalization
- --------------
Long-term debt 2,643.9 2,276.4 2,454.1 2,250.4 2,377.8
Preferred stock of subsidiary 33.5 33.5 33.5 33.5 33.5
Common stock equity 2,072.3 1,987.6 2,008.7 1,862.0 1,776.0
-------- -------- -------- -------- --------
Total capitalization $4,749.7 $4,297.5 $4,496.3 $4,145.9 $4,187.3
======== ======== ======== ======== ========
/(1)/Includes charges for extended nuclear outage costs and a provision for loss
on Florida Progress' investment in Mid-Continent. (See Note 16.)
/(2)/For 2000, income from continuing operations includes certain merger-related
and goodwill and other long-lived asset impairment costs.
/(3)/ Represents the income (loss) associated with Florida Progress' divestiture
of MEMCO Barge Line, Inc.
Certain reclassifications have been made to prior-year amounts to conform
to the current year's presentation
25
FLORIDA POWER CORPORATION
- -------------------------
The financial data should be read in conjunction with the financial statements
and the notes thereto included elsewhere in this report.
Years Ended December 31
(in millions except ratios)
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Operating results
- -----------------
Utility revenues $3,212.8 $2,871.6 $2,649.4 $2,664.5 $2,448.4
Earnings for common stock $ 309.6 $ 210.3/(1)/ $ 265.5 $ 248.6 $ 134.4/(2)/
Assets $4,998.2 $4,978.0 $4,889.1 $4,928.1 $4,900.8
- ------
Capitalization
- --------------
Long-term debt 1,619.3 1,397.1 1,478.8 1,555.1 1,754.4
Preferred stock 33.5 33.5 33.5 33.5 33.5
Common stock equity 2,031.6 1,965.0 1,885.0 1,820.1 1,767.5
-------- -------- -------- -------- --------
Total capitalization $3,684.4 $3,395.6 $3,397.3 $3,408.7 $3,555.4
======== ======== ======== ======== ========
/(1)/For 2000, earnings for common stock include certain merger-related costs.
/(2)/Includes charges for extended nuclear outage costs
Certain reclassifications have been made to prior-year amounts to conform
to the current year's presentation
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------------------------------------------------------------------------
OF OPERATIONS
-------------
For 2001 as compared to 2000 and 2000 as compared to 1999
OVERVIEW
- --------
Management's Discussion and Analysis includes a review of the operating results
and financial condition of Florida Progress Corporation and focuses primarily on
Florida Progress' two principal subsidiaries, Florida Power Corporation and
Progress Fuels Corporation, formerly Electric Fuels Corporation (Electric
Fuels). On January 2, 2002, Electric Fuels changed its name to Progress Fuels.
Florida Progress has four business segments, Utility, Energy and Related
Services, Rail Services, and Other. Through this analysis we identify the key
factors affecting revenues, earnings, cash flows, capital requirements and other
financial data.
Florida Power provides electric service to approximately 1.4 million customers
in west central Florida and serves a predominately retail customer base. Florida
Power has one business segment, the Utility.
Progress Capital Holdings, Inc. is a holding company for Florida Progress'
diversified operations led by Progress Fuels, an energy and transportation
company. Progress Fuels currently has two primary business segments: Rail
Services and Energy & Related Services. The Inland Marine Transportation segment
was sold during 2001, therefore, results of operations of the segment are
reflected as discontinued operations.
Florida Progress' 2001 consolidated income from continuing operations was $401.9
million, before goodwill and other long-lived asset impairment costs, loss on
sale of assets, and other one-time charges of $136.5 million after-tax ($205.5
million pre-tax). This was an increase of 19.5% over 2000 consolidated income
from continuing operations of $336.2 million, before $200.9 million, after-tax,
of merger-related and goodwill and other long-lived asset impairment charges
($277.7 million pre-tax). The increase was primarily driven by continued
customer growth at Florida Power and increased sales of a coal-based synthetic
fuel by Progress Fuels, which generates income tax credits.
Florida Progress' 2000 consolidated income from continuing operations, before
$200.9 million, after-tax, of merger-related and goodwill and other long-lived
asset impairment charges ($277.7 million pre-tax), was $336.2 million, an
increase of 10.5% over 1999 consolidated income from continuing operations of
$304.2 million. The increase was primarily driven by a 5.3% increase in
kilowatt-hour sales (based on system requirements) at Florida Power and
increased sales of a coal-based synthetic fuel by Progress Fuels, which
generates income tax credits.
Note 1 to the Florida Progress consolidated financial statements discusses the
Company's significant accounting policies. The most critical accounting policies
and estimates that impact the Company's financial statements are the economic
impacts of utility regulation, which are described in more detail in Note 15 and
the impact of synthetic fuel tax credits, which are described in more detail in
Note 7 to the Florida Progress consolidated financial statements.
ACQUISITION
- -----------
On November 30, 2000, CP&L Energy, which subsequently changed its name to
Progress Energy, acquired all of the outstanding shares of Florida Progress'
common stock in accordance with the Amended and Restated Plan of Exchange,
including the related Plan of Share Exchange, dated as of August 22, 1999, as
amended and restated as of March 3, 2000 among CP&L Energy, Florida Progress and
Carolina Power & Light Company. Florida Progress Shareholders received $54.00 in
cash or shares of Progress Energy common stock having a value of $54.00, subject
to proration, and one contingent value obligation in exchange for each of their
shares of Florida Progress common stock. The exchange ratio for the shares of
Progress Energy common stock issued to Florida Progress shareholders was 1.3473.
Each CVO represents the right to receive contingent payments based upon the net
after-tax cash flow to Progress Energy generated by four synthetic fuel
facilities purchased by subsidiaries of Florida Progress in 1999.
The acquisition of Florida Progress was accounted for using the purchase method
accounting; however, due to the significance of the public debt and preferred
securities of the Company and Florida Power, the acquisition cost was not pushed
down to the Company's separate financial statements. The financial statements,
footnotes and Management's Discussion and Analysis included in this Form 10-K,
reflect the complete 12 months of 2001, 2000 and 1999.
27
FLORIDA POWER CORPORATION
- -------------------------
Florida Power's operating results are primarily influenced by customer demand
for electricity, its ability to control costs and its authorized regulatory
return on equity. Annual demand for electricity is based on the number of
customers and their annual usage, with usage largely driven by weather. Since
Florida Power serves a predominately retail customer base, operating results are
primarily influenced by the level of retail sales and the costs associated with
those sales.
The FPSC oversees the retail sales of the state's investor-owned electric
utilities and authorizes retail base rates. Base rates and the resulting base
revenues are intended to cover all reasonable and prudent expenses of utility
operations and provide investors with a fair rate of return.
Costs not covered by base rates include fuel, purchased power and energy
conservation expenses. The FPSC allows electric utilities to recover these
costs, referred to as "pass-through" costs, through various cost recovery
clauses to the extent those costs are prudent. Pass-through costs represent
about 46% of Florida Power's annual electric revenues and about 57% of its
operating expenses for 2001. Due to the regulatory treatment of these expenses
and the method allowed for recovery, changes from year to year have no material
impact on operating results.
The FPSC has authorized a return on equity range for Florida Power of 11-13% and
its retail base rates are based on the mid-point of that range -- 12%. Each
year, Florida Power provides the FPSC with a forecast of the current year's
earnings and regulatory return on equity. In 2001 and 2000, Florida Power used
the additional revenues generated in 2000 and 1999, respectively, to offset
additional amortization of its Tiger Bay regulatory asset.
(See Note 15.)
Florida Power's retail regulatory return on equity for 2001, 2000 and 1999 was
12.9%, 12.7%, and 12.4%, respectively.
Utility Revenues and Sales
- --------------------------
Florida Power's electric revenues for the years ended December 31, 2001, 2000,
and 1999, and the percentage change year by customer class are as follows (in
millions):
Electric Revenues
(In millions of dollars)
2001 % Change 2000 % Change 1999
------ -------- ------ -------- ------
Residential $1,643 11.3% $1,476 5.8% $1,395
Commercial 754 13.9 662 7.3 617
Industrial 223 5.2 212 1.9 208
Governmental 176 15.8 152 7.0 142
------ ------ ------
Total Retail Revenues 2,796 11.8 2,502 5.9 2,362
Wholesale 288 4.3 276 21.1 228
Miscellaneous 129 37.2 94 59.3 59
------ ------ ------
Total Electric Revenues $3,213 11.9% $2,872 8.4% $2,649
====== ====== ======
28
Florida Power's electric energy sales for the years ended December 31, 2001,
2000, and 1999, and the percentage change by year by customer class are as
follows (in thousands of mWh):
Electric Energy Sales
(In millions of mWh)
2001 % Change 2000 % Change 1999
------- -------- ------ -------- -------
Residential 17,604 2.9% 17,116 5.4% $16,245
Commercial 11,061 2.3 10,813 4.7 10,327
Industrial 3,872 (8.9) 4,249 (2.0) 4,334
Governmental 2,726 2.7 2,654 4.7 2,536
------ ------ -------
Total Retail Energy Sales 35,263 1.2 34,832 4.2 33,442
Wholesale 4,719 (9.4) 5,209 7.3 4,853
Unbilled (511) -- 344 36.5 252
------ ------ -------
Total mWh Sales 39,471 (2.3)% 40,385 4.8% 38,547
====== ====== =======
Total utility revenues increased in 2001 compared with 2000 due to residential
customer growth and an increase in fuel costs, which contributed to higher
pass-through revenues. The number of residential customers increased by
approximately 32,000 customers or 2.6%. The weighted average fuel cost increased
$0.13, or 5.3%, per million Btu between 2000 and 2001.
Total utility revenues increased in 2000 compared with 1999 due to customer
growth, higher weather-related usage and an increase in fuel costs, which
contributed to higher pass-through revenues. The weighted average fuel cost
increased $0.55, or 28.8%, per million Btu between 1999 and 2000. For 2000,
Florida Power deferred $63 million of base revenues as approved by the FPSC,
which was used in 2001 to offset additional amortization of the Tiger Bay
regulatory asset.
Residential and commercial sales increased in 2001 and reflected continued
growth in the number of customers served by Florida Power, partially offset by
milder-than-normal weather. Florida Power added over 35,000 new customers in
2001. The commercial sector, which includes the travel and hotel industry, had a
decrease in energy demand due to a downturn in the Florida economy. Industrial
sales declined due to weakness in the manufacturing sector and phosphate
industry, which continue to be affected by the economic downturn. Sales to
wholesale customers decreased for 2001, primarily due to the mild weather and
the expected decrease in sales to Seminole Electric in accordance with terms
under existing contracts.
Florida Power's total kilowatt-hour sales based on system requirements increased
in 2000 compared with 1999. The increase was due to continued customer growth
and increases in weather related usage, along with strong usage due to a
favorable economy. Wholesale sales of electricity were up due largely to higher
kilowatt-hour sales to wholesale customers, primarily Seminole Electric, Florida
Power's largest wholesale customer.
During 2000, Florida Power served approximately 24,000 new customers, of which
21,000 were residential customers. This group of customers represents Florida
Power's largest customer class and grows about 2% annually. Average usage in
2000 among residential customers was higher than 1999 due primarily to
colder-than-normal temperatures during the latter part of the year.
Fuel, Purchased Power and Energy Conservation Costs
- ---------------------------------------------------
As previously discussed, fuel, purchased power and energy conservation costs are
recovered primarily through recovery clauses established by state and/or federal
regulators.
Factors influencing fuel and purchased power costs include demand for
electricity, fuel prices, the availability of generating plants and the amount
and price of electricity purchased from qualifying facilities (QFs) and other
utilities.
Fuel used in generation and purchased power were $1.4 billion for 2001 compared
with $1.2 billion for 2000. Fuel expense increased in 2001 due to increases in
coal prices and recovery of previously deferred fuel costs. The average fuel
cost for coal increased $0.27, or 14.3%, per million Btu between 2000 and 2001.
Purchased power
29
expense was consistent between 2000 and 2001. Fuel and purchased power expenses
are recovered primarily through cost recovery clauses established by regulators
and, as such, have no material impact on operating results.
Total fuel, and purchased power expenses were $1.2 billion in 2000 compared with
$1.1 billion for 1999. The increase resulted from higher system requirements and
an increase in the unit price of fuels (primarily natural gas and oil) and
purchased power, offset by a decrease in the deferred fuel component of fuel
used in electric generation. The weighted average fuel cost increased $0.55, or
28.8%, per million Btu between 1999 and 2000.
A key factor influencing Florida Power's purchased power costs are the prices
paid to QFs for electricity. Currently, Florida Power receives 831 MW of its
total capacity from QFs. Costs associated with the contracts raised Florida
Power's system average cost for generation in 2001 and 2000, and this trend is
expected to continue based on the contracts currently in place and the
escalating payment schedules associated with each contract.
Florida Power will continue its effort to mitigate the impact of escalating
payments from its QF contracts. (See Note 16 to the Financial Statements - Fuel,
Coal and Purchased Power Commitments.)
Factors affecting the level of energy conservation costs include the cost of
implementing and maintaining various FPSC-approved conservation programs and
credits issued to customers participating in programs where equipment is used to
remotely control energy usage among those participants. Florida Power does not
expect the level of energy conservation costs to vary materially in the future.
Other Expenses
- --------------
Other Utility Operating Expenses
(Dollars in millions)
2001 Change 2000 Change 1999
--------------- --------------- ------
Other operation & maintenance $425.5 (18.8)% $524.1 13.0% $463.9
Depreciation & amortization $453.0 12.5% $402.6 15.9% $347.5
Taxes other than on income $230.2 7.9% $213.3 5.0% $203.1
Other operation and maintenance expense was $425.5 million for the year ended
December 31, 2001, down slightly from 2000 due to cost control efforts. Other
operation and maintenance expense was $429.9 million, excluding $94.2 million of
merger-related costs, for the year ended December 2000.
Operation and maintenance expenses for 2000 were down $34 million compared with
1999 for recurring expenses after excluding $94.2 million of merger-related
costs. The decrease is due primarily to lower employee salary and benefit costs,
from reduced staffing levels, and the timing of certain maintenance and
reliability projects.
The combination with Progress Energy resulted in certain synergies due to the
consolidation of various Florida corporate functions in Raleigh, North Carolina,
headquarters for Progress Energy. As a result, Florida Power's operations and
maintenance expenses are likely to continue to decline over time as these cost
savings are realized.
Depreciation and amortization expense increased in 2001, compared to 2000,
primarily due to additional expense related to the Tiger Bay regulatory asset
compared to 2000. The Tiger Bay regulatory asset was created as a result of the
early termination of certain long-term cogeneration contracts and is amortized
according to a plan approved by the Florida Public Service Commission in 1997,
including the option to accelerate the amortization. In 2001, $97 million of
accelerated amortization was recorded on the Tiger Bay regulatory assets, of
which $63 million was associated with deferred revenue from 2000, therefore
having no impact on 2001 earnings. The remaining $34 million of accelerated
amortization on the Tiger Bay regulatory asset was charged to amortization
expense in 2001.
Depreciation and amortization expense increased $55.1 million in 2000 when
compared with 1999. Excluding $44.4 million of accelerated amortization of the
Tiger Bay regulatory asset during 2000, depreciation and amortization expense
increased $10.7 million due to higher plant balances resulting primarily from
the new Hines Unit 1 being in service the entire year. This 530-megawatt
generation plant was added in April 1999.
30
Taxes other than on income were up $16.9 million in 2001 over 2000 primarily due
to a $14.6 million increase in revenue related taxes from a comparable increase
in Operating Revenues.
Taxes other than on income were up $10.2 million in 2000 over 1999 primarily due
to a $6.9 million or 6.1% increase in revenue related taxes from a comparable
increase in Operating Revenues.
DIVERSIFIED OPERATIONS
- ----------------------
Net income (loss) from continuing Diversified Operations was ($44.2) million,
($75.0) million and $38.7 million for 2001, 2000 and 1999, respectively. The
$44.2 million loss from continuing operations for 2001 includes a $130.6 million
after-tax ($196.4 million pre-tax) charge for goodwill and other long-lived
asset impairments, loss on sale of assets, and other one-time charges at
Progress Fuels. The $44.2 million loss from continuing operations for 2001 also
includes a $5.9 million after-tax charge for other-than-temporary declines in
the fair value of the investment in affordable housing investments. The $75.0
million loss from continuing operations for 2000 includes nonrecurring
merger-related and goodwill and other long-lived asset impairment costs of
$130.7 million after-tax.
Currently, Progress Fuels makes up the vast majority of Florida Progress'
diversified operations. The increases in diversified revenues and net income
over the last three years are due to the expansion of Progress Fuels. The growth
of Progress Fuels has come from both of its business units but the majority of
its growth in income before nonrecurring items during 2001 and 2000 has come
from the expansion of its synthetic fuel operations.
Progress Fuels Corporation
- --------------------------
Progress Fuels' operating results are influenced by several factors, unique to
the various markets in which the two business segments compete. The Inland
Marine Transportation segment was sold in November 2001.
Rail Services -- The key factor affecting operating results is the demand for
railcar and trackwork components and services among the country's major
railroads and fleet owners. The production of new rail cars is a key factor in
the demand for rail car parts, one of Progress Rail's key products. In addition,
the supply and demand for scrap steel directly affects the operating margins of
its recycling division.
Energy & Related Services -- This business segment's operating results are
primarily affected by the supply and demand for low-sulfur coal, natural gas and
the demand for its coal-based synthetic fuel. Progress Fuels has acquired
interests in six synthetic fuel entities that combine a petroleum-based product
with coal fines to produce a synthetic fuel. During 2000, Progress Ventures
purchased 90% interests in two of these entities.
2001 compared with 2000
Progress Fuels' 2001 loss from continuing operations of $22.3 million includes a
$130.6 million after-tax total charge for goodwill and other long-lived asset
impairments, loss on sale of assets, and other one-time charges at its rail and
river terminal operations. Excluding these charges, Progress Fuels' 2001 income
from continuing operations was $108.3 million. This is an increase of $37.2
million over 2000 income from continuing operations of $71.1 million, excluding
a $83.6 million after-tax charge for goodwill and other long-lived asset
impairments at its rail and coal operations and $21.6 million after-tax
merger-related costs. The improvement in earnings was due primarily to increased
production at its synthetic fuel facilities in the Energy and Related Services
segment.
Excluding $126.8 million in after-tax charges for goodwill and other long-lived
asset impairments, loss on sale of assets, and other one-time charges, the Rail
Services business unit lost $17.5 million in 2001, compared to $10.0 million of
net loss, excluding $43.0 million in after-tax merger and goodwill and other
long-lived asset impairment charges, for 2000. The losses are due to continued
weak demand for rail car parts and for track work by the major class one
railroads.
In an effort to reduce costs, the major railroads have reduced spending on these
types of maintenance items and announced layoffs. In addition, new rail car
deliveries dropped nearly 40% during 2001 when compared with 2000. As mentioned
above, demand for reconditioned parts, is directly affected by new rail car
production. Due to results of divestiture efforts and the decision to retain the
Rail Services business segment, coupled with prior and current year losses and a
continued decline in the rail services industry, the Company evaluated the rail
long-lived assets.
31
As a result of this review, Progress Fuels recorded an after-tax impairment
charge of $108.1 million for goodwill and other long-lived assets.
Earnings from the Energy and Related business unit were $128.5 million in 2001,
compared to $89.0 million, before merger and goodwill and other long-lived asset
impairment charges of $54.9 million after-tax, in 2000. The 44% improvement in
earnings is due largely to the increased production and sale of synthetic fuel
and the impact of the related energy tax credits.
Progress Fuels' corporate and other costs of $6.4 million decreased $5.3 million
in 2001 over 2000. In 2000, corporate and other costs were $11.7 million, before
merger charges of $3.6 million. The decrease in 2001 was primarily due to the
impact of lower employee benefits related costs and performance based incentive
pay, recorded in 2001.
2000 compared with 1999
Progress Fuels' 2000 loss from continuing operations of $34.1 million includes a
$83.6 million after-tax charge for goodwill and other long-lived asset
impairments at its rail and coal operations and $21.6 million after-tax
merger-related costs. Excluding these charges, Progress Fuels' 2000 income from
continuing operations was $71.1 million, a $19.4 million increase over 1999
income from continuing operations of $51.7 million. The 38% improvement in
earnings from continuing operations was due primarily to its expanded synthetic
fuel operations.
Excluding merger and goodwill and other long-lived asset impairment charges of
$43.0 million after-tax, the Rail Services business unit lost $10.0 million in
2000, compared to $21.3 million of net income for 1999. The severe decline in
earnings was due to continued weak demand for rail car parts and for track work
by the major class one railroads.
In an effort to reduce costs, the major railroads have reduced spending on these
types of maintenance items and announced layoffs. In addition, new rail car
deliveries dropped nearly 40% during 2000 when compared with 1999. As mentioned
above, demand for reconditioned parts, is directly affected by new rail car
production. As a result of the preliminary valuation of the Rail Services
business segment coupled with a continued decline in the rail services industry,
Progress Fuels recorded an after-tax impairment charge of $36.3 million for
goodwill and other long-lived assets.
Earnings from the Energy and Related business unit were $89.0 million, before
merger and goodwill and other long-lived asset impairment charges of $54.9
million after-tax, up $50.1 million due largely to the addition of four
synthetic fuel facilities. This business unit also owns coal mines. Due to the
intended changes for the use of these assets by management and a continuing
depressed market for coal, Progress Fuels recorded an after-tax goodwill and
other long-lived asset impairment charge of $47.3 million to write down coal
reserves.
Progress Fuels' corporate and other costs of $11.7 million, before merger
charges of $3.6 million, increased $3.3 million in 2000 over 1999. The increase
was primarily due to higher employee benefits related costs and higher incentive
pay due to a dramatic increase in earnings before nonrecurring items.
Florida Progress Interest Expense and Other Income
- --------------------------------------------------
Florida Progress' interest expense decreased $22.2 million in 2001 over 2000 as
a result of lower average debt balances.
Florida Progress' interest expense increased $22.3 million in 2000 over 1999 as
a result of higher average debt balances and higher short-term rates. The higher
debt balances were due primarily to expansion of Progress Fuels' operations, in
particular its synthetic fuel business.
Allowance for funds used during construction (AFUDC) is primarily influenced by
the amount of eligible projects in Florida Power's construction work-in-progress
outstanding during the year.
Other expense was higher in 2001 as compared to 2000 primarily due to a $9.1
million pre-tax ($5.9 million after-tax) investment impairment charge for
other-than-temporary declines in the fair value of the investment in affordable
housing investments.
32
Other income was higher in 1999 as compared to 2000 due primarily to a gain on
the sale of property at Florida Power and higher earnings from non-regulated
activities.
Income Taxes
- ------------
Income tax expense decreased each year from 1999 to 2001 primarily due to
alternative fuel tax credits generated by the sale of Progress Fuels' synthetic
fuels. (See Note 7 to the Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
OVERVIEW
- --------
Florida Progress' utility and diversified operations are capital-intensive
businesses. However, approximately 80 percent of Florida Progress' capital needs
are driven by Florida Power's construction expenditures.
Florida Progress relies upon its operating cash flow, commercial paper
facilities and its ability to access long-term capital markets for its liquidity
needs. Since a substantial majority of Florida Progress' operating costs are
related to its regulated electric utility, a significant portion of these costs
are recovered from customers through fuel and energy cost recovery clauses.
At Florida Power, cash from operations is the primary source of cash for the
utility's construction expenditures, which normally range from approximately
$300 million to $400 million annually. Florida Power's current forecast of
construction expenditures includes expenditures of about $500 million annually.
The increase is due to the construction of a base load generating plant and
additional reliability improvements to its energy delivery system. Over the last
three years, Florida Power's cash flow from operations has averaged nearly 170%
of its construction expenditures.
Florida Progress' capital expenditures associated with its diversified
operations are expected to decline in the future due to the sale of its barge
fleet in November 2001 and the eventual disposition of Progress Rail. During
2001, Progress Energy hired an investment advisor to evaluate strategic
alternatives associated with Progress Rail. However, it later announced its
intention to retain the Rail Services segment due largely to market conditions
in the rail services industry. Due to the noncore nature of the rail services
business, Progress Energy does not plan to expand those operations.
In addition to funding its construction commitments with cash from operations,
the companies access the capital markets through the issuance of commercial
paper, secured and unsecured notes, preferred securities, and equity through
Progress Energy, which can offer issuances of common stock. Risk factors
associated with commercial paper back up credit facilities and credit ratings
are discussed below. Other sources of capital for both companies over the last
three years include proceeds from the sale and leaseback of equipment, and
proceeds from the sale of properties and businesses.
Florida Power's interim financing needs are funded primarily through its
commercial paper program. The utility has a $170 million, 364-day revolving bank
credit facility and a $200-million, long-term revolving bank credit facility
expiring in 2004, which are used to back up commercial paper. (See Note 11 to
the Financial Statements.) In addition, Florida Power has an uncommitted bank
bid facility that authorized it to borrow and re-borrow, and have outstanding at
any time, up to $100 million. As of December 31, 2001, there were no loans
outstanding under the uncommitted facility. The facility was established to
temporarily supplement commercial paper borrowings, as needed.
Florida Power's medium-term note program provides for the issuance of either
fixed or floating interest rate notes, with maturities that may range from nine
months to 30 years. Florida Power has $250 million of medium-term notes
available for issuance. (See Note 11 to the Financial Statements.)
In November 2001, Progress Energy eliminated a $600 million commercial paper
program at Progress Capital. At the same time, Progress Energy established its
own $1 billion commercial paper facility, which will be used to fund the working
capital needs of Progress Energy's diversified operations including Progress
Fuels.
In addition to funding the working capital needs of its diversified businesses
primarily through its commercial paper program, Progress Energy can issue
long-term debt to fund the capital requirements of Progress Fuels. As such,
Progress Energy does not intend to issue any long-term debt at Progress Capital.
33
CASH FLOW FROM OPERATING ACTIVITIES
- -----------------------------------
Florida Progress' cash from operations of $821.3 million increased $300.6
million compared with 2000 due primarily improved operating cash flow at Florida
Power. The utility's improved operating cash flow was due to customer growth and
the recovery of fuel costs previously deferred. Cash from operations decreased
$152.5 million in 2000 compared with 1999. The decrease was due primarily to
lower operating cash flow at Florida Power which resulted from an underrecovery
of fuel costs and operation fluctuations in current assets for electric
customers. The change in current assets was related to colder than normal
weather in December 2000 compared with December 1999 and nonrecurring
merger-related expenses. Florida Power is allowed full recovery of prudently
incurred costs through rates charged to customers. (See Item 7, "MD&A -
Operating Results - Florida Power.")
CASH FLOW FROM INVESTING ACTIVITIES
- -----------------------------------
Cash requirements for investing activities during 2001 decreased $71 million
when compared with 2000 due primarily to lower investing activity at Florida
Progress' diversified operations. As mentioned above, Progress Energy sold
Progress Fuels' barge fleet in November 2001 and has reduced capital
expenditures associated with its Rail Services operations.
Cash requirements for investing activities for 2000 of $546.6 million were down
$52 million compared with 1999 due primarily to lower property additions by
Florida Power.
Florida Power's construction expenditures, including nuclear fuel, totaled
$366.3 million, $286.8 million and $361.1 million for 2001, 2000 and 1999,
respectively. These expenditures are primarily for distribution lines and
generating facilities necessary to meet the needs of the utility's growing
customer base.
In planning for its future generation needs, Florida Power develops a forecast
of annual demand for electricity, including a forecast of the level and duration
of peak demands during the year. These forecasts have historically been
developed using a 15% reserve margin. The reserve margin is the difference
between a company's net system generating capacity and the maximum demand on the
system.
In December 1999, the FPSC approved a joint proposal by Florida Power, Florida
Power & Light and Tampa Electric Company to increase the reserve margin to 20%
by 2004. In response, Florida Power is currently constructing a second
generating unit at the Hines site. Hines Unit 2 will use the same combined-cycle
technology as Hines Unit 1 and is expected to have a summer generating capacity
of approximately 495 MW. The cost of the plant is included in the projected
construction dollars presented below under the heading "Future Cash
Requirements."
Progress Fuels' capital expenditures for 2001, 2000 and 1999 were $61.8 million,
$88.2 million and $101.5 million, respectively. These capital expenditures have
been primarily for the expansion of its synthetic fuel operations and the
construction of a new rail car repair and trackworks facility.
Other capital expenditures for diversified operations are primarily for Progress
Telecommunications and totaled $72 million in 2001. Progress Telecommunications
expects to spend about $50 million annually over the next three years for the
expansion of its telecom network.
Other investing activities decreased $37.0 million during 2001 when compared
with 2000. The decrease is due primarily to less acquisition activity at
Progress Fuels.
Net proceeds from the sale of discontinued operations of $28 million resulted
from the sale of Progress Fuels' barge fleet in November 2001. Total proceeds
from the sale were $270 million of which approximately $230 million were used to
terminate certain synthetic leases associated with the barge fleet.
CASH FLOW FROM FINANCING ACTIVITIES
- -----------------------------------
Strong cash flow from operations and lower investing activities during 2001 when
compared with 2000 enabled Florida Progress to reduce debt by approximately $200
million. In contrast, during 2000 higher diversified investing activities and
lower cash from operations resulted in an increase in debt outstanding of
approximately $170 million when compared with 1999.
34
In July 2001, Florida Power issued $300 million of First Mortgage Bonds due 2011
with a coupon of 6.65%. Proceeds from the issuance were primarily used to retire
commercial paper and for general corporate purposes.
During 2001, $80 million of Florida Power's medium-term notes matured. In
addition, $101 million of medium-term notes matured at Progress Capital. These
notes were retired with proceeds obtained through the issuance of commercial
paper.
Progress Capital has $273 million of medium-term notes outstanding as of
December 31, 2001. It is Progress Energy's intent to payoff these remaining
notes as they become due with internally generated funds from its diversified
operations or through the issuance of debt by Progress Energy. In November 2001,
the Company terminated the Progress Capital commercial paper program.
The Company and its subsidiaries participate in two internal money pools,
operated by Progress Energy, to more effectively utilize cash resources and to
reduce outside short-term borrowings. Short-term borrowing needs are met first
by available funds of the money pool participants. Borrowing companies pay
interest at a rate designed to approximate the cost of outside short-term
borrowings. Subsidiaries, which invest in the money pool, earn interest on a
basis proportionate to their average monthly investment. The interest rate used
to calculate earnings approximates external interest rates. Funds may be
withdrawn from or repaid to the pool at any time without prior notice. Interest
expense related to advances from Progress Energy in 2001 was not significant.
The Company's consolidated subsidiaries have lines of credit totaling $370
million, which are used to support the issuance of commercial paper. The lines
of credit were not drawn on as of December 31, 2001. The lines of credit consist
of two revolving bank credit facilities for Florida Power. The Florida Power
facilities consist of $170 million with a 364-day term and $200 million
long-term revolving bank credit facility, expiring in 2004.
The Company's financial policy precludes issuing commercial paper in excess of
its supporting lines of credit. At December 31, 2001, the total amount of
commercial paper outstanding was $154 million, leaving approximately $216
million available for issuance. The Company is required to pay minimal annual
commitment fees to maintain its credit facilities.
These credit agreements contain various terms and conditions that could affect
the Company's ability to borrow under these facilities. These include a maximum
debt to total capital ratio, a material adverse change clause and a
cross-default provision. For Florida Power, the maximum total debt to total
capital ratio is 65%. As of December 31, 2001, the calculated ratio for Florida
Power, pursuant to the terms of the agreement, was 44.6%
Florida Power's credit facilities include a provision under which lender could
refuse to advance funds in the event of a material adverse change in the
borrower's financial condition.
Each of these credit agreements contains a cross-default provision for defaults
of indebtedness in excess of $10 million. Under these provisions, if the
applicable borrower or certain affiliates fail to pay various debt obligations
in excess of $10 million the lenders could accelerate payment of any outstanding
borrowing and terminate their commitments to the credit facility.
Capital Structure for Florida Progress As of December 31, 2001 and 2000:
2001 2000
---- ----
Common stock 42.8% 44.3%
Preferred stock of subsidiary .7% .7%
Debt 56.5% 55.0%
35
Credit Ratings (December 31, 2001)
Moody's Standard and
------- ------------
Investors Service Poor's
----------------- ------
Florida Power Corporation
Corporate Credit Rating A2 BBB+/A-2
Commercial Paper P-1 A-2
Senior Secured Debt A1 BBB+
Senior Unsecured Debt A2 BBB+
Preferred Stock Baa1 BBB-
FPC Capital I
Preferred Stock* A3 BBB-
Progress Capital Holdings, Inc.
Senior Unsecured Debt* A3 BBB
*Guaranteed by Florida Progress Corporation
These ratings reflect the current views of these rating agencies and no
assurances can be given that these ratings will continue for any given period of
time. However, the Company monitors its financial condition as well as market
conditions that could ultimately affect its credit ratings. The Company is
committed to maintaining its current credit ratings.
Neither the Company's debt indentures nor its credit agreements contain any
"ratings triggers" which would cause the acceleration of interest and principal
payments in the event of a ratings downgrade. However, in the event of a
downgrade the Company and/or its subsidiaries may be subject to increased
interest costs on the credit facilities backing up the commercial paper program.
The Company and its subsidiaries have certain contracts which have provisions
that are triggered by a ratings downgrade. These contracts include counterparty
trade agreements, derivative contracts and various types of third party purchase
agreements. None of these contracts would require any action on the part of
Florida Progress or its subsidiaries unless the ratings downgrade results in a
rating below investment grade.
Future Cash Requirements
Florida Power's three-year construction program totals nearly $1.5 billion for
the 2002-2004 forecast period. It includes planned expenditures of about $500
million each year. These expenditures are primarily for the expansion of Florida
Power's distribution system and generation capacity. Florida Power expects these
construction expenditures to be financed primarily with cash from operations.
Future Commitments
The following tables reflect Florida Progress' contractual cash obligations and
other commercial commitments in the respective periods in which they are due.
Contractual Cash Total Amounts
Obligations Committed 2002 2003 2004 2005 2006 Thereafter
- --------------------------------------------------------------------------------------
Long-term debt $ 2,735 $ 88 $ 430 $ 68 $ 48 $ 109 $1,992
Capital Lease 18 1 1 1 1 1 13
Obligations
Operating Leases 120 20 39 28 10 5 18
Fuel 3,494 880 752 602 626 611 23
Purchased Power 6,358 289 295 284 297 308 4,885
- --------------------------------------------------------------------------------------
Total $12,725 $1,278 $1,517 $983 $982 $1,034 $6,931
36
Other Commercial Total Amounts
Commitments Committed 2002 2003 2004 2005 2006 Thereafter
- ------------------------------------------------------------------------------------
Standby Letters of $ 24 $24 $-- $-- $-- $-- $--
Credit
Guarantees and Other 109 18 16 13 11 10 41
Commitments
- ------------------------------------------------------------------------------------
Total $133 $42 $16 $13 $11 $10 $41
Information on the Company's future commitments at December 31, 2001, is
included in the notes to the Florida Progress consolidated financial statements.
Future debt maturities and lease obligations are included in Note 11 and Note
16, respectively. The Company's fuel, purchased power and other commitments are
included in Note 16 to the Florida Progress consolidated financial statements.
OTHER MATTERS
- -------------
CURRENT REGULATORY ENVIRONMENT
- ------------------------------
General
Florida Power is regulated by the FPSC, FERC, United States Nuclear Regulatory
Commission (NRC), EPA, and by environmental authorities in the state of Florida.
In addition, Florida Progress and Florida Power are subject to regulation by the
SEC. As a result of regulation, many of the Company's fundamental business
decisions, as well as the rate of return it is permitted to earn are subject to
the approval of governmental agencies.
Florida Retail Rate Proceeding
Florida Power previously operated under an agreement committing several parties
not to seek any reduction in its base rates or authorized return on equity. That
agreement expired on June 30, 2001. During 2001, the FPSC required Florida Power
to submit minimum filing requirements, based on a 2002 projected test year, to
initiate a rate proceeding regarding its future base rates.
On September 14, 2001, Florida Power submitted its required rate filing,
including its revenue requirements and supporting testimony. Florida Power filed
supplemental minimum filing requirements and testimony on November 15, 2001.
Hearings were scheduled to begin on March 20, 2002, but were postponed to
accommodate pending settlement negotiations between the parties.
On March 27, 2002, the parties in Florida Power's rate case entered into a
Stipulation and Settlement Agreement (the Agreement) related to retail rate
matters. The Agreement is to be effective from May 1, 2002 through 2005;
provided, however, that if Florida Power's base rate earnings fall below a 10%
return on equity, Florida Power may petition the FPSC to amend its base rates.
The Agreement provides that Florida Power will reduce its retail revenues from
the sale of electricity by $125 million annually through 2005. The Agreement
also provides that Florida Power will operate under a Revenue Sharing Incentive
Plan (the Plan) that establishes revenue caps and sharing thresholds for the
years 2002 through 2005. The Plan provides that retail base rate revenues
between the sharing thresholds and the retail base rate revenue caps will be
divided into two shares - a 1/3 share to be received by Florida Power's
shareholders, and a 2/3 share to be refunded to Florida Power's retail
customers; provided, however, that for the year 2002 only, the refund to
customers will be limited to 67.1% of the 2/3 customer share. The retail base
rate revenue sharing threshold amounts for 2002, 2003, 2004 and 2005 will be
$1,296 million, $1,333 million, $1,370 million, and $1,407 million,
respectively. The Plan also provides that all retail base rate revenues above
the retail base rate revenue caps established for the years 2003, 2004 and 2005
will be refunded to retail customers on an annual basis. For 2002, the refund to
customers will be limited to 67.1% of the retail base rate revenues that exceed
the 2002 cap. The retail base revenue caps for 2002, 2003, 2004 and 2005 will be
$1,356 million, $1,393 million, $1,430 million, and $1,467 million,
respectively.
The Agreement also provides that beginning with the in-service date of Florida
Power's Hines Unit 2 and continuing through December 31, 2005, Florida Power
will be allowed to recover through the fuel cost recovery clause a return
37
on average investment and depreciation expense for Hines Unit 2, to the extent
such costs do not exceed the Unit's cumulative fuel savings over the recovery
period.
Additionally, the Agreement provides that Florida Power will effect a mid-course
correction of its fuel cost recovery clause to reduce the fuel factor by $50
million for the remainder of 2002. The fuel cost recovery clause will operate as
it normally does, including, but not limited to any additional mid-course
adjustments that may become necessary, and the calculation of true-ups to actual
fuel clause expenses.
During the term of the Agreement, Florida Power will suspend accruals on its
reserves for nuclear decommissioning and fossil dismantlement. Additionally, for
each calendar year during the term of the Agreement, Florida Power will record a
$62.5 million depreciation expense reduction, and may, at its option, record up
to an equal annual amount as an offsetting accelerated depreciation expense. In
addition, Florida Power is authorized, at its discretion, to accelerate the
amortization of certain regulatory assets over the term of the Agreement.
Under the terms of the Agreement, Florida Power agreed to continue the
implementation of its four-year Commitment to Excellence Reliability Plan and
expects to achieve a 20% improvement in its annual System Average Interruption
Duration Index by no later than 2004. If this improvement level is not achieved
for calendar years 2004 or 2005, Florida Power will provide a refund of $3
million for each year the level is not achieved to 10% of its total retail
customers served by its worst performing distribution feeder lines.
The Agreement also provides that Florida Power will refund to customers $35
million of the $98 million in interim revenues Florida Power has collected
subject to refund since March 13, 2001. No other interim revenues that were
collected during that period will continue to be held subject to refund.
The Agreement was filed with the FPSC for approval on March 27, 2002. If the
FPSC approves the Agreement, the new rates will take effect May 1, 2002. The
Company cannot predict the outcome of this matter.
Electric Industry Restructuring
The electric utility industry is undergoing changes designed to increase
competition in the wholesale and retail electricity markets. The wholesale power
market includes sales of electricity to utilities from other utilities and
non-utility generators. This market is regulated by FERC. The retail electricity
market includes sales of electricity to end-use customers, i.e., residential,
commercial and industrial customers, and is regulated by FPSC.
As a result of the Public Utilities Regulatory Policies Act of 1978 (PURPA) and
the Energy Policy Act of 1992 (EPA of 1992), competition in the wholesale
electricity market has greatly increased, especially from non-utility generators
of electricity. In 1996, FERC issued new rules on transmission service to
facilitate competition in the wholesale market on a nationwide basis. The rules
give greater flexibility and more choices to wholesale power customers.
Florida Power continues to monitor progress toward a more competitive
environment and has actively participated in regulatory reform deliberations in
Florida. Movement toward deregulation has been affected by recent developments,
including developments related to deregulation of the electric industry in
California and other states.
In May 2000, the Governor of Florida issued an executive order establishing a
17-member commission to study the issue of restructuring. On January 31, 2001,
the Florida 2020 Study Commission voted to forward a "proposed outline for
wholesale restructuring" to the Florida legislature for its consideration in the
2001 session. The wholesale restructuring outline is intended to facilitate the
evolution of a more robust wholesale marketplace in Florida. On December 11,
2001 the study commission issued its final report. The report covered a number
of issues with recommendations in the areas of wholesale competition and
reliability, efficiency, transmission infrastructure, environmental issues and
new technologies. A key recommendation related to wholesale competition and
reliability permits the transfer or sale of existing generation at book value
and on a plant-by-plant basis, with the sale and transfer being at the
discretion of the investor-owned utility. The Florida legislature did not take
any action on the proposed outline or final report during the 2001 session. The
Company cannot predict what restructuring legislation will be enacted or if the
Company would be able to support it in its final form.
38
Regional Transmission Organizations
In October 2000, Florida Power, along with Florida Power & Light Company and
Tampa Electric Company filed with FERC an application for approval of a regional
transmission organization, or RTO, for peninsular Florida, currently named
GridFlorida. On March 28, 2001, FERC issued an order provisionally granting
GridFlorida RTO status and directing the GridFlorida applicants to make certain
changes in the RTO documents and to file such changes within 60 days. On May 29,
2001, the GridFlorida applicants made the compliance filing as directed by FERC,
but FERC has not yet issued an order on that compliance filing.
On May 16, 2001, the FPSC initiated dockets to review the prudence of the
GridFlorida applicants' decision to form and participate in the GridFlorida RTO.
The GridFlorida applicants have announced that they will hold GridFlorida
development activities in abeyance. On June 27, 2001, the FPSC issued an order
establishing a two-phase process for addressing these GridFlorida RTO issues in
the context of Florida Power's pending rate case. In the first phase, the FPSC
addressed the general issues associated with the prudence of the GridFlorida RTO
on an expedited basis. FPSC hearings were held in October 2001 on the phase one
issues, and the FPSC issued an order in December 2001. The order states, among
other things, that the GridFlorida applicants acted prudently in moving to
establish an RTO for Florida. However, the order also directs the GridFlorida
applicants to make certain changes to the proposed GridFlorida structure and
refile with the FPSC within 90 days of the order. The GridFlorida applicants
made the required changes to GridFlorida and refiled the application with the
FPSC on March 20, 2002. The second phase will address ratemaking issues and will
be decided as part of the general rate proceeding. The Company cannot predict
the outcome or impact of these matters.
On July 12, 2001, FERC issued an order requiring certain parties, including
CP&L, Duke Energy Corporation, South Carolina Electric & Gas Company, Southern
Company and Entergy to engage in a mediation to develop a plan for a single RTO
for the Southeast. The GridFlorida applicants and the parties to the GridFlorida
docket before FERC were encouraged to participate, but were not required to do
so. Florida Power and CP&L participated in the mediation. On September 10, 2001,
the presiding administrative law judge of the mediation submitted a mediation
report to FERC. The report, which has not yet been acted on by FERC, recommended
adoption of a for-profit transmission company RTO model. FERC held a discussion
on the mediation report on November 24, 2001. In January 2002, FERC stated that
it would issue orders on the RTO formations for the Southeast during the first
half of 2002 after the development of a standardized market design for the
wholesale electricity market. The Company cannot predict the outcome of these
matters or the effect that it may have on the GridFlorida proceedings currently
ongoing before the FERC and the FPSC.
Merchant Plants
In August 1998, Duke Energy filed a petition to build Florida's first merchant
power plant, a 514 MW facility to be located in Volusia County, Florida. The
plant would provide 30 MW of energy to the Utilities Commission of the City of
New Smyrna Beach and the remaining capacity would be available for wholesale
sales.
In a move Florida Power believed to be contrary to the existing state law, the
FPSC granted Duke Energy's petition. Florida Power and other Florida utilities
filed an appeal of the FPSC's decision with the Florida Supreme Court. In April
2000, the Florida Supreme Court ruled in favor of Florida Power and other
utilities and reversed the FPSC's order. In December 2000, Duke Energy filed a
petition for certiorari with the U.S. Supreme Court. On March 5, 2001, the U.S.
Supreme Court denied Duke Energy's petition for certiorari.
Franchise Litigation
Five cities, with a total of approximately 36,000 customers, have sued Florida
Power in various circuit courts in Florida. The lawsuits principally seek (1) a
declaratory judgment that the cities have the right to purchase Florida Power's
electric distribution system located within the municipal boundaries of the
cities, (2) a declaratory judgment that the value of the distribution system
must be determined through arbitration, and (3) injunctive relief requiring
Florida Power to continue to collect from Florida Power's customers and remit to
the cities, franchise fees during the pending litigation, and as long as Florida
Power continues to occupy the cities' rights-of-way to provide electric service,
notwithstanding the expiration of the franchise ordinances under which Florida
Power had agreed to collect such fees. Three circuit courts have entered orders
requiring arbitration to establish the purchase price of Florida Power's
electric distribution facilities within three cities. One appellate court has
held that one city has the right to determine the value of Florida Power's
facilities within the city through arbitration. To date, no city has attempted
to actually exercise the right to purchase any portion of Florida Power's
electric distribution system, nor has there
39
been any proceeding to determine the value at which such a purchase could be
made. Arbitration has been scheduled for two of the cases in the third quarter
of 2002. The Company cannot predict the outcome of these matters.
Nuclear
In the retail jurisdiction, provisions for nuclear decommissioning costs are
approved by the FPSC based on site-specific estimates that include the costs for
removal of all radioactive and other structures at the site. In the wholesale
jurisdiction, the provisions for nuclear decommissioning costs are based on
amounts agreed upon by FERC. See Note 8 to the financial statements for a
discussion of nuclear decommissioning costs.
As required under the Nuclear Waste Policy Act of 1982, Florida Power entered
into a contract with the Department of Energy (DOE) under which the DOE agreed
to begin taking spent nuclear fuel by no later than January 31, 1998. All
similarly situated utilities were required to sign the same standard contract.
See Note 8 to the financial statements for a discussion of recent DOE
developments.
In August 2001, the NRC issued Bulletin 2001-01, "Circumferential Cracking of
Reactor Vessel Head Penetration Nozzles," requesting that all pressurized water
reactors (PWR) provide their plans for inspecting the reactor vessel head for
the conditions described in the bulletin. While performing this inspection,
FirstEnergy Corp.'s Davis Besse plant in Ohio found three penetrations with
evidence of leakage and further evidence of some wastage of the reactor vessel
head around two of these penetrations. As a result of finding the wastage of the
vessel head, the NRC issued Bulletin 2002-01, requesting licensees to assess
previous inspections of the reactor head and determine the potential for the
existence of conditions similar to that found at the Davis Besse plant.
Florida Power's CR3 has completed the inspections requested by Bulletin 2001-01.
Any indications of leakage have been inspected and repaired, and no wastage of
the reactor vessel head has been observed. Based on these inspections, responses
to Bulletin 2002-01 are being prepared. The Company does not anticipate any
adverse impact from this regulatory action.
Synthetic Fuels
Progress Fuels, through its subsidiaries, owns a majority interest in three
synthetic fuel entities, two located in Kentucky, the other located in West
Virginia. Progress Fuels has a minority interest in three other synthetic fuel
entities, each of which is located in West Virginia, Virginia and Kentucky.
Progress Ventures, a wholly owned subsidiary of Progress Energy, owns a 90%
interest in two of these entities, which are located in Kentucky and West
Virginia. Progress Fuels production and sales from synthetic fuels operations
totaled approximately 8.1 million tons, and generated tax credits (under the
Internal Revenue Service Code Section 29) of approximately $213.4 million. All
entities have received private letter rulings (PLRs) from the Internal Revenue
Service with respect to their synfuel operations. The PLR's do not limit the
production on which synthetic fuel tax credits may be claimed. Should the tax
credits be denied on future audits and Florida Progress fails to prevail through
the audit/legal process, there could be significant tax liability owed for
previously taken Section 29 credits, with a significant impact on earnings and
cash flows.
In Management's opinion, Florida Progress is complying with all the necessary
requirements to be allowed such credits under Section 29 and believes it is
probable, although it cannot provide certainty, that it will prevail on any
credits taken.
Fuel Acquisition
On January 11, 2002, Progress Energy announced that it had entered into a letter
of intent with Westchester Gas Company to acquire approximately 215 producing
natural gas wells, 52 miles of intrastate gas pipeline and 170 miles of
gas-gathering systems. The properties are located within a 25-mile radius of
Jonesville, Texas, on the Texas-Louisiana border. This will add 140 billion
cubic feet (Bcf) of gas reserves to Progress Fuels' fuel business, which more
than doubles its gas reserves and potential annual production levels. Total
consideration of $153 million is expected to include $135 million in Progress
Energy common stock and $18 million in cash. This transaction is expected to be
completed in the first half of 2002.
40
Environmental Matters
The Company is subject to federal, state and local regulations addressing air
and water quality, hazardous and solid waste management and other environmental
matters.
Various organic materials associated with the production of manufactured gas,
generally referred to as coal tar, are regulated under federal and state laws.
The lead or sole regulatory agency that is responsible for a particular former
coal tar site depends largely upon the state in which the site is located. There
are several manufactured gas plant (MGP) sites to which Florida Power has some
connection. In this regard, Florida Power, with other potentially responsible
parties, is participating in investigating and, if necessary, remediating former
coal tar sites with several regulatory agencies, including, but not limited to,
the EPA and the FDEP. Although Florida Power may incur costs at these sites
about which it has been notified, based upon current status of these sites,
Florida Power does not expect those costs to be material to the financial
position or results of operations of Florida Power.
The Company is periodically notified by regulators such as the EPA and various
state agencies of their involvement or potential involvement in sites, other
than MGP sites, that may require investigation and/or remediation. Although the
Company may incur costs at the sites about which they have been notified, based
upon the current status of these sites, the Company does not expect those costs
to be material to the financial position or results of operations of the
Company.
There has been and may be further proposed federal legislation requiring
reductions in air emissions for nitrogen oxides, sulfur dioxide and mercury
setting forth national caps and emission levels over an extended period of time.
This national multi-pollutant approach would have significant costs which could
be material to the Company's consolidated financial position or results of
operations. Some companies may seek recovery of the related cost through rate
adjustments or similar mechanisms. The Company cannot predict the outcome of
this matter.
The EPA has been conducting an enforcement initiative related to a number of
coal-fired utility power plants in an effort to determine whether modifications
at those facilities were subject to New Source Review requirements or New Source
Performance Standards under the Clean Air Act. Florida Power was asked to
provide information to the EPA as part of this initiative and has cooperated in
providing the requested information. The EPA has initiated enforcement actions
against other unaffiliated utilities as part of this initiative, some of which
have resulted in or may result in settlement agreements calling for expenditures
ranging from $1.0 billion to $1.4 billion. A utility that was not subject to a
civil enforcement action settled its New Source review issues with the EPA for
$300 million. These settlement agreements have generally called for expenditures
to be made over extended time periods, and some of the companies may seek
recovery of the related costs through rate adjustments. The Company cannot
predict the outcome of this matter.
In July 1997, the EPA issued final regulations establishing a new eight-hour
ozone standard. In October 1999, the District of Columbia Circuit Court of
Appeals ruled against the EPA with regard to the federal eight-hour ozone
standard. The U.S. Supreme Court has upheld, in part, the District of Columbia
Circuit Court of Appeals decision. Further litigation and rulemaking are
anticipated. The Company cannot predict the outcome of this matter.
On November 1, 2001, the Company completed the sale of the Inland Marine
Transportation segment to AEP Resources, Inc. In connection with the sale, the
Company entered into environmental indemnification provisions covering both
unknown and known sites. The Company has recorded an accrual to cover estimated
probable future environmental expenditures. The Company believes that it is
reasonably possible that additional costs, which cannot be currently estimated,
may be incurred related to the environmental indemnification provision beyond
the amounts accrued. The Company cannot predict the outcome of this matter.
The Company has filed claims with the Company's general liability insurance
carriers to recover costs arising out of actual or potential environmental
liabilities. Some claims have been settled and others are still pending. While
management cannot predict the outcome of these matters, the outcome is not
expected to have a material effect on the financial position or results of
operations.
41
Other Items
Florida Progress is involved in other litigation. (See Note 16 to the Financial
Statements - Legal Matters.)
Even though the inflation rate has been relatively low during the last three
years, inflation continues to affect Florida Progress by reducing the purchasing
power of the dollar and increasing the cost of replacing assets used in the
business. This has a negative effect on Florida Power because regulators
generally do not consider this economic loss when setting utility rates.
However, such losses are partly offset by the economic gains that result from
the repayment of long-term debt with inflated dollars.
MID-CONTINENT LIFE INSURANCE COMPANY
- ------------------------------------
Mid-Continent was placed in receivership in the spring of 1997. Since then,
Florida Progress has worked to resolve various issues surrounding Mid-Continent
with several parties.
In September 2000, the Oklahoma County District Court approved a rehabilitation
plan for Mid-Continent in which American Fidelity would acquire Mid-Continent's
policies. In addition, Florida Progress reached a settlement to resolve a
policyholders' class action lawsuit, which was approved by the Court. The
settlement included Florida Progress agreeing to contribute $17.5 million, plus
attorney's fees and expenses up to approximately $5 million, towards protecting
policyholders from future premium increases. Accordingly, Florida Progress
accrued approximately $23 million as of December 2000.
During 2001, Florida Progress paid the settlement and attorney's fees. In
December 2001, Florida Progress, having filed a claim with its insurance carrier
related to Mid-Continent, was awarded an $8.8 million insurance settlement,
resulting in after-tax income of $5.4 million.
In connection with a settlement agreement related to Mid-Continent Life, Florida
Progress had charges totaling $8.1 million after-tax during 2000. In 1999,
charges related to Mid-Continent were more than offset by the recognition of
certain tax benefits, which resulted in net income of $3.6 million in 1999. (See
Note 16 to the Financial Statements - Mid-Continent Life Insurance Company.)
NEW ACCOUNTING STANDARDS
- ------------------------
See Note 1 to the financial statements for a discussion of the anticipated
impact of new accounting standards.
42
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
FLORIDA PROGRESS
Market risk represents the potential loss arising from adverse changes in market
rates and prices. Florida Progress is exposed to certain market risks, including
changes in interest rates with respect to its long-term debt and commercial
paper, and fluctuations in the return on marketable securities with respect to
its nuclear decommissioning trust funds. The Company manages its market risk in
accordance with its established risk management policies, which may include
entering into various derivative transactions.
These financial instruments are held for purposes other than trading. The risks
discussed below do not include the price risks associated with non-financial
instrument transactions and positions associated with Florida Progress'
operations, such as sales commitments and inventory.
INTEREST RATE RISK
- ------------------
The Company manages its interest rate risks through the use of a combination of
fixed and variable rate debt. Variable rate debt has rates that adjust in
periods ranging from daily to monthly.
The following tables provide information as of December 31, 2001 and 2000, about
the Company's interest rate risk sensitive instruments. The tables present
principal cash flows and weighted-average interest rates by expected maturity
dates for the fixed long-term debt, commercial paper and the FPC obligated
mandatorily redeemable securities of trust.
Fair Value
December 31, 2001 2002 2003 2004 2005 2006 Thereafter Total December 31
- ---------------------------------------------------------------------------------------------------
(Dollars in millions)
Fixed rate long-term
debt $ 88 $ 276 $ 68 $ 48 $ 109 $1,192 $1,781 $1,832
Average interest rate 5.96% 6.42% 6.60% 6.72% 6.97% 6.87% 6.75% --
Commercial paper -- $ 154 -- -- -- -- $ 154 $ 154
Average interest rate -- 2.54% -- -- -- -- 2.54% --
FPC mandatorily
redeemable
securities of Trust -- -- -- -- -- $ 300 $ 300 $ 291
Fixed rate 7.10% 7.10% --
Unsecured note with $ 500 $ 500 $ 494
parent
Average interest rate 6.43% 6.43%
Fair Value
December 31, 2001 2001 2002 2003 2004 2005 Thereafter Total December 31
- ---------------------------------------------------------------------------------------------------
(Dollars in millions)
Fixed rate long-term
debt $ 191 $ 87 $ 275 $ 68 $ 48 $1,001 $1,670 $1,651
Average interest rate 6.73% 5.92% 6.37% 6.32% 6.30% 6.94% 6.73% --
Commercial paper -- -- $ 500 -- -- -- $ 500 $ 500
Average interest rate -- -- 7.10% -- -- -- 7.10% --
FPC mandatorily
redeemable
securities of Trust -- -- -- -- -- $ 300 $ 300 $ 272
Fixed rate 7.10% 7.10%
43
FLORIDA POWER
The information required by this item is incorporated herein by reference to the
Florida Progress Quantitative and Qualitative Disclosures About Market Risk
insofar as it relates to Florida Power.
The following tables provide information as of December 31, 2001 and 2000, about
Florida Power's interest rate risk sensitive instruments.
December 31, 2001 Fair Value
2002 2003 2004 2005 2006 Thereafter Total December 31
- -------------------------------------------------------------------------------------------------
(Dollars in millions)
Fixed rate long-term
debt $ 32 $ 217 $ 43 $ 48 $ 48 $1,112 $1,500 $1,538
Average interest rate 6.55% 6.15% 6.69% 6.72% 6.76% 6.89% 6.76% --
Commercial paper -- $ 154 -- -- -- -- $ 154 $ 154
Average interest rate -- 2.54% -- -- -- -- 2.54% --
December 31, 2000 Fair Value
2001 2002 2003 2004 2005 Thereafter Total December 31
- -------------------------------------------------------------------------------------------------
(Dollars in millions)
Fixed rate long-term
debt $ 82 $ 32 $ 218 $ 43 $ 48 $ 859 $1,282 $1,267
Average interest rate 6.48% 6.55% 6.15% 6.69% 6.72% 6.97% 6.77% --
Commercial paper -- -- $ 200 -- -- -- $ 200 $ 200
Average interest rate -- -- 6.89% -- -- -- 6.89% --
MARKETABLE SECURITIES PRICE RISK
- --------------------------------
Florida Power maintains trust funds, as required by the Nuclear Regulatory
Commission, to fund certain costs of decommissioning its nuclear plants. These
funds are primarily invested in stocks, bonds and cash equivalents, which are
exposed to price fluctuations in equity markets and to changes in interest
rates. At December 31, 2001 and 2000, the fair values of these funds were
approximately $406.1 million and $400.7 million, respectively. The Company
actively monitors its portfolio by benchmarking the performance of its
investments against certain indices and by maintaining, and periodically
reviewing, target allocation percentages for various asset classes. The
accounting for nuclear decommissioning recognizes that the Company's regulated
electric rates provide for recovery of these costs, net of any trust fund
earnings, and therefore, fluctuations in trust fund marketable security returns
do not affect the earnings of the Company.
44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
TO THE BOARDS OF DIRECTORS OF FLORIDA PROGRESS CORPORATION AND FLORIDA POWER
CORPORATION:
We have audited the accompanying consolidated balance sheet and schedule of
capitalization of Florida Progress Corporation and its subsidiaries (Florida
Progress) and the accompanying balance sheet and schedule of capitalization of
Florida Power Corporation (Florida Power) as of December 31, 2001, and the
related Florida Progress consolidated statements of income, of common equity and
comprehensive income, and of cash flows and the related Florida Power statements
of income, of common equity, and of cash flows for the year then ended. Our
audits also included the financial statement schedules for the year ended
December 31, 2000, listed in the Index at Item 14. These financial statements
and financial statement schedules are the responsibility of the respective
company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Florida Progress and of Florida Power,
respectively, at December 31, 2001, and the results of their respective
operations and cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Raleigh, North Carolina
February 15, 2002
45
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF FLORIDA PROGRESS CORPORATION:
We have audited the accompanying balance sheets and schedules of capitalization
of Florida Progress Corporation and subsidiaries, and of Florida Power
Corporation, as of December 31, 2000 and 1999, and the related statements of
income, cash flows, and common equity and comprehensive income for the years
then ended. In connection with our audits of the financial statements, we also
have audited the financial statement schedules listed in Item 14 therein. These
financial statements and financial statement schedules are the responsibility of
the respective management of Florida Progress Corporation and Florida Power
Corporation. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Florida Progress Corporation
and subsidiaries, and Florida Power Corporation, as of December 31, 2000 and
1999, and the results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related financial statement
schedules when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
/s/KPMG LLP
- -------------------------
KPMG LLP
St. Petersburg, Florida
February 15, 2001
46
CONSOLIDATED STATEMENTS of INCOME
- ---------------------------------
Florida Progress Corporation Years ended December 31
(In thousands) 2001 2000 1999
- ---------------------------------------------------------------------------------------------
Operating Revenues
Electric $3,212,841 $2,871,563 $2,649,413
Diversified businesses 1,378,278 1,403,997 1,086,132
- ---------------------------------------------------------------------------------------------
Total Operating Revenues 4,591,119 4,275,560 3,735,545
- ---------------------------------------------------------------------------------------------
Operating Expenses
Fuel used in electric generation 912,735 681,869 615,389
Purchased power 514,528 498,458 414,080
Energy conservation costs 61,673 65,041 81,215
Other operation and maintenance 425,471 524,090 463,843
Depreciation and amortization 452,972 402,625 347,515
Taxes other than on income 230,169 213,280 203,099
Diversified businesses 1,690,073 1,655,336 1,038,550
- ---------------------------------------------------------------------------------------------
Total Operating Expenses 4,287,621 4,040,699 3,163,691
- ---------------------------------------------------------------------------------------------
Operating Income 303,498 234,861 571,854
- ---------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 2,872 1,852 867
Other, net (28,382) (18,668) 1,513
- ---------------------------------------------------------------------------------------------
Total Other Income (Expense) (25,510) (16,816) 2,380
- ---------------------------------------------------------------------------------------------
Interest Charges
Long-term debt 150,693 163,047 155,232
Other interest charges 35,718 47,561 33,344
Allowance for borrowed funds used during
construction (AFUDC) (1,087) (3,117) (3,350)
- ---------------------------------------------------------------------------------------------
Total Interest Charges, Net 185,324 207,491 185,226
- ---------------------------------------------------------------------------------------------
Income before Income Taxes 92,664 10,554 389,008
Income Taxes (Benefit) (172,719) (124,715) 84,858
- ---------------------------------------------------------------------------------------------
Income from Continuing Operations 265,383 135,269 304,150
Discontinued Operations, net of tax (Note 4):
Income from discontinued operations 2,682 8,972 10,747
Net loss on disposal of discontinued operations,
(net of applicable income tax benefit of $7,896) (23,734) -- --
- ---------------------------------------------------------------------------------------------
Net Income $ 244,331 $ 144,241 $ 314,897
=============================================================================================
See Notes to financial statements
47
CONSOLIDATED BALANCE SHEETS
- ---------------------------
Florida Progress Corporation
(In thousands) December 31
Assets 2001 2000
- ---------------------------------------------------------------------------------------------------
Utility Plant
Electric utility plant in service $ 7,151,729 $ 6,998,135
Accumulated depreciation (3,984,308) (3,701,975)
- ---------------------------------------------------------------------------------------------------
Utility plant in service, net 3,167,421 3,296,160
Held for future use 8,274 8,274
Construction work in progress 292,883 124,988
Nuclear fuel, net of amortization 62,536 39,879
- ---------------------------------------------------------------------------------------------------
Total Utility Plant, Net 3,531,114 3,469,301
- ---------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 5,201 24,200
Accounts receivable 420,118 482,270
Accounts receivable-affiliates 21,851 507
Taxes receivable 14,761 16,363
Deferred income taxes 32,325 39,576
Inventory 485,891 371,919
Deferred fuel cost 15,147 90,434
Prepayments 10,748 23,027
Net assets of discontinued operations -- 69,642
Other current assets 48,184 25,251
- ---------------------------------------------------------------------------------------------------
Total Current Assets 1,054,226 1,143,189
- ---------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Income taxes recoverable through future rates 27,610 19,689
Deferred purchased power contract termination costs 95,326 226,656
Unamortized debt expense 21,021 19,128
Nuclear decommissioning trust funds 406,100 400,719
Diversified business property, net 669,078 666,360
Miscellaneous other property and investments 117,535 181,569
Goodwill, net 11,139 113,152
Other assets and deferred debits 375,641 252,821
- ---------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 1,723,450 1,880,094
- ---------------------------------------------------------------------------------------------------
Total Assets $ 6,308,790 $ 6,492,584
===================================================================================================
Capitalization and Liabilities
- ---------------------------------------------------------------------------------------------------
Capitalization
- ---------------------------------------------------------------------------------------------------
Common stock $ 1,409,034 $ 1,318,309
Retained earnings 666,201 670,679
Accumulated other comprehensive loss (2,985) (1,407)
Preferred stock of subsidiaries-not subject to mandatory redemption 33,497 33,497
Long-term debt, net 2,643,934 2,276,416
- ---------------------------------------------------------------------------------------------------
Total Capitalization 4,749,681 4,297,494
- ---------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 88,053 190,466
Accounts payable 285,524 352,606
Accounts payable-affiliates 110,290 48
Interest accrued 74,091 64,118
Short-term obligations -- 467,292
Advances from parent 147,583 45,180
Customer deposits 118,285 108,169
Other current liabilities 139,240 160,673
- ---------------------------------------------------------------------------------------------------
Total Current Liabilities 963,066 1,388,552
- ---------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 165,816 341,605
Accumulated deferred investment tax credits 54,387 62,160
Other liabilities and deferred credits 375,840 402,773
- ---------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 596,043 806,538
- ---------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 15 and 16)
- ---------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 6,308,790 $ 6,492,584
===================================================================================================
48
See Notes to financial statements.
CONSOLIDATED STATEMENTS of CASH FLOWS
- -------------------------------------
Florida Progress Corporation Years ended December 31
(In thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 244,331 $ 144,241 $ 314,897
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations (2,682) (8,972) (10,747)
Net loss on disposal of discontinued operations 23,734 -- --
Net loss on sale of assets 25,994 -- --
Impairment of long-lived assets 169,710 130,700 --
Depreciation and amortization 468,576 453,757 385,490
Deferred income taxes and investment tax credits, net (201,787) (236,978) (53,940)
Deferred fuel cost (credit) 75,287 (122,076) 9,424
Net (increase) decrease in accounts receivable 44,932 (137,794) (16,793)
Net (increase) decrease in inventories (131,662) 47,572 (82,634)
Net (increase) decrease in prepayments and other current assets (10,600) (57,602) (39,838)
Net increase (decrease) in accounts payable 42,700 48,979 (14,942)
Net increase (decrease) in other current liabilities 118,708 84,242 80,978
Other (45,931) 174,627 101,348
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 821,310 520,696 673,243
- -----------------------------------------------------------------------------------------------------------------------
Investing Activities:
Property additions (323,170) (286,800) (361,068)
Diversified business property additions (133,447) (194,195) (152,234)
Nuclear fuel additions (43,087) -- --
Proceeds from sale of assets 24,988 -- 29,043
Proceeds from sale of discontinued operations 28,023 -- --
Other investing activities (28,644) (65,644) (114,294)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (475,337) (546,639) (598,553)
- -----------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of long-term debt 299,201 7,307 50,044
Proceeds from issuance of long-term debt to parent 500,000 -- --
Proceeds from issuance of common stock -- -- 43,221
Issuance of company obligated mandatorily redeemable preferred securities -- -- 300,000
Increase (decrease) in commercial paper reclassified to long-term debt (345,750) 16,455 (16,455)
Increase (decrease) in short-term debt (467,292) 314,156 (83,064)
Repayment of long-term debt (190,642) (166,441) (144,382)
Equity contributions from parent 90,149 84,490 --
Dividends paid to parent (248,808) -- --
Dividends paid on common stock -- (215,277) (214,017)
Other financing activities (1,782) (168) (2,946)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (364,924) 40,522 (67,599)
- -----------------------------------------------------------------------------------------------------------------------
Cash Provided by (Used in ) Discontinued Operations (48) 33 (2)
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (18,999) 14,612 7,089
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Year 24,200 9,588 2,499
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 5,201 $ 24,200 $ 9,588
=======================================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized) $ 169,983 $ 195,500 $ 160,600
income taxes (net of refunds) $ (3,926) $ 182,500 $ 152,000
See Notes to financial statements.
49
CONSOLIDATED SCHEDULES of CAPITALIZATION
- ----------------------------------------
Florida Progress Corporation December 31
(In thousands except per share data) 2001 2000
- -----------------------------------------------------------------------------------------------------------
Common Stock Equity
Common stock without par value, 250,000,000 shares
authorized; 98,616,658outstanding in 2001 and 2000 $1,409,034 $1,318,309
Accumulated other comprehensive loss (2,985) (1,407)
Retained earnings 666,201 670,679
- -----------------------------------------------------------------------------------------------------------
Total Common Stock Equity $2,072,250 $1,987,581
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Preferred Stock of Florida Power Corporation-not-subject to mandatory redemption
- -----------------------------------------------------------------------------------------------------------
Authorized-4,000,000 shares cumulative, $100
par value Preferred Stock;5,000,000 shares cumulative, no
par value preferred stock; 1,000,000 shares,$100 par
value Preference Stock
$100 par value Preferred Stock:
4.00% - 39,980 shares outstanding (redemption price
$104.25) $3,998 $ 3,998
4.40% - 75,000 shares outstanding (redemption price
$102.00) 7,500 7,500
4.58% - 99,990 shares outstanding (redemption price
$101.00) 9,999 9,999
4.60% - 39,997 shares outstanding (redemption price
$103.25) 4,000 4,000
4.75% - 80,000 shares outstanding (redemption price
$102.00) 8,000 8,000
- -----------------------------------------------------------------------------------------------------------
Total Preferred Stock of Florida Power Corporation $ 33,497 $ 33,497
- -----------------------------------------------------------------------------------------------------------
Long-Term Debt (maturities and weighted average
interest rates as of December 31, 2001)
Florida Power Corporation:
First mortgage bonds, maturing 2003-2023 6.00-8.00% $ 810,000 $ 510,000
Pollution control revenue bonds, maturing 2014-2027 6.35-7.20% 240,865 240,865
Medium-term notes, maturing 2002-2028 6.54-6.81% 449,100 531,100
Commercial paper, reclassified to long-term debt 2.54% 154,250 200,000
Unamortized premium and discount, net (2,935) (2,849)
- -----------------------------------------------------------------------------------------------------------
1,651,280 1,479,116
- -----------------------------------------------------------------------------------------------------------
Florida Progress Funding Corporation:
Mandatorily redeemable preferred securities,
maturing 2039 7.10% 300,000 300,000
- -----------------------------------------------------------------------------------------------------------
300,000 300,000
- -----------------------------------------------------------------------------------------------------------
Progress Capital Holdings:
Medium-term notes, maturing 2002-2008 5.78-7.45% 273,000 374,000
Commercial paper, reclassified to long-term debt -- 300,000
Unsecured note with parent, maturing 2011 6.43% 500,000 --
Miscellaneous notes 7,707 13,766
- -----------------------------------------------------------------------------------------------------------
780,707 687,766
- -----------------------------------------------------------------------------------------------------------
Less: Current portion of long-term debt (88,053) (190,466)
- -----------------------------------------------------------------------------------------------------------
Total Long-Term Debt, Net $2,643,934 $2,276,416
- -----------------------------------------------------------------------------------------------------------
Total Capitalization $4,749,681 $4,297,494
===========================================================================================================
All debt securities, except commercial paper, have fixed interest rates.
See Notes to financial statements.
50
CONSOLIDATED STATEMENTS of COMMON EQUITY and COMPREHENSIVE INCOME
- -----------------------------------------------------------------
Florida Progress Corporation Years ended December 31
(In thousands except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------
Beginning Balance $1,987,581 $2,008,707 $1,861,952
Net income 244,331 144,241 314,897
Foreign currency translation adjustment (1,578) (982) (425)
--------------------------------------
Comprehensive Income 242,753 143,259 314,472
Common Stock Issued - 162,570 shares and 1,117,623
shares, respectively -- 6,854 46,300
Equity contribution from parent, net 90,720 44,038 --
Dividend to parent (248,804) -- --
Common stock dividends at annual per share rate of
$2.22 and $2.18, respectively -- (215,277) (214,017)
- -------------------------------------------------------------------------------------------
Ending Balance $2,072,250 $1,987,581 $2,008,707
===========================================================================================
See Notes to financial statements.
CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------
Florida Progress Corporation
(In thousands except per share data) First Quarter(a) Second Quarter(a) Third Quarter(a) Fourth Quarter(a)(b)
- -------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001
Operating revenues $1,144,912 $1,133,648 $1,260,604 $1,051,955
Operating income (loss) 129,266 130,120 178,265 (134,153)
Income (loss) from continuing operations 75,626 101,900 181,452 (93,595)
Net income (loss) 75,988 89,811 167,332 (88,800)
Common stock data: (c)
Price per share - high NA NA NA NA
low NA NA NA NA
- ------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Operating revenues $ 918,934 $1,042,985 $1,267,718 $1,045,923
Operating income (loss) 137,064 146,620 196,293 (245,116)
Income (loss) from continuing operations 75,158 106,499 147,205 (193,593)
Net income (loss) 76,454 109,987 150,303 (192,503)
Common stock data: (c)
Price per share - high 46.50 50.56 53.44 56.06
low 40.06 45.31 46.88 51.81
- ------------------------------------------------------------------------------------------------------------------------
(a) In the opinion of management, all adjustments necessary to fairly present
amounts shown for interim periods have been made. Results of operations for
an interim period may not give a true indication of results for the year.
Certain reclassifications have been made to previously reported amounts to
conform to the current year's presentation.
(b) Includes impairment, loss on sale of assets, and other one-time charges of
$136.5 million after-tax for 2001. Includes merger and separation costs and
impairment charges of $200.9 million after-tax in 2000. See Note 2 for a
discussion of the purchase of Florida Progress by Progress Energy.
(c) As of November 30, 2000, all outstanding shares of Florida Progress were
acquired by Progress Energy.
See Notes to financial statements.
51
STATEMENTS of INCOME
- --------------------
Florida Power Corporation Years ended December 31
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Operating Revenues
Electric $3,212,841 $2,871,563 $2,649,413
- -------------------------------------------------------------------------------------------------
Total Operating Revenues 3,212,841 2,871,563 2,649,413
- -------------------------------------------------------------------------------------------------
Operating Expenses
Fuel used in electric generation 912,735 681,869 615,389
Purchased power 514,528 498,458 414,080
Energy conservation costs 61,673 65,041 81,215
Other operation and maintenance 425,471 524,090 463,843
Depreciation and amortization 452,972 402,625 347,515
Taxes other than on income 230,169 213,280 203,099
- -------------------------------------------------------------------------------------------------
Total Operating Expenses 2,597,548 2,385,363 2,125,141
- -------------------------------------------------------------------------------------------------
Operating Income 615,293 486,200 524,272
- -------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 2,872 1,852 867
Other, net (10,780) (407) 13,780
- -------------------------------------------------------------------------------------------------
Total Other Income (Expense) (7,908) 1,445 14,647
- -------------------------------------------------------------------------------------------------
Interest Charges
Long-term debt 100,377 102,218 105,812
Other interest charges 14,417 26,261 18,139
Allowance for borrowed funds used during construction (1,087) (3,117) (3,350)
- -------------------------------------------------------------------------------------------------
Total Interest Charges, Net 113,707 125,362 120,601
- -------------------------------------------------------------------------------------------------
Income before Income Taxes 493,678 362,283 418,318
Income Taxes 182,590 150,473 151,280
- -------------------------------------------------------------------------------------------------
Net Income 311,088 211,810 267,038
Dividends on Preferred Stock 1,512 1,512 1,512
- -------------------------------------------------------------------------------------------------
Earnings For Common Stock $ 309,576 $ 210,298 $ 265,526
- -------------------------------------------------------------------------------------------------
See Notes to financial statements.
52
BALANCE SHEETS
- --------------
Florida Power Corporation
(In thousands) December 31
Assets 2001 2000
- -----------------------------------------------------------------------------------
Utility Plant
Electric utility plant in service $ 7,151,729 $ 6,998,135
Accumulated depreciation (3,984,308) (3,701,975)
- -----------------------------------------------------------------------------------
Utility plant in service, net 3,167,421 3,296,160
Held for future use 8,274 8,274
Construction work in progress 292,883 124,988
Nuclear fuel, net of amortization 62,536 39,879
- -----------------------------------------------------------------------------------
Total Utility Plant, Net 3,531,114 3,469,301
- -----------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents -- 3,380
Accounts receivable 248,642 289,237
Accounts and notes receivable-affiliates 16,424 38,729
Advances to parent 119,799 --
Deferred income taxes 32,325 39,576
Inventory 188,630 139,116
Deferred fuel cost 15,147 90,434
Prepayments 4,345 9,097
- -----------------------------------------------------------------------------------
Total Current Assets 625,312 609,569
- -----------------------------------------------------------------------------------
Deferred Debits and Other Assets
Income taxes recoverable through future rates 27,610 19,689
Deferred purchased power contract termination costs 95,326 226,656
Unamortized debt expense 11,844 9,526
Nuclear decommissioning trust funds 406,100 400,719
Miscellaneous other property and investments 46,442 54,816
Other assets and deferred debits 254,414 187,763
- -----------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 841,736 899,169
- -----------------------------------------------------------------------------------
Total Assets $ 4,998,162 $ 4,978,039
===================================================================================
Capitalization and Liabilities
- -----------------------------------------------------------------------------------
Capitalization
- -----------------------------------------------------------------------------------
Common stock $ 1,081,257 $ 1,075,414
Retained earnings 950,387 889,614
Preferred stock -not subject to mandatory redemption 33,497 33,497
Long-term debt, net 1,619,280 1,397,116
- -----------------------------------------------------------------------------------
Total Capitalization 3,684,421 3,395,641
- -----------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 32,000 82,000
Accounts payable 143,828 170,126
Accounts payable-affiliates 189,817 39,526
Taxes accrued 1,768 4,401
Interest accrued 54,440 47,117
Advances from parent -- 20,180
Short-term obligations -- 192,530
Customer deposits 118,285 108,169
Other current liabilities 66,980 110,888
- -----------------------------------------------------------------------------------
Total Current Liabilities 607,118 774,937
- -----------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 394,828 427,477
Accumulated deferred investment tax credits 53,875 61,626
Other liabilities and deferred credits 257,920 318,358
- -----------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 706,623 807,461
- -----------------------------------------------------------------------------------
Commitments and Contingencies (Notes 15 and 16)
- -----------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 4,998,162 $ 4,978,039
===================================================================================
See Notes to financial statements
53
STATEMENTS of CASH FLOWS
- ------------------------
Florida Power Corporation
Years ended December 31
(In thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 311,088 $ 211,810 $ 267,038
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 467,025 453,291 384,967
Deferred income taxes and investment tax credits, net (41,080) (59,495) (62,178)
Deferred fuel cost (credit) 75,287 (122,076) 9,424
Net (increase) decrease in accounts receivable 62,900 (117,191) (4,763)
Net (increase) decrease in inventories (49,514) 28,124 (35,566)
Net (increase) decrease in prepayments and other current assets 4,761 (55,550) (37,627)
Net increase (decrease) in accounts payable 123,993 33,720 (34,284)
Net increase (decrease) in other current liabilities (29,100) 30,433 48,205
Other (129,818) 52,599 41,261
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 795,542 455,665 576,477
- -----------------------------------------------------------------------------------------------------------------------
Investing Activities:
Property additions (323,170) (286,800) (361,068)
Nuclear fuel additions (43,087) -- --
Other investing activities (19,711) (16,470) (27,516)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (385,968) (303,270) (388,584)
- -----------------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of long-term debt 297,621 -- --
Net decrease in commercial paper reclassified to long-term debt (45,750) -- --
Increase (decrease) in short-term debt (192,530) 39,374 105,836
Repayment of long-term debt (82,000) (76,800) (91,600)
Equity contributions from parent -- 71,000 --
Advances from parent (139,979) 20,200 --
Dividends paid to parent (248,804) (201,277) (200,617)
Dividends paid on preferred stock (1,512) (1,512) (1,512)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Financing Activities (412,954) (149,015) (187,893)
- -----------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents (3,380) 3,380 --
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Year 3,380 -- --
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ -- $ 3,380 $ --
=======================================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized) $ 106,384 $ 135,000 $ 114,200
income taxes (net of refunds) $ 210,629 $ 194,400 $ 210,900
See Notes to financial statements
54
SCHEDULES of CAPITALIZATION
- ---------------------------
Florida Power Corporation December 31
(In thousands except per share data) 2001 2000
- -------------------------------------------------------------------------------------------------------
Common Stock Equity
Common stock without par value $1,081,257 $1,075,414
Retained earnings 950,387 889,614
- -------------------------------------------------------------------------------------------------------
Total Common Stock Equity $2,031,644 $1,965,028
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Preferred Stock-not-subject to mandatory redemption
Authorized-4,000,000 shares cumulative, $100 par
value Preferred Stock; 5,000,000 shares cumulative, no
par value preferred stock; 1,000,000 shares, $100 par
value Preference Stock
$100 par value Preferred Stock:
4.00% - 39,980 shares outstanding (redemption price
$104.25) $ 3,998 $ 3,998
4.40% - 75,000 shares outstanding (redemption price
$102.00) 7,500 7,500
4.58% - 99,990 shares outstanding (redemption price
$101.00) 9,999 9,999
4.60% - 39,997 shares outstanding (redemption price
$103.25) 4,000 4,000
4.75% - 80,000 shares outstanding (redemption price
$102.00) 8,000 8,000
- -------------------------------------------------------------------------------------------------------
Total Preferred Stock $ 33,497 $ 33,497
- -------------------------------------------------------------------------------------------------------
Long-Term Debt (maturities and weighted average interest
rates as of December 31, 2001)
First mortgage bonds, maturing 2003-2023 6.00-8.00% $ 810,000 $ 510,000
Pollution control revenue bonds, maturing 2014-2027 6.35-7.20% 240,865 240,865
Medium-term notes, maturing 2002-2028 6.54-6.81% 449,100 531,100
Commercial paper, reclassified to long-term debt 2.54% 154,250 200,000
Unamortized premium and discount, net (2,935) (2,849)
- -------------------------------------------------------------------------------------------------------
1,651,280 1,479,116
- -------------------------------------------------------------------------------------------------------
Less: Current portion of long-term debt (32,000) (82,000)
- -------------------------------------------------------------------------------------------------------
Total Long-Term Debt, Net $1,619,280 $1,397,116
=======================================================================================================
Total Capitalization $3,684,421 $3,395,641
=======================================================================================================
All debt securities, except commercial paper, have fixed interest rates.
See Notes to financial statements.
55
STATEMENTS of COMMON EQUITY
- ---------------------------
Florida Power Corporation Years ended December 31
(In thousands) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Beginning Balance $1,965,028 $1,885,007 $1,820,098
Net income 309,576 210,298 265,526
Equity contribution from parent 5,844 71,000 --
Dividends paid to parent (248,804) (201,277) (200,617)
- ---------------------------------------------------------------------------------------------------------------
Ending Balance $2,031,644 $1,965,028 $1,885,007
- ---------------------------------------------------------------------------------------------------------------
See Notes to financial statements.
QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------
Florida Power Corporation
(In thousands) First Quarter(a) Second Quarter(a) Third Quarter(a) Fourth Quarter(a)(b)
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001
Operating revenues $810,474 $783,660 $906,131 $712,576
Operating income 145,425 164,904 213,158 91,806
Net income 71,606 84,311 114,079 39,580
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Operating revenues $625,309 $693,336 $907,965 $644,953
Operating income (loss) 131,974 156,470 221,459 (23,703)
Net income (loss) 63,402 79,482 121,960 (54,546)
(a) In the opinion of management, all adjustments necessary to fairly present
amounts shown for interim periods have been made. Results of operations for
an interim period may not give a true indication of results for the year.
Certain reclassifications have been made to previously reported amounts to
conform to the current year's presentation.
(b) Includes merger and separation costs of $94.2 million after-tax in 2000.
The business of Florida Power is seasonal in nature and comparisons of earnings
for the quarters do not give a true indication of overall trends and changes in
Florida Power's operations. In the fourth quarter of 2000 the FPSC approved the
establishment of a regulatory liability for the purpose of deferring nonfuel
revenues. The 2000 deferral was $63 million. In the first quarter of 2001 and
third quarter of 2000, respectively, Florida Power recognized the 2000 $63
million and 1999 $44 million deferral in electric utility revenues and applied
it to the amortization of the Tiger Bay regulatory asset, which resulted in no
impact to 2001 or 2000 earnings (see Note 15).
56
FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- Florida Progress Corporation (the Company or Florida Progress) is a
holding company under the Public Utility Holding Company Act of 1935 (PUHCA).
The Company became subject to the regulations of PUHCA when it was acquired by
CP&L Energy, Inc. on November 30, 2000 (See Note 2). CP&L Energy, Inc.
subsequently changed its name to Progress Energy, Inc. (Progress Energy or the
Parent). Florida Progress' two primary subsidiaries are Florida Power
Corporation (Florida Power) and Progress Fuels Corporation (Progress Fuels).
The financial statements include the financial results of the Company and its
majority-owned operations. All significant intercompany balances and
transactions have been eliminated. Investments in 20% to 50%-owned joint
ventures are accounted for using the equity method. These investments, which
total approximately $33 million at December 31, 2001, are included as
miscellaneous property and investments in the Consolidated Balance Sheets.
Certain reclassifications have been made to prior-year amounts to conform to the
current year's presentation.
Use of Estimates -- In preparing financial statements that conform with
accounting principles generally accepted in the United States of America,
management must make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and amounts of revenues and expenses
reflected during the reporting period. Actual results could differ from those
estimates.
Regulation -- Florida Power is regulated by the Florida Public Service
Commission (FPSC) and the Federal Energy Regulatory Commission (FERC). The
utility follows the accounting practices set forth in the Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types
of Regulation." This standard allows utilities to capitalize or defer certain
costs or reduce revenues based on regulatory approval and management's ongoing
assessment that it is probable these items will be recovered or refunded through
the ratemaking process.
PROPERTY, PLANT AND EQUIPMENT
Electric Utility Plant -- Utility plant is stated at the original cost of
construction, which includes payroll and related costs such as taxes, pensions
and other fringe benefits, general and administrative costs, and an allowance
for funds used during construction. Substantially all of the utility plant is
pledged as collateral for Florida Power's first mortgage bonds.
The allowance for funds used during construction (AFUDC) represents the
estimated cost of equity and debt for utility plant under construction. Florida
Power is permitted to earn a return on construction costs and recover them in
the rates charged for utility services while the plant is in service. The
average rate used in computing the allowance for funds was 7.8% for 2001, 2000
and 1999.
The cost of nuclear fuel is amortized to expense based on the quantity of heat
produced for the generation of electric energy in relation to the quantity of
heat expected to be produced over the life of the nuclear fuel core.
Florida Power's annual provision for depreciation, including a provision for
nuclear plant decommissioning costs and fossil plant dismantlement costs,
expressed as a percentage of the average balances of depreciable utility plant,
was 4.3% for 2001 and 4.6% for 2000 and 1999.
Florida Power also maintains a reserve for fossil plant dismantlement. (See Note
8).
Florida Power charges maintenance expense with the cost of repairs and minor
renewals of property. The plant accounts are charged with the cost of renewals
and replacements of property units. Accumulated depreciation is charged with the
cost, less the net salvage, of property units retired.
In compliance with a regulatory order, Florida Power accrues a reserve for
maintenance and refueling expenses anticipated to be incurred during scheduled
nuclear plant outages. (See Note 15)
57
Diversified Business Property -- Diversified business property consists
primarily of railcars, marine equipment, land, synthetic fuel facilities,
mineral rights and telecommunications equipment.
The following is a summary of diversified business property (in thousands):
2001 2000
--------- ---------
Equipment $ 238,092 $ 259,070
Land and mineral rights 116,998 132,715
Buildings and plants 118,662 142,082
Telecommunications equipment 184,539 116,034
Railcars 77,919 84,988
Marine equipment 78,868 73,287
Computers, office equipment and software 27,887 35,431
Construction work in progress 108,570 111,598
Accumulated depreciation (282,457) (288,845)
--------- ---------
Diversified business property, net $ 669,078 $ 666,360
========= =========
Depreciation on diversified business property is calculated principally on the
straight-line method over the following estimated useful lives:
Equipment, buildings and plant 3 to 40 years
Telecommunications equipment 5 to 20 years
Railcars 3 to 20 years
Marine equipment 3 to 35 years
Computers, office equipment and software 3 to 10 years
The synthetic fuel facilities are being depreciated through 2007 at which time
the Section 29 tax credits will expire.
In December 2000, Progress Fuels wrote down certain of its 180 million tons of
coal reserves (See Note 3). Excluding reserves determined to be impaired,
Progress Fuels owns, in fee, properties that contain estimated proven and
probable coal reserves of approximately 2 million tons, and controls, through
mineral leases, additional estimated proven and probable coal reserves of
approximately 22 million tons. Depletion is provided on the units-of-production
method based upon the estimates of recoverable tons of clean coal.
Inventory
Inventory is carried at average cost. As of December 31, 2001 and 2000,
inventory was comprised of :
FLORIDA PROGRESS
(in thousands) 2001 2000
-------- --------
Fuel $155,188 $ 74,112
Rail equipment and parts 200,697 191,756
Materials and supplies 113,638 91,145
Other 16,368 14,906
-------- --------
Inventory $485,891 $371,919
======== ========
FLORIDA POWER
(in thousands) 2001 2000
-------- --------
Fuel $ 92,417 $ 51,949
Materials and supplies 96,213 87,167
-------- --------
Inventory $188,630 $139,116
======== ========
Utility Revenues, Fuel and Purchased Power Expenses -- The Company recognizes
electric utility revenues as service rendered to customers. Operating revenues
include unbilled electric utility revenues earned when service has been
delivered but not billed by the end of the accounting period. Revenues include
amounts resulting from
58
fuel, purchased power and energy conservation cost recovery clauses, which
generally are designed to permit full recovery of these costs. The adjustment
factors are based on projected costs for a 12-month period. The cumulative
difference between actual and billed costs is included on the balance sheet as a
current regulatory asset or liability. Any difference is billed or refunded to
customers during the subsequent period.
Florida Power accrues the nonfuel portion of base revenues for services rendered
but unbilled. As of December 31, 2001 and 2000, the amounts accrued were $63.1
million and $85.1 million, respectively.
Diversified Revenues -- Revenues include revenues from mining, processing, and
procurement of coal, production and sale of natural gas, river terminal
services, production and sale of synthetic fuel, offshore marine transportation,
railcar repair and parts reconditioning, railcar leasing and sales,
manufacturing and supplying rail and track material, metal recycling, and sales
of wholesale telecommunications services. Revenues are recognized at the time
products are shipped or as services are rendered. Leasing activities are
accounted for in accordance with SFAS No. 13, "Accounting for Leases".
Diversified Business Expenses
The major components of diversified business expenses for the years ended
December 31, 2001, 2000 and 1999 are as follows (in thousands):
2001 2000 1999
---------- ---------- ----------
Cost of sales $1,360,487 $1,320,168 $ 910,465
Depreciation and amortization 69,407 64,958 51,552
General and administrative expenses 96,616 137,174 75,894
Impairment of assets (Note 3) 160,569 130,700 --
Other 2,994 2,336 639
------------------------------------
Diversified Business Expenses $1,690,073 $1,655,336 $1,038,550
====================================
Income Taxes -- Deferred income taxes are provided on all significant temporary
differences between the financial and tax basis of assets and liabilities using
current tax rates.
Deferred investment tax credits, subject to regulatory accounting practices, are
amortized to income over the lives of the related properties.
Accounting for Certain Investments -- The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. Dividend and interest income are recognized when earned.
Amounts funded in externally managed decommissioning trusts are recorded at fair
value. The trust funds consist primarily of equity securities and municipal,
government, corporate, and mortgage-backed debt securities. The debt securities
have a weighted-average maturity of approximately 10 years. All realized and
unrealized gains and losses are reflected as an adjustment to the accumulated
provision for nuclear decommissioning.
Acquisitions -- During 2000, subsidiaries of Progress Fuels acquired 7
businesses, in separate transactions. The cash paid for the 2000 acquisitions
was $45.7 million. The excess of the aggregate purchase price over the fair
value of net assets acquired was approximately $11.1 million. The acquisitions
were accounted for under the purchase method of accounting and, accordingly, the
operating results of the acquired businesses have been included in the Company's
financial statements since the date of acquisition. Each of the acquired
companies conducted operations similar to those of the subsidiaries and has been
integrated into Progress Fuels' operations. The pro forma results of
consolidated operations for 2000 and 1999, assuming the 2000 acquisitions were
made at the beginning of each year, would not differ significantly from the
historical results. The Company had no acquisitions during 2001.
Accounting for the Impairment of Goodwill and Long-Lived Assets -- SFAS No. 121
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
Be Disposed Of" requires review of long-lived assets and certain intangibles for
impairment when events or circumstances indicate that the carrying value of an
asset may not be recoverable. Any impairment losses are reported in the period
in which the recognition criteria are first applied based on the fair value of
the asset. SFAS No. 121 was superseded by SFAS No. 142 and SFAS No. 144 as of
January 1, 2002. (See New Accounting Standards)
59
Environmental -- The Company accrues environmental remediation liabilities when
the criteria of SFAS No. 5, "Accounting for Contingencies," have been met.
Environmental expenditures are expensed as incurred or capitalized depending on
their future economic benefit. Expenditures that relate to an existing condition
caused by past operations and have no future economic benefits are expensed.
Liabilities for expenditures of a non-capital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated.
Loss Contingencies -- Liabilities for loss contingencies arising from litigation
are recorded when it is probable that a liability has been incurred and the
amount can be reasonably estimated.
Other Policies -- Leasing activities are accounted for in accordance with SFAS
No. 13, "Accounting for Leases." Due to the geographical locations of Progress
Fuels' Rail Services and the non-Florida portion of its Energy & Related
Services operations, it is necessary to report their results one-month in
arrears.
The Company maintains an allowance for doubtful accounts receivable, which
totaled approximately $25.7 million and $26.2 million at December 31, 2001 and
2000, respectively. Florida Power's allowance for doubtful accounts receivable
totaled $2.5 million and $5.2 million, respectively, at December 31, 2001 and
2000. Long-term debt premiums, discounts and issuance expenses are amortized
over the life of the related debt using the straight-line method. Any expenses
or call premiums associated with the reacquisition of debt obligations by
Florida Power are amortized over the remaining life of the original debt using
the straight-line method. The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
New Accounting Standards -- Effective January 1, 2001, the Company adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 138. SFAS No. 133, as amended, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 requires that an entity recognize all derivatives as assets or liabilities
in the consolidated balance sheet and measure those instruments at fair value.
The adoption of SFAS No. 133 did not have any effect on the Company's financial
statements.
During the second quarter of 2001, the FASB issued interpretations of SFAS No.
133 indicating that options in general cannot qualify for the normal purchases
and sales exception, but provided an exception that allows certain electricity
contracts, including certain capacity-energy contracts, to be excluded from the
mark-to-market requirements of SFAS No. 133. The interpretations were effective
July 1, 2001. Those interpretations did not require the Company to
mark-to-market any of its electricity capacity-energy contracts currently
outstanding. In December 2001, the FASB revised the criteria related to the
exception for certain electricity contracts, with the revision to be effective
April 1, 2002. The Company does not expect the revised interpretation to change
its assessment of mark-to-market requirements for its current contracts. If an
electricity or fuel supply contract in its regulated businesses is subject to
mark-to-market accounting, there would be no income statement effect of the
mark-to-market because the contract's mark-to-market gain or loss will be
recorded as a regulatory asset or liability. Any mark-to-market gains or losses
in its non-regulated businesses will affect income unless those contracts
qualify for hedge accounting treatment.
The application of the new rules is still evolving, and further guidance from
the FASB is expected, which could additionally impact the Company's financial
statements.
Effective January 1, 2002, the Company adopted SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." These
statements require that all business combinations initiated after June 30, 2001
be accounted for using the purchase method of accounting and clarifies the
criteria for recording of other intangible assets separately from goodwill.
Effective January 1, 2002, goodwill is no longer subject to amortization over
its estimated useful life. Instead, goodwill is subject to at least an annual
assessment for impairment by applying a fair-value based test. This assessment
could result in periodic impairment charges. The Company has not yet determined
whether its goodwill is impaired under the initial impairment test required.
The FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" in
July 2001. This statement provides accounting requirements for retirement
obligations associated with tangible long-lived assets and is effective January
1, 2003. This statement requires that the present value of retirement costs for
which the Company has a legal obligation be recorded as liabilities with an
equivalent amount added to the asset cost and depreciated over an appropriate
period. The Company is currently assessing the effects this statement may
ultimately have on the Company's accounting for decommissioning, dismantlement
and other retirement costs.
60
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides guidance for
the accounting and reporting of impairment or disposal of long-lived assets. The
statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." It also supersedes the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" related to the disposal of a segment of a business. Adoption of
this statement did not have a material effect on the Company's financial
statements.
NOTE 2: ACQUISITION BY PROGRESS ENERGY, INC.
On November 30, 2000, Progress Energy acquired all of the outstanding shares of
Florida Progress' common stock in accordance with the Amended and Restated Plan
of Exchange, including the related Plan of Share Exchange, dated as of August
22, 1999, as amended and restated as of March 3, 2000, among CP&L Energy,
Florida Progress and Carolina Power & Light Company. Florida Progress
shareholders received $54.00 in cash or shares of Progress Energy common stock
having a value of $54.00, subject to proration, and one contingent value
obligation (CVO) in exchange for each share of Florida Progress common stock.
The exchange ratio for the shares of Progress Energy common stock issued to
Florida Progress shareholders was 1.3473. Each CVO represents the right to
receive contingent payments based upon the net after-tax cash flow to Progress
Energy generated by four synthetic fuel facilities purchased by subsidiaries of
Florida Progress in 1999.
The acquisition was accounted for by Progress Energy using the purchase method
of accounting; however, due to the significance of the public debt and preferred
securities of the Company and Florida Power, the acquisition cost was not pushed
down to the Florida Progress or Florida Power separate financial statements.
Even though a new basis of accounting and reporting for the Company was not
established, significant merger-related costs were incurred in 2000 and reported
in the following captions on the Consolidated Statements of Income:
Florida Power Total - Florida
Other Operation Diversified Business Progress
and Maintenance Expenses Corporation
--------------------------------------------------------
(in millions)
Employee separation costs $72.8 $17.9 $ 90.7
Other merger-related costs 21.4 34.9 56.3
----- ----- ------
Total $94.2 $52.8 $147.0
===== ===== ======
In connection with the acquisition of the Company by Progress Energy, the
Company began the implementation of a plan to combine operations with Progress
Energy. In the fourth quarter 2000, the Company recorded executive involuntary
termination costs of $24.5 million and non-executive involuntary termination
costs of $41.8 million. Substantially all of the executive termination expense
was attributable to lump-sum severance costs paid in December 2000. In
connection with the termination of certain key executives, the Company also
recorded a curtailment and special termination benefit charge of $25.5 million
related to two supplemental defined benefit pension plans (See Note 13). The
non-executive involuntary termination accrual includes estimates for
administrative leave, severance, employer FICA, medical benefits and
outplacement costs associated with the Company's employee involuntary
termination plan. During 2001, the Company finalized the plan to combine
operations of the companies with certain final termination payments occurring in
2002. The termination did not result in a plan curtailment related to
postretirement benefits other than pension. An immaterial curtailment gain was
recorded for the pension plan in 2001.
The activity for the non-executive involuntary termination costs is detailed in
the table below:
(in millions) 2001
------
Balance at January 1 $ 41.8
Payments (28.0)
Adjustments credited to operating results (6.1)
------
Balance at December 31 $ 7.7
======
Other merger-related costs include $17.9 million of change of control costs
substantially related to the immediate vesting of a stock-based performance plan
(See Note 12), and $17.3 million of direct transaction costs related to
investment banker, legal and accounting fees. Other costs incurred include
employee retention costs and excise tax payments triggered by executive
severance and change of control payments.
61
NOTE 3: IMPAIRMENT OF LONG-LIVED ASSETS AND INVESTMENTS
SFAS No. 121 "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to Be Disposed Of" requires review of long-lived assets and
certain intangibles for impairment when events or circumstances indicate that
the carrying value of an asset may not be recoverable. Any impairment losses are
reported in the period in which the recognition criteria are first applied based
on the fair value of the asset. Due to results of divestiture efforts and the
decision to retain the Rail Services business segment in the near term, coupled
with prior and current year losses and a continued decline in the rail services
industry, the Company evaluated the recoverability of rail long-lived assets and
associated goodwill. Fair value was generally determined based on discounted
cash flows. As a result of this review, the Company recorded asset impairments,
primarily goodwill, of $160.6 million pre-tax ($108.1 million after-tax) during
the fourth quarter of 2001. Asset write-downs resulting from this review were
charged to Diversified Business Expenses on the Consolidated Statements of
Income.
The Company continually reviews its investments to determine whether a decline
in fair value below the cost basis is other-than-temporary. During the fourth
quarter of 2001, the Company determined that the decline in fair value of its
affordable housing investments, held by Progress International Holdings, a
subsidiary of Progress Capital Holdings, was other-than-temporary. As a result,
the Company has recorded investment impairments for other-than-temporary
declines in the fair value of its affordable housing investments. Investment
write-downs of $9.1 million pre-tax were charged to Other, net.
During the fourth quarter of 2000, Progress Fuels evaluated the economic
feasibility of accessing and mining its existing coal reserves in light of the
intended changes for the use of these assets by management and a significant
downturn in the coal industry. Progress Fuels concluded that approximately 180
million tons of its existing reserves are impaired. Based on the Progress Fuels'
expectation of future net cash flow, these reserves were written-down to their
fair value, resulting in a pre-tax loss of $70.2 million. This impairment charge
is included in diversified business expenses on the Company's Consolidated
Statements of Income.
During 2000, Progress Energy hired a financial adviser to assist Florida
Progress in evaluating its strategic alternatives with respect to two of
Progress Fuels' business segments, Rail Services and Inland Marine
Transportation. Preliminary valuations on the Rail Services business segment
indicated that the carrying amounts of goodwill and other long-lived assets are
not recoverable. As such, the carrying values of these assets were written down
to estimated fair value based on discounted cash flows considering cash flows
expected to result from the use of the assets and their eventual disposition.
During the fourth quarter of 2000, the Rail Services segment recognized the
resulting pre-tax impairment loss of $60.5 million, which was substantially
attributed to the write-down of goodwill. This impairment charge is included in
diversified business expenses on the Company's Consolidated Statements of
Income. (See Note 14 for additional information on the Rail Services segment.)
NOTE 4: DISCONTINUED OPERATIONS
On July 23, 2001, Progress Energy announced the disposition of the Inland Marine
Transportation segment of the Company, which is operated by MEMCO Barge Line,
Inc. Inland Marine provides transportation of coal, agricultural and other
dry-bulk commodities as well as fleet management services. Progress Energy
entered into a contract to sell MEMCO Barge Line, Inc., to AEP Resources, Inc.,
a wholly-owned subsidiary of American Electric Power. On November 1, 2001, the
Company completed the sale of the Inland Marine Transportation segment. As a
result of the sale, the Company recorded a pre-tax loss on disposal of $31.6
million ($23.7 million after-tax). The $23.7 million net loss on disposal
includes net earnings from the period between measurement date and date of sale
of $6.4 million, net of $4.0 million income tax expense. Proceeds from disposal
were $270 million, of which approximately $230 million was used for the early
termination of certain off balance sheet arrangements for assets leased by
MEMCO. Remaining proceeds were used to retire commercial paper.
The results of operations for all periods presented have been restated for the
discontinued operations of the Inland Marine Transportation segment. The net
income of these operations is reported in the Consolidated Statements of Income
under discontinued operations. Results for discontinued operations are as
follows:
(in thousands) 2001 2000 1999
-------- -------- --------
Revenues $142,721 $170,329 $141,041
======== ======== ========
Earnings before income taxes $ 4,530 $ 16,961 $ 17,588
Income taxes 1,848 7,989 6,841
-------- -------- --------
Net earnings $ 2,682 $ 8,972 $ 10,747
======== ======== ========
In connection with the sale, the Company entered into environmental
indemnification provisions covering both unknown and known sites. The Company
has recorded an accrual to cover estimated probable future environmental
62
expenditures. Management believes that it is reasonably possible that additional
costs, which cannot be currently estimated, may be incurred related to the
environmental indemnification provision beyond the amounts accrued. Management
cannot predict the outcome of this matter.
NOTE 5: RELATED PARTY TRANSACTIONS
The Company and its subsidiaries participate in two internal money pools,
operated by Progress Energy, to more effectively utilize cash resources and to
reduce outside short-term borrowings. Short-term borrowing needs are met first
by available funds of the money pool participants. Borrowing companies pay
interest at a rate designed to approximate the cost of outside short-term
borrowings. Subsidiaries, which invest in the money pool, earn interest on a
basis proportionate to their average monthly investment. The interest rate used
to calculate earnings approximates external interest rates. Funds may be
withdrawn from or repaid to the pool at any time without prior notice. Interest
expense related to advances from Progress Energy was $8.2 for Florida Progress
in 2001. Florida Progress and Florida Power both recorded $2.4 million of
interest income related to the money pool for 2001. Interest expense and
interest income related to the money pool in 2000 were not significant
During 2000, Progress Energy formed Progress Energy Service Company, LLC (PESC)
to provide specialized services, at cost, to the Company and its subsidiaries,
as approved by the SEC. The Company and its subsidiaries have an agreement with
PESC under which PESC services, including purchasing, accounting, treasury, tax,
marketing, legal, and human resources are rendered at cost. Amounts billed by
PESC to Florida Progress and Florida Power for these services during 2001
amounted to $116.1 million and $110.9 million, respectively. At December 31,
2001, Florida Progress and Florida Power had a net $31.7 million and $28.1
million, respectively, payable to the service company that are included in
accounts payable to affiliates on the consolidated balance sheet.
Progress Fuels sells coal to Florida Power. For the years ended December 31,
2001, 2000 and 1999, sales of coal to Florida Power that were not eliminated on
Florida Power, but were eliminated in consolidation, were $302.6 million, $244.1
million and $262.1 million, respectively.
From time-to-time the Company and its subsidiaries may receive equity
contributions from Progress Energy. During 2001, the Company received cash
equity contributions of $90.1 million and a non-cash equity contribution of $0.6
million. During 2000, the Company received cash equity contributions totaling
$84.5 million from Progress Energy.
In April 2000, Progress Ventures, a wholly-owned subsidiary of Progress Energy,
purchased a 90% interest in an affiliate of Progress Fuels that owns a synthetic
fuel facility located at the company-owned mine site in Virginia. In May 2000,
Progress Ventures purchased a 90% ownership interest in another synthetic fuel
facility located in West Virginia. The purchase agreements contained a provision
that would require Progress Ventures to sell, and the respective Progress Fuels
affiliate to repurchase, the 90% interest had the share exchange among Florida
Progress, CP&L Energy and CP&L not occurred.
Progress Fuels has accounted for the transactions as a sale for tax purposes
and, because of the repurchase obligation, as a financing for financial
reporting purposes in the pre-acquisition period and as a transfer of assets
within a controlled group as of the acquisition date. At the date of
acquisition, assets of $8.3 million were transferred to Progress Energy. As of
December 31, 2001, the Company has a note receivable of $59.9 million from
Progress Ventures that has been recorded as a reduction to equity for financial
reporting purposes. Payments on the note during 2001 totaled $13.9 million
representing $9.4 million in principal and $4.5 million representing interest.
As of December 31, 2000, the company had a note receivable of $69.3 million from
Progress Ventures that has been recorded as a reduction to equity for financial
reporting purposes, offset by a $46.8 million reclassification of the repurchase
obligation to equity.
NOTE 6: FINANCIAL INSTRUMENTS
Estimated fair value amounts have been determined by the Company using available
market information. Judgment is required in interpreting market data to develop
the estimates of fair value. Accordingly, the estimates may be different than
the amounts that the Company could realize in a current market exchange.
The Company's exposure to market risk for a change in interest rates relates
primarily to the Company's marketable securities, debt obligations and
Company-obligated mandatorily redeemable preferred securities. The Company's
short-term obligations, comprised of commercial paper, are carried at cost,
which approximate market value. There were miscellaneous investments, consisting
primarily of investments in company-owned life insurance, included in
miscellaneous other property and investments.
63
The Company held only securities classified as available for sale at both
December 31, 2001 and 2000. At December 31, 2001 and 2000, the Company had the
following financial instruments with estimated fair values and carrying amounts:
FLORIDA PROGRESS 2001 2000
------------------- -------------------
CARRYING FAIR CARRYING FAIR
(In millions) AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------
ASSETS:
Investments in company-owned
life insurance $ 74.3 $ 74.3 $ 87.3 $ 87.3
Nuclear decommissioning fund 406.1 406.1 400.7 400.7
- ----------------------------------------------------------------------------------
LIABILITIES:
Long-term debt:
Florida Power Corporation $1,651.3 $1,692.4 $1,479.1 $1,467.0
Florida Progress Funding Corporation 300.0 290.7 300.0 271.5
Progress Capital Holdings 780.7 788.9 687.8 684.3
- ----------------------------------------------------------------------------------
FLORIDA POWER 2001 2000
------------------- -------------------
CARRYING FAIR CARRYING FAIR
(In millions) AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------
ASSETS:
Investments in company-owned
life insurance $ 38.4 $ 38.4 $ 45.4 $ 45.4
Nuclear decommissioning fund 406.1 406.1 400.7 400.7
- ----------------------------------------------------------------------------------
LIABILITIES:
Long-term debt:
Florida Power Corporation $1,651.3 $1,692.4 $1,479.1 $1,467.0
The change in the cash surrender value of the Company's investment in
company-owned life insurance is reflected in other expense (income) in the
accompanying Consolidated Statements of Income.
NOTE 7: INCOME TAXES
FLORIDA PROGRESS
(In millions) 2001 2000 1999
- -------------------------------------------------------------------------------
Components of income tax expense:
Payable currently:
Federal $ 3.4 $ 96.8 $117.9
State 25.7 15.5 20.9
- -------------------------------------------------------------------------------
29.1 112.3 138.8
- -------------------------------------------------------------------------------
Deferred, net:
Federal (187.5) (215.6) (41.6)
State (6.5) (13.5) (4.5)
- -------------------------------------------------------------------------------
(194.0) (229.1) (46.1)
- -------------------------------------------------------------------------------
Amortization of investment
tax credits, net (7.8) (7.9) (7.8)
- -------------------------------------------------------------------------------
Income tax expense (benefit) $(172.7) $(124.7) $ 84.9
- -------------------------------------------------------------------------------
64
FLORIDA POWER
(In millions) 2001 2000 1999
- -------------------------------------------------------------------------------
Components of income tax expense:
Payable currently:
Federal $192.9 $181.3 $185.1
State 30.7 28.6 28.4
- -------------------------------------------------------------------------------
223.6 209.9 213.5
- -------------------------------------------------------------------------------
Deferred, net:
Federal (30.2) (46.0) (49.5)
State (3.1) (5.6) (4.9)
- -------------------------------------------------------------------------------
(33.3) (51.6) (54.4)
- -------------------------------------------------------------------------------
Amortization of investment
tax credits, net (7.8) (7.8) (7.8)
- -------------------------------------------------------------------------------
Income tax expense (benefit) $182.5 $150.5 $151.3
- -------------------------------------------------------------------------------
The primary differences between the statutory rates and the effective income tax
rates are detailed below:
FLORIDA PROGRESS
2001 2000 1999
- ------------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
income tax benefits 12.8 12.4 2.7
Amortization of investment tax credits (8.4) (74.8) (2.0)
Synthetic fuel income tax credits (230.3) (1,402.7) (10.0)
Other income tax credits (6.5) (66.3) (1.6)
Goodwill amortization 9.7 0.2 0.4
Non deductible acquisition costs -- 233.8 0.5
Net unfunded taxes from prior years -- 40.0 --
Other 1.3 40.7 (3.2)
- ------------------------------------------------------------------------------
Effective income tax rates (186.4)% (1,181.7)% 21.8%
- ------------------------------------------------------------------------------
FLORIDA POWER
2001 2000 1999
- -----------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
income tax benefits 3.6 4.1 3.7
Amortization of investment tax credits (1.6) (2.2) (1.9)
Non deductible acquisition costs -- 3.0 --
Other -- 1.6 (0.6)
- -----------------------------------------------------------------------------
Effective income tax rates 37.0% 41.5% 36.2%
- -----------------------------------------------------------------------------
The following summarizes the components of deferred tax liabilities and assets
at December 31, 2001 and 2000:
FLORIDA PROGRESS
(In millions) 2001 2000
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Difference in tax basis of property,
plant and equipment $436.4 $566.2
Investment in partnerships 1.8 6.2
Deferred book expenses 7.0 9.1
Other 80.6 16.4
- -------------------------------------------------------------------------------
Total deferred tax liabilities $525.8 $597.9
- -------------------------------------------------------------------------------
Deferred tax assets:
Accrued book expenses $ 71.4 $109.8
Income tax credit carry forward 202.9 92.9
Unbilled revenues 17.7 17.8
State income tax loss carry forward 20.4 10.9
Valuation allowance (20.4) (10.9)
Other 100.3 75.4
- -------------------------------------------------------------------------------
Total deferred tax assets $392.3 $295.9
- -------------------------------------------------------------------------------
65
FLORIDA POWER
(In millions) 2001 2000
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Difference in tax basis of property,
plant and equipment $413.7 $491.8
Deferred book expenses 7.0 9.1
Other 10.4 9.2
- -------------------------------------------------------------------------------
Total deferred tax liabilities $431.1 $510.1
- -------------------------------------------------------------------------------
Deferred tax assets:
Accrued book expenses $ 40.4 $ 90.2
Unbilled revenues 17.7 17.8
Other 10.5 14.2
- -------------------------------------------------------------------------------
Total deferred tax assets $ 68.6 $122.2
- -------------------------------------------------------------------------------
At December 31, 2001 and 2000, Florida Progress had net non-current deferred tax
liabilities of $165.8 million and $341.6 million and net current deferred tax
assets of $32.3 million and $39.6 million, respectively. Income tax credit carry
forward at December 31, 2001, consists of $196.9 million of alternative minimum
tax credit with an indefinite carry forward period and $6 million of general
business credit with a carry forward period expiring in 2020. The valuation
allowance in 2001 offsets a related amount of deferred tax assets recorded for
state income tax net operating losses. The valuation allowance was recorded
because of uncertainties associated with the ability to offset future state
taxable amounts during the carry forward period. The Company believes it is more
likely than not that the results of future operations will generate sufficient
taxable income to allow for the utilization of the remaining deferred tax
assets.
At December 31, 2001 and 2000, Florida Power had net non-current deferred tax
liabilities of $394.8 million and $427.5 million and net current deferred tax
assets of $32.3 million and $39.6 million, respectively. Florida Power expects
the results of future operations will generate sufficient taxable income to
allow for the utilization of deferred tax assets.
The Company, through its subsidiaries, is a majority owner in three entities and
a minority owner in three entities that own facilities that produce synthetic
fuel as defined under the Internal Revenue Service Code (Code). The production
and sale of the synthetic fuel from these facilities qualifies for tax credits
under Section 29 of the Code (Section 29) if certain requirements are satisfied,
including a requirement that the synthetic fuel differs significantly in
chemical composition from the coal used to produce such synthetic fuel. All
entities have received private letter rulings (PLR's) from the Internal Revenue
Service (IRS) with respect to their synthetic fuel operations. The PLR's do not
limit the production on which synthetic fuel credits may be claimed. Should the
tax credits be denied on future audits, and the Company fails to prevail through
the IRS or legal process, there could be a significant tax liability owed for
previously-taken Section 29 credits, with a significant impact on earnings and
cash flows. In management's opinion, the Company is complying with all the
necessary requirements to be allowed such credits under Section 29 and believes
it is probable, although it cannot provide certainty, that it will prevail on
any credits taken.
NOTE 8: NUCLEAR OPERATIONS
Jointly Owned Plant -- In September 1999, Florida Power purchased the City of
Tallahassee's 1.33% interest in the Crystal River Nuclear Plant (CR3), which was
approved by regulatory authorities. The following information relates to Florida
Power's 91.78% proportionate share of the nuclear plant at December 31, 2001 and
2000:
(In millions) 2001 2000
- -------------------------------------------------------------------------------
Utility plant in service $ 773.8 $ 773.3
Construction work in progress 25.7 14.1
Unamortized nuclear fuel 62.5 39.9
Accumulated depreciation (469.8) (431.9)
Accumulated decommissioning (417.0) (423.7)
- -------------------------------------------------------------------------------
Net capital additions/(retirements) for Florida Power were $12.1 million in 2001
and $(4.9) million in 2000. Depreciation expense, exclusive of nuclear
decommissioning, was $36.4 million in 2001 and 2000. Each co-owner provides for
its own financing of its investment. Florida Power's share of the asset balances
and operating costs is
66
included in the appropriate financial statements. Amounts exclude any allocation
of costs related to common facilities.
Decommissioning and Dismantlement Provisions -- Florida Power's nuclear plant
depreciation expenses include a provision for future decommissioning costs,
which are recoverable through rates charged to customers. Florida Power is
placing amounts collected in an externally managed trust fund. Management
believes that the decommissioning costs being recovered through rates by Florida
Power, when coupled with reasonable assumed after-tax fund earnings rates, are
currently sufficient to provide for the costs of decommissioning.
In January 2002, Florida Power received regulatory approval from the FPSC to
decrease its retail provision for nuclear decommissioning from approximately
$20.5 million annually to approximately $7.7 million annually, effective January
1, 2001.
Florida Power's most recent site-specific estimate of decommissioning costs for
the Crystal River Nuclear Plant (CR3) was developed in 2000 based on prompt
dismantlement decommissioning. The estimate, in 2000 dollars, is $490.9 million
and is subject to change based on a variety of factors including, but not
limited to, cost escalation, changes in technology applicable to nuclear
decommissioning and changes in federal, state or local regulations. The cost
estimate excludes the portion attributable to other co-owners of CR3. Florida
Power has a license to operate the nuclear unit through December 3, 2016.
Florida Power's reserve for fossil plant dismantlement was approximately $140.5
million and $134.6 million at December 31, 2001 and 2000, respectively, and was
included in accumulated depreciation. The provision for fossil plant
dismantlement was previously suspended per a 1997 FPSC settlement agreement, but
resumed mid-2001. The current annual provision, approved by the FPSC, is $8.8
million.
Fuel Disposal Costs -- Florida Power has entered into a contract with the DOE
for the transportation and disposal of spent nuclear fuel. Disposal costs for
nuclear fuel consumed are being collected from customers through the fuel
adjustment clause at a rate of $.001 per net nuclear kilowatt-hour sold and are
paid to the DOE quarterly. Florida Power currently is storing spent nuclear fuel
on-site and has sufficient storage capacity in place for fuel consumed through
the year 2016.
NOTE 9: PREFERRED AND PREFERENCE STOCK
The authorized capital stock of the Company includes 10 million shares of
preferred stock, without par value, including 2 million shares designated as
Series A Junior Participating Preferred Stock. No shares of the Company's
preferred stock are issued and outstanding.
The authorized capital stock of Florida Power includes three classes of
preferred stock: 4 million shares of Cumulative Preferred Stock, $100 par value;
5 million shares of Cumulative Preferred Stock, without par value; and 1 million
shares of Preference Stock, $100 par value. No shares of Florida Power's
Cumulative Preferred Stock, without par value, or Preference Stock are issued
and outstanding. All Cumulative Preferred Stock series are without sinking funds
and are not subject to mandatory redemption.
NOTE 10: COMPANY-OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE QUARTERLY INCOME
PREFERRED SECURITIES 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
the Company, 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 with an annual distribution
rate of 7.10%, payable quarterly. 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
67
subordinated notes were advanced to Progress Capital Holdings 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.
These Preferred Securities are classified as long-term debt on Florida Progress'
consolidated balance sheets.
NOTE 11: DEBT AND CREDIT FACILITIES
The Company's consolidated subsidiaries have lines of credit totaling $370
million, which are used to support the issuance of commercial paper. The lines
of credit were not drawn on as of December 31, 2001. Interest rate availability
under the lines of credit arrangements vary from subprime or money market rates
to the prime rate. Banks providing lines of credit are compensated through fees.
Commitment fees on lines of credit vary between .08 and .20 of 1%.
The lines of credit consist of two revolving bank credit facilities for Florida
Power. The Florida Power facilities consist of $170 million with a 364-day term
and $200 million long-term revolving bank credit facility, expiring in 2004.
During November 2001, Progress Capital Holding's $600 million commercial paper
program, which was in existence at December 31, 2000, was eliminated. At the
same time, Progress Energy established its own $1 billion commercial paper
facility, which funds working capital needs of the diversified businesses. Based
on the duration of the underlying backup credit facilities, $154.2 million and
$200 million of Florida Power's outstanding commercial paper at December 31,
2001 and 2000, respectively, are classified as long-term debt. As of December
31, 2000, Progress Capital Holdings also had $300 million of outstanding
commercial paper classified as long-term debt. At December 31, 2000 Florida
Progress had $467.3 million and Florida Power had $192.5 million of short-term
commercial paper outstanding at average interest rates of 7.10% and 6.89%,
respectively.
In March 2000, Florida Power established an uncommitted bank bid facility
allowing it to borrow and re-borrow and have loans outstanding at any time, up
to $100 million. The facility was established to temporarily supplement
commercial paper borrowings, as needed. As of December 31, 2001 and 2000, there
were no loans outstanding under this bid facility.
Florida Power has a public medium-term note program providing for the issuance
of either fixed or floating interest rate notes. These notes may have maturities
ranging from nine months to 30 years. A balance of $250 million is available for
issuance at December 31, 2001.
The combined aggregate maturities of long-term debt for 2002 through 2006 for
Florida Progress are $88 million, $430 million, $68 million, $48 million and
$109 million, respectively. Florida Power's maturities of long-term debt for
2002 through 2006 are $32 million, $372 million, $43 million, $48 million and
$48 million, respectively.
Florida Progress has unconditionally guaranteed the payment of Progress
Capital's debt.
NOTE 12: STOCK-BASED COMPENSATION
A. Long Term Incentive Plan
Prior to November 30, 2000, the Company and one of its subsidiaries had
Long-Term Incentive Plans (LTIPs) which authorized the granting of common stock
to certain executives in various forms. These plans were terminated on November
30, 2000, in conjunction with the acquisition by Progress Energy (See Note 2).
All outstanding LTIP awards as of November 30, 2000 were paid in full in 2000 in
accordance with the change in control provisions of
68
these plans. Certain executives were also eligible to receive restricted stock,
which also fully vested and was paid in conjunction with the merger.
The Company accounted for these plans in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," as allowed under SFAS No. 123, "Accounting for Stock Based
Compensation." Compensation costs for performance shares; performance units and
restricted stock were recognized at the fair market value of the Company's stock
and recognized over the performance cycle. Compensation costs related to the
LTIPs for 2000 and 1999 were $17 million and $19 million, respectively. There
was no expense during 2001. In addition the Company recognized merger-related
costs of $18 million associated with these plans in 2000, as a result of the
immediate vesting of all outstanding awards.
B. Stock Option Agreements
Pursuant to Progress Energy's 1997 Equity Incentive Plan, Amended and Restated
as of September 26, 2001, Progress Energy may grant options to purchase shares
of common stock to officers and eligible employees. During 2001, approximately
2.4 million common stock options were granted to officers and eligible employees
of Progress Energy. Of this amount, approximately 0.4 million were granted to
officers and eligible employees of both Florida Progress and Florida Power. No
compensation expense was recognized under the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees and
related Interpretations." Had compensation expense been measured based on the
fair value of the options on the date of grant, calculated under the provisions
of SFAS No. 123, "Accounting for Stock Based Compensation," Florida Progress's
and Florida Power's allocated share of such compensation expense would have
reduced reported net income in 2001 by approximately $0.6 million and $0.5
million, respectively. The allocated share of compensation expense for Florida
Power includes approximately $0.3 million of after-tax expense allocated to
Florida Power for PESC employees.
NOTE 13: BENEFIT PLANS
Pension Benefits -- The Company and some of its subsidiaries (including Florida
Power) have two noncontributory defined benefit pension plans covering most
employees.
The Company also has two supplementary defined benefit pension plans, that
provide additional benefits to certain higher-level employees. As a result of
the acquisition by Progress Energy, the benefits of one plan were frozen on
December 31, 2000 and the Company recorded merger-related charges of $24.4
million associated with the two plans. (See Note 2) The net pension benefit
recognized in 2000 of $53.6 million does not include the merger-related charges.
Other Postretirement Benefits -- The Company and some of its subsidiaries
(including Florida Power) also provide certain health care and life insurance
benefits for retired employees that reach retirement age while working for the
Company.
Shown below are the components of the net pension expense and net postretirement
benefit expense calculations for 2001, 2000 and 1999:
Pension Benefits Other Postretirement Benefits
(In millions) 2001 2000 1999 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------
Service cost $ 10.5 $ 18.7 $ 22.0 $ 3.9 $ 3.2 $ 3.5
Interest cost 42.0 42.5 39.4 12.5 10.9 10.4
Expected return on plan assets (86.3) (92.0) (78.4) (0.6) (0.5) (0.4)
Net amortization and deferral (18.8) (22.8) (15.1) 3.5 2.7 3.0
- --------------------------------------------------------------------------------------------------------------
Net cost/(benefit) recognized by Florida Progress $(52.6) $(53.6) $(32.1) $19.3 $16.3 $16.5
- --------------------------------------------------------------------------------------------------------------
Net cost/(benefit) recognized by Florida Power $(50.3) $(51.3) $(32.7) $18.0 $15.9 $15.9
69
The following weighted average actuarial assumptions at December 31 were used in
the calculation of the year-end funded status:
Pension Benefits Other Postretirement Benefits
- ----------------------------------------------------------------------------------------------------------
(In millions) 2001 2000 1999 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Discount rate 7.50% 7.50% 7.50% 7.50% 7.50% 7.50%
Expected long-term rate of return 9.25% 9.00% 9.00% 5.00% 5.00% 5.00%
Rate of compensation increase:
Bargaining unit employees 3.50% 3.50% 3.50% 3.50% 3.50% 3.50%
Nonbargaining unit employees 4.00% 4.50% 4.50% 4.00% 4.50% 4.50%
Nonqualified plans 4.50% 4.50% 4.50% N/A% N/A% N/A%
- ----------------------------------------------------------------------------------------------------------
The following summarizes the change in the benefit obligation and plan assets
for both the pension plan and postretirement benefit plan for 2001 and 2000:
Pension Benefits Other Postretirement Benefits
(In millions) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $627.7 $ 582.2 $ 156.2 $ 154.5
Service cost 10.5 18.7 3.9 3.2
Interest cost 42.0 42.5 12.5 10.9
Plan amendment (43.0) -- 7.8 --
Actuarial (gain)/loss (13.4) (10.7) 9.6 (3.8)
Benefits paid (35.0) (30.5) (9.6) (8.6)
Curtailment gain and special
termination benefits (See Note 2) (1.0) 25.5 -- --
- ------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 587.8 627.7 180.4 156.2
- ------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year 948.8 1,039.0 11.6 9.2
Return on plan assets (63.3) (61.7) 0.5 1.1
Employer contributions 3.2 -- 10.9 1.3
Benefits paid (35.0) (28.5) (9.6) --
- ------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 853.7 948.8 13.4 11.6
- ------------------------------------------------------------------------------------------------------
Funded status 265.9 321.1 (167.0) (144.6)
Unrecognized transition (asset) obligation (5.6) (10.6) 38.4 41.9
Unrecognized prior service cost (21.7) 19.6 7.5 --
Unrecognized net actuarial gain (96.5) (244.8) (16.6) (25.6)
- ------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost-Florida Progress $142.1 $ 85.3 $(137.7) $(128.3)
- ------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost-Florida Power $168.4 $ 113.5 $(132.9) $(125.2)
The Company has assets in a rabbi trust for the purpose of providing benefits to
the participants in the supplementary defined benefit retirement plans and
certain other plans for higher level employees. The assets of the rabbi trust
are not reflected as plan assets because the assets could be subject to
creditors' claims. The assets and liabilities of the supplementary defined
benefit retirement plans are included in Other Assets and Deferred Debits and
Other Liabilities and Deferred Credits on the accompanying Consolidated Balance
Sheets.
70
The assumed pre-medicare and post medicare health care cost trend rates are:
2001 2000
---- ----
Initial medical cost trend for pre-medicare benefits 7.50% 7.20%
Initial medical cost trend for post-medicare benefits 7.50% 6.20%
Ultimate medical cost trend rate 5.00% 5.30%
Year ultimate medical cost trend rate is achieved 2008 2005
A one-percentage point increase or decrease in the assumed health care cost
trend rate would change the total service and interest cost by approximately $1
million and the postretirement benefit obligation by approximately $10 million.
Due to different retail and wholesale regulatory rate requirements, Florida
Power makes quarterly contributions to the postretirement benefit plan to an
irrevocable external trust fund for wholesale ratemaking, while continuing to
accrue post-retirement benefit costs to an unfunded reserve for retail
ratemaking.
NOTE 14: BUSINESS SEGMENTS
The Company's principal business segment is Florida Power, an electric utility
engaged in the generation, purchase, transmission, distribution and sale of
electricity primarily in Florida. The other reportable business segments are
Progress Fuels' Energy & Related Services and Rail Services. The Inland Marine
Transportation business, formerly a business segment, was sold in November 2001
(See Note 4). The Energy & Related Services includes coal and synthetic fuel
operations, natural gas production and sales, river terminal services and
off-shore marine transportation. Rail Services' operations include railcar
repair, rail parts reconditioning and sales, railcar leasing and sales,
providing rail and track material, and scrap metal recycling. The other category
consists primarily of Progress Telecommunications the Company's
telecommunications subsidiary, the Company's investment in FPC Capital Trust,
which holds the Preferred Securities, and the holding company, Florida Progress
Corporation. Progress Telecommunications markets wholesale fiber-optic based
capacity service in the Eastern United States and also markets wireless
structure attachments to wireless communication companies and governmental
entities. Florida Progress allocates a portion of its operating expenses to
business segments.
The Company's business segment information for 2001, 2000 and 1999 is summarized
below. The Company's significant operations are geographically located in the
United States with limited operations in Mexico and Canada. The Company's
segments are based on differences in products and services, and therefore no
additional disclosures are presented. Intersegment sales and transfers consist
primarily of coal sales from the Energy and Related Services segment of Progress
Fuels to Florida Power. The price Progress Fuels charges Florida Power is based
on market rates for coal procurement and for water-borne transportation under a
methodology approved by the FPSC. Rail transportation is also based on market
rates plus a return allowed by the FPSC on equity in transportation equipment
utilized in transporting coal to Florida Power. The allowed rate of return is
currently 12%. No single customer accounted for 10% or more of unaffiliated
revenues.
Segment net income (loss) for 2001 includes a long-lived asset impairment
pre-tax loss of $160.6 million (after-tax $108.1 million) included in the Rail
Services segment. Segment net income (loss) for 2000 includes a long-lived asset
impairment pre-tax loss of $70.2 million (after-tax $47.3 million) included in
the Energy & Related Services segment and $60.5 million impairment pre-tax loss
(after-tax $36.3 million) included in the Rail Services segment (See Note 3).
71
Energy and
Related Rail
(In millions) Utility Services Services Other Consolidated
- -----------------------------------------------------------------------------------------
2001
Revenues $3,212.8 $ 369.7 $ 874.7 $ 133.9 $4,591.1
Intersegment revenues -- 398.3 1.1 (399.4) --
Depreciation and amortization 453.0 23.6 33.8 12.0 522.4
Interest expense 113.7 12.0 36.4 23.2 185.3
Income tax expense/(benefit) 182.6 (253.6) (74.7) (27.0) (172.7)
Income (loss) from continuing
operations 309.6 128.5 (144.4) (28.3) 265.4
Total assets 4,998.2 452.9 602.6 255.1 6,308.8
Property additions 323.2 43.5 18.0 71.9 456.6
- -----------------------------------------------------------------------------------------
2000
Revenues $2,871.6 $ 329.3 $1,047.4 $ 27.3 $4,275.6
Intersegment revenues -- 244.3 0.7 (245.0) --
Depreciation and amortization 402.6 25.2 32.3 7.5 467.6
Interest expense 125.4 12.2 42.7 27.2 207.5
Income tax expense/(benefit) 150.5 (200.4) (28.9) (45.9) (124.7)
Income (loss) from continuing
operations 210.3 34.1 (52.9) (56.2) 135.3
Total assets 4,978.0 345.4 802.3 366.9 6,492.6
Property additions 286.8 63.0 25.1 106.1 481.0
- -----------------------------------------------------------------------------------------
1999
Revenues $2,649.4 $ 193.7 $ 880.2 $ 12.2 $3,735.5
Intersegment revenues -- 262.9 1.5 (264.4) --
Depreciation and amortization 347.5 21.0 27.5 3.0 399.0
Interest expense 120.6 6.9 32.3 25.4 185.2
Income tax expense/(benefit) 151.3 (39.2) 16.6 (43.8) 84.9
Income (loss) from continuing
operations 265.5 38.9 21.3 (21.5) 304.2
Total assets 4,961.2 390.5 815.0 286.8 6,453.5
Property additions 361.1 39.5 61.8 50.9 513.3
- -----------------------------------------------------------------------------------------
NOTE 15: REGULATORY MATTERS
Rates -- Florida Power's retail rates are set by the FPSC, while its wholesale
rates are governed by FERC. Florida Power's last general retail rate case was
approved in 1992 and allowed a 12% regulatory return on equity with an allowed
range between 11% and 13%.
Florida Power previously operated under an agreement committing several parties
not to seek any reduction in its base rates or authorized return on equity. That
agreement expired on June 30, 2001. On June 20, 2001, the Florida Public Service
Commission (FPSC) initiated a rate proceeding regarding Florida Power's future
base rates when it issued an order that Florida Power be required to hold $114
million of revenue subject to refund and to file, by September 14, 2001, minimum
filing requirements based on a projected 2002 test year. On July 2, 2001,
Florida Power filed a request for rehearing of the portion of the FPSC's order
requiring that it hold $114 million of revenues subject to refund on the grounds
that the order contradicted FPSC precedent, was inconsistent with the applicable
statutory requirements and violated Florida Power's due process rights. On
October 16, 2001, the Commission approved Florida Power's motion for
reconsideration and reduced the revenue subject to refund by $16 million to $98
million. The Commission also allowed Florida Power to reduce the amount subject
to refund for the accelerated
72
amortization of a regulatory asset and may allow Florida Power to further reduce
revenue subject to refund if successful in the rate case.
On September 14, 2001, Florida Power submitted its required rate filing,
including its revenue requirements and supporting testimony. Under the filing,
Florida Power customers would receive a $5 million annual credit for 15 years,
or $75 million in total, from net synergies of its merger with Progress Energy.
Additionally, the filing provides that the regulatory asset related to the
purchase of Tiger Bay cogeneration facility in 1997 would be fully amortized by
the end of 2003, which would provide customers with a further rate reduction of
a minimum of $37 million annually beginning in 2004. Included in the filing is
an incentive regulatory plan, which would provide for additional rate reductions
through efficiencies derived as a result of Florida Power's ability to lower the
future costs of its utility operations. Florida Power filed supplemental minimum
filing requirements and testimony on November 15, 2001. Hearings are scheduled
to begin March 20, 2002, with a final decision expected in July 2002. The FPSC
has encouraged its staff, Florida Power, and other parties to negotiate a
settlement, if possible, before the hearings begin. Progress Energy cannot
predict the outcome or impact of these matters.
Regulatory Assets and Liabilities -- Florida Power has total regulatory assets
(liabilities) at December 31, 2001 and 2000 as detailed below:
(in thousands) 2001 2000
-------- ---------
Deferred fuel (included in current assets) $ 15,147 $ 90,434
---------------------
Income taxes recoverable through future rates 27,610 19,689
Deferred purchased power contract termination costs 95,326 226,656
Loss on reacquired debt 19,848 21,568
Deferred DOE enrichment facilities-related costs 8,531 9,979
Other 13,103 23,248
---------------------
Total long-term regulatory assets 164,418 301,140
---------------------
Nuclear maintenance and refueling (346) (10,835)
Deferred revenues -- (63,000)
Storm reserve (Note 16) (35,527) (29,527)
Other (9,669) (10,077)
---------------------
Total long-term regulatory liabilities (45,542) (113,439)
---------------------
Net regulatory assets $134,023 $ 278,135
=====================
Except for portions of deferred fuel, all assets earn a return or the cash has
not yet been expended, in which case the assets are offset by liabilities that
do not incur a carrying cost.
The utility expects to fully recover these assets and refund the liabilities
through customer rates under current regulatory practice.
If Florida Power no longer applied SFAS No. 71 due to competition, regulatory
changes or other reasons, the utility would make certain adjustments. These
adjustments could include the write-off of all or a portion of its regulatory
assets and liabilities, the evaluation of utility plant, contracts and
commitments and the recognition, if necessary, of any losses to reflect market
conditions.
The Tiger Bay regulatory asset, for contract termination costs, is being
recovered pursuant to an agreement between Florida Power and several intervening
parties, which was approved by the FPSC in June 1997. The amortization of the
regulatory asset is calculated using revenues collected under the fuel
adjustment clause as if the purchased power agreements related to the facility
were still in effect, less the actual fuel costs and the related debt interest
expense. This will continue until the regulatory asset is fully amortized. Under
the plan, Florida Power has the option to accelerate the amortization at its
discretion. Including accelerated amounts, Florida Power recorded amortization
expense of $130.5 million, $71.2 million, and $23 million, in 2001, 2000 and
1999, respectively.
In December 2000, Florida Power received approval from the FPSC to establish a
regulatory liability to defer 2000 revenues for disposition by April 2, 2001.
Florida Power applied the deferred revenues of $63 million, plus accrued
interest, to amortization of the Tiger Bay regulatory asset during the first
quarter of 2001.
73
Similar approvals were given by the FPSC in November 1999 and December 1998.
Florida Power received approval from the FPSC to defer nonfuel revenues towards
the development of a plan that would allow customers to realize the benefits
earlier than if they were used to accelerate the amortization of the Tiger Bay
regulatory asset. Florida Power was unable to identify any rate initiatives that
might allow its ratepayers to receive these benefits sooner. In September 2000
and June 1999, Florida Power recognized $44.4 million and $10.1 million of
revenue, and recorded $44.4 million and $10.1 million, plus interest, of
amortization against the Tiger Bay regulatory asset.
NOTE 16: COMMITMENTS AND CONTINGENCIES
Fuel, Coal and Purchased Power Commitments -- Progress Fuels has two coal supply
contracts with Florida Power, the provisions of which require Florida Power to
buy and Progress Fuels to supply substantially all of the coal requirements of
four of Florida Power's power plants, two through 2002 and two through 2004. In
connection with these contracts, Progress Fuels has entered into several
contracts with outside parties for the purchase of coal. The annual obligations
for coal purchases and transportation under these contracts are $208.0 million,
$142.3 million and $30.6 million for 2002 though 2004, respectively, with no
current obligations thereafter. The total cost incurred for these commitments in
2001, 2000 and 1999 was $134.1 million, $110.6 million, and $125.3 million,
respectively.
Florida Power has long-term contracts for about 460 MW of purchased power with
other utilities, including a contract with The Southern Company for
approximately 400 MW of purchased power annually through 2010. This represents
less than 5% of Florida Power's total current system capacity. Florida Power has
an option to lower these purchases to approximately 200 MW annually with a
three-year notice. The purchased power from The Southern Company is supplied by
generating units with a capacity of approximately 3,500 MW and is guaranteed by
The Southern Company's entire system, totaling more than 30,000 MW.
As of December 31, 2001, Florida Power has ongoing purchased power contracts
with certain qualifying facilities for 871 MW of capacity with expiration dates
ranging from 2002 to 2025. The purchased power contracts provide for capacity
and energy payments. Energy payments are based on the actual power taken under
these contracts. Capacity payments are subject to the qualifying facilities
meeting certain contract performance obligations. In most cases, these contracts
account for 100% of the generating capacity of each of the facilities. Of the
871 MW under contract, 831 MW currently are available to Florida Power. All
commitments have been approved by the FPSC.
The FPSC allows the capacity payments to be recovered through a capacity cost
recovery clause, which is similar to, and works in conjunction with, energy
payments recovered through the fuel cost recovery clause.
Florida Power incurred purchased power capacity costs totaling $279.9 million in
2001, $280.4 million in 2000, and $240.6 million in 1999. The following table
shows minimum expected future capacity payments for purchased power commitments.
Because the purchased power commitments have relatively long durations, the
total present value of these payments using a 10% discount rate also is
presented.
Purchased Power Capacity Payments
---------------------------------
(In millions) Utilities Cogenerators Total
- -------------------------------------------------------------------------------
2002 $ 53 $ 236 $ 289
2003 51 244 295
2004 29 255 284
2005 29 268 297
2006 29 279 308
2007-2025 128 4,757 4,885
- -------------------------------------------------------------------------------
Total $319 $6,039 $6,358
- -------------------------------------------------------------------------------
Total net present value $2,615
- -------------------------------------------------------------------------------
Leases -- The Company has several non-cancelable operating leases, primarily for
transportation equipment, with varying terms extending to 2014, and generally
require the subsidiaries to pay all executory costs such as maintenance and
insurance. Some rental payments include minimum rentals plus contingent rentals
based on mileage. Contingent rentals were not significant. The minimum future
lease payments under noncancelable operating leases, with initial terms in
excess of one year are $19.9 million, $39.0 million, $28.1 million, $10.5
million and $4.9 million for 2002 through 2006, respectively, with a $18.1
million total obligation thereafter. The total costs incurred under these
commitments were $25.3 million, $73.9 million, and $51.1 million during 2001,
2000 and 1999, respectively.
74
In addition, Progress Telecom has entered into capital leases for equipment that
have minimum future lease payments of approximately $1.4 million annually
through 2006, with a $13.2 million total obligation thereafter.
In December 2000, Progress Rail Services Corporation (PRS), a subsidiary of
Progress Fuels, sold a portfolio of railcars to Railcar Asset Financing Trust
(RAFT). PRS made a $4.9 million (9.95%) investment in RAFT and will remain as
servicer of the portfolio. The RAFT term is five years at which time PRS has the
option to repurchase the railcars at fair value.
Construction Program -- Substantial commitments have been made in connection
with the Company's construction program. For the year 2002, Florida Power has
projected annual construction expenditures of $524.1 million, primarily for
electric plant.
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 December 31,
2001 and 2000 were $35.5 million and $29.5 million, respectively are recorded in
other long-term liabilities. (See Note 15)
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 totaling $1.6 billion.
This insurance coverage 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.
There have been recent revisions made to the nuclear property and nuclear
liability insurance policies regarding the maximum recoveries available for
multiple terrorism occurrences. Under the NEIL policies, if there were multiple
terrorism losses occurring within one year after the first loss from terrorism,
NEIL would make available one industry aggregate limit of $3.2 billion, along
with any amounts it recovers from reinsurance, government indemnity or other
sources up to the limits for each claimant. If terrorism losses occurred beyond
the one-year period, a new set of limits and resources would apply. For nuclear
liability claims arising out of terrorist acts, the primary level available
through commercial insurers is now subject to an industry aggregate limit of
$200.0 million. The second level of coverage obtained through the assessments
discussed above would continue to apply to losses exceeding $200.0 million and
would provide coverage in excess of any diminished primary limits due to the
terrorist acts aggregate.
Florida Power has never been assessed under these nuclear indemnities or
insurance policies.
Claims and Uncertainties -- The Company is subject to federal, state and local
regulations addressing air and water quality, hazardous and solid waste
management and other environmental matters.
Various organic materials associated with the production of manufactured gas,
generally referred to as coal tar, are regulated under federal and state laws.
The lead or sole regulatory agency that is responsible for a particular former
coal tar site depends largely upon the state in which the site is located. There
are several MGP sites to which Florida Power has some connection. In this
regard, Florida Power, with other potentially responsible parties, is
participating in investigating and, if necessary, remediating former coal tar
sites with several regulatory agencies, including, but not limited to, the U.S.
Environmental Protection Agency (EPA) and the FDEP. Although the Company may
incur costs at these sites about which it has been notified, based upon current
status of these sites, the Company does not expect those costs to be material to
the financial position or results of operations of the Company. The Company has
accrued amounts to address known costs at certain of these sites.
75
The Company is periodically notified by regulators such as the EPA and various
state agencies of their involvement or potential involvement in sites, other
than MGP sites, that may require investigation and/or remediation. Although the
Company may incur costs at the sites about which they have been notified, based
upon the current status of these sites, the Company does not expect those costs
to be material to the financial position or results of operations of the
Company.
There has been and may be further proposed federal legislation requiring
reductions in air emissions for nitrogen oxides, sulfur dioxide and mercury
setting forth national caps and emission levels over an extended period of time.
This national multi-pollutant approach would have significant costs which could
be material to the Company's consolidated financial position or results of
operations. Some companies may seek recovery of the related cost through rate
adjustments or similar mechanisms. The Company cannot predict the outcome of
this matter.
The EPA has been conducting an enforcement initiative related to a number of
coal-fired utility power plants in an effort to determine whether modifications
at those facilities were subject to New Source Review requirements or New Source
Performance Standards under the Clean Air Act. Florida Power was asked to
provide information to the EPA as part of this initiative and cooperated in
providing the requested information. The EPA has initiated enforcement actions
against other utilities as part of this initiative, some of which have resulted
in or may result in settlement agreements, ranging from $1.0 billion to $1.4
billion. A utility that was not subject to a civil enforcement action settled
its New Source Review issues with the EPA for $300 million. These settlement
agreements have generally called for expenditures to be made over extended time
periods, and some of the companies may seek recovery of the related costs
through rate adjustments. The Company cannot predict the outcome of this matter.
In July 1997, the EPA issued final regulations establishing a new eight-hour
ozone standard. In October 1999, the District of Columbia Circuit Court of
Appeals ruled against the EPA with regard to the federal eight-hour ozone
standard. The U.S. Supreme Court has upheld, in part, the District of Columbia
Circuit Court of Appeals decision. Further litigation and rulemaking are
anticipated. The Company cannot predict the outcome of this matter.
On November 1, 2001, the Company completed the sale of the Inland Marine
Transportation segment to AEP Resources, Inc. In connection with the sale, the
Company entered into environmental indemnification provisions covering both
unknown and known sites. The Company has recorded an accrual to cover estimated
probable future environmental expenditures. The Company believes that it is
reasonably possible that additional costs, which cannot be currently estimated,
may be incurred related to the environmental indemnification provision beyond
the amounts accrued. The Company cannot predict the outcome of this matter.
Florida Power has filed claims with the Company's general liability insurance
carriers to recover costs arising out of actual or potential environmental
liabilities. Some claims have been settled and others are still pending. While
management cannot predict the outcome of these matters, the outcome is not
expected to have a material effect on the financial position or results of
operations.
Other Commitments -- Florida Progress has certain future commitments related to
synthetic fuel facilities purchased that provide for contingent payments
(royalties) of up to $25.2 million on sales from Florida Progress' interests in
these plants annually through 2007. The related agreements were amended in
December 2001 to require the payment of minimum annual royalties of which
Florida Progress' share is approximately $14.5 million through 2007. As a result
of the amendment, Florida Progress recorded a liability (included in other
liabilities and deferred credits on the Consolidated Balance Sheets) and a
deferred cost asset (included in other assets and deferred debits in the
Consolidated Balance Sheets) of approximately $67.0 million at December 31,
2001, representing the minimum amounts due through 2007, discounted at 6.05%. As
of December 31, 2001, the portion of the asset and liability recorded that was
classified as current was $12.9 million. The deferred cost asset will be
amortized to expense each year as synthetic fuel sales are made. The maximum
amounts payable under these agreements remain unchanged. Actual amounts accrued
under these agreements were approximately $25.2 million in 2001, $22.5 million
in 2000, and $0.9 thousand in 1999.
In January 2002, the Company entered into a letter of intent to acquire
approximately 215 natural gas wells, 52 miles of intrastate gas pipeline and 170
miles of gas-gathering systems. Total consideration of $153 million is expected
to include $135 million in Progress Energy common stock and $18 million in cash.
This transaction is expected to be completed in the first half of 2002.
76
LEGAL MATTERS
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. 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. On July 5, 2001, the
Eleventh Circuit Court of Appeals ruled that as a matter of law, disparate
claims cannot be brought under the Americans with Disabilities Act (ADEA). This
ruling has the effect of decertifying the Akin case as a class action. On
----
October 3, 2001, the plaintiffs filed a petition in the United States Supreme
Court, requesting a hearing of the case, on the issue of whether disparate
claims can be brought under the ADEA. On December 3, 2001, the United States
Supreme Court agreed to hear the case. Oral arguments on the issue were held on
March 20, 2002. As of this date, the trial court has not stayed the litigation
pending the outcome of the Supreme Court. The Company cannot predict the outcome
of this matter.
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.
Florida Progress filed a motion for summary judgement, which is pending.
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. 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
77
denied the petition, but Florida Power appealed to the Florida Supreme Court. On
January 26, 2001, the District Court of Appeals reversed the trial court's order
and held that the contract requires Florida Power to pay Lake the firm energy
rate for all hours that the avoided unit operates, less any maintenance
shut-down hours. The District Court of Appeals remanded the case to the trial
court for a new trial to determine the appropriate amount of damages consistent
with the appellate court's ruling. Florida Power sought rehearing of the
District Court of Appeal's decision, which subsequently confirmed its initial
decision. On remand, Florida Power entered a stipulation on issues of fact that
resulted in the issuance of a Final Judgement awarding damages to Lake of
approximately $20 million, which Florida Power recorded as a charge to purchased
power expense. 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 (Receiver's 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 worked 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.
In January 1999, five Mid-Continent policyholders filed a purported class action
(Policyholders' Lawsuit) 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.
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, 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
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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 Policyholders' Lawsuit. Under the terms of
the settlement, Florida Progress agreed to contribute an additional $7.5
million, towards protecting policyholders in the event that future premium rate
increases are necessary, and pay attorney's fees and expenses up to $4.875
million. Florida Progress also agreed with the Commissioner 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 additional $7.5 million brings the total contribution to the fund 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 Receiver's Lawsuit is part of the
settlement. The Policyholders' Lawsuit case has been transferred to the
rehabilitation court. On February 21, 2001, the Court approved the settlement of
the Policyholders' Lawsuit and the dismissal of the Receiver's Lawsuit. During
2001, Florida Progress paid the settlement and attorney's fees. In December
2001, Florida Progress, having filed a claim with its insurance carrier related
to Mid-Continent, was awarded an $8.8 million insurance settlement that was
recorded in Other income(net), resulting in after-tax income of $5.4 million.
Easement Litigation -- In December 1998, Florida Power was served with this
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
Telecom as a defendant and adding counts for unjust enrichment and constructive
trust. In January 2000, the court conditionally certified the class statewide.
In mediation held in March 2000, the parties reached a tentative settlement of
this claim. In January 2001, the Court preliminarily approved the amended
settlement agreement, certified the settlement class and approved the class
notice. On November 16, 2001, the Court issued a final order approving the
settlement. Several objectors to the settlement appealed the order to the 1st
District Court of Appeal. If the order approving settlement is ultimately upheld
on appeal, the settlement would not have a material adverse impact on the
financial position, results of operations or liquidity of Florida Power or
Progress Telecom.
Franchise Litigation -- Five cities, with a total of approximately 36,000
customers, have sued Florida Power in various circuit courts in Florida. The
lawsuits principally seek (1) a declaratory judgment that the cities have the
right to purchase Florida Power's electric distribution system located within
the municipal boundaries of the cities, (2) a declaratory judgment that the
value of the distribution system must be determined through arbitration, and (3)
injunctive relief requiring Florida Power to continue to collect from Florida
Power's customers and remit to the cities, franchise fees during the pending
litigation, and as long as Florida Power continues to occupy the cities'
rights-of-way to provide electric service, notwithstanding the expiration of the
franchise ordinances under which Florida Power had agreed to collect such fees.
Three circuit courts have entered orders requiring arbitration to establish the
purchase price of Florida Power's electric distribution facilities within three
cities. One appellate court has held that one city has the right to determine
the value of Florida Power's facilities within the city through arbitration. To
date, no city has attempted to actually exercise the right to purchase any
portion of Florida Power's electric distribution system, nor has there been any
proceeding to determine the value at which such a purchase could be made.
Arbitration's for two of the cases have been scheduled for the third quarter of
2002. The Company cannot predict the outcome of these matters.
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Other Legal Matters -- Florida Progress and Florida Power are involved in
various other claims and legal actions arising in the ordinary course of
business, some of which involve substantial amounts. Where appropriate, accruals
have been made in accordance with SFAS No. 5, "Accounting for Contingencies," to
provide for such matters. 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.
NOTE 17: SUBSEQUENT EVENT (UNAUDITED)
On March 27, 2002, the parties in Florida Power's rate case entered into a
Stipulation and Settlement Agreement (the Agreement) related to retail rate
matters. The Agreement is to be effective from May 1, 2002 through 2005;
provided, however, that if Florida Power's base rate earnings fall below a 10%
return on equity, Florida Power may petition the FPSC to amend its base rates.
The Agreement provides that Florida Power will reduce its retail revenues from
the sale of electricity by $125 million annually through 2005. The Agreement
also provides that Florida Power will operate under a Revenue Sharing Incentive
Plan (the Plan) that establishes revenue caps and sharing thresholds for the
years 2002 through 2005. The Plan provides that retail base rate revenues
between the sharing thresholds and the retail base rate revenue caps will be
divided into two shares - a 1/3 share to be received by Florida Power's
shareholders, and a 2/3 share to be refunded to Florida Power's retail
customers; provided, however, that for the year 2002 only, the refund to
customers will be limited to 67.1% of the 2/3 customer share. The retail base
rate revenue sharing threshold amounts for 2002, 2003, 2004 and 2005 will be
$1,296 million, $1,333 million, $1,370 million, and $1,407 million,
respectively. The Plan also provides that all retail base rate revenues above
the retail base rate revenue caps established for the years 2003, 2004 and 2005
will be refunded to retail customers on an annual basis. For 2002, the refund to
customers will be limited to 67.1% of the retail base rate revenues that exceed
the 2002 cap. The retail base revenue caps for 2002, 2003, 2004 and 2005 will be
$1,356 million, $1,393 million, $1,430 million, and $1,467 million,
respectively.
The Agreement also provides that beginning with the in-service date of Florida
Power's Hines Unit 2 and continuing through December 31, 2005, Florida Power
will be allowed to recover through the fuel cost recovery clause a return on
average investment and depreciation expense for Hines Unit 2, to the extent such
costs do not exceed the Unit's cumulative fuel savings over the recovery period.
Additionally, the Agreement provides that Florida Power will effect a mid-course
correction of its fuel cost recovery clause to reduce the fuel factor by $50
million for the remainder of 2002. The fuel cost recovery clause will operate as
it normally does, including, but not limited to any additional mid-course
adjustments that may become necessary, and the calculation of true-ups to actual
fuel clause expenses.
During the term of the Agreement, Florida Power will suspend accruals on its
reserves for nuclear decommissioning and fossil dismantlement. Additionally, for
each calendar year during the term of the Agreement, Florida Power will record a
$62.5 million depreciation expense reduction, and may, at its option, record up
to an equal annual amount as an offsetting accelerated depreciation expense. In
addition, Florida Power is authorized, at its discretion, to accelerate the
amortization of certain regulatory assets over the term of the Agreement.
Under the terms of the Agreement, Florida Power agreed to continue the
implementation of its four-year Commitment to Excellence Reliability Plan and
expects to achieve a 20% improvement in its annual System Average Interruption
Duration Index by no later than 2004. If this improvement level is not achieved
for calendar years 2004 or 2005, Florida Power will provide a refund of $3
million for each year the level is not achieved to 10% of its total retail
customers served by its worst performing distribution feeder lines.
The Agreement also provides that Florida Power will refund to customers $35
million of the $98 million in interim revenues Florida Power has collected
subject to refund since March 13, 2001. No other interim revenues that were
collected during that period will continue to be held subject to refund.
The Agreement was filed with the FPSC for approval on March 27, 2002. If the
FPSC approves the Agreement, the new rates will take effect May 1, 2002. The
Company cannot predict the outcome of this matter.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACOUNTANTS ON ACCOUNTING AND
- ----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
As a result of the acquisition of Florida Progress Corporation (FPC) and Florida
Power Corporation (Florida Power) by Progress Energy. Inc. (Progress Energy),
management decided to retain Deloitte & Touche LLP (D&T) as its independent
public accountants. D&T has served as the independent public accountants for
Progress Energy for over fifty years. On March 21, 2001, the Audit Committee of
the Board of Directors approved this recommendation and formally elected to (i)
engage D&T as the independent accountants for FPC and Florida Power and (ii)
dismiss KPMG LLP (KPMG) as such independent accountants.
KPMG's reports on FPC's and Florida Power's financial statements for 2000 and
1999 (the last two fiscal years of KPMG's engagement) contained no adverse
opinion or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. D&T became FPC's and Florida
Power's independent accountants upon the completion of the 2000 audit and
issuance of the related financial statements.
During FPC's and Florida Power's last two fiscal years and the subsequent
interim period to the date of their dismissal, there were no disagreements
between FPC and Florida Power and KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of KPMG, would have caused
them to make reference to the subject matter of the disagreements in connection
with their report on the financial statements for such years.
KPMG furnished a letter addressed to the Securities and Exchange Commission
stating that it agreed with the above statements made by FPC and Florida Power
in this Form 10-K
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
- ------------------------------------------------------------
FLORIDA PROGRESS
DIRECTORS
Edwin B. Borden, age 68, is President of The Borden Manufacturing Company, a
textile management services company. He has served as a Director of the Company
since November 30, 2000 and also serves as a director of Progress Energy, CP&L
Jefferson-Pilot Corporation, Ruddick Corporation and Winston Hotels, Inc.
David L. Burner, age 62, is Chairman, and Chief Executive Officer of the
Goodrich Corporation, a provider of aerospace components, systems and services
(since July 1997). He previously served as President and Chief Executive Officer
(from December 1996 to July 1997) and President (from December 1995 to December
1996) of the Goodrich Corporation and as President, Goodrich Aerospace and
Executive Vice President of the Goodrich Corporation (from January 1995 to
December 1995). He has served as a Director of the Company since November 30,
2000 and also serves as a director of Progress Energy, CP&L, Milacron, Inc.,
Lance, Inc. and Briggs & Stratton Corporation.
William Cavanaugh III, age 63, is Chairman, President and Chief Executive
Officer, Progress Energy, August 1999 to present; Chairman, Progress Energy
Service Company, LLC, August 2000 to present; Chairman, Florida Power, November
30, 2000 to present; Chairman, Progress Ventures, Inc., March 2000 to present;
Chairman, President and Chief Executive Officer, (CP&L), May 1999 to present;
President and Chief Executive Officer, CP&L, October 1996 to May 1999; President
and Chief Operating Officer, CP&L, September 1992 to October 1996. Since
November 30, 2000, and also serves as a director of Duke Realty Corporation.
Member of the Board of Directors of the Company since 1993.
Charles W. Coker, age 68, is Chairman of Sonoco Products Company, a manufacturer
of paperboard and paper and plastics packaging products (since April 1998). He
previously served as Chairman and Chief Executive Officer of Sonoco Products
Company (from 1976 to April 1998). He has served as a Director of the Company
since November 30, 2000 and also serves as a director of Progress Energy, CP&L,
BankAmerica Corporation, Sara Lee Corporation and Springs Industries, Inc.
Richard L. Daugherty, age 66, is retired Executive Director of NCSU Research
Corporation, a development corporation of the Centennial Campus of North
Carolina State University (since March 1995). He has served as a Director of the
Company since November 30, 2000 and also serves as a director of Progress
Energy, and CP&L.
W. D. Frederick, Jr., age 67 is a citrus grower and rancher. He is a retired
partner in the law firm of Holland & Knight. He has served as a Director of the
Company since 1995 and also serves as a director of Progress Energy, CP&L, Blue
Cross/Blue Shield of Florida and United Heritage Bank.
E. Marie McKee, age 51, is Senior Vice President of Corning Incorporated, a
developer of technologies for glass, ceramics, fiber optics and photonics. She
has served as a Director of the Company since November 30, 2000 and also serves
as a director of Progress Energy, and CP&L.
William O. McCoy, age 68, is a partner in Franklin Street Partners, an
investment management firm (since 1998). He previously served as Interim
Chancellor of the University of North Carolina at Chapel Hill from April 1999 to
August 14, 2000 and as Vice President-Finance of the University of North
Carolina at Chapel Hill from 1995 to 1998. He has served as a Director of the
Company since November 30, 2000 and also serves as a director of Progress
Energy, CP&L, The Liberty Corporation, Duke Realty Corporation, Acterna Corp.
and North Carolina Capital Management Trust, and as a Trustee of Fidelity
Investments.
John H. Mullin, III, age 60, is Chairman of Ridgeway Farm, LLC, a limited
liability company engaged in timber and agricultural activities. He has served
as a Director of the Company since November 30, 2000 and also serves as a
director of Progress Energy, CP&L, Alex Brown Realty, Inc. and The Liberty
Corporation, and as a Trustee of The Putnam Funds.
Richard A. Nunis, age 69, is President of New Business Solutions, Inc. He
previously served as Chairman, Walt Disney Parks & Resorts. He has served as a
Director of the Company since 1989 and also serves as a director of Progress
Energy, and CP&L.
Carlos A. Saladrigas, age 53, is Chief Executive Officer of ADP TotalSource,
(previously the Vincam Group, Inc.), a Miami-based human resources outsourcing
company that provides human resource functions to small and mid-sized
businesses. He is also
82
Chairman of Premier American Bank in Miami, Florida. He has served as a Director
of the Company since September 1, 2001 and also serves as a director of, CP&L
and Progress Energy.
J. Tylee Wilson, age 70, is retired Chairman and Chief Executive Officer of RJR
Nabisco, Inc. He has served as a Director of the Company since November 30, 2000
and also serves as a director of Progress Energy, and CP&L.
Jean Giles Wittner, age 67, is President and Secretary of Wittner & Co., Inc. a
Florida holding company for companies that provide life insurance products,
employee benefit insurance programs, and commercial office leasing and property
management services. She has served as a director of the Company since 1982 and
also serves as a director of Progress Energy, CP&L and Raymond James Bank, FSB.
EXECUTIVE OFFICERS
William Cavanaugh III, age 63
Information concerning Mr. Cavanaugh is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Directors."
H. William Habermeyer, Jr., age 59
President and Chief Executive Officer, Florida Power, November 30, 2000 to
present; Vice President, CP&L, Western Region, July 1997 to November 2000; Vice
President, CP&L, Nuclear Engineering, August 1995 to July 1997.
William D. Johnson, age 48
Executive Vice President, General Counsel and Secretary, Progress Energy,
February 2001 to present; Executive Vice President and Corporate Secretary,
Progress Energy, June 2000 to February 2001; Senior Vice President and
Secretary, Progress Energy, August 1999 to June 2000; Executive Vice President,
General Counsel and Corporate Secretary, Progress Energy Service Company, LLC,
August 2000 to present; Executive Vice President, General Counsel and Corporate
Secretary, CP&L, November 2000 to present; Senior Vice President and Corporate
Secretary, CP&L, Legal and Risk Management, March 1999 to November 2000; Vice
President-Legal Department and Corporate Secretary, CP&L, 1997 to 1999; Vice
President, Senior Counsel and Manager-Legal Department, CP&L, 1995 to 1997.
Tom D. Kilgore, age 54
President and CEO, Progress Ventures, Inc., March 2000 to present; Group
President, CP&L, November 30, 2000 to present; Senior Vice President, CP&L,
Power Operations, August 1998 to November 30, 2000; President and Chief
Executive Officer, Oglethorpe Power Corporation, Georgia Transmission
Corporation and Georgia Operations Corporation, July 1991 to August 1998. These
three companies provide power generation, transmission and system operations
services, respectively, to 39 of Georgia's 42 customer-owned Electric Membership
Corporations.
Robert B. McGehee, age 59
Executive Vice President, Progress Energy, and CP&L, February, 2001 to present;
Executive Vice President, Florida Progress, December 2000 to present; President
and Chief Executive Officer, Progress Energy Service Company, LLC, from August,
2000 to present; Executive Vice President and General Counsel, Progress Energy,
August, 1999 to February, 2001; Executive Vice President and General Counsel,
CP&L, May 2000 to February 2001; Executive Vice President, General Counsel,
Chief Administrative Officer and Interim Chief Financial Officer, CP&L, March 3,
2000 to May 2000; Executive Vice President, General Counsel and Chief
Administrative Officer, CP&L, March 1999 to March 3, 2000; Senior Vice President
and General Counsel, CP&L, May 1997 to March 1999. From 1974 to May 1997, Mr.
McGehee was a practicing attorney with Wise Carter Child & Caraway, a law firm
in Jackson, Mississippi. He primarily handled corporate, contract, nuclear
regulatory and employment matters. From 1987 to 1997 he managed the firm,
serving as chairman of its Board from 1992 to May 1997.
Peter M. Scott III, age 52
Executive Vice President and Chief Financial Officer ("CFO") Florida Progress,
November 30, 2000 to present; Executive Vice President and CFO, Progress Energy,
June 2000 to present; Executive Vice President and CFO, Florida Power, November
30, 2000 to present, Executive Vice President and CFO, Progress Energy Service
Company, LLC, August 2000 to present; Executive Vice President and CFO, CP&L,
May 2000 to present; Executive Vice President and CFO, NCNG, December 2000 to
present. Before joining the Company, Mr. Scott was President of Scott, Madden &
Associates, Inc., a management consulting firm he founded in 1983. The firm
advises companies on key strategic initiatives for growing shareholder value.
83
Robert H. Bazemore, Jr., age 47
Controller and Chief Accounting Officer of the Company, November 30, 2000 to
present; Controller and Chief Accounting Officer, Progress Energy, June 2000 to
present; Controller, Florida Power, November 30, 2000 to present; Vice President
and Controller, Progress Energy Service Company, LLC, August 2000 to present;
Chief Accounting Officer and Controller, CP&L, May 2000 to present; Director,
CP&L, Operations & Environmental Support Department, December 1998 to May 2000;
Manager, CP&L, Financial & Regulatory Accounting, September 1995 to December
1998.
There are no family relationships between any director or any executive officer
of Florida Progress. The executive officers serve at the pleasure of the Florida
Progress Board of Directors. Each executive officer is appointed annually.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
- ----------------------------------------
On September 27, 1999, Florida Progress and its directors were served with a
purported class action complaint, Case No. 99-6167CI-20, styled Lisa Fruchter,
on behalf of herself and all others similarly situated, v. Florida Progress
Corporation; Richard Korpan; Clarence V. McKee; Richard A. Nunis, Jean Giles
Wittner; Michael P. Graney; Joan D. Ruffier, Robert T. Stuart, Jr.; W. D.
Frederick; and Vincent J. Naimoli. The complaint was filed in the Circuit Court
of the 6th Judicial Circuit in and for Pinellas County, Florida on September 14,
1999. The complaint seeks class action status and injunctive relief (1)
declaring that the agreement and plan of exchange among CP&L Energy, Inc. (now
Progress Energy), Florida Progress and CP&L was entered into in breach of the
fiduciary duties of the Florida Progress board of directors, (2) enjoining
Florida Progress from proceeding with the share exchange, (3) rescinding the
agreement and plan of exchange; (4) enjoining any other business combination
until an auction is conducted to obtain the highest price possible for Florida
Progress, (5) directing the Florida Progress board of directors to commence such
an auction, and (6) awarding the class an unspecified amount of damages. The
complaint also seeks an award of costs and attorneys' fees. The parties have
reached agreement on terms of a settlement, which are subject to court approval.
If the settlement is not approved, Florida Progress and the nine individual
defendants intend to vigorously defend against this action. The share exchange
closed on November 30, 2000.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires Florida Progress'
executive officers and directors, and persons who own more than ten percent of a
registered class of Florida Progress' equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange.
Based upon Company records and other information, Florida Progress believes that
all Section 16(a) filing requirements applicable to its executive officers and
directors with respect to Florida Progress' 2001 fiscal year were met.
FLORIDA POWER
DIRECTORS
William Cavanaugh III, age 63
Information concerning Mr. Cavanaugh is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Directors."
Fred N. Day IV, age 58
Executive Vice President, Florida Power and CP&L, November 30, 2000 to present;
Senior Vice President, CP&L, Energy Delivery, July 1997 to November 30, 2000;
Vice President, CP&L, Western Region, 1995 to July 1997.
H. William Habermeyer, Jr., age 59
Information concerning Mr. Habermeyer is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Executive Officers."
William D. Johnson, age 48
Information concerning Mr. Johnson is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Executive Officers."
84
Robert B. McGehee, age 59
Information concerning Mr. McGehee is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Executive Officers."
William S. Orser, age 57
Group President, Florida Power and CP&L, November 30, 2000 to present; Executive
Vice President, CP&L, Energy Supply, June 1998 to November 30, 2000; Executive
Vice President and Chief Nuclear Officer, CP&L, December 1996 to June 1998;
Executive Vice President, CP&L, Nuclear Generation, April 1993 to December 1996.
Peter M. Scott III, age 52
Information concerning Mr. Scott is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Executive Officers."
EXECUTIVE OFFICERS
William Cavanaugh III, age 63
Information concerning Mr. Cavanaugh is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Directors."
Donald K. Davis, age 56
Executive Vice President, Florida Power, February 2001 to present; Executive
Vice President, CP&L, May 2000 to present; President and Chief Executive
Officer, North Carolina Natural Gas Corporation, July 2000 to present; Chief
Executive Officer, Strategic Resource Solutions, June 2000 to present. Before
joining Florida Power, Mr. Davis was Chairman, President and Chief Executive
Officer of Yankee Atomic Electric Company and served as Chairman, President and
Chief Executive Officer of Connecticut Atomic Power Company from 1997 to May
2000.
Fred N. Day IV, age 58
Information concerning Mr. Day is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Power,
Directors."
Cecil L. Goodnight, age 59
Senior Vice President, Florida Power, June 2001 to present; Senior Vice
President, Progress Energy Service Company, LLC, August 2000 to present; Senior
Vice President, CP&L, December 1998 to present; Senior Vice President and Chief
Administrative Officer, CP&L, December 1996 to December 1998.
H. William Habermeyer, Jr., age 59
Information concerning Mr. Habermeyer is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Executive Officers."
C. S. Hinnant, age 57
Senior Vice President, Florida Power Corporation, November 30, 2000 to present;
Senior Vice President and Chief Nuclear Officer, CP&L, June 1998 to present;
Vice President, CP&L, Brunswick Nuclear Plant, April 1997 to May 1998; Vice
President, CP&L, Robinson Nuclear Plant, March 1994 to March 1997.
William D. Johnson, age 48
Information concerning Mr. Johnson is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Executive Officers."
85
William S. Orser, age 57
Information concerning Mr. Orser is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Power,
Directors."
Peter M. Scott III age 52
Information concerning Mr. Scott is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Executive Officers."
Robert H. Bazemore, Jr. age 47
Information concerning Mr. Bazemore is set forth in Part III hereof, under the
heading "Directors and Executive Officers of the Registrants - Florida Progress,
Executive Officers."
E. Michael Williams, age 53
Senior Vice President, Florida Power, November 30, 2000 to present; Senior Vice
President, CP&L, June 2000 to present; Before joining Florida Power, Mr.
Williams held the position of Vice President, Fossil Generation, Central and
South West Corp., an investor-owned utility from March 1994 to June 2000.
There are no family relationships between any director or any executive officer
of Florida Power. The executive officers serve at the pleasure of the Florida
Power Board of Directors. Each executive officer is appointed annually.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based upon Florida Power's records and other information, Florida Power believes
that all Section 16(a) filing requirements applicable to its executive officers
and directors with respect to Florida Power's 2001 fiscal year were met.
86
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The Organization and Compensation Committee of the Progress Energy Board of
Directors sets the compensation for the Progress Energy senior management team,
which includes all officers of Florida Progress and/or Florida Power who serve
as Senior Vice Presidents or in higher-level positions, and makes
recommendations as to compensation for directors and officers of its
subsidiaries, to be ratified by the boards of directors of the appropriate
subsidiaries.
FLORIDA PROGRESS
COMPENSATION OF DIRECTORS
All compensation paid to outside Directors of Progress Energy is for services
rendered on behalf of Progress Energy's Board of Directors and the boards of
Florida Progress and CP&L. Sponsorship of certain benefit and deferred
compensation plans and arrangements in which the outside Directors participate
was transferred from CP&L to Progress Energy, effective August 1, 2000. A
description of the compensation paid to said outside Directors follows.
Directors who are not employees of Progress Energy or any of its subsidiaries
receive an annual retainer of $35,000, of which $15,000 is automatically
deferred under the Progress Energy Directors' Deferred Compensation Plan (see
below), and an attendance fee of $1,500 per meeting for regularly scheduled
Board meetings. Directors who are not employees of Progress Energy or any of its
subsidiaries also receive an attendance fee for committee meetings of $1,000.
The Chairman of each Committee receives an additional retainer of $3,000 per
year. Directors who are not employees of Progress Energy or any of its
subsidiaries receive an attendance fee of $1,000 for each day of a visit to a
plant or office of the Company or its subsidiaries, or for attendance at any
other business meeting to which the director is invited by the Company.
Directors who are officers do not receive an annual retainer or attendance fees.
All Directors are reimbursed for expenses incident to their service as
Directors.
In addition to the $15,000 annual retainer and any matching contributions under
the incentive compensation program that are automatically deferred, outside
Directors may elect to defer any portion of the remainder of their annual
retainer and Board attendance fees until after the termination of their service
on the Board under the Progress Energy Directors' Deferred Compensation Plan.
Any deferred fees are deemed to be invested in a number of Units of Common Stock
of Progress Energy, but participating Directors receive no equity interest or
voting rights in the Common Stock. The number of Units credited to the account
of a participating Director is equal to the dollar amount of the deferred fees
divided by the average of the high and low selling prices (i.e., market value)
of Progress Energy's Common Stock on the day the deferred fees would otherwise
be payable to the participating Director. The number of Units in each account is
adjusted from time to time to reflect the payment of dividends on the number of
shares of Progress Energy Common Stock represented by the Units. Unless
otherwise agreed to by the participant and the Board, when the participant
ceases to be a member of the Board of Directors, he or she will receive cash
equal to the market value of a share of Progress Energy's Common Stock on the
date of payment multiplied by the number of Units credited to the participant's
account.
Directors are also eligible for matching contributions of up to $15,000 under an
incentive compensation program. Awards under this program are based upon the
achievement of the corporate incentive goals established each year by the
Progress Energy Board and used as the basis for a matching contribution of
shares of Progress Energy Common Stock for participating employees in the
Progress Energy 401(k) Savings & Stock Ownership Plan. In the event that five of
the corporate incentive goals are met, the $15,000 portion of the annual
retainer that is automatically deferred pursuant to the Progress Energy's
Directors' Deferred Compensation Plan will be increased by 50 percent, with an
additional 10 percent increase for each corporate incentive goal met in excess
of five (up to a maximum matching contribution of 100 percent). Such matching
contribution is automatically deferred until the Director's retirement.
Effective January 1, 1998, the Board of Directors Retirement Plan was replaced
by the Progress Energy Non-Employee Director Stock Unit Plan. Directors had the
option of rolling the value of their benefits under the Retirement Plan into the
Stock Unit Plan. Effective January 1, 2001, the Stock Unit Plan provides for an
annual grant of 350 "stock units" to each non-employee Director who has served
on the Board for at least one year and for matching grants of up to 350
additional units to be awarded to those Directors for each year in which certain
incentive goals established by the Board of Progress Energy are met. Each unit
is equal in value to one share of Progress Energy's Common Stock. The number of
units is adjusted from time to time to reflect the payment of dividends with
respect to the Common Stock of Progress Energy. Benefits under the Non-Employee
Director Stock Unit Plan vest after a participant has been a member of the
Progress Energy Board for five years, and are payable solely in cash.
All of the Directors who were existing Directors or retired Directors of CP&L on
or prior to September 16, 1998 participate in a Directors' Educational
Contribution Plan (Educational Plan). The Educational Plan is funded by policies
of corporate-owned life insurance on the lives of pairs of Directors, with
proceeds payable to Progress Energy at the death of the second to die in each
pair. All costs of the
87
Educational Plan are expected to be covered from the life insurance proceeds to
be received by Progress Energy. Pursuant to this Educational Plan, Progress
Energy will make a contribution in the name of each Director to an educational
institution or approved educational foundation or fund in North Carolina or
South Carolina selected by the Director and approved by the Executive Committee
of the Board of Directors of Progress Energy. The contribution will be made at
the later to occur of the retirement of the Director from the Progress Energy
Board of Directors or ten years from the date of adoption of the Educational
Plan. If a Director has served as a Director for at least five but less than ten
years at the time the contribution is to be made, Progress Energy will
contribute $250,000 in the name of the Director.
If the Director has served for ten or more years, the amount of the contribution
will be $500,000. The Educational Plan was discontinued September 16, 1998 and
will not be offered as a benefit for any Director who joins the Board subsequent
to that date. The Educational Plan may be terminated at any time in the
discretion of the Executive Committee without recourse or obligation to Progress
Energy.
Stock Ownership Guidelines
In an effort to more closely link the interests of the Company's Directors with
those of Progress Energy's shareholders, in December 2000, the Board of
Directors of Progress Energy adopted stock ownership guidelines which are
designed to ensure that Progress Energy's outside Directors have a significant
financial equity investment in Progress Energy. Those guidelines require the
outside Directors to own Progress Energy Common Stock or Units whose value is
equivalent to the value of that stock with a total value equal to five times the
annual retainer paid to outside Directors. The stock and/or Units may be
acquired over a five-year period and may include Units acquired under the
Progress Energy Directors' Deferred Compensation Plan and the Progress Energy
Non-Employee Director Stock Unit Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table contains information with respect to compensation awarded,
earned or paid during the year 2001 to the CEO of Florida Progress and the
Company's four most highly compensated executive officers other than the CEO who
were serving as executive officers at the end of the last completed fiscal year
for services rendered to Florida Progress. These individuals are also executive
officers of Progress Energy, Inc. It is not the policy of Progress Energy to
allocate compensation paid to its executive officers among the various
subsidiaries to which they provide services.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------------------------
Other
Annual
Name and Salary/1/,/2/ Bonus/3/ Compensation/4/
Principal Position Year ($) ($) ($)
- ---------------------------------------------------------------------------------------------
William Cavanaugh III, 2001 $1,043,380 $1,300,000 $110,038/9/
Chairman, President 2000 80,836 1,657,640/13/ 126,616
(elected November 30, 2000)
Robert B. McGehee, 2001 $ 487,110 $ 328,000 $ 15,484
Executive Vice President 2000 31,918 444,281/16/ 15,901
(elected November 30, 2000)
Peter M. Scott III, 2001 $ 422,283 $ 275,000 $ 7,635
Executive Vice 2000 30,126 304,000 50,350
Chief Financial
Officer (elected November 30, 2000)
Long-Term
Compensation
------------------------------
Awards Payouts
------------------------------
Restricted
Stock LTIP All Other
Name and Award(s)/5/,/6/ Payouts/7/ Compensation/8/
Principal Position ($) ($) ($)
- --------------------------------------------------------------------------------------
William Cavanaugh III, $ 46,824/10/ $296,949/11/ $329,140/12/
Chairman, President 3,871,402 N/A 258,389
(elected November 30, 2000)
Robert B. McGehee, $ 598,247/14/ $ 73,530 $ 93,785/15/
Executive Vice President 280,030 N/A 74,807
(elected November 30, 2000)
Peter M. Scott III, $ 138,990 N/A $ 80,707/18/
Executive Vice 1,126,195 N/A 50,485
Chief Financial
Officer (elected November 30, 2000)
88
Annual Compensation
-------------------------------------------------------
Other
Annual
Name and Salary/1/,/2/ Bonus/3/ Compensation/4/
Principal Position Year ($) ($) ($)
- ---------------------------------------------------------------------------------------------
Tom Kilgore, 2001 $358,404 $240,000 $ 6,975
President and Chief Executive 2000 25,751 254,786/21/ 48,215
Officer, Progress Fuels
Corporation
(elected November 30, 2000)
H. William Habermeyer, Jr. 2001 $252,834 $160,000 $ 7,833
President and Chief 2000 15,201 75,772/24/ 14
Executive Officer-
Florida Power (elected
November 30, 2000)
- ---------------------------------------------------------------------------------------------
Long-Term
Compensation
------------------------------
Awards Payouts
------------------------------
Restricted
Stock LTIP All Other
Name and Award(s)/5/,/6/ Payouts/7/ Compensation/8/
Principal Position ($) ($) ($)
- --------------------------------------------------------------------------------------
Tom Kilgore, $115,817/19/ $75,550 $75,607/20/
President and Chief Executive 453,753 N/A 61,488
Officer, Progress Fuels
Corporation
(elected November 30, 2000)
H. William Habermeyer, Jr. $ 68,183/22/ $16,561 $36,384/23/
President and Chief 870,171 N/A 24,451
Executive Officer-
Florida Power (elected
November 30, 2000)
- --------------------------------------------------------------------------------------
/1/For 2001, consists of base salary prior to (i) employee contributions to
the Progress Energy 401(k) Savings & Stock Ownership Plan and (ii)
voluntary deferrals, if any, under the Management Deferred Compensation
Plan (MDCP). See "Other Benefit Opportunities" on page 100.
/2/For 2000, consists of one month's base salary prior to (i) employee
contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan
and (ii) voluntary deferrals, if any, under the MDCP. See "Other Benefit
Opportunities" on page 100.
/3/Except as otherwise noted, consists of amounts awarded with respect to
performance in the stated year under the Management Incentive Compensation
Plan. See "Other Annual Compensation Opportunities" on page 98.
/4/Consists of gross-up payments for certain federal and state income tax
obligations, and where indicated by footnote disclosure, certain
perquisites.
/5/Includes the value of restricted stock awards as of the grant date
(calculated by multiplying the closing market price of Progress Energy's
unrestricted stock on the date of grant by the number of shares awarded)
granted pursuant to Progress Energy's 1997 Equity Incentive Plan. None of
the restricted stock awards will vest, in whole or in part, in under three
years from the date of grant except in the event of a change in control of
Progress Energy the Company or in the event of the recipient's death or
disability more than one year from the grant date. During the period for
which the shares are restricted, the grantee will receive all voting rights
and cash dividends associated with the restricted stock.
/6/Includes the value of matchable deferrals credited to the account of a
participant to replace the value of Company contributions to the Progress
Energy 401(k) Savings & Stock Ownership Plan that would have been made on
behalf of the participant but for the deferral of salary under the MDCP
compensation limitations under Section 415 of the Internal Revenue Code of
1986, as amended ("Phantom Stock Units"). Phantom Stock Units do not
represent an equity interest in Progress Energy and the crediting of such
Units to a participant's account does not convey any voting rights.
However, a Phantom Stock Unit is equal in value at all times to a share of
Progress Energy's Common Stock. Additional Phantom Stock Units are credited
from time to time to reflect the payment of dividends on the underlying
Progress Energy Common Stock. For participants with less than five years of
service with the Company, these Phantom Stock Units vest two years from the
end of the calendar year in which they are granted. Participants with five
or more years of service with the Company are 100% vested in all Phantom
Stock Units credited to their accounts. Phantom Stock Units are not deemed
"Matured" and therefore available for reallocation to other deemed
investment funds chosen by the participant until two years after the end of
the MDCP Year for which they were allocated. Payment of the value of the
Phantom Stock Units will be made in cash and will generally be made on one
of the following dates in accordance with the participant's deferral
election: (i) the April 1 following the date that is five or more years
from the last day of the MDCP Year for which the participant's salary
deferral is made, (ii) the April 1 following the participant's retirement,
or (iii) the April 1 following the first anniversary of the participant's
retirement. The amount of the payment will equal the fair market value of
notational deemed investment funds on the valuation date multiplied by the
number of units credited to the account of the participant for each fund.
See "Other Benefit Opportunities" on page 100.
/7/Consists of the value of payouts of awards granted under the Performance
Share Sub-Plan of Progress Energy's 1997 Equity Incentive Plan.
/8/Amounts reported in this column include dividends earned in 2001 on
awards granted under Progress Energy's Long-Term Compensation Program and
dividends allocated in 2001 on awards granted under the Performance Share
Sub-Plan of the Progress Energy 1997 Equity Incentive Plan.
89
/9/Consists of (i) $48,114 in gross-up payments for certain federal and
state income tax obligations; and (ii) certain perquisites, including
company airplane expenses of $20,942 and a company automobile allowance of
$18,600, both of which exceed thresholds for footnote disclosure.
/10/Consists of 1,104 Phantom Stock Units based on the market value of a
share of Progress Energy Common Stock on the date such units were credited
to the account of the participant. Mr. Cavanaugh owns a total of 175,000
shares of Progress Energy Restricted Stock which were valued at $7,880,250
as of December 31, 2001.
/11/Mr. Cavanaugh has elected to defer receipt of this award until after
his date of retirement.
/12/Consists of (i) $56,966 which represents dividends earned in 2001 on
performance units awarded under the Progress Energy Long-Term Compensation
Program; (ii) $166,325 which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan of the
Progress Energy 1997 Equity Incentive Plan; (iii) $10,200 which represents
Company contributions under the Progress Energy 401(k) Savings & Stock
Ownership Plan; and (iv) $95,649 which represents the dollar value of the
premium relating to the term portion and the present value of the premium
relating to the whole life portion of the benefit to be received pursuant
to the Executive Permanent Life Insurance Program.
/13/Adjusted to include additional bonus amount of $372,640 that was not
determinable at the time the proxy statement for Progress Energy's 2001
Annual Meeting of Shareholders was prepared.
/14/Consists of (i) 14,500 shares of Progress Energy Restricted Stock
valued at $583,738 as of March 22, 2001; and (ii) 342 Phantom Stock Units
based on the market value of a share of Progress Energy Common Stock on the
date such units were credited to the account of the participant. Mr.
McGehee owns a total of 41,500 shares of Progress Energy Restricted Stock
which were valued at $1,868,745 as of December 31, 2001.
/15/Consists of (i) $42,703 which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan of the
Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents
Company contributions under the Progress Energy 401(k) Savings & Stock
Ownership Plan; and (iii) $40,882 which represents the dollar value of the
premium relating to the term portion and the present value of the premium
relating to the whole life portion of the benefit to be received pursuant
to the Executive Permanent Life Insurance Program.
/16/Adjusted to include additional bonus amount of $92,281 that was not
determinable at the time the proxy statement for Progress Energy's 2001
Annual Meeting of Shareholders was prepared.
/17/Consists of (i) 3,200 shares of Progress Energy Restricted Stock valued
at $128,825 as of March 22, 2001; and (ii) 239 Phantom Stock Units based on
the market value of a share of Progress Energy Common Stock on the date
such units were credited to the account of the participant. Mr. Scott owns
a total of 35,900 shares of Progress Energy Restricted Stock, which were
valued at $1,252,326 as of December 31, 2001.
/18/Consists of (i) $27,773 which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan of the
Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents
Company contributions under the Progress Energy 401(k) Savings & Stock
Ownership Plan; and (iii) $42,734 which represents the dollar value of the
premium relating to the term portion and the present value of the premium
relating to the whole life portion of the benefit to be received pursuant
to the Executive Permanent Life Insurance Program.
/19/Consists of (i) 2,400 shares of Progress Energy Restricted Stock valued
at $96,617 as of March 22, 2001; and (ii) 217 Phantom Stock Units based on
the market value of a share of Progress Energy Common Stock on the date
such units were credited to the account of the participant. Mr. Kilgore
owns a total of 30,800 shares of Progress Energy Restricted Stock which
were valued at $1,386,924 as of December 31, 2001.
/20/Consists of (i) $35,004 which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan of the
Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents
Company contributions under the Progress Energy 401(k) Savings & Stock
Ownership Plan; and (iii) $30,403 which represents the dollar value of the
premium relating to the term portion and the present value of the premium
relating to the whole life portion of the benefit to be received pursuant
to the Executive Permanent Life Insurance Program.
/21/Adjusted to include additional bonus amount of $94,786 that was not
determinable at the time the proxy statement for Progress Energy's 2001
Annual Meeting of Shareholders was prepared.
90
/22/Consists of (i) 1,600 shares of Progress Energy Restricted Stock which
were valued at $64,413 on March 22, 2001; and (ii) 63 Phantom Stock Units
based on the market value of a share of Progress Energy Common Stock on the
date such units were credited to the account of the participant. Mr.
Habermeyer owns a total of 21,800 shares of Progress Energy Restricted
Stock which were valued at $981,654 as of December 31, 2001.
/23/Consists of (i) $14,544 which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan of the
Progress Energy 1997 Equity Incentive Plan; (ii) $9,716 which represents
Progress Energy contributions under the Progress Energy 401(k) Savings &
Stock Ownership Plan; and (iii) $12,124 which represents the dollar value
of the premium relating to the term portion and the present value of the
premium relating to the whole life portion of the benefit to be received
pursuant to the Executive Permanent Life Insurance Program.
/24/Adjusted to include additional bonus amount of $20,772 that was not
determinable at the time the proxy statement for Progress Energy's 2001
Annual Meeting of Shareholders was prepared.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
- --------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities
Underlying % of Total
Options/ Options/SARs Exercise
SARs Granted to or Base
Granted Employees in Price Expiration
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ---------- ------------ -------- ---------- ---------- -----------
William Cavanaugh III 202,100 8.59% $43.49 9/30/2011 $5,527,562 $14,007,927
Robert B. McGehee 55,100 2.34% $43.49 9/30/2011 $1,507,020 $ 3,819,083
Peter M. Scott III 42,500 1.81% $43.49 9/30/2011 $1,162,402 $ 2,945,754
Tom D. Kilgore 42,500 1.81% $43.49 9/30/2011 $1,162,402 $ 2,945,754
H. William Habermeyer, Jr 25,800 1.10% $43.49 9/30/2011 $ 705,646 $ 1,788,246
91
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
Name Number of Performance
- ---- Units/1/ Period Ends
--------- -----------
William Cavanaugh III,
Chairman, President and Chief Executive Officer.................. 38,686 2003
Robert B. McGehee,
Executive Vice President ........................................ 11,800 2003
Peter M. Scott III,
Executive Vice President and
Chief Financial Officer.......................................... 10,219 2003
Tom D. Kilgore,
President and Chief Executive
Officer - Progress Fuels Corporation............................. 8,759 2003
H. William Habermeyer, Jr.,
President and Chief Executive Officer
Florida Power Corporation........................................ 6,204 2003
- ----------
/1/Consists of the number of performance shares awarded in 2001 under the
Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan,
based on the closing price of a share of Progress Energy's Common Stock on March
20, 2001, as published in The Wall Street Journal. Performance Share awards may
range from up to 40% to up to 150% of a participant's base salary depending on
the participant's position and job value. The number of performance shares
awarded is recorded in a separate account for each participant, and is adjusted
to reflect dividends, stock splits or other adjustments in Progress Energy's
Common Stock. The performance period for an award under the Sub-Plan is the
three-consecutive-year period beginning in the year in which the award is
granted. There are two equally weighted performance measures under the Sub-Plan.
One performance measure is Total Shareholder Return ("TSR"), which is defined in
the Sub-Plan as the appreciation or depreciation in the value of stock (which is
equal to the closing value of the stock on the last trading day of the relevant
period minus the closing value of the stock on the last trading day of the
preceding year) plus dividends declared during the relevant period divided by
the closing value of the stock on the last trading day of the preceding year.
The other performance measure is EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) growth. Awards under the Sub-Plan vest on January
1 following the end of the three-year performance period, provided, however,
that to determine each award vested under the Sub-Plan, the TSR and EBITDA
growth of Progress Energy are compared to the TSR and EBITDA growth of a Peer
Group comprised of the twenty-seven electric utility companies currently
comprising the Standard & Poor's Electric Index. The differences between
Progress Energy's TSR and EBITDA growth, and the Peer Group TSR and EBITDA
growth, respectively, are used to determine the multipliers that will be used to
calculate the number of vested performance shares in each participant's account.
(Differences in TSR can range from a low of (2.0%) or less to a high of 5% or
more, and correspond to multipliers of 0% to 200%. Differences in EBITDA growth
can range from a low of less than 0% to a high of 5% or more and correspond to
multipliers of 0% to 200%). The multiplier is applied to the number of
performance shares in the participant's performance share account to determine
the actual number of vested performance shares in that account. The aggregate
value of vested performance shares is equal to the number of vested performance
shares in the participant's account multiplied by the closing price of Progress
Energy's Common Stock, as published in The Wall Street Journal on the last
trading day before payment of the award.
Awards are paid in cash after expiration of the performance period. Payment can
be made in either (i) lump sum on or about April 1 of the year immediately
following the performance period or (ii) in accordance with an election to defer
in 25% increments, made during the first year of the performance period. In the
event of death, disability, retirement or a change-in-control of Progress
Energy, any award granted under the Sub-Plan immediately becomes vested. The
aggregate value of the vested award is determined using multipliers that are
based on the difference between Progress Energy's TSR and EBITDA growth and the
Peer Group TSR and EBITDA growth, respectively over the portion of the
performance period that was completed before the terminating event occurred. See
"Long-Term Compensation Opportunities" on page 98.
92
PENSION PLAN TABLE
- --------------------------------------------------------------------------------
Average Compensation Estimated Annual Pension at Normal Retirement
(Years of Credited Service)
- --------------------------------------------------------------------------------
10 years 15 years 15 1/2 or more years
- --------------------------------------------------------------------------------
$ 190,000 $ 76,000 $114,000 $117,800
255,000 102,000 153,000 158,100
320,000 128,000 192,000 198,400
385,000 154,000 231,000 238,700
450,000 180,000 270,000 279,000
515,000 206,000 309,000 319,300
555,000 222,000 333,000 344,100
595,000 238,000 357,000 368,900
635,000 254,000 381,000 393,700
675,000 270,000 405,000 418,500
715,000 286,000 429,000 443,300
760,000 304,000 456,000 471,200
795,000 318,000 477,000 492,900
840,000 336,000 504,000 520,800
900,000 360,000 540,000 558,000
960,000 384,000 576,000 595,200
1,020,000 408,000 612,000 632,400
1,080,000 432,000 648,000 669,600
1,140,000 456,000 684,000 706,800
1,200,000 480,000 720,000 744,000
1,260,000 504,000 756,000 781,200
- --------------------------------------------------------------------------------
The above table demonstrates senior executive pension benefits payable upon
normal retirement under the Progress Energy Pension Plan and the Progress Energy
Supplemental Senior Executive Retirement Plan at age 65 as a function of average
annual income and years of service. Covered compensation under these plans
consists only of the amounts in the Salary and Bonus columns of the Summary
Compensation Table on page 89. Pursuant to the Progress Energy Pension Plan, a
defined benefit plan, benefits are partially offset by Social Security payments
and the monthly pension benefit payable upon retirement is based on base pay
earnings, age, and years of credited service. . Benefits under the Supplemental
Senior Executive Retirement Plan are fully offset by Social Security benefits
and by benefits paid under the Progress Energy Pension Plan. The monthly benefit
payable upon retirement under this plan is equal to 4% of the average of a
participant's highest three years of eligible earnings for each year of credited
service with Progress Energy up to a maximum of 62%. Benefits listed in the
table above do not reflect the Social Security or other offset. For purposes of
benefits under these plans, Mr. Cavanaugh has more than 15 1/2 years of credited
service as well as three or more years of service on the Senior Management
Committee, and is thereby entitled to the maximum percentage allowable in the
benefit formula under these plans. Mr. McGehee has 14 years of credited service,
Mr. Scott has ten years of credited service, Mr. Kilgore has eight years of
credited service, and Mr. Habermeyer has eight years of credited service.
EMPLOYMENT AGREEMENTS
Messrs. Cavanaugh, McGehee, Scott, Kilgore and Habermeyer have entered into
employment agreements, with one of Progress Energy's subsidiaries (the
"Employer"). These agreements provide for base salary, bonuses, perquisites and
participation in the various executive compensation plans offered to senior
executives of Progress Energy and its subsidiaries. The agreements with Messrs.
Cavanaugh, McGehee, Scott and Kilgore have effective dates of August 1, 2000.
The agreement with Mr. Habermeyer has an effective date of November 30, 2000.
The agreements all provide that they will remain in effect for three years from
the effective date. Each agreement also includes an "Evergrow provision" which
provides that each year, the agreement will be extended such that the
prospective term will always be three years forward on the anniversary date of
the effective date. The Employer may elect not to extend an executive officer's
agreement and must notify the officer of such an election at least sixty days
prior to the annual anniversary date of his agreement's effective date.
Executive benefit plan targets, termination and other key provisions of the
agreements are discussed below.
93
Agreement with Mr. Cavanaugh
Mr. Cavanaugh's agreement provides that his target compensation under Progress
Energy's Management Incentive Compensation Plan (MICP) increased to 65% of base
salary earnings, effective January 1, 2001. Mr. Cavanaugh's target compensation
under the Performance Share Sub-Plan (PSSP) of Progress Energy's 1997 Equity
Incentive Plan is 147% of his base salary. Mr. Cavanaugh's agreement notes that
he received a recruitment bonus under the now suspended Deferred Compensation
Plan for Key Management Employees that included a payment of $150,000 deferred
for calendar year 1992. That amount will be used to provide retirement income to
him of $121,368 per year for 15 years commencing January 1 following his
attainment of age 65. The agreement with Mr. Cavanaugh also provides that as of
September 2, 1992, Mr. Cavanaugh was granted 14 years of deemed service for
purposes of the Supplemental Senior Executive Retirement Plan (SERP).
The agreement with Mr. Cavanaugh provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement and will be eligible to retain all benefits in which he has vested
under existing benefit plans. Additionally, the Employer will reimburse him for
certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of Progress
Energy or the Employer and (ii) Mr. Cavanaugh is offered a new position with a
material change in authority, duty, wages or benefits, or Mr. Cavanaugh is asked
to relocate more than 50 miles. If Mr. Cavanaugh's employment is constructively
terminated, he will be entitled to the greater of the benefits described above
or the benefits, if any, to which he is entitled under Progress Energy's
Management Change-in-Control Plan. If the Employer terminates Mr. Cavanaugh's
employment for cause, he will be eligible to retain all benefits in which he has
vested under existing benefit plans, but he shall not be entitled to any form of
salary continuance or any form of severance benefits. He will also be entitled
to any earned but unpaid salary. The agreement with Mr. Cavanaugh provides that
if he terminates his employment voluntarily at any time, he shall retain all
vested benefits but shall not be entitled to any form of salary continuance or
any form of severance benefit.
Agreement with Mr. McGehee
Mr. McGehee's agreement provides that his target compensation under the MICP
increased to 45% of base salary earnings, effective January 1, 2001. Mr.
McGehee's target compensation under the PSSP of Progress Energy's 1997 Equity
Incentive Plan is 78% of his base salary. Mr. McGehee's agreement notes that he
received a retention agreement bonus under the now suspended Deferred
Compensation Plan for Key Management Employees which vests based on his
continued employment beyond age 60. The agreement also notes that upon hire, Mr.
McGehee was awarded 10 years of service toward the benefits and vesting
requirements of the SERP, three years of which were deemed to have been in
service on the Senior Management Committee, solely for purposes of the SERP.
The agreement with Mr. McGehee provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement, and will be eligible to retain all benefits in which he has vested
under existing benefit programs. Additionally, the Employer will reimburse him
for certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of Progress
Energy or the Employer and (ii) Mr. McGehee is offered a new position with a
material change in authority, duty, wages or benefits, or is asked to relocate
more than 50 miles. If Mr. McGehee's employment is constructively terminated, he
will be entitled to the greater of the benefits described above or the benefits,
if any, to which he is entitled under Progress Energy's Management
Change-in-Control Plan. If the Employer terminates Mr. McGehee's employment for
cause, he will be eligible to retain all benefits in which he has vested under
existing benefit plans, but he shall not be entitled to any form of salary
continuance or any form of severance benefits. He will also be entitled to any
earned but unpaid salary. The agreement with Mr. McGehee provides that if he
terminates his employment voluntarily at any time, he shall retain all vested
benefits but shall not be entitled to any form of salary continuance or any form
of severance benefit.
Agreement with Mr. Scott
Mr. Scott's agreement provides that his target compensation under the MICP
increased to 45% of base salary earnings, effective January 1, 2001. Mr. Scott's
target compensation under the PSSP of Progress Energy's 1997 Equity Incentive
Plan is 78% of his base salary. Pursuant to the terms of his agreement, Mr.
Scott received transition compensation of $100,000 and has been awarded seven
years of deemed service toward the benefits and vesting requirements of the
SERP.
The agreement with Mr. Scott provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement and will be eligible to retain all benefits in which he has vested
under existing benefit plans. Additionally, the Employer will reimburse him for
certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of Progress
Energy or the Employer and (ii) Mr.
94
Scott is offered a new position with a material change in authority, duty, wages
or benefits, or Mr. Scott is asked to relocate more than 50 miles. If Mr.
Scott's employment is constructively terminated, he will be entitled to the
greater of the benefits described above or the benefits, if any, to which he is
entitled under Progress Energy's Management Change-in-Control Plan. If the
Employer terminates Mr. Scott's employment for cause, he will be eligible to
retain all benefits in which he has vested under existing benefit plans, but he
shall not be entitled to any form of salary continuance or any form of severance
benefits. He will also be entitled to any earned but unpaid salary. The
agreement with Mr. Scott provides that if he terminates his employment
voluntarily at any time, he shall retain all vested benefits but shall not be
entitled to any form of salary continuance or any form of severance benefit.
Agreement with Mr. Kilgore
Mr. Kilgore's agreement provides that his target compensation under the MICP
increased to 45% of base salary earnings, effective January 1, 2001. Mr.
Kilgore's target compensation under the PSSP of Progress Energy's Equity
Incentive Plan is _78% of his base salary. Mr. Kilgore's agreement notes that
pursuant to a 1998 employment agreement CP&L, he received a retention bonus
under the now suspended Deferred Compensation Plan for Key Management Employees
which vests based on continued employment until or beyond age 60. The agreement
also notes that Mr. Kilgore has been awarded five years of service solely in
connection with the benefits and vesting requirements of the SERP.
The agreement with Mr. Kilgore provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement and will be eligible to retain all benefits in which he has vested
under existing benefit programs. Additionally, the Employer will reimburse him
for certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of Progress
Energy or the Employer and (ii) Mr. Kilgore is offered a new position with a
material change in authority, duty, wages or benefits, or Mr. Kilgore is asked
to relocate more than 50 miles. If Mr. Kilgore's employment is constructively
terminated, he will be entitled to the greater of the benefits described above
or the benefits, if any, to which he is entitled under Progress Energy's
Management Change-in-Control Plan. If the Employer terminates Mr. Kilgore's
employment for cause, he will be eligible to retain all benefits in which he has
vested under existing benefit plans, but he shall not be entitled to any form of
salary continuance or any form of severance benefits. He will also be entitled
to any earned but unpaid salary. The agreement with Mr. Kilgore provides that if
he terminates his employment voluntarily at any time, he shall retain all vested
benefits but shall not be entitled to any form of salary continuance or any form
of severance benefit.
Agreement with Mr. Habermeyer
Mr. Habermeyer's agreement provides that his target compensation under the MICP
was 45% of base salary earnings, effective January 1, 2001. Mr. Habermeyer's
target compensation under the PSSP of the Progress Energy 1997 Equity Incentive
Plan is 78% of his base salary.
The agreement with Mr. Habermeyer provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement and will be eligible to retain all benefits in which he has vested
under existing benefit plans. Additionally, the Employer will reimburse him for
certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of the
Employer and (ii) Mr. Habermeyer is offered a new position with a material
change in authority, duty, wages or benefits, or Mr. Habermeyer is asked to
relocate more than 50 miles. If Mr. Habermeyer's employment is constructively
terminated, he will be entitled to the greater of the benefits described above
or the benefits, if any, to which he is entitled under Progress Energy's
Management Change-in-Control Plan. If the Employer terminates Mr. Habermeyer's
employment for cause, he will be eligible to retain all benefits in which he has
vested under existing benefit plans, but he shall not be entitled to any form of
salary continuance or any form of severance benefits. He will also be entitled
to any earned but unpaid salary. The agreement with Mr. Habermeyer provides that
if he terminates his employment voluntarily at any time, he shall retain all
vested benefits but shall not be entitled to any form of salary continuance or
any form of severance benefit.
REPORT OF BOARD COMMITTEE ON ORGANIZATION
AND COMPENSATION
The composition of the Boards of Directors of Florida Progress, Progress Energy
and CP&L is identical, as is the composition of the Committees on Organization
and Compensation of those Boards (collectively, the "Committees"). The
Committees are composed entirely of the same six independent outside directors
who are not eligible to participate in any compensation program in which
Progress Energy executives participate other than the Progress Energy 1997
Equity Incentive Plan. The following report is the joint report of the
Committees with respect to the compensation of the executive officers of
Progress Energy. Progress Energy's executive officers serve as officers and/or
directors of various Progress Energy subsidiaries. They have multiple
responsibilities within and provide various services to Progress Energy and its
subsidiaries. The total compensation of Progress Energy's executive officers is
95
designed to cover the full range of services they provide to Progress Energy and
its subsidiaries. It is not the policy of Progress Energy to allocate
compensation paid to its executive officers among the various subsidiaries to
which they provide services.
Compensation Principles
Comparison Groups
Progress Energy uses an independent executive benefits consulting firm to assist
Progress Energy in meeting its compensation objectives. Each year this
consulting firm provides the Committees with an analysis comparing overall
compensation paid to Progress Energy's executives with overall compensation paid
to executives of two comparison groups of electric utility companies. One
comparison group consists of fourteen of the electric utility companies with
fossil fuel and nuclear operations in the eastern portion of the United States.
The other comparison group consists of a broad group of electric utilities
across the United States. While these comparison groups are different from the
group of companies comprising the Standard & Poor's Electric Index, which is a
published industry index, the Committees believe these electric utility
companies are appropriate for overall compensation comparisons because they
reflect the most appropriate labor markets for Progress Energy's executives.
Progress Energy's executive compensation program consists of four major
elements: base salary; other annual compensation opportunities; long-term
compensation opportunities; and other benefit opportunities. The Committees'
objective in administering this program is to structure, through a combination
of these elements, an overall compensation package for executives which
approximates in value the 75th percentile of overall compensation paid to
executives of the comparison group. Overall compensation paid to Progress
Energy's executives in 2001 met this objective.
Stock Ownership Guidelines
In an effort to more closely link the interests of Progress Energy's management
with those of its shareholders, in 1996 the Board of Directors of Progress
Energy adopted stock ownership guidelines which are designed to ensure that
Progress Energy's management has a significant financial equity investment in
Progress Energy. Those guidelines require Progress Energy's officers to own from
1 to 4 times their base salary in the form of Progress Energy Common Stock
within five years. (The specific multiplier applied to base salary depends upon
the individual's position.) In addition to shares owned outright, the following
are considered stock owned by executives and department heads for purposes of
the guidelines: (1) stock held in any defined benefit, defined contribution,
ESOP or other stock-based plan; (2) performance units or phantom stock
("derivative securities") deferred under an annual incentive or deferral plan;
(3) performance units or phantom stock earned and deferred in any long-term
incentive plan account; (4) restricted stock awards; and (5) stock held in a
family trust or immediate family holdings.
Section 162(m)
Section 162(m) of the Internal Revenue Code imposes a limit, with certain
exceptions, on the amount a publicly held corporation may deduct for
compensation over $1 million paid or accrued with respect to the company's Chief
Executive Officer and any of the other four most highly compensated officers.
Certain performance-based compensation is, however, specifically exempt from the
deduction limit. To qualify as exempt, compensation must be made pursuant to a
plan that is (1) administered by a committee of outside directors, (2) based on
achieving objective performance goals and (3) disclosed to and approved by the
shareholders. The 2001 compensation disclosed in Part III hereof under the
heading "Executive Compensation - Florida Progress - Compensation of Executive
Officers." does not exceed the limit, except in the cases of Messrs. Cavanaugh,
and McGehee, who had nondeductible compensation of approximately $3,211,526; and
$386,770, respectively. Mr. Cavanaugh's nondeductible compensation was
attributable to restricted stock income, miscellaneous income, non-deferred
bonuses and base salary. Mr. McGehee's nondeductible compensation was
attributable to restricted stock income, miscellaneous income and nondeferred
bonuses.
The Committees believe the current design of Progress Energy's compensation
program is sound in linking pay to performance and to the interests of
shareholders, and allowing appropriate flexibility in determining amounts to be
awarded. Therefore, Progress Energy does not have a policy that requires the
Committees to qualify compensation awarded to executive officers for
deductibility under Section 162(m) of the Code. The Committees do, however,
consider the impact of Section 162(m) when determining executive compensation,
and the Progress Energy 1997 Equity Incentive Plan is intended to minimize the
effect of this provision. Although the Committees are not required to qualify
executive compensation paid to Company executives for exemption from Section
162(m), they will continue to consider the effects of Section 162(m) when making
compensation decisions.
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Elements of Executive Compensation Program
Set forth below is a description of the major elements of Progress Energy's
executive compensation program and their relationship to corporate performance,
as well as a summary of the actions taken by the Committees with respect to the
compensation of Progress Energy's Chief Executive Officer.
Base Salary
Executives within Progress Energy receive a base salary determined by the
Committees based upon the value of their position compared to competitively
established salary ranges, their individual performance and overall corporate
performance. The Committees do not utilize a specific mathematical formula in
determining base salaries. The Committees in their discretion approved the base
salaries of the Chief Executive Officer and the named executives of the Company,
as set forth in the Summary Compensation Table. These salaries were based on
each executive's level of responsibility within Progress Energy, the competitive
level of compensation for executives in the comparison group of utilities, the
achievement of corporate goals and individual merit performance as qualitatively
determined by the Committees.
Other Annual Compensation Opportunities
Management Incentive Compensation Plan
Progress Energy sponsors the Management Incentive Compensation Plan (MICP) for
its senior executives, department heads and selected key employees. In order for
awards to be made under the MICP, two conditions must be satisfied. First, a
contribution must be earned by one or more groups of employees under the
corporate incentive feature of Progress Energy's 401(k) Savings & Stock
Ownership Plan, a tax qualified 401(k) plan. Incentive matching contributions
are earned by participating employees if at least five out of ten annual
corporate and business unit goals are met. (See the description of Progress
Energy's 401(k) Savings & Stock Ownership Plan, under "Other Benefit
Opportunities" below.) Second, Progress Energy's return on common equity and
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) growth
for the most recent three-year period must be above the median of those
companies in a comparison group that is comprised of the twenty-seven electric
utility companies currently comprising the Standard & Poor's Electric Index .
If participants at or above the department head level of Progress Energy are
eligible for awards, then the Committees in their discretion determine whether
awards are to be made and, if so, in what amounts. If participants below the
department head level of Progress Energy are eligible for awards, then the Chief
Executive Officer of Progress Energy has sole and complete authority to approve
such awards.
Awards consist of both a corporate component and a noncorporate component. Award
opportunities, expressed as a percentage of annual base salary earnings, are
applicable to both components of an award. The corporate component of an award
is based upon the overall performance of Progress Energy. The noncorporate
component of an award is based upon the level of attainment of business
unit/subsidiary, departmental and individual performance measures. Those
measures are evaluated in terms of three levels of performance--outstanding,
target and threshold--each of which is related to a particular payout
percentage. If earned, awards are either paid in cash in the succeeding year or
deferred to a later date, as elected by each individual participant. Deferred
awards are recorded in the form of performance units. Each performance unit is
generally equivalent to a share of Progress Energy's Common Stock.
The threshold requirements for award eligibility, as discussed above, were met
and exceeded in 2001. At meetings of the Committees on March 20, 2002, based on
highly commendable performance, awards were made at the discretion of the
Committees to the named executives, including the Chief Executive Officer of
Progress Energy, as set forth in the Summary Compensation Table under the Bonus
column.
Long-Term Compensation Opportunities
1997 Equity Incentive Plan
The Progress Energy 1997 Equity Incentive Plan (the "Plan"), which was approved
by Progress Energy's shareholders in 1997, allows the Progress Energy Board
Committee on Organization and Compensation (the "Progress Energy Committee") to
make various types of awards to officers, other key employees, and also
Directors of Progress Energy, its affiliates and subsidiaries. Selection of
non-Director participants is within the sole discretion of the Progress Energy
Committee. Thus, the number of persons eligible to participate in the Plan and
the number of grantees may vary from year to year. The Plan was effective as of
January 1, 1997, and will expire on January 1, 2007; provided, however, that the
Plan will be frozen effective May 8, 2002 if Progress Energy's shareholders
approve the proposed 2002
97
Equity Incentive Plan. All Plan awards made prior to and outstanding on that
date shall remain valid in accordance with their terms and conditions.
The Plan is a broad umbrella plan that allows Progress Energy to enter into
Award Agreements with participants and adopt various individual Sub-Plans that
will permit the grant of the following types of awards: nonqualified stock
options, incentive stock options, stock appreciation rights, restricted stock,
performance units, performance shares and other stock unit awards or stock-based
forms of awards. The Plan sets forth certain minimum requirements for each type
of award, with detailed provisions regarding awards to be set out either in
Award Agreements or in the Sub-Plans adopted under the Plan. Subject to
adjustment as provided in the Plan, the maximum aggregate number of shares that
may be issued over the years pursuant to awards made under the Plan cannot
exceed 5,000,000 shares of Progress Energy Common Stock, which may be in any
combination of options, restricted stock, or any other right or option.
Under the terms of the Plan, the Progress Energy Committee may grant awards in a
manner that qualifies them for the performance-based exception to Section 162(m)
of the Internal Revenue Code of 1986, as amended, or it may grant awards that do
not qualify for the exemption.
Performance Share Sub-Plan
Pursuant to the provisions of the Plan, the Progress Energy Committee adopted
the Performance Share Sub-Plan, which governs the issuance of performance share
awards to officers and key employees within Progress Energy, as selected by the
Progress Energy Committee in its sole discretion. A "performance share" is a
unit granted to a participant, the value of which is equal to the value of a
share of Progress Energy's Common Stock. The Progress Energy Committee may grant
performance share awards subject to a limit that ranges from up to 40% to up to
150% of a participant's base salary, depending upon the participant's position
and job value. (For purposes of the Sub-Plan, base salary is not reduced to
reflect salary deferrals and does not include incentive compensation.) The
number of performance shares awarded are recorded in a separate account for each
participant, and are adjusted to reflect dividends, stock splits or other
adjustments in Progress Energy's Common Stock.
The performance period for an award under the Sub-Plan is the three consecutive
year period beginning in the year in which the award is granted. There are two
equally weighted performance measures under the Sub-Plan. One performance
measure is Total Shareholder Return ("TSR"), which is defined in the Sub-Plan as
the appreciation or depreciation in the value of stock (which is equal to the
closing value of the stock on the last trading day of the relevant period minus
the closing value of the stock on the last trading day of the preceding year)
plus dividends declared during the relevant period, divided by the closing value
of the stock on the last trading day of the preceding year. The other
performance measure is EBITDA growth. Awards under the Sub-Plan vest on January
1 following the end of a three-year performance period; provided, however, that
the following methodology is used to determine each award vested under the
Sub-Plan: 1) the TSR and EBITDA growth for Progress Energy for each year during
the performance period is determined; 2) those annual figures are averaged to
determine Progress Energy TSR and EBITDA growth, respectively; 3) the average
TSR and EBITDA growth for all Peer Group utilities for each year during the
performance period is determined (the Peer Group is currently comprised of the
twenty-seven major electric utility companies within the Standard & Poor's
Electric Index); 4) those figures are averaged, respectively, to determine the
Peer Group TSR and EBITDA growth; 5) the Peer Group TSR and EBITDA growth for
the performance period is subtracted from Progress Energy TSR and EBITDA growth,
respectively, for the performance period; 6) the differences between Progress
Energy TSR and EBITDA growth and the Peer Group TSR and EBITDA growth,
respectively, are used to determine the multipliers that will be used to
calculate the number of vested performance shares in each participant's account.
(Differences in TSR can range from a low of (2.0%) or less to a high of 5% or
more, and correspond to multipliers of 0 to 200%. Differences in EBITDA growth
can range from a low of less than 0% to a high of 5% or more and correspond to
multipliers of 0 to 200%.); and 7) the multipliers are each applied
independently to one-half of the number of performance shares in the
participant's performance share account to determine the actual number of vested
performance shares in that account. The aggregate value of vested performance
shares is equal to the number of vested performance shares in the participant's
account multiplied by the closing price of Progress Energy's Common Stock, as
published in The Wall Street Journal on the last trading day before payment of
the award.
Awards are paid in cash after expiration of the performance period. Payment can
be made in either (i) lump sum on or about April 1 of the year immediately
following the performance period or (ii) in accordance with an election to defer
in 25% increments, made during the first year of the performance period. In the
event of death, disability, retirement or a change-in-control of Progress
Energy, any award granted under the Sub-Plan immediately becomes vested. The
aggregate value of the vested award is determined using multipliers that are
based on the difference between Progress Energy TSR and EBITDA growth and the
Peer Group TSR and EBITDA growth, respectively, over the portion of the
performance period that was completed before the terminating event occurred.
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Restricted Stock Awards
Section 9 of the Plan provides for the granting of shares of restricted stock by
the Progress Energy Committee to "key employees" within Progress Energy in such
amounts and for such duration and/or consideration as it shall determine. The
Plan defines "key employee" as an officer or other employee within Progress
Energy, who, in the opinion of the Progress Energy Committee, can contribute
significantly to the growth and profitability of, or perform services of major
importance to, Progress Energy, including its affiliates. Each restricted stock
grant must be evidenced by an agreement specifying the period of restriction,
the conditions that must be satisfied prior to removal of the restriction, the
number of shares granted, and such other provisions as the Progress Energy
Committee shall determine.
Restricted stock covered by each award made under the Plan will be provided to
and become freely transferable by the recipient after the last day of the period
of restriction and/or upon the satisfaction of other conditions as determined by
the Progress Energy Committee. If the grant of restricted stock is performance
based, the total period of restriction for any or all shares or units of
restricted stock granted shall be no less than one (1) year except in the event
of a change in control of Progress Energy. Any other shares of restricted stock
issued pursuant to the Plan must provide that the minimum period of restrictions
shall be three (3) years, which period of restriction may permit the removal of
restrictions on no more than one-third (1/3) of the shares of restricted stock
at the end of the first year following the grant date, and the removal of the
restrictions on an additional one-third (1/3) of the shares at the end of each
subsequent year. The Plan provides that in no event shall any restrictions be
removed from shares of restricted stock during the first year following the
grant date, except in the event of a change-in-control.
During the period of restriction, recipients of shares of restricted stock
granted under the Plan may exercise full voting rights with respect to those
shares, and shall be entitled to receive all dividends and other distributions
paid with respect to those shares. If any such dividends or distributions are
paid in shares, those shares shall be subject to the same restrictions on
transferability as the restricted stock with respect to which they were
distributed.
Stock Options
Pursuant to Section 7 of the Plan, the Progress Energy Committee is authorized
to grant stock options to "key employees." Grants of stock options to directors
of Progress Energy must be approved by the full Board of Progress Energy, and
must consist only of "Nonqualified Stock Options" (options that are not intended
to be "Incentive Stock Options" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended). Subject to the terms and provisions
of the Plan, the Progress Energy Committee has sole and complete discretion to
determine the type of option granted, the option price, the duration of the
option, the number of shares to which an option pertains, any conditions on the
exercisability of the option and the conditions under which the option may be
terminated. The specific terms and conditions applicable to each option will be
detailed in an Award Agreement.
The exercise price per share of stock covered by an option will be determined by
the Progress Energy Committee at the time of grant; provided, however that the
option price shall not be less than 100% of the fair market value of Progress
Energy's Common Stock on the grant date.
Options granted under the Plan are exercisable at such times and subject to such
restrictions and conditions as the Progress Energy Committee determines at the
time of grant; provided, however, that no option may be exercisable more than
ten years from the grant date.
Options must be exercised by the delivery of a notice from the grantee to
Progress Energy or its designee in the form prescribed by the Progress Energy
Committee. The notice must set forth the number of shares with respect to which
the option is to be exercised. The option price is payable to Progress Energy in
cash and/or by the delivery of shares of Progress Energy Common Stock valued at
fair market value at the time of exercise. In addition, at the request of the
grantee, and subject to applicable laws and regulation, Progress Energy may
cooperate in a cashless exercise of the option.
The maximum number of shares of Progress Energy Common Stock subject to options,
stock appreciation rights and/or restricted stock granted to any covered
participant for any performance period cannot exceed 250,000 shares.
Other Benefit Opportunities
The following additional benefit opportunities are also available to
Progress Energy's senior executives:
. Progress Energy sponsors the Management Deferred Compensation Plan
(MDCP), an unfunded, deferred compensation arrangement established for
the benefit of a select group of management and highly compensated
employees of Progress Energy and its participating subsidiaries. Under
the MDCP, an eligible employee may elect to defer a portion of his or
her salary until the April 1 following the date that is five or more
years from the last day of the
99
MDCP Year for which the deferral is made, the April 1 following his or
her date of retirement, or the April 1 following the first anniversary
of his or her date of retirement. Deferrals will be made to deferral
accounts administered pursuant to the MDCP in the form of deemed
investments in certain deemed investment funds individually chosen by
each participating employee from a list of investment options provided
pursuant to the MDCP. Additionally, qualifying participants will
receive matching allocations from Progress Energy or one of its
affiliates (generally reflecting foregone company allocations to
participants' 401(k) accounts due to such salary deferrals, and/or
foregone company allocations to the participants' 401(k) accounts due
to certain Internal Revenue Code limits), which will be allocated to a
Company account that will be deemed initially to be invested in
hypothetical shares of Progress Energy's Common Stock. These
allocations do not represent an equity interest in Progress Energy and
convey no voting rights to their owners. However, additional
allocations are credited from time to time to reflect the payment of
dividends on Progress Energy's Common Stock. When a participant's
Company account has matured, pursuant to the terms of the MDCP, the
participant may reallocate any part of such account among the deemed
investment funds chosen by the participant.
. Progress Energy sponsors an executive split dollar life insurance
program which consists of two separate plans. The first plan provides
life insurance coverage approximately equal to three times salary for
senior executives. The second plan provides additional life insurance
coverage approximately equal to three times salary for those officers
of Progress Energy who are also members of the Progress Energy Board
of Directors.
. Progress Energy also sponsors broad-based employee benefit plans for
senior executives of participating subsidiaries. Under the Progress
Energy 401(k) Savings & Stock Ownership Plan, a salary reduction plan
under Section 401(k) of the Internal Revenue Code of 1986, as amended
("Code"), eligible, highly compensated employees of participating
companies may invest up to 12% of earnings (up to a maximum of $10,500
in 2001) on a before-tax basis in Progress Energy's Common Stock and
other investment options. Progress Energy makes a matching allocation
of 50% of such investment (up to 3% of eligible earnings) which is
invested in Progress Energy Common Stock. Under an incentive feature,
Progress Energy's allocation may be increased by up to an additional
50% if certain strategic corporate and business unit financial,
operating, safety, customer satisfaction, and other performance goals
are met. Progress Energy also sponsors the Progress Energy Pension
Plan, a defined benefit plan (cash balance formula) which covers
eligible employees of participating subsidiaries who have been
employed within Progress Energy for at least one year. The right to
receive pension benefits under this plan is vested after five years.
. Progress Energy sponsors the Restoration Retirement Plan (the
"Restoration Plan"), an unfunded retirement plan for a select group of
management or highly compensated employees of participating
subsidiaries. The Restoration Plan "restores" the full benefit that
would be provided under the Pension Plan but for certain Code limits
imposed on the benefit levels of highly compensated employees.
Generally, the benefit for participants is a monthly benefit payment
equal to the difference between (i) a participant's accrued benefit
under the Pension Plan without regard to the Internal Revenue Service
compensation and benefit limits and (ii) a participant's accrued
benefit as calculated under the Pension Plan. The Restoration Plan
also applies to any employee who defers more than 10% of his salary
under the MDCP. The eligibility and vesting requirement for the
Restoration Plan are the same as those for the Pension Plan.
Participants eligible to receive benefits under the Supplemental
Senior Executive Retirement Plan forego participation in and rights
under the Restoration Plan.
. Progress Energy sponsors the Supplemental Senior Executive Retirement
Plan which provides a retirement benefit for eligible senior
executives equal to 4% of the average of their highest three years of
base salary earnings and annual bonus for each year of credited
service with Progress Energy up to a maximum of 62%. Benefits under
the Supplemental Senior Executive Retirement Plan are fully offset by
Social Security benefits and by benefits paid under Progress Energy's
Pension Plan.
. Progress Energy's senior executives also receive certain perquisites
and other personal benefits. In addition, executives received gross-up
payments in 2001 for related federal and state income tax obligations,
as disclosed in the Summary Compensation Table on page 89.
Compensation of Chief Executive Officer
Compensation in 2001 for the Chief Executive Officer was consistent with the
compensation principles described above and reflected performance of Progress
Energy and the individual in 2001, as well as services in 2001. The
determination of his compensation by the Committees was qualitative in nature
and based on a variety of factors, including comparison group compensation data,
attainment of various corporate goals, total shareholder return, earnings per
share and other financial and operating performance, individual performance and
other factors. Specific mathematical weights were not assigned to these factors.
Overall compensation in 2001 fell within the targeted level (seventy-fifth
percentile) of overall compensation paid to chief executive officers in the
comparison groups.
100
The Committee considered the successful completion of the acquisition of Florida
Progress, noting that the transaction represented the attainment of one of
Progress Energy's key strategic objectives--gaining the scope and scale to be a
formidable competitor among energy providers for the Southeast. The Committee
also considered the significant progress made in the process of integrating the
two companies, and specifically noted the reorganization of Progress Energy's
business along strategic lines and the formation of new business units,
including one which was created to manage and grow Progress Energy's
non-regulated generation assets and wholesale energy marketing and trading. The
Committee took into account the progress of Progress Energy's development of its
non-regulated enterprises. . The Committee considered the success of Progress
Energy in obtaining all regulatory approvals required for the creation of a
registered holding company and for the acquisition of Florida Progress, with no
significant conditions or restrictions. The Committee also noted Progress
Energy's success in developing and effectively communicating its position on
industry restructuring and in addressing other important regulatory issues at
the state and federal levels.
The Committee considered the fact that the leadership provided by Mr. Cavanaugh
contributed significantly to Progress Energy's success in achieving corporate
goals, implementing strategic initiatives, achieving national leadership in the
fields of nuclear power and electric utility operations, focusing on leadership
development and succession planning, implementing programs designed to enhance
the diversity of Progress Energy's work force, improving customer and community
relations and supporting the economic growth and quality of life in Progress
Energy's service area.
Committee on Organization and Compensation
Charles W. Coker, Chairman
Edwin B. Borden
William O. McCoy
E. Marie McKee
Richard A. Nunis
J. Tylee Wilson
101
FLORIDA POWER
COMPENSATION OF DIRECTORS
The directors of Florida Power are also directors of Progress Energy, Inc. and
are not compensated separately for services rendered to Florida Power.
COMPENSATION OF EXECUTIVE OFFICERS
The Table below provides compensation information regarding the CEO of Florida
Power and the four most highly compensated executive officers other than the CEO
who were serving as executive officers at the end of the last completed fiscal
year. These individuals are also executive officers of Progress Energy. It is
not the policy of Progress Energy to allocate compensation paid to its executive
officers among the various subsidiaries to whom they provide services.
SUMMARY COMPENSATION TABLE
Annual Compensation
-----------------------------------------------------
Other
Annual
Name and Salary/1/,/2/ Bonus/3/ Compensation/4/
Principal Position Year ($) ($) ($)
- ---------------------------------------------------------------------------------------------
H. William Habermeyer, Jr. 2001 $252,834 $160,000 $ 7,833
President and Chief 2000 15,201 75,772/11/ 14
Executive Officer-
Florida Power (elected
November 30, 2000)
William S. Orser 2001 $548,225 $350,000 $ 5,943
Group President - 2000 40,709 416,963/14/ 7,144
(elected November 30, 2000)
Peter M. Scott III, 2001 $422,283 $275,000 $ 7,635
Executive Vice 2000 30,126 304,000 50,350
Chief Financial
Officer (elected November 30, 2000)
William Johnson 2001 $378,776 $255,000 $78,698/17/
Executive Vice 2000 23,918 265,803/20/ 26,734
President, General
Counsel and Secretary
(elected November
30, 2000)
Donald K. Davis 2001 $316,712 $190,000 $24,049
Executive Vice President 2000 25,000 93,000 47
(hired May 15, 2000; elected November
30, 2000)
- ---------------------------------------------------------------------------------------------
Long-Term
Compensation
----------------------------
Awards Payouts
----------------------------
Restricted
Stock LTIP All Other
Name and Award(s)/5/,/6/ Payouts/7/ Compensation/8/
Principal Position ($) ($) ($)
- --------------------------------------------------------------------------------------
H. William Habermeyer, Jr. $ 68,183/9/ $ 16,561 $36,384/10/
President and Chief 870,171 N/A 24,451
Executive Officer-
Florida Power (elected
November 30, 2000)
William S. Orser $ 624,194/12/ $113,124 $128,367/13/
Group President - 178,624 N/A 105,758
(elected November 30, 2000)
Peter M. Scott III, $ 138,990/15/ N/A $80,707/16/
Executive Vice 1,126,195 N/A 50,485
Chief Financial
Officer (elected November 30, 2000)
William Johnson $ 394,701/18/ $ 21,352 $56,923/19/
Executive Vice 405,131 N/A 38,012
President, General
Counsel and Secretary
(elected November
30, 2000)
Donald K. Davis $ 5,797/21/ N/A $103,048/22/
Executive Vice President 946,764/23/ N/A 79,445/24/
(hired May 15, 2000; elected November
30, 2000)
- --------------------------------------------------------------------------------------
102
/1/For 2001,consists of base salary prior to (i) employee contributions to
the Progress Energy 401(k) Savings & Stock Ownership Plan and (ii)
voluntary deferrals, if any, under the Progress Energy Management Deferred
Compensation Plan (MDCP). See "Other Benefit Opportunities" on page 100.
/2/For 2000, consists of one month's base salary prior to (i) employee
contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan
and (ii) voluntary deferrals, if any, under they MDCP. See "Other Benefit
Opportunities" on page 100.
/3/Except as otherwise noted, consists of amounts awarded with respect to
performance in the stated year under the Management Incentive Compensation
Plan. See "Other Annual Compensation Opportunities" on page 98.
/4/Consists of gross-up payments for certain federal and state income tax
obligations, and where indicated by footnote disclosure, certain
perquisites.
/5/Includes the value of restricted stock awards as of the grant date
(calculated by multiplying the closing market price of Progress Energy's
unrestricted stock on the date of grant by the number of shares awarded)
granted pursuant to Progress Energy's 1997 Equity Incentive Plan. None of
the restricted stock awards will vest, in whole or in part, in under three
years from the date of grant except in the event of a change in control of
Progress Energy or in the event of the recipient's death or disability more
than one year from the grant date. During the period for which the shares
are restricted, the grantee will receive all voting rights and cash
dividends associated with the restricted stock.
/6/Includes the value of matchable deferrals credited to the account of a
participant to replace the value of Company contributions to the Progress
Energy 401(k) Savings & Stock Ownership Plan that would have been made on
behalf of the participant but for the deferral of salary under the MDCP and
contribution limitations under Section 415 of the Internal Revenue Code of
1986, as amended ("Phantom Stock Units"). Phantom Stock Units do not
represent an equity interest in Progress Energy and the crediting of such
Units to a participant's account does not convey any voting rights.
However, a Phantom Stock Unit is equal in value at all times to a share of
Progress Energy's Common Stock. Additional Phantom Stock Units are credited
from time to time to reflect the payment of dividends on the underlying
Common Stock. For participants with less than five years of service with
the Company, these Phantom Stock Units vest two years from the end of the
calendar year in which they are granted. Participants with five or more
years of service with the Company are 100% vested in all Phantom Stock
Units credited to their accounts. Phantom Stock Units are not deemed
"Matured" and therefore available for reallocation to other deemed
investment funds chosen by the participant until two years after the end of
the MDCP Year for which they were allocated. Payment of the value of the
Phantom Stock Units will be made in cash and will generally be made on one
of the following dates in accordance with the participant's deferral
election: (i) the April 1 following the date that is five or more years
from the last day of the MDCP Year for which the participant's salary
deferral is made, (ii) the April 1 following the participant's retirement,
or (iii) the April 1 following the first anniversary of the participant's
retirement. The amount of the payment will equal the fair market value of
notational deemed investment funds on the valuation date multiplied by the
number of units credited to the account of the participant for each fund.
See "Other Benefit Opportunities" on page 100.
/7/Consists of the value of payouts of awards granted under the Company's
Performance Share Sub-Plan of Progress Energy's 1997 Equity Incentive Plan.
/8/Amounts reported in this column include dividends earned in 2001 on
awards granted under the Long-Term Compensation Program and dividends
allocated in 2001 on awards granted under the Performance Share Sub-Plan of
Progress Energy's 1997 Equity Incentive Plan.
/9/Consists of (i) 1,600 shares of Progress Energy Restricted Stock which
were valued at $64,413 on March 22, 2001; and (ii) 63 Phantom Stock Units
based on the market value of a share of Progress Energy Common Stock on the
date such units were credited to the account of the participant. Mr.
Habermeyer owns a total of 21,800 shares of Progress Energy Restricted
Stock which were valued at $981,654 as of December 31, 2001.
/10/Consists of (i) $14,544 which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan of Progress
Energy's 1997 Equity Incentive Plan; (ii) $9,716 which represents Company
contributions under the Progress Energy 401(k) Savings & Stock Ownership
Plan; and (iii) $12,124 which represents the dollar value of the premium
relating to the term portion and the present value of the premium relating
to the whole life portion of the benefit to be received pursuant to the
Executive Permanent Life Insurance Program.
/11/Adjusted to include additional bonus amount of $20,772 that was not
determinable at the time the proxy statement for Progress Energy's 2001
Annual Meeting of Shareholders was prepared.
103
/12/Consists of (i) 15,000 shares of Progress Energy Restricted Stock
valued at $603,867 as of March 22, 2001; and (ii) 479 Phantom Stock Units
based on the market value of a share of Progress Energy Common Stock on the
date such units were credited to the account of the participant. Mr. Orser
owns a total of 46,667 shares of Progress Energy Restricted Stock which
were valued at $2,101,415 as of December 31, 2001.
/13/Consists of (i) $23,146 which represents dividends earned in 2001 on
performance units awarded under the Long-Term Compensation Program; (ii)
$55,471 which represents dividends allocated in 2001 on performance shares
awarded under the Performance Share Sub-Plan of Progress Energy's 1997
Equity Incentive Plan; (iii) $10,200 which represents Company contributions
under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iv)
$39,550 which represents the dollar value of the premium relating to the
term portion and the present value of the premium relating to the whole
life portion of the benefit to be received pursuant to the Executive
Permanent Life Insurance Program.
/14/Adjusted to include additional bonus amount of $141,963 that was not
determinable at the time the proxy statement for Progress Energy's 2001
Annual Meeting of Shareholders was prepared.
/15/Consists of (i) 3,200 shares of Progress Energy Restricted Stock valued
at $128,825 as of March 22, 2001; and (ii) 239 Phantom Stock Units based on
the market value of a share of Progress Energy Common Stock on the date
such units were credited to the account of the participant. Mr. Scott owns
a total of 35,900 shares of Progress Energy Restricted Stock, which were
valued at $1,252,326 as of December 31, 2001.
/16/Consists of (i) $27,773 which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan of the
Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents
Company contributions under the Progress Energy 401(k) Savings & Stock
Ownership Plan; and (iii) $42,734 which represents the dollar value of the
premium relating to the term portion and the present value of the premium
relating to the whole life portion of the benefit to be received pursuant
to the Executive Permanent Life Insurance Program.
/17/Consists of (i) $24,939 in gross-up payments for certain federal and
state income tax obligations; and (ii) certain perquisites, including club
dues of $33,020 and a company automobile allowance of $16,200, both of
which exceed thresholds for footnote disclosure.
/18/Consists of (i) 9,600 shares of Progress Energy Restricted Stock valued
at $386,475 as of March 22, 2001; and (ii) 194 Phantom Stock Units based on
the market value of a share of Progress Energy Common Stock on the date
such units were credited to the account of the participant. Mr. Johnson
owns a total of 32,500 shares of Progress Energy Restricted Stock which
were valued at $1,463,475 as of December 31, 2001.
/19/Consists of (i) $31,244 which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan of the
Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents
Company contributions under the Progress Energy 401(k) Savings & Stock
Ownership Plan; and (iii) $15,479 which represents the dollar value of the
premium relating to the term portion and the present value of the premium
relating to the whole life portion of the benefit to be received pursuant
to the Executive Permanent Life Insurance Program.
/20/Adjusted to include additional bonus amount of $26,803 that was not
determinable at the time the proxy statement for Progress Energy's 2001
Annual Meeting of Shareholders was prepared.
/21/Consists of 136 Phantom Stock Units based on the market value of a
share of Progress Energy Common Stock on the date such units were credited
to the account of the participant. Mr. Davis owns a total of 27,000 shares
of Progress Energy Restricted Stock which were valued at $1,215,810 as of
December 31, 2001.
/22/Consists of (i) 27,000 shares of Progress Energy Restricted Stock which
were valued at $945,020 on March 20, 2000 and at $1,328,063 as of December
31, 2000; and (ii) 45 Phantom Stock Units based on the market value of a
share of Progress Energy Common Stock on the date such units were credited
to the account of the participant.
/23/Consists of (i) $4,302 which represents dividends allocated in 2000 on
performance shares awarded under the Performance Share Sub-Plan of Progress
Energy's 1997 Equity Incentive Plan; (ii) $3,058 which represents Company
contributions under the Progress Energy 401(k) Savings & Stock Ownership
Plan; and $72,085 which represents the dollar value of the premium relating
to the term portion and the present value of the premium relating to the
whole life portion of the benefit to be received pursuant to the Executive
Permanent Life Insurance Program.
104
/24/Consists of (i) $21,536 which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan of Progress
Energy's 1997 Equity Incentive Plan; (ii) $9,792 which represents Company
contributions under the Progress Energy 401(k) Savings & Stock Ownership
Plan; and (iii) $71,720 which represents the dollar value of the premium
relating to the term portion and the present value of the premium relating
to the whole life portion of the benefit to be received pursuant to the
Executive Permanent Life Insurance Program.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
- -------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities
Underlying % of Total
Options/ Options/SARs Exercise
SARs Granted to or Base
Granted Employees in Price Expiration
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ------------ --------- --------- ---------- ----------
H. William Habermeyer, Jr 25,800 1.10% $43.49 9/30/2011 $ 705,646 $1,788,246
William S. Orser 50,000 2.12% $43.49 9/30/2011 $1,367,531 $3,465,593
Peter M. Scott III 42,500 1.81% $43.49 9/30/2011 $1,162,402 $2,945,754
William D. Johnson 42,500 1.81% $43.49 9/30/2011 $1,162,402 $2,945,754
Donald K. Davis 31,900 1.36% $43.49 9/30/2011 $ 872,485 $2,211,048
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
Name Number of Performance
- ---- Units/1/ Period Ends
--------- ----------
H. William Habermeyer, Jr.,
President and Chief Executive Officer ........ 6,204 2003
William S. Orser,
Group President .............................. 13,260 2003
Peter M. Scott III,
Executive Vice President and
Chief Financial Officer ...................... 10,219 2003
William D. Johnson,
Executive Vice President, General Counsel
and Secretary ................................ 9,246 2003
Donald K. Davis,
Executive Vice President ..................... 7,664 2003
- ----------
105
/1/Consists of the number of performance shares awarded in 2001 under the
Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan,
based on the closing price of a share of Progress Energy's Common Stock on March
20, 2001, as published in The Wall Street Journal. Performance Share awards may
range from up to 40% to up to 150% of a participant's base salary depending on
the participant's position and job value. The number of performance shares
awarded is recorded in a separate account for each participant, and is adjusted
to reflect dividends, stock splits or other adjustments in Progress Energy's
Common Stock. The performance period for an award under the Sub-Plan is the
three-consecutive-year period beginning in the year in which the award is
granted. There are two equally weighted performance measures under the Sub-Plan.
One performance measure is Total Shareholder Return ("TSR"), which is defined in
the Sub-Plan as the appreciation or depreciation in the value of stock (which is
equal to the closing value of the stock on the last trading day of the relevant
period minus the closing value of the stock on the last trading day of the
preceding year) plus dividends declared during the relevant period divided by
the closing value of the stock on the last trading day of the preceding year.
The other performance measure is EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) growth. Awards under the Sub-Plan vest on January
1 following the end of the three-year performance period, provided, however,
that to determine each award vested under the Sub-Plan, the TSR and EBITDA
growth of Progress Energy are compared to the TSR and EBITDA growth of a Peer
Group comprised of the twenty-seven electric utility companies currently
comprising the Standard & Poor's Electric Index. The differences between
Progress Energy's TSR and EBITDA growth, and the Peer Group TSR and EBITDA
growth, respectively, are used to determine the multipliers that will be used to
calculate the number of vested performance shares in each participant's account.
(Differences in TSR can range from a low of (2.0%) or less to a high of 5% or
more, and correspond to multipliers of 0% to 200%. Differences in EBITDA growth
can range from a low of less than 0% to a high of 5% or more and correspond to
multipliers of 0% to 200%). The multiplier is applied to the number of
performance shares in the participant's performance share account to determine
the actual number of vested performance shares in that account. The aggregate
value of vested performance shares is equal to the number of vested performance
shares in the participant's account multiplied by the closing price of Progress
Energy's Common Stock, as published in The Wall Street Journal on the last
trading day before payment of the award.
Awards are paid in cash after expiration of the performance period. Payment
can be made in either (i) lump sum on or about April 1 of the year immediately
following the performance period or (ii) in accordance with an election to defer
in 25% increments, made during the first year of the performance period. In the
event of death, disability, retirement or a change-in-control of the Company,
any award granted under the Sub-Plan immediately becomes vested. The aggregate
value of the vested award is determined using multipliers that are based on the
difference between Progress Energy's TSR and EBITDA growth and the Peer Group
TSR and EBITDA growth, respectively over the portion of the performance period
that was completed before the terminating event occurred. See "Long-Term
Compensation Opportunities" on page 98.
PENSION PLAN TABLE
- ------------------------------------------------------------------------
Average Compensation Estimated Annual Pension at Normal Retirement
(Years of Credited Service)
- ------------------------------------------------------------------------
10 years 15 years 151/2or more years
- ------------------------------------------------------------------------
$190,000 $ 76,000 $114,000 $117,800
255,000 102,000 153,000 158,100
320,000 128,000 192,000 198,400
385,000 154,000 231,000 238,700
450,000 180,000 270,000 279,000
515,000 206,000 309,000 319,300
555,000 222,000 333,000 344,100
595,000 238,000 357,000 368,900
635,000 254,000 381,000 393,700
675,000 270,000 405,000 418,500
- ------------------------------------------------------------------------
106
The above table demonstrates senior executive pension benefits payable upon
normal retirement under the Progress Energy Pension Plan and the Progress Energy
Supplemental Senior Executive Retirement Plan at age 65 as a function of average
annual income and years of service. Covered compensation under these plans
consists only of the amounts in the Salary and Bonus columns of the Summary
Compensation Table on page 103. Pursuant to the Progress Energy's Pension Plan,
a defined benefit plan, benefits are partially offset by Social Security
payments and the monthly pension benefit payable upon retirement is based on
base pay earnings, age, and years of credited service. Benefits under the
Supplemental Senior Executive Retirement Plan are fully offset by Social
Security benefits and by benefits paid under the Progress Energy Pension Plan.
The monthly benefit payable upon retirement under this plan is equal to 4% of
the average of a participant's highest three years of eligible earnings for each
year of credited service with Progress Energy up to a maximum of 62%. Benefits
listed in the table above do not reflect the Social Security or other offset.
For purposes of benefits under these plans, Mr. Habermeyer has eight years of
credited service, Mr. Orser has eight years of credited service, Mr. Scott has
ten years of credited service, and Mr. Davis has seven years of credited
service. Mr. Johnson has 15 1/2 years of credited service, three of which are
credited for service on the Senior Management Committee, and is thereby entitled
to the maximum percentage allowable in the benefit formula under these plans.
EMPLOYMENT AGREEMENTS
Messrs. Habermeyer, Orser, Scott, Johnson and Davis have entered into employment
agreements, with one or more of Progress Energy's subsidiaries (the "Employer").
These agreements provide for base salary, bonuses, perquisites and participation
in the various executive compensation plans offered to senior executives of
Progress Energy and its subsidiaries. The agreement with Mr. Habermeyer has an
effective date of November 30, 2000. The agreements with Messrs. Orser, Scott,
Johnson and Davis have effective dates of August 1, 2000. The agreements all
provide that they will remain in effect for three years from the effective date.
Each agreement also includes an "Evergrow provision" which provides that each
year, the agreement will be extended such that the prospective term will always
be three years forward on the anniversary date of the effective date. The
Employer may elect not to extend an executive officer's agreement and must
notify the officer of such an election at least sixty days prior to the annual
anniversary date of his agreement's effective date. Executive benefit plan
targets, termination and other key provisions of the agreements are discussed
below.
Agreement with Mr. Habermeyer
Information concerning the employment agreement with Mr. Habermeyer is set forth
in Part III hereof under the heading "Executive Compensation - Florida Progress,
Compensation of Executive Officers."
Agreement with Mr. Orser
Mr. Orser's agreement provides that his target compensation under the MICP
increased to 45% of base salary earnings, effective January 1, 2001. Mr. Orser's
target compensation under the PSSP of Progress Energy's 1997 Equity Incentive
Compensation Plan is 78% of his base salary. Mr. Orser's agreement notes that
pursuant to a 1993 employment agreement with CP&L, he received a recruitment
bonus under the now suspended Deferred Compensation Plan for Key Management
Employees, and that he is credited with nine years of service solely for
purposes of determining benefits in connection with that bonus. The agreement
also notes that Mr. Orser is automatically deemed vested for his benefits under
the SERP, and will be deemed eligible for early retirement benefits under the
SERP at age 60, assuming his continued employment at the Company until age 60.
The agreement with Mr. Orser provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement, and will be eligible to retain all benefits in which he has vested
under existing benefit plans. Additionally, he will be entitled to certain
health benefits. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of Progress
Energy or the Employer and (ii) Mr. Orser is offered a new position with a
material change in authority, duty, wages or benefits, or is asked to relocate
more than 50 miles. If Mr. Orser's employment is constructively terminated, he
will be entitled to the greater of the benefits described above or the benefits,
if any, to which he is entitled under Progress Energy's Management
Change-in-Control Plan. If the Employer terminates Mr. Orser's employment for
cause, he will be eligible to retain all benefits in which he has vested under
existing benefit plans, but he shall not be entitled to any form of salary
continuance or any form of severance benefits. He will also be entitled to any
earned but unpaid salary. The agreement with Mr. Orser provides that if he
terminates his employment voluntarily at any time, he shall retain all vested
benefits but shall not be entitled to any form of salary continuance or any form
of severance benefit. The agreement also provides that if, while Mr. Orser is
between the ages of 55 and 60, his employment is terminated without cause, or
constructively terminated or if he voluntarily terminates his employment, he
will receive $153,912 (less applicable taxes) a year for life, less benefits
payable under the Supplemental Retirement Plan and in lieu of any SERP benefit.
Additionally, Mr. Orser will be eligible to retain all benefits in which he has
vested under existing benefit plans.
107
Agreement with Mr. Scott
Information concerning the employment agreement with Mr. Scott is set forth in
Part III hereof under the heading "Executive Compensation-Florida Progress,
Compensation of Executive Officers."
Agreement with Mr. Johnson
Mr. Johnson's agreement provides that his target compensation under the MICP
increased to 45% of base salary earnings, effective January 1, 2001. Mr.
Johnson's target compensation under the PSSP of Progress Energy's 1997 Equity
Incentive Plan is 78% of his base salary. The agreement with Mr. Johnson also
notes Mr. Johnson has been awarded seven years of deemed service for purposes of
the SERP. Three of those years will also be deemed service on the Senior
Management Committee.
The agreement with Mr. Johnson provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement and will be eligible to retain all benefits in which he has vested
under existing benefit plans. Additionally, the Employer will reimburse him for
certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of Progress
Energy or the Employer and (ii) Mr. Johnson is offered a new position with a
material change in authority, duty, wages or benefits, or Mr. Johnson is asked
to relocate more than 50 miles. If Mr. Johnson's employment is constructively
terminated, he will be entitled to the greater of the benefits described above
or the benefits, if any, to which he is entitled under Progress Energy's
Management Change-in-Control Plan. If the Employer terminates Mr. Johnson's
employment for cause, he will be eligible to retain all benefits in which he has
vested under existing benefit plans, but he shall not be entitled to any form of
salary continuance or any form of severance benefits. He will also be entitled
to any earned but unpaid salary. The agreement with Mr. Johnson provides that if
he terminates his employment voluntarily at any time, he shall retain all vested
benefits but shall not be entitled to any form of salary continuance or any form
of severance benefit.
Agreement with Mr. Davis
Mr. Davis' agreement provides that his target compensation under the MICP
increased to 45% of base salary earnings, effective January 1, 2001. Mr. Davis'
target compensation under the PSSP of Progress Energy's 1997 Equity Incentive
Plan is 78% of his base salary. The agreement with Mr. Davis also notes that Mr.
Davis has been awarded six years of credited service for purposes of the SERP.
The agreement with Mr. Davis provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement and will be eligible to retain all benefits in which he has vested
under existing benefit plans. Additionally, the Employer will reimburse him for
certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of Progress
Energy or the Employer and (ii) Mr. Davis is offered a new position with a
material change in authority, duty, wages or benefits, or Mr. Davis is asked to
relocate more than 50 miles. If Mr. Davis' employment is constructively
terminated, he will be entitled to the greater of the benefits described above
or the benefits, if any, to which he is entitled under Progress Energy's
Management Change-in-Control Plan. If the Company terminates Mr. Davis'
employment for cause, he will be eligible to retain all benefits in which he has
vested under existing benefit plans, but he shall not be entitled to any form of
salary continuance or any form of severance benefits. He will also be entitled
to any earned but unpaid salary. The agreement with Mr. Davis provides that if
he terminates his employment voluntarily at any time, he shall retain all vested
benefits but shall not be entitled to any form of salary continuance or any form
of severance benefit.
108
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
FLORIDA PROGRESS
Security Ownership of Certain Beneficial Owners
All of Florida Progress' common stock is held beneficially and of record by
Progress Energy, Inc. None of Florida Progress' directors or executive officers
own any shares of Florida Progress' common stock.
Security Ownership of Management
The following table describes the beneficial ownership of the Common Stock of
Progress Energy, Inc. and ownership of Progress Energy, Inc. Common Stock units
as of December 31, 2001, of (i) all current Directors and nominees for Director
of Florida Progress, (ii) each executive officer of Florida Progress named in
the Summary Compensation Table presented on page 89 of this document and (iii)
all Directors and executive officers of Florida Progress as a group. A unit of
Common Stock does not represent an equity interest in Progress Energy and
possesses no voting rights, but is equal in value at all times to a share of
Progress Energy Common Stock. As of December 31, 2001, none of the individuals
or group in the above categories owned one percent (1%) or more of Progress
Energy's, securities.
- --------------------------------------------------------------------------------
NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED1 AND UNITS REPRESENTING
NAME SHARES OF COMMON STOCK/2,3,4,5,6,7/
- ----
- --------------------------------------------------------------------------------
Edwin B. Borden 5,297 Common Stock
25,837/2/ Units
David L. Burner 0 Common Stock
4,801/2/ Units
William Cavanaugh III 212,190/8/ Common Stock
185,500/4,5,6,7/ Units
Charles W. Coker 7,498/9/ Common Stock
30,565/2/ Units
Richard L. Daugherty 995 Common Stock
17,987/2/ Units
W. D. Frederick, Jr. 1,000 Common Stock
1,720/2/ Units
H. William Habermeyer, Jr. 25,665/10/ Common Stock
8,540/5,6/ Units
Tom D. Kilgore 34,880/11/ Common Stock
25,393/5/,/6/,/7/ Units
William O. McCoy 1,000 Common Stock
10,194/2/ Units
Robert B. McGehee 45,083/12/ Common Stock
26,032/5,6,7/ Units
E. Marie McKee 600 Common Stock
4,994/2/ Units
John H. Mullin, III 1,500/13/ Common Stock
6,037/2/ Units
Richard A. Nunis 5,000 Common Stock
731/2/ Units
Carlos A. Saladrigas 0 Common Stock
118/3/ Units
Peter M. Scott III 36,291/14/ Common Stock
16,442/5,6/ Units
J. Tylee Wilson 5,000 Common Stock
8,073/2/ Units
Jean Giles Wittner 2,000 Common Stock
1,679/2/ Units
109
Shares of Progress Energy Common Stock
beneficially owned by all directors
and executive officers of Florida
Progress as a group (19persons)
423,668 Common Stock
- ----------
/1/Unless otherwise noted, all shares of Progress Energy Common Stock set
forth in the table are beneficially owned, directly or indirectly, with
sole voting and investment power, by such shareholder.
/2/Consists of units representing Common Stock of Progress Energy under the
Directors' Deferred Compensation Plan and the Non-Employee Director Stock
Unit Plan (see "Compensation of Directors" on page 88).
/3/Consists of units representing Common Stock of Progress Energy under the
Directors' Deferred Compensation Plan.
/4/Consists of performance units under the Progress Energy Long-Term
Compensation Program.
/5/Consists of performance shares awarded under the Performance Share
Sub-Plan of the Progress Energy 1997 Equity Incentive Plan (see "Long-Term
Incentive Plan Awards Table" on page 93 and footnote 1 thereunder for
performance shares awarded in 2001).
/6/Consists of replacement units to replace the value of Progress Energy
contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan
that would have been made but for the deferral of salary under the Progress
Energy Management Deferred Compensation Plan and contribution limitations
under Section 415 of the Internal Revenue Code of 1986, as amended (see
"Summary Compensation Table" on page 89 and footnote 6 thereunder).
/7/Consists of performance units recorded to reflect awards deferred under
the Progress Energy Management Incentive Compensation Plan.
/8/Includes 175,000 shares of Progress Energy Restricted Stock and 7,764
shares with shared voting and investment power owned by members of
immediate family to which beneficial ownership has not been disclaimed.
/9/Includes 7,298 shares with shared voting and investment power owned by
members of immediate family to which beneficial ownership has not been
disclaimed.
/10/Includes 21,800 shares of Progress Energy Restricted Stock.
/11/Includes 25,934 shares of Progress Energy Restricted Stock and 1,500
shares with shared voting and investment power owned by members of
immediate family to which beneficial ownership has not been disclaimed.
/12/Includes 41,500 shares of Progress Energy Restricted Stock.
/13/Includes 500 shares with shared voting and investment power owned by
members of immediate family to which beneficial ownership has not been
disclaimed.
/14/Includes 35,900 shares of Progress Energy Restricted Stock.
FLORIDA POWER
Security Ownership of Certain Beneficial Owners
All of Florida Power's common stock is held beneficially and of record by
Florida Progress. None of Florida Power's directors or executive officers own
any shares of Florida Power's common or preferred stock.
Security Ownership of Management
MANAGEMENT OWNERSHIP OF COMMON STOCK
The following table describes the beneficial ownership of the Common Stock of
Progress Energy, and ownership of Progress Energy Common Stock units as of
December 31, 2001, of (i) all Florida Power Directors, (ii) each executive
officer of Florida Power named
110
in the Summary Compensation Table presented on page 103 of this document and
(iii) all Directors and executive officers of Florida Power as a group. A unit
of Common Stock does not represent an equity interest in Progress Energy, and
possesses no voting rights, but is equal in value at all times to a share of
Progress Energy Common Stock. As of December 31, 2001, none of the individuals
or group in the above categories owned one percent (1%) or more of Progress
Energy's voting securities.
- --------------------------------------------------------------------------------
NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED1 AND UNITS REPRESENTING
NAME SHARES OF COMMON STOCK/2,3,4,5,6/
- --------------------------------------------------------------------------------
William Cavanaugh III 212,190/6/ Common Stock
185,500/2,3,4,5/ Units
Donald K. Davis 27,874/7/ Common Stock
15,233/3,4,5/ Units
Fred N. Day IV 32,229/8/ Common Stock
18,675/3,4,5/ Units
H. William Habermeyer, Jr. 25,665/9/ Common Stock
8,540/3,4/ Units
William D. Johnson 36,550/10/ Common Stock
19,473/3,4,5/ Units
Robert B. McGehee 45,083/11/ Common Stock
26,032/3,4,5/ Units
William S. Orser 62,364/12/ Common Stock
43,644/2,3,4/ Units
Peter M. Scott III 36,291/13/ Common Stock
16,442/3,4/ Units
Shares of Progress Energy Common Stock
beneficially owned by all directors
and executive officers of Florida
Power as a group (12 persons)
572,118 Common Stock
- -----------
/1/Unless otherwise noted, all shares of Common Stock set forth in the
table are beneficially owned, directly or indirectly, with sole voting and
investment power, by such shareholder.
/2/Consists of performance units under the Progress Energy Long-Term
Compensation Program.
/3/Consists of performance shares awarded under the Performance Share
Sub-Plan of the Progress Energy 1997 Equity Incentive Plan (see "Long-Term
Incentive Plan Awards Table" on page 106 and footnote 1 thereunder for
performance shares awarded in 2000).
/4/Consists of replacement units to replace the value of Company
contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan
that would have been made but for the deferral of salary under the
Management Deferred Compensation Plan and contribution limitations under
Section 415 of the Internal Revenue Code of 1986, as amended (see "Summary
Compensation Table" on page 103 and footnote 6 thereunder).
/5/Consists of performance units recorded to reflect awards deferred under
the Progress Energy Management Incentive Compensation Plan.
/6/Includes 175,000 shares of Progress Energy Restricted Stock and 7,764
shares with shared voting and investment power owned by members of
immediate family to which beneficial ownership has not been disclaimed.
/7/Includes 27,000 shares of Progress Energy Restricted Stock.
/8/Includes 25,734 shares of Progress Energy Restricted Stock.
/9/Includes 21,800 shares of Progress Energy Restricted Stock.
111
/10/Includes 32,500 shares of Progress Energy Restricted Stock.
/11/Includes 41,500 shares of Progress Energy Restricted Stock.
/12/Includes 46,667 shares of Progress Energy Restricted Stock.
/13/Includes 35,900 shares of Progress Energy Restricted Stock.
112
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
- --------------------------------------------------------
None.
113
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FOR
- -----------------------------------------------------------------------------
FLORIDA PROGRESS AND FLORIDA POWER
----------------------------------
1. Financial Statements, notes to Financial Statements and reports thereon of
DELOITTE & TOUCHE LLP and KPMG LLP are found in Item 8 "Financial
Statements and Supplementary Data" herein.
2. The following Financial Statement Schedules are included herein:
Florida Progress
II-Valuation and Qualifying Accounts
for the years ended December 31, 2001, 2000 and 1999
Florida Power
II-Valuation and Qualifying Accounts
for the years ended December 31, 2001, 2000 and 1999
All other schedules are not submitted because they are not applicable
or not required or because the required information is included in the
financial statements or notes thereto.
3. Exhibits filed herewith:
Florida Florida
Number Exhibit Progress Power
- ------ ------- -------- -----
*2 Amended and Restated Agreement and X
Plan of Exchange by and among Carolina
Power and Light Company, Florida
Progress Corporation and CP&L Energy,
Inc., dated as of August 22, 1999,
amended and restated as of March 3,
2000. (Filed as Annex A to the Florida
Progress preliminary proxy statement on
Schedule 14 A, as filed with the SEC on
March 6, 2000).
*3. (a) Amended Articles of Incorporation, as X
amended, of Florida Power. (Filed as
Exhibit 3(a) to the Florida Power Form
10-K for the year ended December 31,
1991, as filed with the SEC (File No.
1-3274) on March 30, 1992.)
*3. (b) Restated Articles of Incorporation, as X
amended, of Florida Progress. (Filed as
Exhibit 3(a) to Florida Progress' Form
10-K for the year ended December
31,1991, as filed with the SEC on March
30, 1992.)
3. (c) Bylaws of Florida Progress, as amended X
November 30, 2000.
3. (d) Bylaws of Florida Power, as amended X
October 1, 2001.
*4. (a) Indenture, dated as of January 1, 1944 X X
(the "Indenture"), between Florida Power
and Guaranty Trust Company of New York
and The
114
Florida National Bank of
Jacksonville, as Trustees. (Filed as
Exhibit B-18 to Florida Power's
Registration Statement on Form A-2 (No.
2-5293) filed with the SEC on January
24, 1944.)
*4. (b) Twenty-Ninth Supplemental Indenture, X X
dated as of September 1, 1982, between
Florida Power and Morgan Guaranty Trust
Company of New York and Florida National
Bank, as Trustees, with reference to the
modification and amendment of the
Indenture. (Filed as Exhibit 4(c) to
Florida Power's Registration Statement
on Form S-3 (No. 2-79832) filed with the
SEC on September 17, 1982.)
*4. (c) Seventh Supplemental Indenture, dated as X X
of July 1, 1956, between Florida Power
and Guaranty Trust Company of New York
and The Florida National Bank of
Jacksonville, as Trustees, with
reference to the modification and
amendment of the Indenture. (Filed as
Exhibit 4(b) to Florida Power's
Registration Statement on Form S-3 (No.
33-16788) filed with the SEC on
September 27, 1991.)
*4. (d) Eighth Supplemental Indenture, X X
dated as of July 1, 1958, between
Florida Power and Guaranty Trust Company
of New York and The Florida National
Bank of Jacksonville, as Trustees, with
reference to the modification and
amendment of the Indenture. (Filed as
Exhibit 4(c) to Florida Power's
Registration Statement on Form S-3 (No.
33-16788) filed with the SEC on
September 27, 1991.)
*4. (e) Sixteenth Supplemental X X
Indenture, dated as of February 1, 1970,
between Florida Power and Morgan
Guaranty Trust Company of New York and
The Florida National Bank of
Jacksonville, as Trustees, with
reference to the modification and
amendment of the Indenture. (Filed as
Exhibit 4(d) to Florida Power's
Registration Statement on Form S-3 (No.
33-16788) filed with the SEC on
September 27, 1991.)
*4. (f) Rights Agreement, dated as of X
November 21, 1991, between Florida
Progress and Manufacturers Hanover Trust
Company, including as Exhibit A the form
of Rights Certificate. (Filed as Exhibit
4(a) to Florida Progress' Form 8-K dated
November 21, 1991, as filed with the SEC
on November 27, 1991.)
*4. (g) Thirty-Eighth Supplemental X X
Indenture dated as of July 25, 1994,
between Florida Power and First Chicago
Trust Company of New York, as successor
Trustee, Morgan Guaranty Trust Company
of New York, as resigning Trustee, and
First Union National Bank of Florida, as
resigning Co-Trustee, with reference to
115
confirmation of First Chicago Trust
Company of New York as successor Trustee
under the Indenture. (Filed as exhibit
4(f) to Florida Power's Registration
Statement on Form S-3 (No. 33-55273) as
filed with the SEC on August 29, 1994.)
*4.(h) Thirty-Ninth Supplemental X
Indenture dated as of July 1, 2001
between Florida Power Corporation and
First Chicago Trust Company of New York,
as Trustee. (Filed as Exhibit 4 to
Current Report on Form 8-K filed with
the SEC on July 23, 2001).
*4. (i) Amendment to Shareholder Rights X
Agreement dated February 20, 1997,
between Florida Progress and The First
National Bank of Boston. (Filed as
Exhibit 4(a) to the Florida Progress
Form 10-K for the year ended December
31, 1996, as filed with the SEC on March
27, 1997.)
*4. (j) Form of Certificate representing X
shares of Florida Progress Common Stock.
(Filed as Exhibit 4(b) to the Florida
Progress Form 10-K for the year ended
December 31, 1996, as filed with the SEC
on March 27, 1997.)
*4. (k) Second Amendment to Shareholder X
Rights Agreement dated as of August 22,
1999, between Florida Progress and
BankBoston, N.A. (Filed as Exhibit 4 to
the combined Florida Progress and
Florida Power Form 8-K dated
August 22, 1999.)
*10. (a)(1) Second Amended and Restated X
Guaranty and Support Agreement dated as
of August 7, 1996. (Filed as Exhibit 4
to Florida Progress' Form 10-Q for the
quarter ended June 30, 1996).
10. (a)(2) Florida Power Corporation $170,000,000 X
364-Day Revolving Credit Agreement dated
as of December 18, 2001.
+*10. (b)(1) Executive Optional Deferred Compensation X X
Plan. (Filed as Exhibit 10.(c) to the
Florida Progress Form 10-K for the year
ended December 31, 1996 as filed with
the SEC on March 27, 1997.)
+*10.(b)(2) Management Incentive Compensation Plan X X
of Florida Progress Corporation, as
amended December 14, 1999. (Filed as
Exhibit 10.(a) to the Florida Progress
Form 10-K for the year ended December
31, 1999, as filed with the SEC on March
30, 2000.)
+*10. (b)(3) Florida Progress Supplemental Executive X X
Retirement Plan, as amended and restated
effective February 20, 1997. (Filed as
Exhibit 10.(e) to the Florida Progress
Form 10-K for the year ended December
31, 1999, as filed with the SEC on March
30, 2000.)
116
- -+*10.(b)(4) Resolutions of the Board of Directors of X
Carolina Power & Light Company dated
May 8, 1991, amending the Directors
Deferred Compensation Plan (filed as
Exhibit 10(b), File No. 33-48607).
+*10.b(5) Carolina Power & Light Company
Non-Employee Director Stock Unit Plan,
effective January 1, 1998. X
- -+*10.(b)(6) Carolina Power & Light Company X X
Restricted Stock Agreement, as approved
January 7, 1998, pursuant to Carolina
Power & Light Company's 1997 Equity
Incentive Plan (filed as Exhibit No. 10
to Carolina Power & Light Company's
Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998,
File No. 1-3382.)
- -+*10.(b)(7) Carolina Power & Light Company X X
Restoration Retirement Plan, as amended
January 1, 2000 (filed as Exhibit No.
10c(9) to the Progress Energy, Inc.
Annual Report on Form 10-K for the
fiscal year ended December 31, 2001).
- -+*10.(b)(8) Amended and Restated Supplemental Senior X X
Executive Retirement Plan of Carolina
Power & Light Company, effective January
1, 1984, as last amended March 15, 2000
(filed as Exhibit 10b(24) to Carolina
Power & Light Company's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1999, File No. 1-3382).
- -+*10.(b)(9) Performance Share Sub-Plan of the X X
Carolina Power & Light Company 1997
Equity Incentive Plan, as amended
January 1, 2001 (filed as Exhibit
10b(11) to the Progress Energy, Inc.
Annual Report on Form 10-K for the
fiscal year ended December 31, 2001).
+*10.(b)(10) 1997 Equity Incentive Plan, Amended and X X
Restated as of September 26, 2001 (filed
as Exhibit 4.3 to Progress Energy, Inc.
Form S-8 dated September 27, 2001, File
No. 1-3382).
+*10.(b)(11) Progress Energy, Inc. Form of Stock X X
Option Agreement (filed as Exhibit 4.4
to Form S-8 dated September 27, 2001,
File No. 333-70332.)
+*10.(b)(12) Progress Energy, Inc. Form of Stock X X
Option Award (filed as Exhibit 4.5 to
Form S-8 dated September 27, 2001, File
No. 333-70332.)
- -+*10.(b)(13) Amended Management Incentive X X
Compensation Plan of Progress Energy,
Inc., as amended and restated January 1,
2002 (filed as Exhibit 10c(15) to the
Progress Energy, Inc. Annual Report on
Form 10-K for the fiscal year ended
December 31, 2001).
117
- -+*10.(b)(14) Progress Energy, Inc. Management X X
Deferred Compensation Plan, amended and
restated as of January 1, 2002 (filed as
Exhibit 10c(16) to the Progress Energy,
Inc. Annual Report on Form 10-K for the
fiscal year Ended December 31, 2001).
+*10.(b)(15) Employment Agreement dated August 1, X
2000 between CP&L Service Company LLC
and William Cavanaugh III (filed as
Exhibit 10(i) to Quarterly Report on
Form 10-Q for the quarterly period ended
September 30, 2000, File No. 1-15929 and
No. 1-3382)
+*10.(b)(16) Employment Agreement dated August 1, X
2000 between Carolina Power & Light
Company and William S. "Skip" Orser
(filed as Exhibit 10(ii) to Quarterly
Report on Form 10-Q for the quarterly
period ended September 30, 2000, File
No. 1-15929 and No. 1-3382).
*+10.(b)(17) Employment Agreement dated August 1, X
2000 between Carolina Power & Light
Company and Tom Kilgore (filed as
Exhibit 10(iii) to Quarterly Report on
Form 10-Q for the quarterly period ended
September 30, 2000, File No. 1-15929 and
No. 1-3382.
+*10.(b)(18) Employment Agreement dated August 1, X
2000 between CP&L Service Company LLC
and Robert McGehee (filed as Exhibit
10(iv) to Quarterly Report on Form 10-Q
for the quarterly period ended September
30, 2000, File No. 1-15929 and No.
1-3382).
+*10.(b)(19) Form of Employment Agreement dated X X
August 1, 2000 (i) between Carolina
Power & Light Company and Don K. Davis;
and (ii) between CP&L Service Company
LLC and Peter M. Scott III; and (iii)
between CP&L Service Company LLC and
William D. Johnson (filed as Exhibit
10(v) to Quarterly Report on Form 10-Q
for the quarterly period ended September
30, 2000, File No. 1-15929 and No.
1-3382).
+*10.(b)(20) Form of Employment Agreement dated X
August 1, 2000 between Carolina Power &
Light Company and (i) Fred Day IV, (ii)
C.S. "Scotty" Hinnant, (iii) Cecil L
Goodnight and (iv)E. Michael Williams
(filed as Exhibit 10(vi) to Quarterly
Report on Form 10-Q for the quarterly
period ended September 30, 2000, File
No. 1-15929 and No. 1-3382.)
*+10.(b)(21) Employment Agreement dated November 30, X X
2000 between Carolina Power & Light
Company, Florida Power Corporation and
H. William Habermeyer (filed as Exhibit
10.(b)(32) to Annual Report on Form 10-K
for the year ended December 31, 2000).
118
*+10.(b)(22) Florida Power Corporation Management X
Incentive Compensation Plan, effective
January 1, 2001 (filed as Exhibit
10b(25) to Annual Report on Form 10-K
for the year ended December 31, 2000,
File No. 1-15929 and No. 1-3382.)
12 Statement of Computation of Ratios. X X
21 Subsidiaries of Florida Progress. X
23. (a) Consent of Deloitte & Touche LLP X X
23. (b) Consent of KPMG LLP X
23. (c) Consent of KPMG LLP X
24 Powers of Attorney are included in X X
the signature pages of this Form 10-K.
X Exhibit is filed for that respective company.
* Incorporated herein by reference as indicated.
+Management contract or compensation plan or arrangement required to
be filed as an exhibit to this report pursuant to Item 14(c) of Form
10-K.
- Sponsorship of this management contract or compensation plan or
arrangement was transferred by Carolina Power & Light Company to
Progress Energy, Inc., effective August 1, 2000.
(b) Reports on Form 8-K filed during or with respect to the last quarter of
2001 and the portion of the first quarter of 2002 prior to the filing of
this Form 10-K:
Florida Progress Corporation and Florida Power Corporation
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- -------- ------------- ----------
7 Yes March 15, 2002 March 15, 2002
119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FLORIDA PROGRESS CORPORATION
----------------------------
(Registrant)
Date: 3/28/02
-------
By: /s/Peter M. Scott III
-------------------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
By: /s/ Robert H. Bazemore, Jr.
-------------------------------
Robert H. Bazemore, Jr.
Vice President and Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ William Cavanaugh III Principal Executive 3/20/02
- -------------------------- Officer and Director -------
(William Cavanaugh III,
Chairman, President and
Chief
Executive Officer)
/s/ Peter M. Scott III Principal Financial 3/20/02
- ----------------------- Officer -------
(Peter M. Scott III, Executive
Vice President and Chief
Chief Financial Officer)
/s/ Edwin B. Borden Director 3/20/02
- -------------------- -------
(Edwin B. Borden)
/s/ David L. Burner Director 3/20/02
- -------------------- -------
(David L. Burner)
/s/ Charles W. Coker Director 3/20/02
- --------------------- -------
(Charles W. Coker)
/s/ Richard L. Daugherty Director 3/20/02
- ------------------------- -------
(Richard L. Daugherty)
/s/ W.D. Frederick, Jr. Director 3/20/02
- ------------------------ -------
(W.D. Frederick, Jr.)
120
/s/ William O. McCoy Director 3/20/02
- --------------------- -------
(William O. McCoy)
/s/ E. Marie McKee Director 3/20/02
- ------------------- -------
(E. Marie McKee)
/s/ John H. Mullin, III Director 3/20/02
- ------------------------ -------
(John H. Mullin, III)
/s/ Richard A. Nunis Director 3/20/02
- --------------------- -------
(Richard A. Nunis)
/s/ Carlos A. Saladrigas Director 3/20/02
- ------------------------- -------
(Carlos A. Saladrigas)
/s/ J. Tylee Wilson Director 3/20/02
- -------------------- -------
(J. Tylee Wilson)
/s/ Jean Giles Wittner Director 3/20/02
- ----------------------- -------
(Jean Giles Wittner)
121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FLORIDA POWER CORPORATION
-------------------------
Date: 3/28/02 (Registrant)
-------
By: /s/ Peter M. Scott III
----------------------------
Peter M.Scott III
Executive Vice President and
Chief Financial Officer
By: /s/ Robert H. Bazemore, Jr.
----------------------------
Robert H. Bazemore, Jr.
Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ William Cavanaugh III Principal Executive 3/20/02
- -------------------------- Officer and Director -------
(William Cavanaugh III,
Chairman)
/s/ H. William Habermeyer, Jr. Principal Executive 3/20/02
- ------------------------------ Officer and Director -------
(H. William Habermeyer, Jr.,
President and Chief Executive
Officer)
/s/ Peter M. Scott III Principal Financial 3/20/02
- ----------------------- Officer and Director -------
(Peter M. Scott, Executive
Vice President and Chief
Chief Financial Officer)
/s/ Robert B. McGehee Director 3/20/02
- ---------------------- -------
(Robert B. McGehee)
/s/ William D. Johnson Director 3/20/02
- ---------------------- -------
(William D. Johnson)
/s/ Fred N. Day, IV Director 3/20/02
- ------------------- -------
(Fred N. Day, IV)
/s/ William S. Orser Director 3/20/02
- --------------------- -------
(William S. Orser)
122
Schedule II
FLORIDA PROGRESS CORPORATION
Valuation and Qualifying Accounts
For the Years Ended December 31, 2001, 2000, and 1999
(In millions)
Balance at Additions Balance at
Beginning Charged to Other End of
Description of Period Expense Deductions Add (Ded) Period
- ---------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2001
Nuclear refueling outage reserve $10.8 $17.3 $27.8 $ -- $ 0.3
===== ===== ===== ===== =====
Allowance for doubtful accounts $26.2 $10.2 $11.2 $ 0.5 $25.7
===== ===== ===== ===== =====
FOR THE YEAR ENDED DECEMBER 31, 2000
Nuclear refueling outage reserve $ 0.5 $10.6 $ 0.3 $ -- $10.8
===== ===== ===== ===== =====
Allowance for doubtful accounts $ 5.8 $25.1 $ 4.5 $(0.2) $26.2
===== ===== ===== ===== =====
FOR THE YEAR ENDED DECEMBER 31, 1999
Nuclear refueling outage reserve $19.9 $ 1.4 $20.8 $ -- $ 0.5
===== ===== ===== ===== =====
Allowance for doubtful accounts $ 5.0 $ 4.5 $ 3.6 $(0.1) $ 5.8
===== ===== ===== ===== =====
123
Schedule II
FLORIDA POWER CORPORATION
Valuation and Qualifying Accounts
For the Years Ended December 31, 2001, 2000, and 1999
(In millions)
Balance at Additions Balance at
Beginning Charged to Deductions Other End of
Description Of Period Expense (See Note) Add (Ded) Period
- -------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2001
2001 Nuclear Refueling Outage Reserve (#12) $10.8 $16.6 $27.8 $ -- $(0.4)
2003 Nuclear Refueling Outage Reserve (#13) -- 0.7 -- -- 0.7
----- ----- ----- ---- -----
$10.8 $17.3 $27.8 $ -- $ 0.3
===== ===== ===== ==== =====
Allowance for doubtful accounts $ 5.2 $ 3.5 $ 6.2 $ -- $ 2.5
----- ----- ----- ---- -----
FOR THE YEAR ENDED DECEMBER 31, 2000
1999 Nuclear Refueling Outage Reserve (#11) $(0.3) $ -- $ 0.3 $ -- $ --
2001 Nuclear Refueling Outage Reserve (#12) 0.8 10.6 (0.6) -- 10.8
----- ----- ----- ---- -----
$ .5 $10.6 $(0.3) $ -- $10.8
===== ===== ===== ==== =====
Allowance for doubtful accounts $ 4.0 $ 4.3 $ 3.2 $ .1 $ 5.2
----- ----- ----- ---- -----
FOR THE YEAR ENDED DECEMBER 31, 1999
1999 Nuclear Refueling Outage Reserve (#11) $19.9 $ 0.6 $20.8 $ -- $(0.3)
2001 Nuclear Refueling Outage Reserve (#12) -- 0.8 -- -- 0.8
----- ----- ----- ---- -----
$19.9 $ 1.4 $20.8 $ -- $ 0.5
===== ===== ===== ==== =====
Allowance for doubtful accounts $ 3.8 $ 3.2 $ 2.9 $(.1) $ 4.0
----- ----- ----- ---- -----
Note: Deductions are payments of actual expenditures related to the outage.
124