UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Exact name of each Registrant as specified in I.R.S. Employer
Commission its charter, state of incorporation, address Identification
File No. of principal executive offices, telephone Number
-------------- ---------------------------------------------- --------------
1-8349 FLORIDA PROGRESS CORPORATION 59-2147112
A Florida Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Telephone (813) 824-6400
1-3274 FLORIDA POWER CORPORATION 59-0247770
A Florida Corporation
3201 34th Street South
St. Petersburg, Florida 33711
Telephone (813) 866-5151
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
-------------------------------------- ----------------------
Florida Progress Corporation:
Common Stock without par value and New York Stock Exchange
Preferred Stock Purchase Rights Pacific Stock Exchange
Florida Power Corporation: None
Securities registered pursuant to Section 12(g) of the Act:
Florida Progress Corporation: None
Florida Power Corporation: Cumulative Preferred Stock,
par value $100 per share
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES X . NO .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of each registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
<PAGE> 2
The aggregate market value of the voting stock held by non-affiliates of Florida
Progress Corporation as of December 31, 1997 was $3,743,134,026 (determined by
subtracting the number of shares held by directors and executive officers of
Florida Progress Corporation from the total number of shares outstanding, then
multiplying the difference times the closing sale price from the New York Stock
Exchange Composite Transactions).
The aggregate market value of the voting stock held by non-affiliates of Florida
Power Corporation as of February 28, 1998 was $-0-. As of February 28, 1998,
there were issued and outstanding 100 shares of Florida Power Corporation's
common stock, without par value, all of which were held, beneficially and of
record, by Florida Progress Corporation.
The number of shares of Florida Progress Corporation common stock without par
value outstanding as of December 31, 1997 was 97,062,954.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for Florida Progress Corporation
dated March 12, 1998, relating to the 1998 Annual Meeting of Shareholders, are
incorporated by reference in Part III hereof.
----------------------------
This combined Form 10-K represents separate filings by Florida Progress
Corporation and Florida Power Corporation. Florida Power Corporation makes no
representations as to the information relating to Florida Progress Corporation's
diversified operations.
For an explanation concerning the revised approach to recording nuclear
outage costs that prompted the filing of this amended Form 10-K, see the
combined Florida Progress and Florida Power Form 8-K dated June 2, 1998, that
was filed with the Securities and Exchange Commission on June 2, 1998.
[THIS SPACE INTENTIONALLY BLANK]
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AUDITORS' REPORT
To the Shareholders of Florida Progress Corporation
and Florida Power Corporation:
We have audited the accompanying consolidated balance sheets of Florida Progress
Corporation and subsidiaries, and of Florida Power Corporation, as of December
31, 1997 and 1996, and the related consolidated statements of income, cash
flows, and shareholders' equity for each of the years in the three-year period
ended December 31, 1997. In connection with our audits of the financial
statements, we also have audited the financial statement schedules listed in
Item 14 therein. These financial statements and financial statement schedules
are the responsibility of the respective managements of Florida Progress
Corporation and Florida Power Corporation. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Florida Progress Corporation
and subsidiaries, and Florida Power Corporation, as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedules when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/KPMG Peat Marwick LLP
- - ---------------------------
KPMG Peat Marwick LLP
St. Petersburg, Florida
January 26, 1998
<PAGE> 43
FLORIDA PROGRESS
Consolidated Financial Statements
<TABLE>
<CAPTION>
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Income
For the years ended December 31, 1997, 1996 and 1995
(In millions, except per share amounts)
1997 1996 1995
--------- --------- ---------
REVENUES:
<S> <C> <C> <C>
Electric utility $2,448.4 $2,393.6 $2,271.7
Diversified 867.2 764.3 736.1
--------- --------- ---------
3,315.6 3,157.9 3,007.8
--------- --------- ---------
EXPENSES:
Electric utility:
Fuel 458.1 409.7 431.3
Purchased power 490.6 531.6 436.5
Energy conservation cost 67.0 62.6 84.0
Operation and maintenance 422.3 413.4 393.7
Extended nuclear outage -
O&M and replacement power costs 173.3 - -
Depreciation 325.9 324.2 293.7
Taxes other than income taxes 193.6 183.6 176.2
---------- --------- ---------
2,130.8 1,925.1 1,815.4
---------- --------- ---------
Diversified:
Cost of sales 753.9 642.9 624.6
Provision for loss on coal properties - 40.9 -
Loss related to life insurance subsidiary 97.6 - -
Other 60.7 66.6 58.9
---------- --------- ---------
912.2 750.4 683.5
---------- --------- ---------
INCOME FROM OPERATIONS 272.6 482.4 508.9
---------- --------- ---------
INTEREST EXPENSE AND OTHER:
Interest expense 158.7 135.9 139.4
Allowance for funds used during
construction (9.7) (7.5) (7.3)
Preferred dividend requirements
of Florida Power 1.5 5.8 9.7
(Gain) on sale of business - (44.2) -
Other expense (income), net 1.4 (4.2) (9.9)
---------- --------- ---------
151.9 85.8 131.9
---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 120.7 396.6 377.0
Income taxes 66.4 145.9 138.1
---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 54.3 250.7 238.9
DISCONTINUED OPERATIONS, NET OF INCOME TAXES - (26.3) -
---------- --------- ---------
NET INCOME $ 54.3 $ 224.4 $ 238.9
========== ========= =========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING 97.1 96.8 95.7
========== ========= =========
EARNINGS PER AVERAGE COMMON SHARE:
Continuing operations $ .56 $ 2.59 $ 2.50
Discontinued operations - (.27) -
---------- --------- ---------
$ .56 $ 2.32 $ 2.50
========== ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in millions)
1997 1996
--------- ---------
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and
<S> <C> <C>
held for future use $6,166.8 $5,965.6
Less: Accumulated depreciation 2,511.0 2,335.8
Accumulated decommissioning
for nuclear plant 223.7 193.3
Accumulated dismantlement for fossil plants 128.5 119.6
--------- ---------
3,303.6 3,316.9
Construction work in progress 279.4 140.3
Nuclear fuel, net of amortization of $356.7
in 1997 and 1996 66.5 59.9
--------- ---------
Net electric utility plant 3,649.5 3,517.1
Other property, net of depreciation of $219.3
in 1997 and $173.8 in 1996 437.7 309.3
--------- ---------
4,087.2 3,826.4
--------- ---------
CURRENT ASSETS:
Cash and equivalents 3.1 5.2
Accounts receivable, net 373.7 265.0
Inventories, primarily at average cost:
Fuel 77.6 67.1
Utility materials and supplies 91.9 95.4
Diversified materials 126.8 125.5
Underrecovery of fuel costs 34.5 82.6
Income taxes receivable 16.8 -
Other 50.9 48.2
--------- ---------
775.3 689.0
--------- ---------
OTHER ASSETS:
Investments:
Loans receivable, net 24.0 68.1
Marketable securities - 217.9
Nuclear plant decommissioning fund 266.7 207.8
Joint ventures and partnerships 54.6 41.9
Deferred insurance policy acquisition costs - 120.9
Deferred purchased power contract termination costs 348.2 -
Other 204.0 176.4
---------- ---------
897.5 833.0
---------- ---------
$5,760.0 $5,348.4
========== =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
FLORIDA PROGRESS CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in millions)
1997 1996
-------- --------
CAPITAL AND LIABILITIES
COMMON STOCK EQUITY:
Common stock without par value, 250,000,000
shares authorized, 97,062,954 shares
<S> <C> <C>
outstanding in 1997 and 97,007,182 in 1996 $1,209.0 $1,208.3
Retained earnings 567.0 716.5
Unrealized loss on securities available
for sale - (.6)
--------- --------
1,776.0 1,924.2
CUMULATIVE PREFERRED STOCK OF FLORIDA POWER:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 2,377.8 1,776.9
--------- --------
TOTAL CAPITAL 4,187.3 3,734.6
--------- --------
CURRENT LIABILITIES:
Accounts payable 253.2 193.2
Customers' deposits 97.1 81.8
Taxes payable 12.0 41.2
Accrued interest 56.8 48.3
Other 74.8 78.5
--------- --------
493.9 443.0
Notes payable 214.8 4.1
Current portion of long-term debt 15.2 34.9
--------- --------
723.9 482.0
--------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 471.2 475.4
Unamortized investment tax credits 85.7 93.5
Insurance policy benefit reserves - 325.3
Other postretirement benefit costs 107.4 100.0
Other 184.5 137.6
--------- --------
848.8 1,131.8
--------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
--------- --------
$5,760.0 $5,348.4
========= ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
(In millions)
1997 1996 1995
------- ------ ------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Income from continuing operations $ 54.3 $250.7 $238.9
Adjustments for noncash items:
Depreciation and amortization 364.2 366.7 352.7
Extended nuclear outage - replacement power cost 73.3 - -
Provision for loss on investment in life insurance subsidiary 86.9 - -
Gain on sale of business - (44.2) -
Provision for loss on coal properties - 40.9 -
Deferred income taxes and investment tax credits, net (30.7) (56.6) (38.0)
Increase in accrued post-employment benefit costs 8.6 15.5 16.8
Net change in deferred insurance policy acquisition costs (1.7) (14.5) (14.5)
Net change in insurance policy benefit reserves 52.7 60.3 42.5
Changes in working capital, net of effects from acquisition or sale of
businesses:
Accounts receivable (108.3) 35.4 (35.2)
Inventories 2.2 (10.9) (29.1)
Overrecovery (underrecovery) of fuel cost (33.1) (82.3) 1.5
Accounts payable 58.3 21.6 16.4
Taxes payable (47.1) 21.0 (7.6)
Other 1.2 (13.5) 29.0
Other operating activities (38.2) (19.2) 7.3
-------- ------ ------
Cash provided by continuing operations 442.6 570.9 580.7
-------- ------ ------
Cash used by discontinued operations - (8.9) (17.6)
-------- ------ ------
442.6 562.0 563.1
-------- ------ ------
INVESTING ACTIVITIES:
Property additions (including allowance for borrowed funds used
during construction) (513.6) (264.0) (331.4)
Purchase of loans and securities, net (11.0) (70.4) (28.9)
Acquisition of businesses (32.7) (53.8) (9.2)
Cogeneration facility acquisition and contract termination costs (445.0) - -
Proceeds from sales of properties and businesses 24.3 61.1 13.1
Investing activities of discontinued operations - 56.5 69.8
Other investing activities (52.7) (37.0) (15.0)
-------- ------ ------
(1,030.7) (307.6) (301.6)
-------- ------ ------
FINANCING ACTIVITIES:
Issuance of long-term debt 482.8 178.0 -
Repayment of long-term debt (34.9) (190.4) (45.8)
Increase (decrease) in commercial paper with long-term support 130.6 (15.3) 1.0
Redemption of preferred stock - (106.4) (5.0)
Sale of common stock - 18.5 38.4
Equity contributions to discontinued operations - (23.7) -
Dividends paid on common stock (203.8) (199.5) (193.4)
Increase (decrease) in short-term debt 210.8 4.1 (55.3)
Financing activities of discontinued operations - 85.2 (9.7)
Other financing activities .5 (4.0) (1.2)
-------- ------ ------
586.0 (253.5) (271.0)
-------- ------ ------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (2.1) .9 (9.5)
Beginning cash and equivalents 5.2 4.3 13.8
-------- ------ ------
ENDING CASH AND EQUIVALENTS $ 3.1 $ 5.2 $ 4.3
======== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 142.7 $128.7 $135.5
Income taxes (net of refunds) $ 141.7 $189.3 $214.7
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1997, 1996 and 1995
(Dollars in millions, except per share amounts)
Cumulative
Unrealized Preferred Stock
Gain of Florida Power
(Loss) on ----------------
Securities Without With
Common Retained Available Sinking Sinking
Stock Earnings for Sale Funds Funds
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $1,148.1 $842.9 $ (6.6) $113.5 $30.0
Net income 238.9
Common stock issued - 1,245,267 shares 39.5
Cash dividends on common stock ($2.02 per share) (193.4)
Unrealized gain on marketable securities 8.7
Preferred stock redeemed - 50,000 shares (5.0)
- - ------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 1,187.6 888.4 2.1 113.5 25.0
Net income 224.4
Common stock issued - 586,555 shares 20.7
Echelon International stock dividend (194.5)
Cash dividends on common stock ($2.06 per share) (199.5)
Unrealized loss on marketable securities (2.7)
Preferred stock redeemed - 1,050,000 shares (2.3) (80.0) (25.0)
- - ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,208.3 716.5 (.6) 33.5 -
Net income 54.3
Common stock issued - 55,772 shares .7
Cash dividends on common stock ($2.10 per share) (203.8)
Reversal of unrealized loss on marketable securities
due to deconsolidation .6
- - ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $1,209.0 $567.0 $ - $ 33.5 $ -
- - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 48
FLORIDA POWER
Financial Statements
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
Statements of Income
For the years ended December 31, 1997, 1996 and 1995
(In millions)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING REVENUES: $2,448.4 $2,393.6 $2,271.7
-------- -------- --------
OPERATING EXPENSES:
Operation:
Fuel used in generation 458.1 409.7 431.3
Purchased power 490.6 531.6 436.5
Energy Conservation Cost Recovery 67.0 62.6 84.0
Operations and maintenance 422.3 413.4 393.7
Extended nuclear outage - O&M and
replacement fuel costs 173.3 - -
Depreciation 325.9 324.2 293.7
Taxes other than income taxes 193.6 183.6 176.2
Income taxes 69.9 135.8 129.5
-------- -------- --------
2,200.7 2,060.9 1,944.9
-------- -------- --------
OPERATING INCOME 247.7 332.7 326.8
-------- -------- --------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction 5.4 4.6 3.8
Miscellaneous other expense, net (4.2) (3.4) (2.6)
-------- -------- --------
1.2 1.2 1.2
-------- -------- --------
INTEREST CHARGES
Interest on long-term debt 102.4 86.6 93.5
Other interest expense 14.9 11.8 11.0
-------- -------- --------
117.3 98.4 104.5
Allowance for borrowed funds used
during construction (4.3) (2.9) (3.5)
-------- -------- --------
113.0 95.5 101.0
-------- -------- --------
NET INCOME 135.9 238.4 227.0
DIVIDENDS ON PREFERRED STOCK 1.5 5.8 9.7
-------- -------- --------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $134.4 $232.6 $217.3
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
Balance Sheets
For the years ended December 31, 1997, and 1996
(Dollars in millions)
1997 1996
----------- ----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
<S> <C> <C>
Electric utility plant in service and held $6,166.8 $5,965.6
for future use
Less - Accumulated depreciation 2,511.0 2,335.8
Accumulated decommissioning for nuclear plant 223.7 193.3
Accumulated dismantlement for fossil plants 128.5 119.6
----------- ----------
3,303.6 3,316.9
Construction work in progress 279.4 140.3
Nuclear fuel, net of amortization of $356.7
in 1997 and $356.7 in 1996 66.5 59.9
----------- ----------
3,649.5 3,517.1
Other property, net 33.2 13.3
----------- ----------
3,682.7 3,530.4
----------- ----------
CURRENT ASSETS:
Accounts receivable, less reserve of $3.2
in 1997 and $4.1 in 1996 243.9 174.7
Inventories at average cost:
Fuel 44.0 47.2
Materials and supplies 91.9 95.4
Underrecovery of fuel cost 34.5 82.6
Income tax receivable 13.5 -
Deferred income taxes 5.8 35.6
Other 32.2 6.2
----------- ----------
465.8 441.7
----------- ----------
OTHER ASSETS:
Nuclear plant decommissioning fund 266.7 207.8
Unamortized debt expense, being amortized
over term of debt 25.0 25.0
Deferred purchased power contract
termination costs 348.2 -
Other 112.4 59.1
----------- ----------
752.3 291.9
----------- ----------
$4,900.8 $4,264.0
=========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
Balance Sheets
For the years ended December 31, 1997, and 1996
(Dollars in millions)
1997 1996
----------- -----------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
<S> <C> <C>
Common stock $1,004.4 $1,004.4
Retained earnings 763.1 821.1
---------- ----------
1,767.5 1,825.5
CUMULATIVE PREFERRED STOCK:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 1,745.4 1,296.4
---------- ----------
TOTAL CAPITAL 3,546.4 3,155.4
---------- ----------
CURRENT LIABILITIES:
Accounts payable 161.9 115.5
Accounts payable to associated companies 26.5 21.2
Customers' deposits 97.1 81.7
Income taxes payable - 10.4
Accrued other taxes 7.9 10.0
Accrued interest 45.7 34.8
Other 59.2 47.3
---------- ----------
398.3 320.9
Notes payable 179.8 4.1
Current portion of long-term debt 1.5 21.3
---------- ----------
579.6 346.3
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 451.3 472.3
Unamortized investment tax credits 85.1 92.8
Other postretirement benefit costs 104.7 96.5
Other 133.7 100.7
---------- ----------
774.8 762.3
---------- ----------
$4,900.8 $4,264.0
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
(In millions)
1997 1996 1995
---------- ---------- ---------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income after dividends on preferred stock $134.4 $232.6 $217.3
Adjustments for noncash items:
Depreciation and amortization 333.8 341.1 329.7
Extended nuclear outage - replacement power costs 73.3 - -
Deferred income taxes and investment tax credits, net (15.2) (32.8) (29.3)
Increase in accrued other postretirement benefit costs 8.3 14.9 16.1
Allowance for equity funds used during construction (5.4) (4.6) (3.8)
Changes in working capital:
Accounts receivable (69.2) 16.2 (33.4)
Inventories 6.7 (.5) 14.2
Overrecovery (underrecovery) of fuel cost (33.1) (82.3) 1.5
Accounts payable 46.4 25.7 4.8
Accounts payable to associated companies 5.3 (3.5) 3.4
Taxes payable (26.0) (.8) 2.8
Other 12.3 (12.1) 39.5
Other operating activities (38.8) 3.8 8.6
--------- --------- --------
432.8 497.7 571.4
--------- --------- --------
INVESTING ACTIVITIES:
Construction expenditures (387.2) (217.3) (283.4)
Allowance for borrowed funds used during construction (4.3) (2.9) (3.5)
Additions to nonutility property (3.5) (2.7) (2.3)
Acquisition cogeneration facility and
payment of contract termination costs (445.0) - -
Proceeds from sale of properties 19.7 5.5 10.8
Other investing activities (22.2) (27.6) (11.0)
--------- --------- --------
(842.5) (245.0) (289.4)
--------- --------- --------
FINANCING ACTIVITIES:
Issuance of long-term debt 447.7 - -
Repayment of long-term debt (21.3) (47.3) (35.4)
Increase (decrease) in commercial paper with
long term support - 54.8 (54.8)
Redemption of preferred stock - (106.3) (5.0)
Dividends paid on common stock (192.4) (171.3) (180.7)
Equity contributions from parent - 12.5 50.0
Increase (decrease) in short-term debt 175.7 4.1 (55.3)
--------- --------- --------
409.7 (253.5) (281.2)
--------- --------- --------
NET INCREASE IN CASH AND EQUIVALENTS - (.8) .8
Beginning cash and equivalents - .8 -
--------- --------- --------
ENDING CASH AND EQUIVALENTS $ - $ - $0.8
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $98.9 $90.7 $97.9
Income taxes (net of refunds) $108.4 $166.9 $157.1
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
Statements of Shareholder's Equity
For the years ended December 31, 1997, 1996 and 1995
(Dollars in millions, except share amounts)
Cumulative
Preferred Stock
--------------------
Without With
Common Retained Sinking Sinking
Stock Earnings Funds Funds
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $942.9 $724.5 $113.5 $30.0
Net income after dividends on
preferred stock 217.3
Capital contribution by parent company 50.0
Cash dividends on common stock (180.7)
Preferred stock redeemed -
50,000 shares (5.0)
-------- ---------- --------- ---------
Balance, December 31, 1995 992.9 761.1 113.5 25.0
Net income after dividends on
preferred stock 232.6
Capital contribution by parent company 12.5
Cash dividends on common stock (171.3)
Preferred stock redemption costs (1.3)
Premium on preferred stock redemption (1.0)
Preferred stock redeemed -
1,050,000 shares (80.0) (25.0)
--------- --------- ---------- --------
Balance, December 31, 1996 1,004.4 821.1 33.5 -
Net income after dividends on
preferred stock 134.4
Cash dividends on common stock (192.4)
--------- --------- ---------- --------
Balance, December 31, 1997 $1,004.4 $763.1 $33.5 $ -
========= ========= ========= ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 53
FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL -- Florida Progress is an exempt holding company under the Public
Utility Holding Company Act of 1935. Its largest subsidiary, representing 85% of
total assets, is Florida Power Corporation, a public utility engaged in the
generation, purchase, transmission, distribution and sale of electric energy
primarily within Florida.
The consolidated financial statements include the financial results of Florida
Progress and its majority-owned operations. All significant intercompany
balances and transactions have been eliminated. Investments in 20%- to 50%-owned
joint ventures are accounted for using the equity method.
Effective December 31, 1997, Florida Progress deconsolidated the financial
statements of Mid-Continent. Florida Progress' investment in Mid-Continent will
prospectively be accounted for under the cost method. The deconsolidation has
not been reflected in the financial statements of prior periods.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
This could affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. These
estimates involve judgments with respect to various items including various
future economic factors which are difficult to predict and are beyond the
control of Florida Progress. Therefore actual results could differ from these
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 Financial Accounting
Standard (FAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." This standard allows utilities to capitalize or defer certain costs
or revenues based on regulatory approval and management's ongoing assessment
that it is probable these items will be recovered through the ratemaking
process.
Florida Power has total regulatory assets (liabilities) at December 31, 1997 and
1996 as detailed below:
<TABLE>
<CAPTION>
1997 1996
(In millions)
-----------------
Deferred purchased power
<S> <C> <C>
contract termination costs $348.2 $ -
Replacement fuel (extended nuclear outage) 55.0 -
Underrecovery of fuel costs 34.5 82.6
Revenue decoupling 21.8 (3.6)
Unamortized loss on reacquired debt 16.8 18.4
Other regulatory assets, net 25.2 24.6
------------------
Net regulatory assets $501.5 $122.0
==================
</TABLE>
The utility expects to fully recover these assets and refund the liabilities
through customer rates under current regulatory practice.
If Florida Power no longer applied FAS No. 71 due to competition, regulatory
changes or other reasons, the utility would make certain adjustments. These
adjustments 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.
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
<PAGE>54
used during construction. Substantially all of the utility plant is pledged as
collateral for Florida Power's first mortgage bonds.
The allowance for funds used during construction represents the estimated cost
of equity and debt for utility plant under construction. Florida Power is
permitted to earn a return on these costs and recover them in the rates charged
for utility services while the plant is in service. The average rate used in
computing the allowance for funds was 7.8%.
UTILITY REVENUES, FUEL AND PURCHASED POWER EXPENSES -- Revenues include amounts
resulting from fuel, purchased power and energy conservation adjustment clauses,
which are designed to permit full recovery of these costs. The adjustment
factors are based on projected costs for a 6 or 12-month period. The cumulative
difference between actual and billed costs is included on the balance sheet as a
current regulatory asset or liability. Any difference is billed or refunded to
customers during the subsequent period.
In December 1997, Florida Power ended the three-year test period for residential
revenue decoupling which was ordered by the FPSC and began in January 1995.
Decoupling eliminates the direct link between kilowatt-hour sales and revenues.
A nonfuel revenue target is determined by multiplying a revenue per customer
amount by the total number of residential customers. Differences between target
revenues and actual revenues are included as a regulatory asset or liability on
the balance sheet. The regulatory asset at December 31, 1997 will be collected
from customers beginning April 1998 through the energy conservation cost
recovery clause as directed by the FPSC decoupling order.
Florida Power accrues the nonfuel portion of base revenues for services rendered
but unbilled.
The cost of nuclear fuel is amortized to expense based on the quantity of heat
produced for the generation of electric energy in relation to the quantity of
heat expected to be produced over the life of the nuclear fuel core.
INCOME TAXES -- Deferred income taxes are provided on all significant temporary
differences between the financial and tax basis of assets and liabilities using
presently enacted tax rates in accordance with FAS No. 109, "Accounting for
Income Taxes."
Deferred investment tax credits, subject to regulatory accounting practices, are
amortized to income over the lives of the related properties.
DEPRECIATION AND MAINTENANCE -- Florida Power provides for depreciation of the
cost of properties over their estimated useful lives primarily on a
straight-line basis. Florida Power's annual provision for depreciation,
including a provision for nuclear plant decommissioning costs and fossil plant
dismantlement costs, expressed as a percentage of the average balances of
depreciable utility plant, was 4.8% for 1997, 4.9% for 1996 and 5% for 1995.
The Financial Accounting Standards Board ("FASB") is in the process of modifying
its project addressing the accounting for obligations related to the
decommissioning of nuclear power plants.
The fossil plant dismantlement accrual has been suspended for a period of four
years, beginning July 1, 1997. (See Note 9 contained herein.)
Florida Power charges maintenance expense with the cost of repairs and minor
renewals of property. The plant accounts are charged with the cost of renewals
and replacements of property units. Accumulated depreciation is charged with the
cost, less the net salvage, of property units retired.
Florida Power accrues a reserve for maintenance and refueling expenses
anticipated to be incurred during scheduled nuclear plant outages.
INSURANCE PREMIUMS, POLICY ACQUISITION COSTS AND BENEFIT RESERVES -- Accounting
policies governing the recognition of income and expense for the life insurance
subsidiary were in effect until December 31, 1997.
Due to the deconsolidation of the financial results of Mid-Continent in the
Florida Progress' consolidated financial statements, accounting policies
<PAGE> 55
relating to the balance sheet were in effect only for amounts presented in the
1996 Florida Progress Consolidated Balance Sheet.
Life insurance premiums are recognized as revenues over the premium-paying
periods of the policies.
Florida Progress defers recoverable costs in its insurance operations that
directly relate to the production of new business. These costs are amortized
over the expected premium-paying period. Benefit reserves are established out of
each premium payment to provide for the present value of future insurance policy
benefits. Florida Progress reviews the adequacy and recoverability of the
deferred acquisition costs and the benefit reserves based on a gross premium
reserve analysis of the in-force business.
Significant assumptions used in this analysis include estimates of future
premium increases, mortality rates, withdrawal rates, expense rates, and
investment yield. The assumptions are based on Florida Progress' actual
experience adjusted for the effect of future actions affecting the in-force
business. Although these assumptions are Florida Progress' best estimate of the
future experience, actual results may vary in either direction and could
significantly impact income in the period of change.
ACCOUNTING FOR CERTAIN INVESTMENTS -- Florida Progress considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. Florida Progress' investments in debt and equity securities
are classified and accounted for as follows:
Type of Security Accounting Treatment
Debt securities held to maturity Amortized cost
- - ------------------------------------------------------------------------------
Trading securities Fair market value with unrealized gains
and losses included in earnings
- - ------------------------------------------------------------------------------
Securities available for sale Fair market value with unrealized gains
and losses, net of taxes, reported
separately in shareholders' equity
- - ------------------------------------------------------------------------------
See Note 2 for securities held to maturity or available for sale. Florida
Progress had no investments in assets classified as trading securities at
December 31, 1996 and only held securities classified as available for sale at
December 31, 1997. A decline in the market value of any security
available-for-sale or held-to-maturity that falls below cost results in a
reduction in carrying amount to fair value if the decline is not considered
temporary. The impairment is charged to earnings and a new cost basis for the
security is established. Premiums and discounts are amortized or accreted over
the life of the related held-to-maturity security as an adjustment to yield
using the effective interest method. Dividend and interest income are recognized
when earned.
ACCOUNTING FOR LONG-LIVED ASSETS -- Long-lived assets and certain identifiable
intangibles subject to the provisions of FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. FAS No. 121 also
amends FAS No. 71, "Accounting for the Effects of Certain Types of Regulation,"
to require that regulatory assets, which include certain deferred charges, be
charged to earnings if such assets are no longer considered probable of
recovery. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
<PAGE> 56
STOCK-BASED COMPENSATION -- Under its Long-Term Incentive Plan ("LTIP"), Florida
Progress grants selected executives performance shares, which upon achievement
of performance criteria for a three-year performance cycle can result in the
award of shares of common stock of Florida Progress or cash if certain stock
ownership requirements are met. Florida Progress accounts for its LTIP in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," as allowed under FAS No.
123, "Accounting for Stock-Based Compensation."
ENVIRONMENTAL -- Florida Progress adopted the American Institute of Certified
Public Accountants Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities" on January 1, 1997. The SOP requires, among other
things, environmental remediation liabilities to be accrued when the criteria of
FAS No. 5, "Accounting for Contingencies," have been met. The SOP also provides
guidance with respect to the measurement of remediation liabilities.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such accounting is consistent with Florida Progress'
current method of accounting for environmental remediation costs and, therefore,
adoption of this new statement did not have a material impact on Florida
Progress' financial position, results of operations or liquidity.
NEW ACCOUNTING STANDARDS -- In June 1996, the FASB issued FAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." FAS No. 125 provides accounting and reporting standards
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to be applied
prospectively. There was no material effect on net income as a result of
adopting this standard.
In February 1997, the FASB issued FAS No. 128, "Earnings per Share," ("EPS"). It
replaces the standards for computing EPS under APB Opinion No. 15, "Earnings per
Share," and makes the computations comparable to international EPS standards.
Florida Progress adopted this statement for financial statements issued for the
period ended December 31, 1997. Adoption of this statement did not have an
impact on earnings per share, therefore no restatement was necessary for prior
periods.
Also in February 1997, the FASB issued FAS No. 129, "Disclosure of Information
about Capital Structure," which designates certain disclosure requirements for
public and nonpublic entities. Florida Progress adopted this statement for
financial statements issued for the period ended December 31, 1997. As Florida
Progress already disclosed the information required by FAS No. 129, adoption of
this statement did not have any effect on the financial disclosures of Florida
Progress.
In June 1997, the FASB issued FAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting comprehensive income. The standard
defines comprehensive income as all changes in equity of an enterprise during a
period except those resulting from shareholder transactions. All components of
comprehensive income are required to be reported in a financial statement that
is displayed with equal prominence as existing financial statements. Florida
Progress will be required to adopt this statement January 1, 1998. As the
standard addresses reporting and presentation issues only, there will be no
impact on earnings from the adoption of this standard.
Also in June 1997, the FASB issued FAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which establishes standards for
additional disclosure about operating segments for interim and annual financial
statements. The standard requires financial and descriptive information be
disclosed for segments meeting certain materiality criteria whose operating
results are reviewed for decisions on resource allocation and for which discrete
financial information is available. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
Florida Progress will be required to adopt this statement for financial
statements for the fiscal year ending December 31, 1998 and for interim periods
<PAGE> 57
thereafter. As the standard addresses reporting and disclosure issues only,
there will be no impact on earnings from the adoption of this standard.
In January 1998, the FASB issued FAS No. 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits" which revises current note
disclosure requirements for employers' pensions and other retiree benefits.
Florida Progress will be required to adopt this statement for financial
statements for the year ending December 31, 1998. The standard addresses
reporting and disclosure issues only, and there will be no impact on earnings
from the adoption of this standard.
NOTE 2 FINANCIAL INSTRUMENTS
Estimated fair value amounts have been determined by Florida Progress using
available market information and discounted cash-flow analysis. Judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates may be different than the amounts that Florida
Progress could realize in a current market exchange.
Florida Progress' exposure to market risk for changes in interest rates relates
primarily to Florida Progress' marketable securities and long-term debt
obligations.
At December 31, 1997, Florida Power held a single forward treasury lock
agreement to effectively fix the treasury rate component of an anticipated
issuance of $150 million of medium-term notes in February 1998. The financial
impact of this contract, which will result in either a cash payment or receipt,
will be deferred and recognized as an adjustment to interest expense over the
life of the new notes. Florida Progress had no derivative financial instruments
outstanding at December 31, 1996.
At December 31, 1997 and 1996, Florida Progress had the following financial
instruments with estimated fair values and carrying amounts:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
ASSETS:
Loans receivable:
<S> <C> <C> <C> <C>
Echelon International $ - $ - $ 32.9 $ 32.9
Life insurance business:
Loans secured by real estate - - 4.1 4.4
Policy loans - - 11.0 10.1
--------- -------- ------- -------
$ - $ - $ 48.0 $ 47.4
========= ======== ======= =======
Marketable securities:
Available for sale:
Life insurance business $ - $ - $ 144.6 $ 144.6
Nuclear decommissioning fund 266.7 266.7 207.8 207.8
Held to maturity - - 73.3 76.8
CAPITAL AND LIABILITIES:
Long-term debt:
Florida Power Corporation $1,746.9 $1,801.1 $1,317.7 $1,335.3
Progress Capital Holdings 646.1 656.5 494.1 497.1
</TABLE>
The December 31, 1997 balances reflect the deconsolidation of Mid-Continent
Life's financial statements from Florida Progress' consolidated financial
statements. (See Note 11 contained herein).
<PAGE> 58
NOTE 3 INCOME TAXES
FLORIDA PROGRESS
(In millions) 1997 1996 1995
- - ----------------------------------------------------------------------------
Components of income tax expense:
Payable currently:
Federal $86.6 $179.7 $157.3
State 10.5 23.0 18.8
- - ----------------------------------------------------------------------------
97.1 202.7 176.1
- - ----------------------------------------------------------------------------
Deferred, net:
Federal (22.4) (41.9) (27.5)
State (.5) (6.9) (2.0)
- - ----------------------------------------------------------------------------
(22.9) (48.8) (29.5)
- - ----------------------------------------------------------------------------
Amortization of investment
tax credits, net (7.8) (8.0) (8.5)
- - ----------------------------------------------------------------------------
$66.4 $145.9 $138.1
============================================================================
FLORIDA POWER
(In millions) 1997 1996 1995
- - ----------------------------------------------------------------------------
Components of income tax expense:
Payable currently:
Federal $73.5 $143.6 $136.8
State 11.6 24.9 22.1
- - ----------------------------------------------------------------------------
85.1 168.5 158.9
- - ----------------------------------------------------------------------------
Deferred, net:
Federal (7.6) (20.9) (18.9)
State .2 (4.0) (1.9)
- - ----------------------------------------------------------------------------
(7.4) (24.9) (20.8)
- - ----------------------------------------------------------------------------
Amortization of investment
tax credits, net (7.8) (7.9) (8.5)
- - ----------------------------------------------------------------------------
Total income tax expense 69.9 135.7 129.6
Less: Amounts charged or (credited)
to non-operating income -- (.1) .1
- - ----------------------------------------------------------------------------
Amounts charged to operating income $69.9 $135.8 $129.5
============================================================================
<PAGE> 59
The primary differences between the statutory rates and the effective income tax
rates are detailed below:
FLORIDA PROGRESS
1997 1996 1995
- - ----------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
income tax benefits 5.4 2.6 2.8
Amortization of investment tax credits (6.4) (2.0) (2.2)
Provision for loss on investment in
life insurance subsidiary 24.9 - -
Other (4.5) .6 .1
- - ----------------------------------------------------------------------------
Effective income tax rates 54.4% 36.2% 35.7%
============================================================================
FLORIDA POWER
1997 1996 1995
- - ----------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
income tax benefits 3.7 3.6 3.7
Amortization of investment tax credits (3.8) (2.2) (2.4)
Other (.9) - -
- - ----------------------------------------------------------------------------
Effective income tax rates 34.0% 36.4% 36.3%
============================================================================
The following summarizes the components of deferred tax liabilities and assets
at December 31, 1997 and 1996:
FLORIDA PROGRESS
(In millions) 1997 1996
- - ---------------------------------------------------------------------------
Deferred tax liabilities:
Difference in tax basis of property,
plant and equipment $539.0 $544.1
Deferred acquisition costs - 35.9
Investment in partnerships 19.7 20.1
Deferred book expenses 34.1 12.7
Other 29.7 22.9
- - ---------------------------------------------------------------------------
Total deferred tax liabilities $622.5 $635.7
===========================================================================
Deferred tax assets:
Loss reserves not currently deductible $ 17.0 $ 69.5
Accrued book expenses 110.8 90.6
Unbilled revenues 17.6 17.6
Other 11.7 18.2
- - ---------------------------------------------------------------------------
Total deferred tax assets $157.1 $195.9
===========================================================================
At December 31, 1997 and 1996, Florida Progress had net noncurrent deferred tax
liabilities of $471.2 million and $475.4 million and net current deferred tax
assets of $5.8 million and $35.6 million, respectively. Florida Progress expects
the results of future operations will generate sufficient taxable income to
allow for the utilization of deferred tax assets.
<PAGE> 60
FLORIDA POWER
(In millions) 1997 1996
- - --------------------------------------------------------------------------
Deferred tax liabilities:
Difference in tax basis of property,
plant and equipment $506.3 $516.0
Deferred book expenses 34.1 12.7
Under recovery of fuel 2.8 2.8
Carrying value of securities over cost 15.0 7.7
Other 1.5 -
-------------------------------------------------------------------------
Total deferred tax liabilities $559.7 $539.2
==========================================================================
Deferred tax assets:
Accrued book expenses $ 95.0 $ 76.5
Unbilled revenues 17.6 17.6
Regulatory liability for deferred income taxes 1.6 4.4
Other - 4.0
- - --------------------------------------------------------------------------
Total deferred tax assets $114.2 $102.5
==========================================================================
At December 31, 1997 and 1996, Florida Power had net noncurrent deferred tax
liabilities of $451.3 million and $472.3 million and net current deferred tax
assets of $5.8 million and $35.6 million, respectively. Florida Power expects
the results of future operations will generate sufficient taxable income to
allow the utilization of deferred tax assets.
NOTE 4 NUCLEAR OPERATIONS
Florida Power's Crystal River nuclear plant began an extended outage in
September 1996, which caused Florida Power to incur $100 million in additional
operation and maintenance expenses in 1997. The plant was placed on the NRC's
"Watch List" in January 1997, as a plant whose operations will be closely
monitored until Florida Power demonstrates a period of improved performance. In
January 1998, the NRC granted Florida Power permission to restart the plant.
(See Note 9 contained herein.)
JOINTLY OWNED PLANT - The following information relates to Florida Power's 90.4%
proportionate share of the nuclear plant at December 31, 1997 and 1996:
(In millions) 1997 1996
- - ------------------------------------------------------------
Utility plant in service $673.8 $643.6
Construction work in progress 49.3 14.8
Unamortized nuclear fuel 66.5 59.9
Accumulated depreciation 341.0 309.5
Accumulated decommissioning 223.7 193.3
============================================================
Net capital additions/(retirements) for Florida Power were $64.7 million in 1997
and $(16.5) million in 1996. Depreciation expense, exclusive of nuclear
decommissioning, was $29 million in 1997 and $28.3 million in 1996. Each
co-owner provides for its own financing. Florida Power's share of the asset
balances and operating costs is included in the appropriate consolidated
financial statements. Amounts exclude any allocation of costs related to common
facilities.
DECOMMISSIONING COSTS -- Florida Power's nuclear plant depreciation expenses
include a provision for future decommissioning costs, which are recoverable
through rates charged to customers. Florida Power is placing amounts collected
in an externally managed trust fund. The recovery from customers, plus income
earned on the trust fund, is intended to be sufficient to cover Florida Power's
share of the future dismantlement, removal and land restoration costs. Florida
Power has a license to operate the nuclear unit through December 3, 2016, and
contemplates decommissioning beginning at that time.
<PAGE> 61
In November 1995, the FPSC approved a new site-specific study that estimated
total future decommissioning costs at approximately $2 billion, which
corresponds to $453.8 million in 1997 dollars. Florida Power's share of the
retail portion of annual decommissioning expense is $20.5 million. Florida
Power's annual expense for the wholesale portion is $1.2 million.
FUEL DISPOSAL COSTS -- Florida Power has entered into a contract with the U.S.
Department of Energy (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 2010.
NOTE 5 PREFERRED AND PREFERENCE STOCK AND SHAREHOLDER RIGHTS
The authorized capital stock of Florida Progress includes 10 million shares of
preferred stock, without par value, including 2 million shares designated as
Series A Junior Participating Preferred Stock. No shares of Florida Progress'
preferred stock are issued and outstanding. However, under the Florida Progress
Shareholder Rights Agreement, each share of common stock has associated with it
approximately two-thirds of one right to purchase one one-hundredth of a share
of Series A Junior Participating Preferred Stock, subject to adjustment, which
is exercisable in the event of certain attempted business combinations. If
exercised, the rights would cause substantial dilution of ownership, thus
adversely affecting any attempt to acquire Florida Progress on terms not
approved by Florida Progress' Board of Directors. The rights have no voting or
dividend rights and expire in December 2001, unless redeemed earlier by Florida
Progress.
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. A total of 334,967 shares, of the 335,000 authorized, of
Cumulative Preferred Stock, $100 par value, were issued and outstanding at
December 31, 1997 and 1996.
Florida Power redeemed 1,050,000 shares of its Cumulative Preferred Stock in
1996 and 50,000 shares in 1995.
Cumulative Preferred Stock for Florida Power is detailed below:
Current Outstanding at
Dividend Redemption Shares December 31,
Rate Price Outstanding 1997 & 1996
(In millions)
- - ------------------------------------------------------------------
4.00% $104.25 39,980 $ 4.0
4.40% $102.00 75,000 7.5
4.58% $101.00 99,990 10.0
4.60% $103.25 39,997 4.0
4.75% $102.00 80,000 8.0
- - ------------------------------------------------------------------
334,967 $33.5
==================================================================
All Cumulative Preferred Stock series are without sinking funds and are not
subject to mandatory redemption.
<PAGE> 62
NOTE 6 DEBT
Florida Progress' long-term debt at December 31, 1997 and 1996, is scheduled to
mature as follows:
<TABLE>
<CAPTION>
Interest Rate 1997 1996
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Power Corporation
(In millions)
First mortgage bonds:
Maturing in 1999 6.50% $ 75.0 $ 75.0
Maturing 2002 and 2003 6.50%(a) 280.0 280.0
Maturing 2008 6.88% 80.0 80.0
Maturing 2021 through 2023 7.98%(a) 400.0 400.0
Pollution control revenue bonds:
Maturing 2014 through 2027 6.59%(a) 240.9 240.9
Notes maturing
1997-1998 6.67% 1.5 22.8
1999-2008 6.60%(a) 474.5 24.5
Commercial paper, supported by revolver maturing November 30, 2002 5.85%(a) 200.0 200.0
Discount, net of premium, being amortized over term of bonds (5.0) (5.5)
- - -----------------------------------------------------------------------------------------------------------------
1,746.9 1,317.7
Progress Capital Holdings:
Notes maturing:
1997-1998 9.90% 10.0 20.0
1999-2008 6.90%(a) 329.0 294.0
Commercial paper, supported by revolver maturing November 30, 2002 5.92%(a) 300.0 169.4
Other debt, maturing through 2006 6.78%(a) 7.1 10.7
- - -----------------------------------------------------------------------------------------------------------------
2,393.0 1,811.8
Less: Current portion of long-term debt 15.2 34.9
- - -----------------------------------------------------------------------------------------------------------------
$2,377.8 $1,776.9
=================================================================================================================
(a) Weighted average interest rate at December 31, 1997.
</TABLE>
Florida Progress' consolidated subsidiaries have lines of credit totaling $900
million, which are used to support commercial paper. The lines of credit were
not drawn on as of December 31, 1997. Interest rate options under the line of
credit arrangements vary from subprime or money market rates to the prime rate.
Banks providing lines of credit are compensated through fees. Commitment fees on
lines of credit vary between .06 and .10 of 1%.
The lines of credit consist of four revolving bank credit facilities, two each
for Florida Power and Progress Capital Holdings, Inc. The Florida Power
facilities consist of $300 million with a 364-day term and $200 million with a
five-year term. The Progress Capital facilities consist of $100 million with a
364-day term and $300 million with a five-year term. In 1997, both 364-day
facilities were extended to November 1998. In addition, both five-year
facilities were extended to November 2002. Based on the duration of the
underlying backup credit facilities, $500 million of outstanding commercial
paper at December 31, 1997, and $369.4 million of outstanding commercial paper
at December 31, 1996, are classified as long-term debt. Additionally, as of
December 31, 1997 Florida Power and Progress Capital Holdings had $179.8 million
and $35.0 million, respectively of outstanding commercial paper classified as
short-term debt.
Florida Power has a public medium-term note program providing for the issuance
of either fixed or floating interest rate notes. These notes have maturities
ranging from nine months to 30 years. A balance of $400 million is available for
issuance.
Florida Power has registered $370 million of first mortgage bonds which are
unissued and available for issuance.
Progress Capital has a private medium-term note program providing for the
issuance of either fixed or floating interest rate notes, with maturities
ranging from nine months to 30 years. A balance of $87 million is available for
issuance under this program.
The combined aggregate maturities of long-term debt for 1998 through 2002 are
$15.2 million, $143.6 million, $77.6 million, $183.0 million and $632.2 million,
respectively. In addition, about 12% of Florida Power's outstanding first
mortgage bonds have an annual 1% sinking fund requirement. These requirements,
<PAGE> 63
which total $1 million annually for 1998 through 2002, are expected to be
satisfied with property additions.
Florida Progress has unconditionally guaranteed the payment of Progress
Capital's debt as defined in an amended and restated support agreement.
NOTE 7 RETIREMENT BENEFIT PLANS
Pension Benefits -- Florida Progress and certain of its subsidiaries have a
noncontributory defined benefit pension plan covering most employees. The
benefits are based on length of service, compensation and Social Security
benefits. The participating companies make annual contributions to the plan
based on an actuarial determination and consideration of tax regulations and
funding requirements under federal law. Based on actuarial calculations and the
funded status of the pension plan, Florida Progress was not required to
contribute to the plan for 1997, 1996 or 1995.
Shown below are the components of the net pension expense calculations for those
years:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 15.3 $ 16.2 $ 13.4
Interest cost 33.4 31.3 30.1
Actual earnings on plan assets (131.6) (88.0) (124.4)
Net amortization and deferral 64.0 29.5 77.7
- - ------------------------------------------------------------------------------
Net pension benefit recognized $ (18.9) $(11.0) $ (3.2)
==============================================================================
</TABLE>
Florida Power's share of the plan's pension benefits for 1997, 1996 and 1995 was
$(18.4) million, $(10.3) million and $(3.0) million, respectively.
The following weighted average actuarial assumptions at January 1 were used in
the calculation of pension expense:
<TABLE>
<CAPTION>
1997 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.50% 7.25% 8.25%
Expected long-term rate of return 9.00% 9.00% 9.00%
Rate of compensation increase 4.50% 4.50% 5.00%
==============================================================================
</TABLE>
{THIS SPACE INTENTIONALLY LEFT BLANK}
<PAGE> 64
The following summarizes the funded status of the pension plan at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
(In millions) 1997 1996
- - ---------------------------------------------------------------------
Accumulated benefit obligation:
<S> <C> <C>
Vested $359.3 $326.1
Nonvested 40.8 31.5
- - ---------------------------------------------------------------------
400.1 357.6
Effect of projected compensation increases 100.1 94.4
- - ---------------------------------------------------------------------
Projected benefit obligation 500.2 452.0
Plan assets at market value, primarily listed
stocks and bonds 769.0 655.0
- - ---------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation $268.8 $203.0
=====================================================================
Consisting of the following components:
Unrecognized transition asset $ 25.5 $ 30.4
Unrecognized prior service cost (14.7) (6.3)
Unrecognized net actuarial gains 236.7 176.4
Prepaid pension costs 21.3 2.5
- - ----------------------------------------------------------------------
$268.8 $203.0
======================================================================
</TABLE>
Due to changes in interest rates, Florida Progress used a discount rate of 7.25%
to calculate the pension plan's 1997 year-end funded status. The change in the
discount rate from 7.5% at December 31, 1996, to 7.25% at December 31, 1997,
increased the projected benefit obligation by $17.4 million and is expected to
increase the annual pension costs by $1.8 million, beginning in 1998.
In 1997 the Board of Directors approved a restructuring of the Plan effective
January 1, 1998. The existing plan will be split into two separate plans, one
covering eligible bargaining unit employees and the other covering all other
eligible employees. Plan assets will be allocated to each plan in accordance
with applicable law. The restructuring is expected to have a minimal effect on
funded status and periodic pension costs.
OTHER POST-RETIREMENT BENEFITS -- Florida Progress and some of its subsidiaries
provide certain health care and life insurance benefits for retired employees.
Employees become eligible for these benefits when they reach retirement age
while working for Florida Progress.
The net post-retirement benefit costs for 1997, 1996 and 1995 are detailed
below:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 3.2 $ 5.3 $ 5.1
Interest cost 10.4 12.4 13.5
Amortization of unrecognized
transition obligation 3.4 6.1 6.1
Actual earnings on plan assets (.4) (.3) (.3)
- - ---------------------------------------------------------------------------
$16.6 $23.5 $24.4
===========================================================================
</TABLE>
<PAGE> 65
The following summarizes the plan's status, reconciled with amounts recognized
in Florida Progress' balance sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(In millions) 1997 1996
- - ----------------------------------------------------------------------------
Accumulated post-retirement benefit obligation:
<S> <C> <C>
Retirees $ 92.7 $100.4
Fully eligible active plan participants 1.2 3.1
Other active plan participants 59.3 81.2
Plan assets at fair value,
primarily municipal securities (6.4) (4.7)
- - ----------------------------------------------------------------------------
146.8 180.0
Unrecognized transition obligation (55.0) (97.2)
Unrecognized net gains 15.6 17.2
- - ----------------------------------------------------------------------------
Accrued post-retirement benefit cost $107.4 $100.0
============================================================================
</TABLE>
Florida Power's share of the plan's net post-retirement benefit cost for 1997,
1996 and 1995 was $16.2 million, $22.7 million and $23.5 million, respectively.
The following weighted average actuarial assumptions were used in the
calculation of the year-end status of other post-retirement benefits:
1997 1996
- - ------------------------------------------------------------------
Discount rate 7.25% 7.50%
Rate of compensation increase 4.50% 4.50%
Health care cost trend rates:
Pre-Medicare 9.00%-5.00% 9.50%-5.25%
Post-Medicare 7.25%-4.75% 7.50%-5.00%
==================================================================
The transition obligation is being accrued through 2012. A one-percentage point
increase in the assumed health care cost trend rate for each future year would
have increased the 1997 current service and interest cost by approximately $.8
million and the accumulated post-retirement benefit obligation as of December
31, 1997, by about $9.6 million. The change in the discount rate from 7.5% at
December 31, 1996, to 7.25% at December 31, 1997, increased the projected
benefit obligation by $4.4 million and is expected to increase annual
post-retirement benefit costs by $.3 million, beginning in 1998.
Due to different retail and wholesale regulatory rate requirements, Florida
Power began making quarterly contributions in 1995 to an irrevocable external
trust fund for wholesale ratemaking, while continuing to accrue postretirement
benefit costs to an unfunded reserve for retail ratemaking. Florida Power
contributed approximately $1.3 million in both 1997 and 1996, to the trust fund.
NOTE 8 BUSINESS SEGMENTS
Florida Progress' principal business segments are utility and diversified
operations. The utility is engaged in the generation, purchase, transmission,
distribution and sale of electric energy. Electric Fuels Corporation's (Electric
Fuels) operations include energy and related services, inland marine
transportation and rail services. Other diversified operations include ownership
of a life insurance subsidiary.
<PAGE> 66
Florida Progress' business segment information for 1997, 1996 and 1995 is
summarized below. No single customer accounted for 10% or more of unaffiliated
revenues.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
Revenues:
<S> <C> <C> <C>
Utility $2,448.4 $2,393.6 $2,271.7
Diversified:
Electric Fuels, combined:
Coal sales to electric utility 285.1 272.1 236.8
Sales to external customers 751.4 609.0 607.0
Other 115.8 155.3 129.1
- - --------------------------------------------------------------------------------
3,600.7 3,430.0 3,244.6
Eliminations (285.1) (272.1) (236.8)
- - --------------------------------------------------------------------------------
Revenues from external customers $3,315.6 $3,157.9 $3,007.8
================================================================================
Income from operations:
Utility $ 317.6 $ 468.5 $ 456.3
Diversified:
Electric Fuels recurring, combined 71.5 61.4 52.1
Electric Fuels loss provision - (40.9) -
Loss related to life insurance subsidiary (97.6) - -
Other diversified (18.9) (6.6) .5
- - --------------------------------------------------------------------------------
272.6 482.4 508.9
Interest and other expense 151.9 85.8 131.9
- - --------------------------------------------------------------------------------
Income from continuing operations
before income taxes $ 120.7 $ 396.6 $ 377.0
================================================================================
Identifiable assets:
Utility $ 4,887.0 $4,263.7 $ 4,284.7
Diversified:
Electric Fuels, combined 799.1 619.8 573.6
Other diversified 73.9 464.9 692.1
- - --------------------------------------------------------------------------------
$ 5,760.0 $5,348.4 $ 5,550.4
================================================================================
Depreciation and amortization:
Utility $ 333.8 $ 341.1 $ 329.7
Diversified:
Electric Fuels, combined 27.4 23.5 21.2
Other diversified 3.0 2.1 1.8
- - --------------------------------------------------------------------------------
$ 364.2 $ 366.7 $ 352.7
================================================================================
Capital additions:
Utility $ 395.0 $ 222.9 $ 289.2
Diversified:
Electric Fuels, combined 117.5 40.6 40.5
Other diversified 1.1 .5 1.7
- - --------------------------------------------------------------------------------
$ 513.6 $ 264.0 $ 331.4
================================================================================
</TABLE>
In December 1997, Florida Progress recorded a provision for loss on its
investment in Mid-Continent Life and accrued for related legal costs, totaling
$97.6 million. (See Note 11 contained herein.)
In December 1996, Electric Fuels revised its assessment that low-sulfur coal
market prices were depressed temporarily. Electric Fuels decided to close and
dispose of its unprofitable coal operations and recorded a provision for loss of
$40.9 million, as shown above.
<PAGE> 67
NOTE 9 RATES
Florida Power's retail rates are set by the FPSC. Florida Power's last general
rate case was approved in 1992 and allowed a 12% regulatory return on equity
with an allowed range between 11% and 13%.
EXTENDED NUCLEAR OUTAGE -- In June 1997, a settlement agreement between Florida
Power and all parties who intervened in Florida Power's request to collect
replacement fuel and purchased power costs resulting from the extended outage of
its nuclear plant was approved by the FPSC. The plant has been off-line since
September 1996 to address certain design issues related to its safety systems.
Florida Power incurred $174 million in total system replacement power costs
through the end of 1997. In accordance with the settlement agreement, Florida
Power recorded a charge of approximately $73 million for retail replacement
power costs incurred that will not be recovered through its fuel adjustment
clause. Of the remaining $101 million, Florida Power will recover approximately
$38 million through its fuel adjustment clause. The remaining $63 million of
replacement power costs was recorded as a regulatory asset and is being
amortized for a period of up to four years. The amortization of the regulatory
asset is being recovered by the suspension of fossil plant dismantlement
accruals during the amortization period. Actual replacement power costs incurred
prior to the nuclear unit's return to service in excess of the $174 million,
will be expensed as incurred.
The parties to the settlement agreement have agreed not to seek or support any
increase or reduction in Florida Power's base rates or the authorized range of
its return on equity during the four-year amortization period. The settlement
agreement also provided that for purposes of monitoring Florida Power's future
earnings, the FPSC will exclude the nuclear outage costs when assessing Florida
Power's regulatory return on equity. The agreement resolves all present and
future disputed issues between the parties regarding the extended outage of the
nuclear plant.
TIGER BAY BUY-OUT -- In 1997, Florida Power bought out the Tiger Bay purchased
power contracts for $370 million and acquired the cogeneration facility for $75
million, for a total of $445 million. Of the $370 million of contract
termination costs, $350 million was recorded as a regulatory asset and the
remaining $20 million was written off. Florida Power recorded $75 million as
electric plant.
The regulatory asset is being recovered pursuant to a stipulation 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 purchase 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. Florida Power has the option to accelerate
the amortization.
NOTE 10 DISCONTINUED OPERATIONS
On November 21, 1996, The Florida Progress Board of Directors declared a
spin-off distribution to common shareholders of record on December 5, 1996, of
the common shares of Echelon, which comprised Florida Progress' lending, leasing
and real estate operations. Common shares were distributed on the basis of one
share of Echelon common stock for every 15 shares of Florida Progress common
stock.
In connection with the spin-off in 1996, Florida Progress has presented Echelon
as a discontinued operation in the accompanying Consolidated Statements of
Income. As of the date of the spin-off, the net assets of Echelon were $194.5
million. This amount has been charged against Florida Progress' retained
earnings in the accompanying December 31, 1996 Consolidated Balance Sheet to
reflect the distribution of Echelon common shares on December 18, 1996.
<PAGE> 68
A summary of net assets distributed is as follows:
(In millions)
- - ------------------------------------------------------------------
Cash and equivalents $ 53.8
Assets held for sale 26.8
Leases and loans receivable, net 272.0
Property and equipment, net 126.0
Other assets 39.9
- - ------------------------------------------------------------------
Total assets 518.5
Total liabilities (324.0)
- - ------------------------------------------------------------------
Net assets distributed $ 194.5
==================================================================
Summarized income statement information relating to Echelon's results of
operations (as reported in discontinued operations) is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
(In millions) 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C>
Sales and revenues $63.2 $50.0
- - ------------------------------------------------------------------------------
Loss from operations (net of income tax) - -
Provision for loss on disposition of assets
(net of income tax benefits of $11.3) (18.0) -
Spin-off transaction costs (net
of income tax benefits of $1.8) (8.3) -
- - ------------------------------------------------------------------------------
Total discontinued operations $(26.3) $ -
==============================================================================
</TABLE>
Fiscal year 1996 includes results of operations through December 18, 1996.
Results of operations include allocated interest expense of $8.7 million and
$11.7 million for 1996 and 1995 respectively.
NOTE 11 COMMITMENTS AND CONTINGENCIES
FUEL, COAL AND PURCHASED POWER COMMITMENTS -- Florida Power has entered into
various long-term contracts to provide the fossil and nuclear fuel requirements
of its generating plants and to reserve pipeline capacity for natural gas. In
most cases, such contracts contain provisions for price escalation, minimum
purchase levels and other financial commitments. Estimated annual payments,
based on current market prices, for Florida Power's firm commitments for fuel
purchases and transportation costs, excluding delivered coal and purchased
power, are $40 million, $46 million, $47 million, $47 million and $48 million
for 1998 through 2002, respectively, and $464 million in total thereafter.
Additional commitments will be required in the future to supply Florida Power's
fuel needs.
Electric Fuels has entered into several contracts with outside parties for the
purchase of coal. Electric Fuels also has entered into several operating leases,
and rental or royalty agreements, relating to transportation equipment and coal
procurement and processing. The annual obligations under these contracts and
leases, including transportation costs, are $163.1 million, $82.0 million, $50.2
million, $45.7 million and $32.2 million for 1998 through 2002, respectively,
and $64.1 million in total thereafter. The total cost incurred for these
commitments was $219.6 million in 1997, $221.4 million in 1996 and $235.2
million in 1995.
Florida Power has long-term contracts for about 460 megawatts of purchased power
with other utilities, including a contract with The Southern Company for
approximately 400 megawatts of purchased power annually through 2010. This
represents 4.5% of Florida Power's total current installed system capacity.
Florida Power has an option to lower these Southern purchases to approximately
200 megawatts annually with a three-year notice. The purchased power from
Southern is supplied by generating units with a capacity of approximately 3,500
megawatts and is guaranteed by Southern'S entire system, totaling more than
30,000 megawatts.
<PAGE> 69
As of December 31, 1997, Florida Power had entered into purchased power
contracts with certain QFs for 946 megawatts 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 QFs meeting certain
contract performance obligations. In most cases, these contracts account for
100% of the generating capacity of each of the facilities. Of the 946 megawatts
under contract, approximately 830 megawatts currently are available to Florida
Power. All commitments have been approved by the FPSC. Florida Power does not
plan to increase the level of purchased power currently under contract.
The FPSC allows the capacity payments to be recovered through a capacity cost
recovery clause, which is similar to, and works in conjunction with, energy
payments recovered through the fuel adjustment clause.
Through the buy-out of the Tiger Bay purchased power contracts for $370 million,
Florida Power reduced its long-term purchased power commitments by 20 percent.
Florida Power recorded $350 million of the contract termination costs as a
regulatory asset and wrote off $20 million of the contract termination costs in
1997. (See Note 9 contained herein.)
Florida Power incurred purchased power capacity costs totaling $292.3 million in
1997, $284 million in 1996 and $260.1 million in 1995. The following table shows
minimum expected future capacity payments for purchased power commitments.
Because the purchased power commitments have relatively long durations, the
total present value of these payments using a 10% discount rate also is
presented. These amounts assume that all units are brought into service as
contracted and meet contract performance requirements:
<TABLE>
<CAPTION>
Purchased Power Capacity Payments
(In millions) Utilities Cogenerators Total
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 59 $ 206 $ 265
1999 60 215 275
2000 60 223 283
2001 33 230 263
2002 32 236 268
2003-2025 248 5,802 6,050
- - ----------------------------------------------------------------------------
Total $492 $6,912 $ 7,404
============================================================================
Total net present value $ 2,573
============================================================================
</TABLE>
The purchased power contracts with QFs employ separate pricing methodologies for
capacity payments and energy payments. Florida Power has interpreted the pricing
provision in these contracts to allow it to pay an as-available energy price
rather than a higher firm energy price when the avoided unit upon which the
applicable contract is based would not have been operated.
Four QFs filed suit against Florida Power over the contract payment terms.
Florida Power entered into settlement agreements with three of the four QFs. Two
of those agreements have been approved by the FPSC and the litigation has been
dismissed. In September 1997, the FPSC reversed its original decision and voted
to deny Florida Power's request to approve the third settlement agreement. As a
result of the FPSC denial, the settlement expired by its own terms in October
1997. In December 1997, the state court action with the third cogenerator was
set for trial in late 1998. Florida Power's dispute with the fourth cogenerator
has been set for trial in federal court for late 1998, but no trial date has
been set for a parallel contract dispute in state court. Management does not
expect that the results of these legal actions will have a material impact on
Florida Power's financial position, operations or liquidity.
MID-CONTINENT LIFE INSURANCE COMPANY (MID-CONTINENT) -- A series of events in
1997 have significantly jeopardized Mid-Continent's ability to implement a plan
to eliminate a projected reserve deficiency resulting in the impairment of
Florida Progress' investment in Mid-Continent, its wholly owned life insurance
subsidiary.
<PAGE> 70
On April 14, 1997, the Commissioner received legal approval to temporarily seize
control of the operations of Mid-Continent, and in May 1997, the Oklahoma County
District Court granted the Insurance Commissioner's application to place
Mid-Continent into receivership. The Insurance Commissioner had alleged that
Mid-Continent's reserves were understated by more than $125 million, thus
causing Mid-Continent to be statutorily impaired. The Insurance 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 to
Mid-Continent's plan to address the projected reserve deficiency. While
sustaining the receivership, the court also ruled that premiums could be raised.
Both sides have appealed the decision to the Oklahoma Supreme Court. In December
1997, the Insurance Commissioner filed a lawsuit against Florida Progress and
certain directors and officers making a number of allegations and seeking access
to Florida Progress' assets to satisfy policyholder and creditor claims. Florida
Progress believes that the Commissioner's lawsuit is without merit and intends
to vigorously defend itself and the other defendants against these charges. The
ultimate outcome of the matter cannot presently be determined. Accordingly,
Florida Progress has made no provision for any loss.
Another element of Mid-Continent's plan to eliminate the projected reserve
deficiency was to offer a new life insurance product. However, as a result of
the Commissioner's actions, which resulted in Mid-Continent being placed in
receivership, agents were reluctant to sell the new policy. This also prompted
insurance commissioners in several states to enter cease and desist orders
prohibiting Mid-Continent from writing new policies.
As a result of the Oklahoma Commissioner's efforts to block Mid-Continent from
raising insurance premiums, his failure to offer any formal plan to eliminate
the projected reserve deficiency, the legal proceedings, and the cease and
desist orders, Florida Progress now believes the full amount of its $86.9
million investment in Mid-Continent at December 31, 1997 is impaired. Therefore,
Florida Progress recorded a provision for loss on investment of $86.9 million in
1997. In addition, tax benefits of approximately $11 million related to the
excess of the tax basis over the book value in the investment in Mid-Continent
as of December 31, 1997, were not recorded because of uncertainties associated
with the timing of a tax deduction. Florida Progress also recorded an accrual at
December 31, 1997 for legal fees associated with defending its position in
current Mid-Continent legal proceedings.
Mid-Continent's financial statements have been deconsolidated effective December
31, 1997. The investment will prospectively be accounted for under the cost
method.
ADVANCED SEPARATION TECHNOLOGIES - Florida Progress sold its 80% interest in
Advanced Separation Technologies to Calgon in December 1996 for $56 million in
cash. Calgon filed a lawsuit in January 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 accuses Florida Progress of failing to
disclose flaws in AST's manufacturing process and a lack of quality control. No
projection of an outcome or estimate of a potential liability, if any, can be
determined at the date of issuance of these financial statements. Florida
Progress intends to vigorously defend itself against this lawsuit.
CONSTRUCTION PROGRAM - Substantial commitments have been made in connection with
Florida Progress' construction program. In 1998, Florida Power has projected
construction expenditures of $294 million, primarily for electric plant and
nuclear fuel. Electric Fuels has projected capital additions of $125 million in
1998, primarily for barges and towboats.
OFF-BALANCE SHEET RISK -- Several of Florida Progress' subsidiaries are general
partners in unconsolidated partnerships and joint ventures. Florida Progress or
subsidiaries have agreed to support certain loan agreements of the partnerships
and joint ventures. These credit risks are not material to the financial
statements and Florida Progress considers these credit risks to be minimal,
based upon the asset values supporting the partnership liabilities.
INSURANCE -- Florida Progress and its subsidiaries utilize various risk
management techniques to protect assets from risk of loss, including the
purchase of insurance. Risk avoidance, risk transfer and self-insurance
<PAGE> 71
techniques are utilized depending on Florida Progress' ability to assume risk,
the relative cost and availability of methods for transferring risk to third
parties, and the requirements of applicable regulatory bodies.
Florida Power self-insures its transmission and distribution lines against loss
due to storm damage and other natural disasters. Pursuant to a regulatory order,
Florida Power is accruing $6 million annually to a storm damage reserve and may
defer any losses in excess of the reserve.
Under the provisions of the Price Anderson Act, which limits liability for
accidents at nuclear power plants, Florida Power, as an owner of a nuclear
plant, can be assessed for a portion of any third-party liability claims arising
from an accident at any commercial nuclear power plant in the United States. If
total third-party claims relating to a single nuclear incident exceed $200
million (the amount of currently available commercial liability insurance),
Florida Power could be assessed up to $79.3 million per incident, with a maximum
assessment of $10 million per year.
Florida Power is a member of the Nuclear Electric Insurance, Ltd. ("NEIL"), an
industry mutual insurer, which provides business interruption and extra expense
coverage in the event of a major accidental outage at a covered nuclear power
plant. Florida Power is subject to a retroactive premium assessment by NEIL
under this policy in the event loss experience exceeds NEIL's available surplus.
Florida Power's present maximum share of any such retroactive assessment is $2.7
million per policy year.
Florida Power also maintains nuclear property damage insurance and
decontamination and decommissioning liability insurance totaling $2.1 billion.
The first layer of $500 million is purchased in the commercial insurance market
with the remaining excess coverage purchased from NEIL. Florida Power is
self-insured for any losses that are in excess of this coverage. Under the terms
of the NEIL policy, Florida Power could be assessed up to a maximum of $9.5
million in any policy year if losses in excess of NEIL's available surplus are
incurred.
Florida Power has never been assessed under these nuclear indemnities or
insurance policies.
CONTAMINATED SITE CLEANUP -- Florida Progress is subject to regulation with
respect to the environmental impact of its operations. Florida Progress'
disposal of hazardous waste through third-party vendors can result in costs to
clean up facilities found to be contaminated. Federal and state statutes
authorize governmental agencies to compel responsible parties to pay for cleanup
of these hazardous waste sites.
Florida Power and former subsidiaries of Florida Progress, whose properties were
sold in prior years, have been identified by the EPA as PRPs at certain sites,
including a coal gasification plant site in Sanford, Florida ("Sanford site")
that Florida Power previously owned and operated. There are five parties,
including Florida Power, that have been identified as PRPs at the Sanford site.
Liability for the cleanup costs of these sites is joint and several.
Negotiations are underway with the EPA to define the extent of contamination
that may be attributable to Florida Power's previous operation at the site. The
discussions and resolution of liability for cleanup costs could cause Florida
Power to increase its estimate of its liability for cleanup costs. Although
estimates of any additional costs are not currently available, the outcome is
not expected to have a material effect on Florida Progress' financial position,
results of operations or liquidity.
In addition to these designated sites, there are other sites where affiliates
may be responsible for additional environmental cleanup.
Florida Progress believes that its subsidiaries will not be required to pay a
disproportionate share of the costs for cleanup of any of these sites. Florida
Progress' best estimates indicate that its proportionate share of liability for
cleaning up all sites ranges from $2.5 million to $7.5 million. It has reserved
$4.7 million against these potential costs.
<PAGE> 72
AGE DISCRIMINATION SUIT -- Florida Power and Florida Progress have been served
with an age discrimination lawsuit involving 116 former Florida Power employees
and one current employee. While no dollar amount was requested in the lawsuit,
each plaintiff seeks back pay, reinstatement or front pay through their
projected dates of normal retirement, costs and attorneys' fees. In October
1996, the court approved an agreement between parties to provisionally certify
this case as a class action suit under the Age Discrimination in Employment Act.
Estimates of the potential liability associated with this lawsuit, if any,
remain pending until the final decision on whether to certify the case as a
class action suit has been made. A decision regarding the class action status is
expected in 1998.
<PAGE> 73
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FLORIDA PROGRESS CORPORATION
(Unaudited)
Three Months Ended
(In millions, except per share amounts) March 31 June 30 September 30 December 31
- - ------------------------------------------------------------------------------------------------------------------
1997
OPERATING RESULTS
<S> <C> <C> <C> <C>
Revenues $747.5 $797.3 $922.5 $848.3
Income (loss) from operations 95.0 37.8 165.9 (26.1)
Net income (loss) 42.0 6.3 81.6 (75.6)
DATA PER SHARE
Earnings (loss) per common share 0.43 0.07 .84 (0.78)
Dividends per common share .525 .525 .525 .525
Common stock price per share:
High 32 7/8 31 5/8 33 5/16 39 1/4
Low 29 3/4 27 3/4 31 1/4 31 5/8
- - ------------------------------------------------------------------------------------------------------------------
1996
OPERATING RESULTS
Revenues $730.4 $773.6 $879.0 $774.9
Income from operations 107.2 125.0 189.3 60.9
Net income from continuing operations 48.3 58.7 98.1 45.6
Loss from discontinued operations - (25.0) - (1.3)
Net income 48.3 33.7 98.1 44.3
DATA PER SHARE
Earnings:
Continuing operations .50 .61 1.01 .47
Discontinued operations - (.26) - (.01)
Consolidated .50 .35 1.01 .46
Dividends per common share .515 .515 .515 .515
Common stock price per share:
High 36 3/8 34 3/4 35 1/8 34 1/2
Low 33 32 1/2 33 1/2 31 5/8
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
(Unaudited)
- - -------------------------------------------------------------------------------------------------------------
Three Months Ended
(In millions) March 31 June 30 September 30 December 31
- - -------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C>
Operating revenues $553.8 $597.2 $706.9 $590.5
Net income $41.6 $ 1.3 $76.3 $16.7
Earnings on common stock $41.2 $ .9 $76.0 $16.3
1996
Operating revenues $547.3 $588.7 $694.7 $562.9
Net income $45.2 $56.0 $93.9 $43.3
Earnings on common stock $42.9 $53.9 $93.1 $42.7
</TABLE>
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. Effective December 31, 1997, Florida Progress
deconsolidated the financial statements of Mid-Continent Life Insurance Company
and established a provision for loss for the full amount of its investment. The
deconsolidation has not been reflected in the consolidated financial statements
of prior periods. In 1996, the divestiture of Echelon International Corporation
is reflected in the loss from discontinued operations.
<PAGE> 87
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
June 2, 1998 By: /s/ Jeffrey R. Heinicka
---------------------------
Jeffrey R. Heinicka
Senior Vice President and
Chief Financial Officer
<PAGE>
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.
<TABLE>
<CAPTION>
Signature Title
----------- ------
<S> <C> <C>
Richard Korpan President, Chief }By: /s/ Pamela A. Saari
Principal Executive Officer Executive Officer --------------------
and Director Title: Assistant Treasurer
Attorney-in-Fact
Date: June 2, 1998
Jeffrey R. Heinicka Senior Vice President and /s/ Jeffrey R. Heinicka
Principal Financial Officer Chief Financial Officer -----------------------
John Scardino, Jr. Vice President and /s/ John Scardino, Jr.
Principal Accounting Officer Controller -----------------------
Jack B. Critchfield Chairman of the Board }
and Director
W. D. Frederick, Jr. Director }
Michael P. Graney Director }
Frank C. Logan Director }
Clarence V. McKee Director }
Vincent J. Naimoli Director }By:/s/Pamela A. Saari
------------------
Title: Assistant Treasurer
Attorney-in-Fact
Date: June 2, 1998
Richard A. Nunis Director }
Charles B. Reed Director }
Joan D. Ruffier Director }
Robert T. Stuart, Jr. Director }
Jean Giles Wittner Director }
</TABLE>
<PAGE> 89
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
June 2, 1998 By: /s/ Jeffrey R. Heinicka
--------------------------------
Jeffrey R. Heinicka
Senior Vice President and
Chief Financial Officer
<PAGE>
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.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
Joseph H. Richardson President, Chief }By: /s/ Pamela A. Saari
Principal Executive Officer Executive Officer ---------------------
and Director Title: Assistant Treasurer
Attorney-in-Fact
Date: June 2, 1998
Jeffrey R. Heinicka Senior Vice President and /s/ Jeffrey R. Heinicka
Principal Financial Officer Chief Financial Officer -------------------------
John Scardino, Jr. Vice President and /s/ John Scardino, Jr.
Principal Accounting Officer Controller -------------------------
Richard Korpan Chairman of the Board, }
and Director
Jack B. Critchfield Director }
W. D. Frederick, Jr. Director }
Michael P. Graney Director }
Frank C. Logan Director } By:/s/Pamela A. Saari
------------------
Title: Assistant Treasurer
Attorney-in-Fact
Date: June 2, 1998
Clarence V. McKee Director }
Vincent J. Naimoli Director }
Richard A. Nunis Director }
Charles B. Reed Director }
Joan D. Ruffier Director }
Robert T. Stuart, Jr. Director }
Jean Giles Wittner Director }
</TABLE>
