UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
I.R.S.
Exact name of each Registrant as specified in Employer
Commission its charter, state of incorporation, address Identification
File No. of principal executive offices, telephone Number
- -------------- ---------------------------------------------- ---------------
1-8349 FLORIDA PROGRESS CORPORATION 59-2147112
A Florida Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Telephone (727) 824-6400
1-3274 FLORIDA POWER CORPORATION 59-0247770
A Florida Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Telephone (727) 820-5151
Securities registered pursuant to Section 12(b) of the Act:
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. [ ] (continued)
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of Florida
Progress Corporation as of December 31, 1998 was $4,288,659,140 (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, 1999 was $-0-. As of February 28, 1999,
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, 1998 was 97,336,826.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for Florida Progress Corporation
dated March 11, 1999, relating to the 1999 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.
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TABLE OF CONTENTS
PART I.
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . 21
PART II.
Item 5. Market for the Registrants' Common Equity
and Related Stockholder Matters . . . . . . . . . . . 22
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 24
Item 7a. Quantitative and Qualitative Disclosures About
Market Risks. . . . . . . . . . . . . . . . . . . . . 41
Item 8. Financial Statements and Supplementary Data . . . . . . 42
Combined Report of Independent Certified Public
Accountants . . . . . . . . . . . . . . . . . . . . 42
Consolidated Financial Statements of Florida Progress 43
Financial Statements of Florida Power . . . . . . . . 48
Combined Notes to the Financial Statements. . . . . . 53
Quarterly Financial Data (unaudited). . . . . . . . . 74
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . 74
PART III.
Item 10. Directors and Executive Officers of the Registrants . . 75
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . 77
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . 81
Item 13. Certain Relationships and Related Transactions. . . . . 82
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 82
Signatures - Florida Progress Corporation . . . . . . . . . . . . 89
Signatures - Florida Power Corporation. . . . . . . . . . . . . . 91
Financial Statement Schedules . . . . . . . . . . . . . . . . . . 93
<PAGE>
GLOSSARY
When used herein, the following terms will have the meanings indicated:
TERM MEANING
1935 Act. . . . . . . . . . . . .Public Utility Holding Company Act of 1935
ABC . . . . . . . . . . . . . . .ABC Rail Products Corporation
AOC . . . . . . . . . . . . . . .Administrative Order on Consent
AST . . . . . . . . . . . . . . .Advanced Separation Technologies, Incorporated
Btu . . . . . . . . . . . . . . .British thermal units
CAAA. . . . . . . . . . . . . . .Clean Air Act Amendments of 1990
Calgon. . . . . . . . . . . . . .Calgon Carbon Corporation
CERCLA or Superfund . . . . . . .Comprehensive Environmental Response
Compensation and Liability Act
Commissioner. . . . . . . . . . .Insurance Commissioner of the State of Oklahoma
CR3 or the nuclear plant . . . . .Florida Power's nuclear generating plant,
Crystal River Unit No. 3
Dade. . . . . . . . . . . . . . .Metropolitan Dade County
DOE . . . . . . . . . . . . . . .United States Department of Energy
Echelon . . . . . . . . . . . . .Echelon International Corporation
Electric Fuels. . . . . . . . . .Electric Fuels Corporation
EMF . . . . . . . . . . . . . . .electromagnetic fields, or electric and
magnetic fields
EPA . . . . . . . . . . . . . . .United States Environmental Protection Agency
EPS . . . . . . . . . . . . . . .Earnings per share
FDEP. . . . . . . . . . . . . . .Florida Department of Environmental Protection
FERC. . . . . . . . . . . . . . .Federal Energy Regulatory Commission
Financial Statements. . . . . . .Florida Progress' Consolidated Financial
Statements and Florida Power's Financial
Statements, for the year ended December 31,
1998 contained under Item 8 herein
Florida Power or the utility. . .Florida Power Corporation
Florida Progress. . . . . . . . .Florida Progress Corporation
FOCAS . . . . . . . . . . . . . .FOCAS, Inc.
FPSC. . . . . . . . . . . . . . .Florida Public Service Commission
FRCC. . . . . . . . . . . . . . .Florida Reliability Coordinating Council
Georgia Power . . . . . . . . . .Georgia Power Company
KV. . . . . . . . . . . . . . . .kilovolts
KVA . . . . . . . . . . . . . . .kilovolt amperes
KWH . . . . . . . . . . . . . . .kilowatt hours
Lake. . . . . . . . . . . . . . .NCP Lake Power, Inc.
Louisville. . . . . . . . . . . .Louisville Scrap Material Co., Inc.
LTIP. . . . . . . . . . . . . . .Florida Progress Long-Term Incentive Plan
MD&A. . . . . . . . . . . . . . .Management's Discussion and Analysis of
Financial Condition and Results of Operations
MEMCO . . . . . . . . . . . . . .MEMCO Barge Line, Inc.
MICP. . . . . . . . . . . . . . .Management Incentive Compensation Plan
Mid-Continent . . . . . . . . . .Mid-Continent Life Insurance Company
Montenay. . . . . . . . . . . . .Montenay Power Corporation
MW. . . . . . . . . . . . . . . .megawatts
NEIL. . . . . . . . . . . . . . .Nuclear Electric Insurance Limited
NERC. . . . . . . . . . . . . . .North American Electric Reliability Council
NRC . . . . . . . . . . . . . . .United States Nuclear Regulatory Commission
PCBs. . . . . . . . . . . . . . .polychlorinated biphenyls
Progress Capital. . . . . . . . .Progress Capital Holdings, Inc.
Progress Credit . . . . . . . . .Progress Credit Corporation
Progress Rail . . . . . . . . . .Progress Rail Services Corporation
<PAGE>
Proxy Statement . . . . . . . . .The definitive proxy statement dated March 11,
1999, relating to Florida Progress' 1999
Annual Meeting of Shareholders
PRP . . . . . . . . . . . . . . .potentially responsible party, as defined in
CERCLA
PURPA . . . . . . . . . . . . . .Public Utility Regulatory Policies Act of 1978
QFs . . . . . . . . . . . . . . .qualifying facilities
Retirement Plan . . . . . . . . . Florida Progress Corporation Retirement Plan
for Exempt and Nonexempt Employees
RI/FS . . . . . . . . . . . . . .Remedial Investigation and Feasibility Study
Sanford site. . . . . . . . . . .gasification plant site, Sanford, Florida
SEC . . . . . . . . . . . . . . .United States Securities and Exchange
Commission
Seminole. . . . . . . . . . . . .Seminole Electric Cooperative, Inc.
SERP. . . . . . . . . . . . . . .Florida Progress Corporation Supplemental
Executive Retirement Plan
SNF . . . . . . . . . . . . . . .spent nuclear fuel
Title VI. . . . . . . . . . . . .Title VI, Acid Rain Control
TRI . . . . . . . . . . . . . . .Toxic Release Inventory
<PAGE>
PART I
ITEM 1. BUSINESS
FLORIDA PROGRESS
Florida Progress Corporation ("Florida Progress", which term includes
consolidated subsidiaries unless otherwise indicated), is a diversified electric
utility holding company. Florida Progress' revenues for the year ended December
31, 1998, were $3.6 billion and assets at year-end were $6.2 billion. Its
principal executive offices are located at One Progress Plaza, St. Petersburg,
Florida 33701, telephone number (727) 824-6400. The Florida Progress home page
on the Internet's World Wide Web is located at http://www.fpc.com. Florida
Progress was incorporated in Florida on January 21, 1982.
Florida Progress defines its principal business segments as utility and
diversified operations. Florida Power Corporation ("Florida Power" or "the
utility"), Florida Progress' largest subsidiary, is the utility segment and
encompasses all regulated public utility operations. (See Item 1 "Business
Utility Operations - Florida Power".) Progress Capital Holdings, Inc. ("Progress
Capital") is the downstream holding company for Florida Progress' diversified
subsidiaries which consolidates the financing of non-utility operations. The
diversified operations segment includes Electric Fuels Corporation ("Electric
Fuels"), an energy and transportation company. The primary segments of Electric
Fuels are: Energy and Related Services, Rail Services, and Inland Marine
Transportation. (See Item 1 "Business-Diversified Operations.") For information
concerning the revenues, operating profit and assets attributable to Florida
Progress' business segments, see Note 8 to Florida Progress' consolidated
financial statements and Florida Power's financial statements for the year ended
December 31, 1998, contained herein under Item 8 (the "Financial Statements").
Cash from operations has been the primary source of working capital for Florida
Progress. (See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A") under the heading "Liquidity and
Capital Resources.")
Florida Progress is a public utility holding company under the Public
Utility Holding Company Act of 1935 ("1935 Act"). Florida Progress is exempt
from registration with the United States Securities and Exchange Commission
("SEC") under the 1935 Act and attendant regulation because its utility
operations are primarily intrastate.
UTILITY OPERATIONS - FLORIDA POWER
Florida Power was incorporated in Florida in 1899, and is an operating public
utility engaged in the generation, purchase, transmission, distribution and sale
of electricity. Florida Power has a system generating capacity of 7,727
megawatts ("MW"). In 1998, the utility accounted for 73% of Florida Progress'
consolidated revenues, 80% of its assets and 89% of its net income.
Florida Power provided electric service during 1998 to an average of 1.3 million
customers in west central Florida. The service area covers approximately 20,000
square miles and includes the densely populated areas around Orlando, as well as
the cities of St. Petersburg and Clearwater. Of Florida Power's 1998 electric
revenues billed, approximately 55% were derived from residential sales, 23% from
commercial sales, 8% from industrial sales, 8% from wholesale sales and 6% from
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other retail sales. Important industries in the territory include phosphate and
rock mining and processing, electronics design and manufacturing, and citrus and
other food processing. Other important commercial activities are tourism, health
care, construction and agriculture.
COMPETITION
For a general discussion of Florida Power and competition, see Item 7 "MD&A"
under the headings "Industry Restructuring" and "Industry Restructuring -
Florida Progress' Strategic Initiatives".
In March 1999, the Florida Public Service Commission ("FPSC") approved the
petition by Duke Energy to build a merchant plant in New Smyrna Beach, Florida.
The unit will have the capability to produce approximately 500 MW of power. The
output will be sold in the wholesale power market. (See Item 3 "Legal
Proceedings", paragraph 11.)
FUEL AND PURCHASED POWER
GENERAL: Florida Power's consumption of various types of fuel depends on several
factors, the most important of which are the demand for electricity by Florida
Power's customers, the availability of various generating units, the
availability and cost of fuel, and the requirements of federal and state
regulatory agencies. Florida Power's energy mix for the last three years is
presented in the following table:
ENERGY MIX PERCENTAGES
Fuel Type 1998 1997 1996
--------- ---- ---- ----
Coal 38% 45% 43%
Oil 20% 18% 16%
Nuclear* 15% 0% 6%
Gas 6% 6% 3%
Purchased Power 21% 31% 32%
* See "NUCLEAR" below for information regarding an extended outage at Florida
Power's nuclear generating plant beginning in September 1996 and continuing
until February 1998.
Florida Power is generally permitted to pass the cost of recoverable fuel and
purchased power to its customers through fuel adjustment clauses. In June 1997,
Florida Power reached an agreement with all parties who intervened, which was
approved by the FPSC, regarding costs related to its extended nuclear outage.
This agreement resulted in charges to Florida Power's 1997 results. (See Note 9
to the Financial Statements.)
The future prices for and availability of various fuels discussed in this report
cannot be predicted with complete certainty. However, Florida Power believes
that its fuel supply contracts, as described below, will be adequate to meet its
fuel supply needs.
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Florida Power's average fuel costs per million British thermal units ("Btu") for
each year of the five-year period ended December 31, 1998, were as follows:
AVERAGE FUEL COST
(per million Btu)
1998 1997 1996 1995 1994
Coal $1.89 $1.91 $1.91 $1.93 $1.96
Oil 2.18 2.75 2.80 2.70 2.39
Nuclear .46 -- .50 .49 .55
Gas 3.22 2.87 2.78 1.98 2.46
Weighted Average 1.81 2.24 2.04 1.69 1.75
OIL AND GAS: Oil is purchased under contracts and in the spot market from
several suppliers. The cost of Florida Power's oil is determined by world market
conditions. Management believes that Florida Power has access to an adequate
supply of oil for the reasonably foreseeable future. Florida Power's natural gas
supply is purchased under firm contracts and in the spot market from numerous
suppliers and is delivered under firm, released firm and interruptible
transportation contracts. Florida Power believes that existing contracts for oil
are sufficient to cover its requirements when natural gas transmission that is
purchased on an interruptible basis is not available.
NUCLEAR: Florida Power has one nuclear generating plant, Crystal River Unit No.
3 ("CR3" or "the nuclear plant"). After completing a record performance in 1995
by achieving a capacity factor of 100%, CR3 was shut down for much of 1996 and
all of 1997. Beginning in February 1996, the plant underwent a scheduled
refueling outage that lasted until May 1996, when the plant returned to service.
In September 1996, an oil pressure problem in the main turbine forced the plant
to shut down until repairs could be made. After the repairs were completed in
October, the plant remained down while certain backup safety system design
issues were addressed. CR3 returned on-line in February 1998 and achieved a
capacity factor of 100% for the remaining portion of 1998. For more information
regarding the outage, see Item 7 "MD&A - Operating Results" and Note 9 to the
Financial Statements.
Nuclear fuel is processed through four distinct stages. Stage I and Stage II
involve the mining and milling of the natural uranium ore to produce a
concentrate and the conversion of this uranium concentrate into uranium
hexafluoride. Stage III and Stage IV entails the enrichment of the uranium
hexafluoride, and the fabrication of the enriched uranium hexafluoride into
usable fuel assemblies. Florida Power has contracts in place which provide for a
supply of enriched uranium and fuel fabrication through 2004.
It will be necessary for Florida Power to enter into future fuel contracts to
cover the differences between the total unit lifetime requirements of CR3 and
the requirements covered by existing contracts. Although no assurances can be
given as to the future availability or costs of such contracts, Florida Power
expects that future contract commitments will be obtained at the appropriate
time.
Spent nuclear fuel ("SNF") is stored at CR3 pending disposal under a contract
with the United States Department of Energy ("DOE"). (See Note 4 to the
Financial Statements.) At the present time, Florida Power has facilities on site
for the temporary storage of SNF generated through the year 2011. Florida Power
will expand the capacity of its facilities on site in 2000 to allow for the
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temporary storage of SNF generated through the end of the license in 2016.
Florida Power and 15 other utilities are involved in litigation against the
United States challenging certain retroactive assessments imposed by the federal
government on domestic nuclear power companies to fund the decommissioning and
decontamination of the government's uranium enrichment facilities. (See Item 5
"Legal Proceedings", paragraph 4.)
COAL: Florida Power anticipates a requirement of approximately 5.0 million to
5.5 million tons of coal in 1999. Most of the coal is expected to be supplied
from the Appalachian coal fields of the United States. Approximately two-thirds
of the coal is expected to be delivered by rail and the remainder by barge. The
coal is supplied by Electric Fuels pursuant to contracts between Florida Power
and Electric Fuels which expire in 2002 and 2004. (See Note 11 to the Financial
Statements.)
For 1999, Electric Fuels has long-term contracts with various sources for
approximately 40% of the coal requirements of Florida Power's coal units. These
long-term contracts have price adjustment provisions. Electric Fuels expects to
acquire the remainder in the spot market and under short-term contracts.
Electric Fuels does not anticipate any problems obtaining the remaining Florida
Power requirements for 1999 through short-term contracts and purchases in the
spot market. (See Note 11 to the Financial Statements.)
PURCHASED POWER: Florida Power, along with other Florida utilities, buys and
sells economy power through the Florida energy brokering system. In addition,
Florida Power has long-term contracts for the purchase of approximately 460 MW
of purchased power with other utilities, including a contract with The Southern
Company for approximately 400 MW. Also, Florida Power has entered into purchased
power contracts with certain qualifying facilities ("QFs") for approximately 871
MW of capacity. Facilities representing approximately 831 MW of the 871 MW have
come on line and are currently operating. The capacity currently available from
QFs represents about 9% of Florida Power's total system capacity. The purchased
power component was reduced in 1997 primarily through the purchase of the Tiger
Bay Cogeneration Facility. (See Item 2 "Properties - Utility Operations", Item 7
"MD&A - Fuel and Purchased Power" and Note 9 to the Financial Statements.)
REGULATORY MATTERS AND FRANCHISES
Florida Power is subject to the jurisdiction of the FPSC with respect to retail
rates, customer service, planning, construction of facilities, accounting,
issuance of securities and other matters. In addition, Florida Power is subject
to regulation by the Federal Energy Regulatory Commission ("FERC") with respect
to transmission and sales of wholesale power, accounting and certain other
matters. The underlying concept of utility ratemaking is to set rates at a level
that allows the utility to collect revenues equal to its cost of providing
service plus a reasonable rate of return on its equity. Increased competition,
as a result of industry restructuring, may affect the ratemaking process. (See
Item 7 "MD&A - Industry Restructuring".)
The FPSC oversees the retail sales of the state's investor-owned utilities. The
FPSC authorizes retail "base rates" that are designed to provide a utility with
the opportunity to earn a specific rate of return on its "rate base", or average
investment in utility plant. These rates are intended to cover all reasonable
and prudent expenses of utility operations and to provide investors with a fair
rate of return. The FPSC generally allows utilities to recover fuel, purchased
power and conservation costs through an adjustment charge on monthly electric
bills. In June 1997, a settlement agreement pertaining to the extended nuclear
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outage, with all parties who intervened, was approved by the FPSC. The parties
to the agreement 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 a four year period beginning in mid-1997. For additional information on
this agreement, see Note 9 to the Financial Statements. In other regulatory
matters, beginning in 1995, the FPSC ordered Florida Power to conduct a
three-year test of revenue decoupling for its residential customers. This test
ended December 31, 1997. (See Item 7 "MD&A - Utility Revenues and Sales" and
Note 1 to the Financial Statements.) In December 1998, Florida Power received
approval from the FPSC to defer non-fuel revenues towards the development of a
plan that would allow customers to realize benefits earlier than if they are
used to accelerate the amortization of the Tiger Bay regulatory asset. (See Note
9 to the Financial Statements.) Florida Power is interconnected with 22
municipal and 9 rural electric cooperative systems. Major wholesale power sales
customers include Seminole Electric Cooperative, Inc. ("Seminole"), Florida
Municipal Power Agency and Reedy Creek Utilities District. During 1998, about 8%
of Florida Power's electric revenues were from wholesale customers whose rates
are subject to the jurisdiction of the FERC. For further information with
respect to rates, see Note 9 to the Financial Statements.
Florida Power's CR3 nuclear plant is subject to regulation by the United States
Nuclear Regulatory Commission ("NRC"). The NRC's jurisdiction encompasses broad
supervisory and regulatory powers over the construction and operation of nuclear
reactors, including matters of health and safety, antitrust considerations and
environmental impact. Florida Power currently has a 90.4% ownership interest in
CR3. The purchase of the ownership interest of the city of Tallahassee (1.3%) is
currently awaiting regulatory approval from the FPSC, FERC, and NRC. It is
anticipated the purchase will be complete in the third quarter of 1999. There is
no capital expenditure related to this purchase. (See Note 4 to the Financial
Statements.)
By virtue of state and municipal legislation, Florida Power holds franchises
with varying expiration dates in nearly all municipalities in which it
distributes electric energy. Approximately 40% of total utility revenues in 1998
is covered under the terms of 111 franchise agreements with various
municipalities. The general effect of these franchises is to grant Florida Power
the right to enter upon and use streets, alleys and other public places for
erecting and maintaining poles, wires and other apparatus for the sale and
distribution of electric energy. All but one of the existing franchises cover a
30-year period from the date granted, the maximum allowed by Florida law. The
one exception is a franchise that covers a 10-year period from the date granted,
and expires in 2005. Of the 111 franchises, 5 expire during 2000, 23 expire
before December 31, 2001, 32 expire between January 1, 2002 and December 31,
2012, and 51 expire between January 1, 2013 and December 31, 2028. For
additional information on franchises, see Item 7 "MD&A - Industry
Restructuring".
ENVIRONMENTAL MATTERS
Florida Power is subject to federal, state and local regulations dealing with
air and water quality and other environmental matters. Beginning July 1, 1999,
seven new industries, including the electric utility industry, will submit for
the first time, chemical release data to the United States Environmental
Protection Agency ("EPA") as part of its Toxic Release Inventory ("TRI")
reporting requirement. This process requires electric utilities that burn coal
or oil for power generation to identify and report releases of more than 650
designated chemicals and chemical compounds, to the environment. Based on the
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reporting criteria, Florida Power estimates that it will be required to report
on approximately 18 to 20 compounds. Four facilities are currently subject to
the reporting criteria. The total estimated cost to Florida Power of reporting
under TRI rules is estimated to be approximately $350,000 in the first year and
$250,000 each subsequent year.
AIR: All of Florida Power's air emission sources meet the air quality standards
currently set by the Florida Department of Environmental Protection ("FDEP")
and/or the EPA.
The Clean Air Act Amendments of 1990 ("CAAA"), under Title IV, Acid Rain Control
("Title IV"), set a permanent cap on emissions of sulfur dioxide. The cap is to
be implemented in two phases. Phase I limitations became effective in 1995.
Florida Power does not have any Phase I units and is not affected. Phase II,
which begins in 2000 will impose an annual cap on sulfur dioxide emissions.
Florida Power expects to be able to meet its emission limitations without
significant capital investments. Florida Power will use a combination of lower
emitting fuels, such as natural gas, low sulfur coal and oil, along with limited
use of allowance credits to meet its annual emission obligations.
Also in Phase II, emissions of nitrogen oxides from coal fired power plants are
limited. Florida Power is already meeting federal limits on three of its four
coal units. To meet Phase II limitations on the fourth unit, Florida Power is
planning to make burner modifications to lower emissions. The capital cost of
this project is approximately $5 million, of which the majority of costs were
incurred prior to 1999. The project is scheduled for completion in 1999.
Under Title III of the CAAA, the EPA is studying the emission of hazardous air
pollutants and, where appropriate, promulgating emission limitations for
specific source categories. Depending on the results of these studies and the
EPA's determination of the need for additional limitations, Florida Power could
be required to incur additional capital expenditures and operating expenses.
Under Title V of the CAAA, Florida Power is required to pay annual operating
fees based on the previous year's emissions. For 1998, these fees totaled
approximately $790,000. It is anticipated that the costs for 1999 will be a
similar amount.
In addition to the Title IV projects discussed above, Florida Power's
construction program includes approximately $4 million of planned environmental
expenditures for air quality improvement projects for the two-year period ending
December 31, 2000.
WATER: To help meet the future electricity needs of its customers, Florida Power
has built a new power plant complex in Polk County, Florida, named the Hines
Energy Complex. (See Item 2, "Properties - Utility Operations - Planned
Generation".) Approximately $28.4 million was spent through December 31, 1998 on
environmental projects related to site development at the Hines Energy Complex,
mainly for water resource related facilities. Florida Power's construction
program includes approximately $1.4 million of environmental expenditures for
water resource projects at other Florida Power facilities for the two-year
period ending December 31, 2000.
WASTE MATERIALS: Florida Power is nearing completion of its program to reduce
electrical equipment utilizing polychlorinated biphenyls ("PCB"). All regulatory
compliance dates have been met. All PCB transformers (i.e. those havin greater
than 500 ppm PCB) have been removed from Florida Power's electric generating
plants, except for one small plant. Removal of PCB transformers from this final
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plant will be delayed until Florida Power decides whether and for how long the
plant will remain in operation.
STORAGE TANK PROGRAM: The regulation of underground and aboveground storage
tanks has expanded to affect virtually every Florida Power pollutant storage
tank with a capacity of 100 gallons or greater, including vehicular fuel tanks,
bulk fuel storage tanks, mineral acid tanks, hazardous material tanks and
compression vessels. The FDEP's storage tank regulations require the replacement
or upgrading of tanks that are not protected from corrosion, and the
installation of release detection and secondary containment systems. These
requirements must be met by the end of 1999. Florida Power expects the annual
operating expense to be immaterial and construction expenditures through 1999
related to compliance with these regulations to be approximately $300,000.
As of January 1, 1999, there no longer exists any state funded petroleum cleanup
programs for new contaminations. However, Florida Power believes that for the
majority of past storage tank contamination cleanup expenditures it will qualify
under one of two programs. Under one program, Florida Power is required to pay a
deductible and the State of Florida will pay for the remaining portion of the
cleanup. Under the second program, Florida Power would be responsible for a
Contamination Assessment and 25% of the total remediation, with the state of
Florida funding the remaining 75% of the cleanup.
ELECTROMAGNETIC FIELDS: The potential adverse effect of electromagnetic fields,
or electric and magnetic fields ("EMF"), upon human health continues to be an
important issue in the siting, construction and operation of electric
transmission and distribution systems. EMF from a variety of sources, including
transmission and distribution lines, has been the subject of many studies and
much public discussion in recent years. The National EMF Research and Public
Information Dissemination Program has completed an in depth research program.
This program was co-funded by federal and private utilities, including Florida
Power. The findings, to be presented to the U.S. Congress in 1999, could have a
major impact on the EMF issue.
Because of its exclusive jurisdiction to regulate EMF associated with electric
transmission and distribution lines and substation facilities in Florida, the
Florida Department of Environmental Protection ("FDEP") has adopted rules that
establish certain EMF limits for new transmission lines and substations. The
rules also require an annual review of the state of the scientific research into
the potential adverse effects of EMF upon human health. The staff of the FDEP
provides an annual progress report to the Environmental Regulation Commission.
In February 1998, based on its review of the scientific research, the staff
recommended that no revision of the current EMF standards be made at that time.
The 1999 report has not yet been released. The Environmental Regulation
Commission adopted the staff's recommendation and made no revision to EMF
standards.
Florida Power believes that compliance with these EMF rules, which at present
essentially maintain the status quo with respect to regulated EMF exposure
levels, will not have a material adverse effect on the cost of constructing or
maintaining new transmission lines or substations. However, there always is a
potential for lawsuits brought by plaintiffs alleging damages caused by EMF.
Florida Power's management monitors developments in research concerning the
potential health effects of EMF, EMF mitigation technologies and procedures, and
significant actions by principal federal and Florida agencies related to EMF.
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OTHER ENVIRONMENTAL MATTERS: Florida Power has received notices from the EPA
that it is or could be a potentially responsible party ("PRP") under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA" or
"Superfund") and the Superfund Amendment and Reauthorization Act ("SARA") and
may be liable, together with others, for the costs of cleaning up several
contaminated sites identified by the state and federal agencies. In addition to
these designated sites, there are other sites where Florida Progress affiliates
may be responsible for additional environmental cleanup. For further information
concerning certain environmental matters relating to Florida Power, see
paragraphs 5 and 7 under Item 3 "Legal Proceedings" and Note 11 to the Financial
Statements.
EMPLOYEES
As of December 31, 1998, Florida Power had 4,740 full-time employees. The
International Brotherhood of Electrical Workers represents approximately 2,016
of these full-time employees. The current union contract was ratified in May
1997 and expires in December 1999.
DIVERSIFIED OPERATIONS
Florida Progress' diversified operations are owned directly or indirectly
through Progress Capital, a Florida corporation and wholly owned subsidiary of
Florida Progress. Progress Capital holds the capital stock of, and provides
funding for, Florida Progress' non-utility subsidiaries. Its primary subsidiary
is Electric Fuels. Formed in 1976, Electric Fuels is an energy and
transportation company with operations organized into three business units.
Electric Fuels' energy and related services business unit supplies coal to
Florida Power's Crystal River Energy Complex and other utility and industrial
customers. Electric Fuels' inland marine transportation business unit, MEMCO
Barge Line, Inc. ("MEMCO"), transports coal and dry-bulk cargoes primarily along
the Mississippi and Ohio rivers. The rail services business unit, led by
Progress Rail Services Corporation ("Progress Rail"), is one of the largest
integrated processors and suppliers of railroad materials in the country. With
operations in 20 states, Progress Rail offers a full range of railcar parts,
maintenance-of-way equipment, rail and other track material, railcar repair
facilities, railcar scrapping and metal recycling as well as railcar sales and
leasing.
In November 1998, Florida Progress formed a new subsidiary, Progress
Telecommunications Corporation. This subsidiary was formed to sell wholesale
fiber-optic-based capacity service in Florida to long-distance carriers,
Internet service providers, and other telecommunications companies, as well as
large industrial, commercial and government entities. Progress
Telecommunications will also sell wireless structure attachments to wireless
communication companies and government entities.
As of December 31, 1998, Progress Capital and its subsidiaries had 4,385
full-time employees. (For additional information with respect to Progress
Capital and its subsidiaries, see Item 7 "MD&A - Operating Results - Diversified
Operations"), Note 8 to the Financial Statements and paragraph 10 of Item 3
"Legal Proceedings.")
COMPETITION
Florida Progress' non-utility subsidiaries compete in their respective
marketplaces in terms of price, quality of service, location and other factors.
Electric Fuels competes in several distinct markets: its coal operations compete
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in the eastern United States utility and industrial coal markets; its marine
transportation and barge operations compete in the coal, grain and bulk products
transportation markets on the Ohio and lower Mississippi rivers; its marine
equipment repair business competes in the inland river and gulf coast repair
markets; and its rail operations compete in the railcar repair, parts and
associated services markets in the eastern United States, in the midwest and
west. Factors contributing to Electric Fuels' success in these markets include a
competitive cost structure, strategic locations and, in the case of its marine
transportation operations, a modern fleet. There are, however, numerous
competitors in each of these markets, although no one competitor is dominant in
any industry. The business of Electric Fuels and its subsidiaries, taken as a
whole, is not subject to significant seasonal fluctuation. For further
information with respect to Florida Progress' non-utility subsidiaries and
competition, see Item 7 "MD&A - Diversified Operations".
ENVIRONMENTAL MATTERS
Electric Fuels is subject to federal, state and local regulations which govern
air and water quality, waste disposal and other environmental matters. The coal
mining business is affected primarily by the Clean Water Act, the Clean Air Act
and the Surface Mining Control and Reclamation Act of 1977. The transportation
and the railcar and marine repair businesses are primarily affected by the
Resource Conservation and Recovery Act, the Emergency Planning and Community
Right-To-Know Act and the Clean Water Act.
The Environmental Services Department of Electric Fuels reviews existing and
emerging environmental regulations, disseminates applicable environmental
information throughout the organization and conducts site specific environmental
compliance audits. Transactional environmental assessments are performed on new
acquisitions to determine the potential environmental liabilities associated
with the facilities being considered. Compliance with environmental laws and
regulations has not had a material effect on Electric Fuels' capital
expenditures, earnings or competitive position, and Electric Fuels does not
anticipate making any material capital expenditures for environmental facilities
through the end of 2000.
For further information concerning certain environmental matters relating to
Florida Progress' diversified operations, see Note 11 to the Financial
Statements.
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EXECUTIVE OFFICERS
Roy A. Anderson, Senior Vice President, Energy Supply of Florida Power, Age 50.
Mr. Anderson became Senior Vice President, Nuclear Operations, effective January
20, 1997, and now serves as the Senior Vice President of Energy Supply. From
April 1, 1997 to April 17, 1998, he served as Chief Nuclear Officer. Prior to
joining Florida Power, Mr. Anderson was employed by Carolina Power and Light,
where he held numerous executive officer positions since 1993 in the areas of
nuclear operations, fossil generation, and distribution and customer service.
From 1987 to 1993, he was employed by Boston Edison Company, where he served as
Plant Manager, Vice President and ultimately as Senior Vice President, Nuclear
Operations.
Kenneth E. Armstrong, Vice President and General Counsel of Florida Progress
and Florida Power, Age 51.
Mr. Armstrong has served as General Counsel of Florida Progress since July 1990
and as Vice President since April 1992. In April 1995, he became Vice President
and General Counsel of Florida Power. In addition to these positions, Mr.
Armstrong served as Assistant Secretary of Florida Progress from April 1992 to
April 1993 and as Secretary from April 1993 to April 1996. He also served as
Assistant Secretary of Florida Power from 1987 until April 1993 and as Secretary
from April 1993 until April 1996.
Janice B. Case, Senior Vice President, Energy SolutionsSM of Florida Power,
Age 46.
Mrs. Case was named Senior Vice President, Energy SolutionsSM effective June 1,
1997, after serving as Vice President since 1996. From October 1990 until July
1996, she served as Vice President, Suncoast Florida Region of Florida Power.
Michael B. Foley, Jr., Senior Vice President, Energy Delivery of Florida Power,
Age 55.
Since July 1996, Mr. Foley's principal occupation has been as shown above. Mr.
Foley served as Vice President in that position since February 1995. From
October 1988 until February 1995, Mr. Foley served as Director of System
Planning of Florida Power.
Jeffrey R. Heinicka, Senior Vice President and Chief Financial Officer of
Florida Power, Age 44.
Since March 15, 1999, Mr. Heinicka's principal occupation has been as shown
above. From March 1994 to March 1999, Mr. Heinicka was Chief Financial Officer
of both Florida Progress and Florida Power. From December 1990 to March 1994,
Mr. Heinicka served as Vice President and Treasurer of Florida Progress. Mr.
Heinicka also served as Vice President and Treasurer of Florida Power from April
1993 to March 1994, a position he held concurrently with his Vice President and
Treasurer position at Florida Progress.
Richard D. Keller, Group Vice President, Energy and Transportation of Florida
Progress, and President and Chief Executive Officer, Electric Fuels, Age 45.
Since May 1990, Mr. Keller's principal occupation has been as shown above.He has
served as President and Chief Executive Officer of Electric Fuels since February
1988.
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William G. Kelley, Vice President, Human Resources of Florida Progress and
Florida Power, Age 51.
Mr. Kelley was appointed Vice President, Human Resources of Florida Progress and
Florida Power, effective October 27, 1997. From 1992 to 1997, he was employed by
Goulds Pumps,Inc., an international pump company, as Vice President of Human
Resources. From 1989 to 1992 he served as Director of Human Resources for The
Quaker Oats Company and headed the human resources function of the European
Headquarters in the United Kingdom of its Fisher Price Division.
Richard Korpan, Chairman, President and Chief Executive Officer of Florida
Progress, and Chairman of the Board of Florida Power, Age 57.
Mr. Korpan was appointed Chairman of the Board of Florida Progress, effective
July 1, 1998. He has held the position of President since 1991, and became Chief
Executive Officer of Florida Progress in June 1997. Since April 1996 he has also
served as Chairman of the Board of Florida Power, and until June 1, 1997, as
Chief Executive Officer of Florida Power. He joined Florida Progress in 1989 as
Executive Vice President and Chief Financial Officer. He is a director of
SunTrust Bank of Tampa Bay and a member of the Business Roundtable.
Edward W. Moneypenny, Senior Vice President and Chief Financial Officer of
Florida Progress, Age 57.
Edward W. Moneypenny became Senior Vice President and Chief Financial Officer of
Florida Progress, effective March 15, 1999. Prior to joining Florida Progress,
Mr. Moneypenny was employed by Oryx Energy Company, an independent oil and
natural gas exploration company, where he held numerous executive officer and
chief financial positions since 1988. He served as a member of Oryx's board of
directors from 1994 until February 1999.
Joseph H. Richardson, Group Vice President, Utility Group of Florida Progress
and President and Chief Executive Officer of Florida Power, Age 49.
Since 1996, Mr. Richardson's principal occupation has been as shown above.
Effective June 1, 1997, he was appointed Chief Executive Officer, in addition to
President, of Florida Power. From April 1995 to April 1996, he served as Senior
Vice President, Energy Distribution of Florida Power. From October 1993 to April
1995, he served as Senior Vice President, Legal and Administrative Services, and
General Counsel of Florida Power. From August 1991 through April 1995, Mr.
Richardson also held the position of Senior Vice President of Florida Progress.
He is a director of Echelon.
Dr. Jack Critchfiled retired as Chairman of the Board of Florida Progress
effective July 1, 1998.
There are no family relationships between any director or any executive officer
of Florida Progress or Florida Power. The executive officers serve at the
pleasure of their respective Boards of Directors. Each executive officer is
appointed annually.
ITEM 2. PROPERTIES
Florida Progress believes that its physical properties and those of its
subsidiaries are adequate to carry on its and their businesses as currently
conducted. Florida Progress and its subsidiaries maintain property insurance
against loss or damage by fire or other perils to the extent that such property
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is usually insured. (See Note 11 to the Financial Statements.) Substantially all
of Florida Power's utility plant is pledged as collateral for Florida Power's
First Mortgage Bonds. Certain river barges and tug/barge units owned or operated
by Electric Fuels are subject to liens in favor of certain lenders.
UTILITY OPERATIONS
GENERATION: As of December 31, 1998, the total net winter generating capacity of
Florida Power's generating facilities, including CR3, was 7,727 MW. This
capacity was generated by 13 steam units with a capacity of 4,661 MW and 45
combustion turbine units with a capacity of 3,066 MW. Florida Power's ability to
use its generating units may be adversely impacted by various governmental
regulations affecting nuclear operations and other aspects of Florida Power's
business. (See "Regulatory Matters and Franchises" and "Environmental Matters"
under Item 1 "Business Utility Operations - Florida Power.") Operation of these
generating units may also be substantially curtailed by unanticipated equipment
failures or interruption of fuel supplies. Florida Power expects to have
sufficient system capacity, access to purchased power and demand-side management
capabilities to meet anticipated future demand. (See Item 2 "Planned Generation
and Energy Sales" below.)
Florida Power's generating plants (all located in Florida) and their capacities
at December 31, 1998, were as follows:
Winter Net
Maximum
Primary/ Combustion Dependable
Alternate Location Steam Turbine Capacity
Plants Fuel (County) MW MW MW
- ---------------- ------- ------------- ------- ------- ----------
Crystal River: Citrus
Unit #1 Coal 373 - 373
Unit #2 Coal 469 - 469
Unit #3 Uranium 755* - 755
Unit #4 Coal 717 - 717
Unit #5 Coal 717 - 717
----- -----
3,031 3,031
Anclote: Pasco
Unit #1 Oil 517 - 517
Unit #2 Oil/Gas 517 - 517
Bartow Oil/Gas Pinellas 449 217 666
Turner Oil Volusia - 200 200
Intercession City** Oil/Gas Osceola - 912 912
DeBary Oil/Gas Volusia - 786 786
Higgins Gas Pinellas - 148 148
Bayboro Oil Pinellas - 232 232
Avon Park Oil/Gas Highlands - 64 64
Rio Pinar Oil Orange - 18 18
Suwannee River Gas/Oil Suwannee 147 201 348
Tiger Bay Gas Polk - 246 246
University of Fla. Gas Alachua - 42 42
----- ----- -----
4,661 3,066 7,727
===== ===== =====
* Represents 90.4% of total plant capacity. The remaining 9.6% of capacity is
owned by other parties.
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** Florida Power and Georgia Power Company ("Georgia Power") are co-owners of a
168-MW advanced combustion turbine located at Florida Power's Intercession City
site. Georgia Power has the exclusive right to the output of this unit during
the months of June through September. Florida Power has that right for the
remainder of the year.
PLANNED GENERATION AND ENERGY SALES: Through a competitive bidding process,
Florida Power signed a contract with the city of Bartow to supply wholesale
power and energy-related services for another five years, beginning in November
1999. Current requirements for Bartow are 55 MW, which is expected to grow to
over 70 MW over the life of the contract. In 1995, Florida Power agreed to sell
605 MW of year round capacity to Seminole from 1999 through 2001. While 150 MW
of this transaction represents a continuation of existing business, 455 MW
represents new sales to Seminole. In addition, Florida Power has agreed to sell
from 150 to 300 MW to Seminole from 2000-2002. This contract was awarded to
Florida Power as a result of a competitive bidding process initiated by
Seminole. Additionally, Florida Power is in the final year of a three year
contract to sell between 150 and 400 MW of summer-peaking capacity annually to
Georgia Power. The committed capacity for 1999 is 200 MW.
In 1992, the FPSC granted Florida Power a certificate of need to build 470 MW of
new generation using combined cycle technology. In September 1994, Florida Power
purchased approximately 8,100 acres of mined-out phosphate land for the new
power plant site. The site is located in Polk County, Florida, approximately 50
miles east of Tampa, and has been designated the Hines Energy Complex.
Construction of the unit was completed in December 1998. The first power block
is a nominal 500 MW combined cycle unit which is expected to be placed into
commercial operation in the spring of 1999. Florida Power plans to use natural
gas to fuel the unit.
Florida Power has obtained capacity on the Florida Gas Transmission Company's
system for the transportation of natural gas to the Hines Energy Complex in Polk
County. Florida Power began using the capacity in January 1998. This
transportation will serve a portion of the plant's requirements. Florida Power
also has contracted for natural gas supply and its transportation for the
remaining portion of the plant's requirements.
Some of the capacity at the Hines Energy Complex will be used to meet the
requirements of a wholesale contract signed in 1995, in which Florida Power
agreed to sell an additional 455 MWs to Seminole, beginning in 1999(previously
mentioned herein).
In February 1999, Florida Power announced that it plans to build three peaking
power generation units at Florida Power's Intercession City site. The units are
designed to provide electricity during periods of peak customer demand and are
projected to provide a total of 300 MW of power beginning in December 2000. The
new units are combustion turbine units capable of using either natural gas or
oil, depending on cost and availability of those fuel sources.
In connection with the construction of new power plants in Florida, the FPSC
requires each investor-owned electric utility to engage in a competitive bidding
process for the construction of new generation, unless the utility demonstrates
on a case-by-case basis that such a process is not in the best interests of the
utility's ratepayers. See Item 3 "Legal Proceedings", Paragraph 12. The
construction of peaking units does not fall under this requirement.
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NUCLEAR PLANT AND NUCLEAR INSURANCE: Information regarding nuclear plant and
nuclear insurance is contained in Note 4 and Note 11 to the Financial
Statements.
TRANSMISSION AND DISTRIBUTION: As of December 31, 1998, Florida Power
distributed electricity through 363 substations with an installed transformer
capacity of 43,255,840 kilovolt amperes ("KVA"). Of this capacity, 29,399,250
KVA is located in transmission substations and 13,856,590 KVA in distribution
substations. Florida Power has the second largest transmission network in
Florida. Florida Power has 4,669 circuit miles of transmission lines, of which
2,646 circuit miles are operated at 500, 230, or 115 kilovolts ("KV") and the
balance at 69 KV. Florida Power has 24,723 circuit miles of distribution lines
which operate at various voltages ranging from 2.4 to 25 KV.
Florida Power along with 21 other in-state electric utilities and 14
non-utilities comprise the Florida Reliability Coordinating Council ("FRCC"),
which was approved by the North American Electric Reliability Council ("NERC")
as the tenth region of NERC. The FRCC is responsible for ensuring the
reliability of the bulk power electric system in peninsular Florida.
Florida Power and five other FRCC transmission providers have established
Florida Open Access Sametime Information System. This is an internet location
where transmission customers may obtain transmission information and submit
requests for service or resell service rights.
DIVERSIFIED OPERATIONS
Electric Fuels owns and/or operates approximately 5,000 railcars, 50
locomotives, 1,100 river barges and 27 river towboats that are used for the
transportation and shipping of coal, steel and other bulk products. Through
joint ventures, Electric Fuels has five oceangoing tug/barge units. An Electric
Fuels subsidiary, through another joint venture, owns one third of a large bulk
products terminal located on the Mississippi River south of New Orleans, which
handles coal and other products. Electric Fuels provides drydocking and repair
services to towboats, offshore supply vessels and barges through operations it
owns near New Orleans, Louisiana.
Electric Fuels controls, either directly or through subsidiaries, coal reserves
located in eastern Kentucky and southwestern Virginia. Electric Fuels owns, in
fee, properties that contain estimated proven and probable coal reserves of
approximately 185 million tons and controls, through mineral leases, additional
estimated proven and probable coal reserves of approximately 30 million tons.
The reserves controlled by Electric Fuels include substantial quantities of high
quality, low sulfur coal that is appropriate for use at Florida Power's existing
generating units. Electric Fuels' total production of coal during 1998 was
approximately 3.0 million tons.
In connection with its coal operations, Electric Fuels subsidiaries own and
operate an underground mining complex located in southeastern Kentucky and
southwestern Virginia. Other Electric Fuels subsidiaries own and operate surface
and underground mines, coal processing and loadout facilities and a river
terminal facility in eastern Kentucky, a railcar-to-barge loading facility in
West Virginia, and three bulk commodity terminals: one on the Ohio River in
Cincinnati, Ohio, and two on the Kanawha River near Charleston, West Virginia.
Electric Fuels and its subsidiaries employ both company and contract miners in
their mining activities.
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Another Electric Fuels subsidiary owns an interest in a partnership, located in
eastern Kentucky, which produces synthetic fuels that qualify for Federal tax
credits under Section 29 of the Internal Revenue Code.
A subsidiary of Electric Fuels has acquired oil and gas leases on 1,920 acres in
Garfield County, Colorado, containing proven natural gas reserves of 37.6
billion cubic feet.
Progress Rail, an Electric Fuels subsidiary is one of the largest integrated
processors of railroad materials in the United States, and is a leading supplier
of new and reconditioned freight car parts, rail, rail welding and track work
components, railcar repair facilities, railcar and locomotive leasing,
maintenance-of-way equipment and scrap metal recycling. It has facilities in 20
states, Mexico and Canada.
Another subsidiary of Electric Fuels owns and operates a manufacturing facility
at the Florida Power Energy Complex in Crystal River, Florida. The manufacturing
process utilizes the fly ash generated by the burning of coal as the major raw
material in the production of lightweight aggregate used in construction
building blocks. Electric Fuels also operates an environmental testing
laboratory in Tampa, Florida.
ITEM 3. LEGAL PROCEEDINGS
Purchased Power Contracts with Qualifying Facilities
Florida Power has interpreted the pricing provision in its QF contracts to allow
it to pay an as-available energy price rather than a higher firm energy price
when the avoided unit upon which the contract is based would not have been
operated. Two QFs have suits pending against Florida Power over the level of
payments made by Florida Power under the contracts, as discussed in paragraphs 1
and 2 below:
1. Metropolitan Dade County and Montenay Power Corp. v. Florida Power
Corporation, Circuit Court of the Eleventh Circuit for Dade County,
Florida, Case No. 96-09598-CA-30
Metropolitan Dade County and Montenay Power Corp. v. Florida Power
Corporation, U.S. District Court, Southern District, Miami Division,
Case No. 96-0594-C.V.-LENNARD
In re: Petition for Declaratory Statement That Energy Payments Are
Limited to Analysis of Avoided Unit's Contractually Specified
Characteristics, Florida Public Service Commission, Docket
No.980283-EQ.
On February 13, 1996, Metropolitan Dade County ("Dade") and Montenay Power Corp.
("Montenay") filed a complaint in the above-referenced state court seeking a
declaratory judgment that their interpretation of the energy pricing provision
in their QF contract is correct, and damages in excess of $1.3 million for
breach of that contract. No trial date has as yet been set in the State Court
action.
On May 14, 1996, Dade and Montenay filed suit against Florida Power in the
above-referenced federal district court based on essentially the same facts as
presented in the state court case, but alleging violations of federal antitrust
laws and demanding unspecified treble damages. In March 1997, the plaintiffs
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amended the federal court case to include Florida Progress and Electric Fuels.
In June 1998, the judge granted the defendants' Motion for Summary Judgement and
dismissed the case. Dade and Montenay filed a Notice of Appeal with the 11th
Circuit Court of Appeals in October 1998.
On February 23, 1998, Florida Power filed a petition with the FPSC for a
Declaratory Statement that the previous FPSC - approved negotiated contract
between the parties limits energy payments thereunder to the avoided costs based
upon an analysis of a hypothetical unit having the characteristics specified in
the contract. In October 1998, the FPSC denied the Florida Power petition for
declaratory statement. In January 1999, Florida Power filed a Notice of Appeal
of the FPSC denial with the Florida Supreme Court. (See Note 11 to the Financial
Statements.)
2. NCP Lake Power, Inc. v. Florida Power Corporation, Florida Circuit
Court, Fifth Judicial Circuit for Lake County, Case No. 94-2354-CA-01
In re: Petition for Declaratory Statement Regarding the Negotiated
Contract for Purchase of Firm Capacity and Energy between Florida Power
Corporation and Lake Cogen, LTD., Florida Public Service Commission,
Docket No. 980509-EQ.
On October 21, 1994, NCP Lake Power, Inc. ("Lake"), a general partner of Lake
Cogen, Ltd., filed the above-referenced suit against Florida Power asserting
breach of its QF contract and requesting a declaratory judgment. A bench trial
in the case concluded in December 1998, but the court has not yet ruled.
On April 9, 1998, Florida Power filed a petition with the FPSC for a Declaratory
Statement that the contract between the parties limits energy payments
thereunder to the avoided costs based upon an analysis of a hypothetical unit
having the characteristics specified in the contract. In October 1998, the FPSC
denied the petition. In January 1999, Florida Power filed a Notice of Appeal of
this FPSC order with the Florida Supreme Court. (See Note 11 to the Financial
Statements.)
3. Wanda L. Adams, et al. v. Florida Power Corporation and Florida
Progress Corporation, U.S. District Court, Middle District of Florida,
Ocala Division, Case No. 95-123-C.V.-OC-10.
On October 13, 1995, Florida Power and Florida Progress were served with a
multi-party lawsuit involving 17 former Florida Power employees. The plaintiffs
generally alleged discrimination in violation of the Age Discrimination and
Employment Act and wrongful interference with pension rights in violation of the
Employee Retirement Income Security Act as a result of their involuntary
terminations during Florida Power's reduction in force. While no dollar amount
is specified, each Plaintiff seeks back pay, reinstatement or front pay through
their projected dates of normal retirement, costs and attorney's fees. The
Plaintiffs subsequently filed motions adding 39 additional plaintiffs.
In November 1995, Florida Power filed its answer, a motion to dismiss Florida
Progress, and a counterclaim against five of the plaintiffs who signed releases,
promising, among other things, not to sue Florida Power with respect to matters
involving their employment or termination. The counterclaim sought enforcement
of the agreement, dismissal of plaintiffs' complaints, and an award of attorneys
fees and costs of litigation.
In October 1996, a joint stipulation to provisionally certify the case as a
class action pursuant to the Age Discrimination in Employment Act was approved.
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By May 28, 1997, the final day for individuals to "opt into" this action, 61
additional former employees elected to do so, for a total of 117 plaintiffs.
In June 1998, the judge issued an order on several pending motions. The motion
to dismiss Florida Progress was denied, but all the ERISA claims were dismissed
and the state age claims of 5 plaintiffs were dismissed. The Motion to Dismiss 4
plaintiffs' federal age claims based on Statute of Limitations violations was
granted.
In October 1998, Florida Power filed a motion for summary judgement on its
counterclaim and on the state law claims of 69 plaintiffs, who are similarly
situated to the 5 plaintiffs who have had their state claims dismissed. In
December 1998, Florida Power and the plaintiff's engaged in informal settlement
discussions, which were terminated on December 22, 1998. However, plaintiffs
have filed a motion to enforce a purported $11 million settlement agreement.
Florida Power denies that such an agreement exists and has filed responsive
pleadings to that effect.(See Note 11 to the Financial Statements.)
4. Florida Power Corporation v. United States, U.S. Court of Federal
Claims, Civil Action No. 96-702C. Consolidated Edison Co., et al v.
United States, United States District Court, Southern District of New
York, Case No. 98-CIV-4115
On November 1, 1996, Florida Power filed suit against the U.S. Government in the
U.S. Federal Court of Claims alleging breach of contract and illegal taking of
property without just compensation. The suit arises out of several contracts
under which the government provided uranium enrichment services at fixed prices.
After Florida Power paid for all services provided under the contracts, the
government, through federal legislation enacted in 1992, imposed a retroactive
price increase in order to fund the decontamination and decommissioning of the
government's gaseous diffusion uranium enrichment facilities. The government is
collecting this increase through an annual "special assessment" levied upon all
utilities that had enrichment services contracts with the government. Collection
of the special assessments began in 1992 and is scheduled to continue for a
fifteen-year period.
To date, Florida Power has paid more than $11.0 million in special assessments,
and if continued throughout the anticipated fifteen-year life, the special
assessments would increase the cost of Florida Power's contracts by more than
$23 million. Florida Power seeks an order declaring that all such special
assessments are unlawful, and an injunction prohibiting the government from
collecting future special assessments, and damages of approximately $11.0
million, plus interest.
In February 1999, the court granted Florida Power's motion to stay, pending
resolution of the Consolidated Edison case, sited below.
In June 1998, Florida Power, Consolidated Edison Co. and 15 other utilities
filed a declaratory judgement action against the United States in the Southern
District Court of New York, challenging the constitutionality of the $2.25
billion retroactive assessment imposed by the federal government on domestic
nuclear power companies to fund the decommissioning and decontamination of the
government's uranium enrichment facilities.
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5. Sanford Gasification Plant Site, Sanford, Florida ("Sanford Site")
The Sanford Site is a former manufactured gas site located in the city of
Sanford, Florida. Sanford Gas Company, which merged into Florida Power in 1944,
operated the plant until 1946 when it was sold to South Atlantic Gas Company
(later Atlanta Gas Company). The plant was conveyed three more times, being
purchased by the current owner, Florida Public Utilities, in 1965.
In June 1996, the EPA completed an Expanded Site Investigation/Remedial
Investigation at the site. In July 1997, the EPA sent a general and special
notice letter which advised Florida Power and other PRPs of their potential
liability for cleanup. The investigation concluded that the release or
threatened release of contaminants includes the site itself and down gradient
contamination of an unnamed tributary used for storm water drainage. Water flows
from the tributary into Cloud Branch Creek and ultimately Lake Monroe.
Florida Power, Florida Power and Light Company, Atlanta Gas Company, Florida
Public Utilities Company and the City of Sanford executed an Administrative
Order on Consent ("AOC") and a Site Participation Agreement with EPA. By signing
the AOC, the PRPs agreed, jointly and severally, to perform the Remedial
Investigation and Feasibility Study ("RI/FS") at the Sanford site. By executing
the Site Participation Agreement, the PRPs agreed to an allocation of costs for
a RI/FS for up to $1.5 million. Florida Power's share is approximately 39.7% of
these costs.
In September 1998, the EPA formally approved the PRP RI/FS Work Plan. The RI
field work was completed in January 1999. The EPA is expected to review the
final Treatability Study report and provide further guidance to the PRPs by
August 1999. Additional contributions for subsequent cleanup costs will be
negotiated among the PRPs as the scope of clean-up efforts become more defined.
(See Note 11 to the Financial Statements.)
6. State of Oklahoma, ex rel. John P. Crawford, Insurance Commissioner v.
Mid-Continent Life Insurance Company, District Court of Oklahoma
County, State of Oklahoma, Case No. CJ-97-2518-62
State of Oklahoma, ex rel, John P. Crawford, Insurance Commissioner as
Receiver for Mid-Continent Life Insurance Company v. Florida Progress
Corporation, a Florida corporation, Jack Barron Critchfield, George
Ruppel, Thomas Steven Krzesinski, Richard Korpan, Richard Donald
Keller, James Lacy Harlan, Gerald William McRae, Thomas Richard Dlouhy,
Andrew Joseph Beal and Robert Terry Stuart, Jr., District Court of
Oklahoma County, State of Oklahoma, Case No. CJ-97-2518-62 (part of the
same case noted above).
Michael Farrimond, Pamela S. Farrimond, Angela Fry, Jowhna Hill, and
Barbara Hodges, for themselves and all others similarly situated v.
Florida Progress Corporation, a Florida corporation, Jack Barron
Critchfield, George Ruppel, Thomas Steven Krzesinski, Richard Korpan,
Richard Donald Keller, James Lacy Harlan, Gerald William McRae, Thomas
Richard Dlouhy, Andrew Joseph Beal and Robert Terry Stuart, Jr.,
District Court of Oklahoma County, State of Oklahoma, Case No.
CJ-99-130-65
On April 14, 1997, the Insurance Commissioner of the State of Oklahoma
("Commissioner") received approval from the Oklahoma County District Court to
temporarily seize control of the operations of Mid-Continent Life Insurance
Company ("Mid-Continent"). On May 23, 1997, the District Court of Oklahoma
County granted the application of the Commissioner to place Mid-Continent into
receivership and ordered the Commissioner to develop a plan of rehabilitation
for Mid-Continent. Inconsistently, the court ruled that premiums could be raised
18
<PAGE>
on Mid-Continent policies. Both parties appealed to the Oklahoma Supreme Court,
but these appeals were withdrawn in February 1999.
On December 22, 1997, the Commissioner filed with the court a petition for
damages against Florida Progress and certain former Mid-Continent directors and
officers of Florida Progress, alleging alter ego, negligence, breach of
fiduciary duty, misappropriation of funds, unjust enrichment, ultra vires,
violation of Oklahoma statutory insurance law, violation of Oklahoma statutory
corporate law, and seeking equitable relief. On April 17, 1998, the court
granted motions to dismiss the individual defendants, leaving Florida Progress
as the sole remaining defendant in the lawsuit. This lawsuit has been stayed by
agreement of the parties and is expected to be resolved in the context of the
rehabilitation plan.
A new Commissioner was elected in November 1998 and has stated his intention to
work with Florida Progress and others to develop a plan to rehabilitate
Mid-Continent rather than pursue litigation against Florida Progress. Florida
Progress is working with the new Commissioner to develop a viable plan to
rehabilitate Mid-Continent, which would include a sale of that company.
On January 19, 1999, five Mid-Continent policyholders filed a purported class
action against Mid-Continent and the same defendants named in the former case
filed by Commissioner Crawford. The complaint contains substantially the same
factual allegations as the December 22, 1997 case. Defendants have filed a
motion to transfer the case to the receivership court and will seek to have it
resolved in the context of the rehabilitation plan.
Florida Progress intends to vigorously defend itself and other defendants
against outstanding charges and cooperate with the receiver to gain the court's
approval of a rehabilitation plan that serves its best interests and those of
the policy holders. (See Item 7 MD&A, "Diversified Operations - Mid-Continent
Life Insurance Company" and Note 11 to the Financial Statements.)
7. Peak Oil Company, Missouri Electric Works, 62nd Street, AKO Bayside,
Bluff Electric and Holloway Superfund Sites.
Florida Power has been notified by the EPA that it is or could be a PRP with
respect to each of the above Superfund sites. Based upon the information
presently available, Florida Power has no reason to believe that its total
liability for the cleanup of these sites will be material or that it will be
required to pay a significantly disproportionate share of those costs. However,
these matters are being reported because liability for cleanup of certain sites
is technically joint and several, and because the extent to which Florida Power
may ultimately have to participate in those cleanup costs is not presently
determinable.
8. Calgon Carbon Corporation v. Potomac Capital Investment Corporation, Potomac
Electric Power Company, Progress Capital Holdings, Inc., and Florida Progress
Corporation, United States District Court for the Western District of
Pennsylvania, Civil Action No. 98-0072.
Calgon Carbon Corporation ("Calgon") filed a complaint on January 12, 1998,
asserting securities fraud, breach of contract and other claims in connection
with the sale to it by two of the defendants in December 1996 of their interests
in Advanced Separation Technologies, Incorporated ("AST"), a corporation engaged
in the business of designing and assembling proprietary separation equipment.
Prior to closing, Progress Capital, a wholly owned subsidiary of Florida
Progress, owned 80 percent of the outstanding stock of AST and Potomac Capital
Investment Corporation (an entity unaffiliated with PCH or Florida Progress)
19
<PAGE>
owned 20 percent. Calgon paid PCH an aggregate of approximately $57.5 million
(producing net proceeds of approximately $56 million after certain fees and
expenses) in respect of PCH's share of AST's stock. Calgon claims that AST's
assets and revenues were overstated and liabilities and expenses were
understated for 1996. Calgon also alleges undisclosed facts relating to
accounting methodology, poor products, manufacturing and quality control
problems and undisclosed warranty claims. Calgon seeks damages, punitive damages
and the right to rescind the purchase. The defendants have filed a motion to
dismiss all claims, which is pending.
9. FOCAS, Inc. v. Florida Power Corporation, U.S. District Court, Northern
District of Georgia, Atlanta Division, Case No. CV-822-CC
Florida Power entered into a contract with FOCAS, Inc. ("FOCAS") for the supply
of fiberoptic cable. A portion of the cable was found to be defective, and was
replaced. FOCAS invoiced Florida Power for the defective cable in the amount of
approximately $2 million. While discussions proceeded regarding the matter,
FOCAS sued Florida Power alleging breach of contract, unjust enrichment and
fraudulent inducement, and requesting up to approximately $76 million in
damages, representing, among other things, Florida Power's alleged profits over
the estimated fifteen year life of the cable. Florida Power filed its Answer on
December 12, 1998, generally denying the allegations.
10. ABC Rail Products Corporation v. Progress Rail Services Corporation and
Louisville Scrap Material Co., Inc., U.S. District Court, Northern
District of Illinois, Eastern Division, Civ. Action No. 98C3663.
On June 12, 1998, ABC Rail Products Corporation ("ABC") brought an action
against Progress Rail and Louisville Scrap Material Co., Inc. ("Louisville")
seeking injunctive and declaratory relief and treble damages based on alleged
violations of federal and state antitrust statutes as well as damages under
other state law claims. The complaint sought to enjoin Progress Rail's
acquisition of certain assets and business of Louisville and several affiliated
corporations known as the Blue Industrial Group. The parties subsequently agreed
on the terms of settlement, and the case was dismissed. This concludes this
matter for reporting purposes.
11. In Re: Joint Petition for Determination of Need for an Electrical Power
Plant in Volusia County by the Utilities Commission, City of New Smyrna
Beach, and Duke Energy New Smyrna Beach Power Company Ltd., L.L.P.
Public Service Commission, Docket No. 981042-EM.
On August 28, 1998, Duke Energy New Smyrna Beach Power Company and the Utilities
Commission of New Smyrna Beach filed a petition with the FPSC seeking a
determination of need to build a 514 MW combined cycle electric power plant with
an in-service date of November 1, 2001. In September 1998, Florida Power filed a
Motion to Intervene and a Motion to Dismiss in that action. Florida Power
believed that granting the petition would profoundly restructure Florida's
statutorily mandated approach to planning and siting generating capacity by
contradicting a long standing FPSC interpretation of the Florida Power Plant
Siting Act that has been affirmed by the Florida Supreme Court. Florida Power
also believed that granting the petition would raise a host of significant
related policy issues that are beyond the scope of this proceeding. On March 4,
1999, the FPSC voted to grant the Duke petition. Florida Power intends to appeal
this decision.
20
<PAGE>
12. In Re: Petition of Florida Power Corporation for Waiver of Rule
25-22.082 F.A.C. Selection of Generating Capacity, Florida Public
Service Commission, Docket No. 98-1360-EI.
On October 20, 1998, Florida Power filed a Petition with the FPSC seeking a
waiver of the Commission rules which require an electric utility to solicit and
evaluate bids for new generating capacity as a prerequisite to constructing a
power plant with steam capacity in excess of 75 MW. This petition was filed to
facilitate the start of construction of a second unit at the Hines Energy
Complex in Polk County. On January 19, 1999, the FPSC voted to deny the Florida
Power Petition. This report concludes this matter for reporting purposes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
21
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
FLORIDA PROGRESS
Florida Progress' common stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange. The high and low price per share of Florida Progress'
common stock for each quarterly period and the dividends per common share paid
on shares of Florida Progress' common stock during the last two fiscal years
appear in Item 8 on the "Quarterly Financial Data" table for Florida Progress at
the end of the Notes to the Financial Statements, and is incorporated herein by
reference.
In February 1999, Florida Progress' Board announced an increase of one cent per
share in the common stock quarterly dividend, which on an annual basis would
increase the dividend from $2.14 to $2.18 per share. This represents an annual
dividend growth rate of 1.9%. In 1998, Florida Progress' dividend payout ratio
was approximately 74% of earnings. Information concerning the Florida Progress
dividend policy is set forth in Item 7 "MD&A - Liquidity and Capital Resources".
Florida Progress' Restated Articles of Incorporation do not limit the dividends
that may be paid on its common stock. However, the primary source for payment of
Florida Progress' dividends consists of dividends paid to it by Florida Power.
Florida Power's Amended Articles of Incorporation and its Indenture dated as of
January 1, 1944, under which it issues first mortgage bonds, contain provisions
restricting dividends in certain circumstances. At December 31, 1998, Florida
Power's ability to pay dividends was not limited by these restrictions.
Florida Progress and Progress Capital have entered into a Second Amended and
Restated Guaranty and Support Agreement dated as of August 7, 1996, pursuant to
which Florida Progress has unconditionally guaranteed the payment of Progress
Capital's debt (as defined in the agreement).
Florida Progress did not issue any equity securities during 1998 that were not
registered under the Securities Act. Progress Capital, however, has a
privately-placed medium-term note program. (See Item 7 "Liquidity and Capital
Resources-Diversified Operations", and Note 6 to the Financial Statements.)
The approximate number of equity security holders of Florida Progress is as
follows:
Number of Registered Holders*
Title of Class as of December 31, 1998
- ------------------------------- ----------------------------
Common Stock without par value 44,757
* The computation of registered holders includes record holders as well as
individual positions in the Progress Plus Stock Plan.
22
<PAGE>
FLORIDA POWER
All of Florida Power's common stock is owned by Florida Progress, and as a
result there is no established public trading market for the stock. For the past
three years, Florida Power has paid quarterly dividends to Florida Progress
totaling the amounts shown in the Statements of Shareholder's Equity in the
Financial Statements.
Florida Power's amended articles of incorporation, and its Indenture dated as of
January 1, 1944, as supplemented, under which it issues first mortgage bonds,
contain provisions restricting dividends in certain circumstances. At December
31, 1998, Florida Power's ability to pay dividends was not limited by these
restrictions.
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
Annual Growth Rates
(in percent)
1993-1998 1998 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
FLORIDA PROGRESS CORPORATION
Summary of operations (in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Utility revenues 6.2 $2,648.2 $2,448.4 $2,393.6 $2,271.7 $2,080.5 $1,957.6
Diversified revenues (continuing) 17.7 972.1 868.0 764.3 736.1 644.8 430.3
Income from continuing operations
Before non-recurring items 7.5 281.7 254.3 252.4 238.9 212.0 196.0
Income from continuing operations 7.5 281.7 54.3 250.7 238.9 212.0 196.0
Income (loss)from discontinued
operations and change in accounting (26.3) 0.6
Net income 7.5 281.7 54.3 224.4 238.9 212.0 196.6
-------------------------------------------------------------------------------------------------------------------------
Balance sheet data (in millions):
Total assets 2.9 $6,160.8 $5,760.0 $5,348.4 $5,550.4 $5,453.1 $5,338.0
Capitalization:
Short-term capital 14.4 $ 382.1 $ 230.0 $ 39.0 $173.7 $ 99.9 $195.2
Long-term debt 4.1 2,250.4 2,377.8 1,776.9 1,662.3 1,835.2 1,840.5
Preferred stock (25.8) 33.5 33.5 33.5 138.5 143.5 148.5
Common stock equity .5 1,862.0 1,776.0 1,924.2 2,078.1 1,984.4 1,820.5
-------------------------------------------------------------------------------------------------------------------------
Total capitalization 2.5 $4,528.0 $4,417.3 $3,773.6 $4,052.6 $4,063.0 $4,004.7
- --------------------------------------------------------------------------------------------------------------------------
Common stock data:
Average shares outstanding (in millions) 1.9 97.1 97.1 96.8 95.7 93.0 88.3
Earnings per share:
Utility before non-recurring 4.4 $2.56 $2.48 $2.40 $2.27 $2.05 $2.06
Diversified continuing
before non-recurring items 16.3 .34 .14 .21 .23 .23 .16
Consolidated continuing
before non-recurring items 5.5 2.90 2.62 2.61 2.50 2.28 2.22
Consolidated continuing 5.5 2.90 .56 2.59 2.50 2.28 2.22
Discontinued operations and
change in accounting - - (.27) - - .01
Consolidated 5.4 2.90 .56 2.32 2.50 2.28 2.23
Dividends per common share 1.9 2.14 2.10 2.06 2.02 1.99 1.95
Dividend payout 73.8% 375.3% 88.9% 81.0% 87.7% 87.6%
Dividend yield 4.8% 5.4% 6.4% 5.7% 6.7% 5.9%
Book value per share of common stock (1.3) $19.13 $18.30 $19.84 $21.55 $20.85 $20.40
Return on common equity 15.6% 2.9% 10.9% 11.8% 11.1% 11.1%
-------------------------------------------------------------------------------------------------------------------------
Common stock price per share:
High 47 1/8 39 1/4 36 1/2 35 3/4 33 5/8 36 3/8
Low 37 11/16 27 3/4 31 1/2 29 3/8 24 3/4 31 1/4
Close 5.9 44 13/16 39 1/4 32 1/4 35 3/8 30 33 5/8
Price earnings ratio (year-end) 15.5 70.1 13.9 14.2 13.2 15.1
- --------------------------------------------------------------------------------------------------------------------------
Other year-end data:
Number of employees 3.1 9,125 7,990 7,291 7,174 7,394 7,825
- --------------------------------------------------------------------------------------------------------------------------
[CONTINUED ON NEXT PAGE]
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Annual Growth Rates
(in percent)
1993-1998 1998 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
FLORIDA POWER CORPORATION
Electric sales (million of KWH)
<S> <C> <C> <C> <C> <C> <C> <C>
Residential 4.3 16,526.3 15,079.8 15,481.4 14,938.0 13,863.4 13,372.6
Commercial 4.9 9,999.3 9,257.3 8,848.0 8,612.1 8,252.1 7,884.8
Industrial 5.3 4,375.4 4,187.8 4,223.7 3,864.4 3,579.6 3,380.8
Total retail sales 4.7 33,386.6 30,850.3 30,784.8 29,499.5 27,675.2 26,528.3
Total electric sales 5.4 37,251.1 33,289.9 33,492.5 32,402.6 30,014.6 28,647.8
- --------------------------------------------------------------------------------------------------------------------------
Residential service (average annual):
KWH sales per customer 2.4 13,972 12,993 13,560 13,282 12,597 12,420
Revenue per customer 4.1 $1,204 $1,115 $1,138 $1,114 $1,038 $983
Revenue per KWH 1.7 $0.0862 $0.0858 $0.0839 $0.0839 $0.0824 $0.0792
- --------------------------------------------------------------------------------------------------------------------------
Financial Data:
Operating revenues 6.2 $2,648.2 $ 2448.4 $2,393.6 $2,271.7 $2,080.5 $1,957.6
Net income after dividends
on preferred stock 6.5 $248.6 $ 134.4 $ 232.6 $217.3 $190.7 $181.5
Total assets 3.0 $4,928.1 $4,900.8 $4,264.0 $4,284.9 $4,284.5 $4,259.5
Long-term debt and preferred stock
subject to mandatory redemption 1.6 $1,555.1 $1,745.4 $1,296.4 $1,304.1 $1,393.8 $1,433.6
Total capitalization including
short-term debt (in millions) 1.8 $3,547.6 $3,727.7 $3,180.8 $3,202.2 $3,265.4 $3,240.4
Capitalization ratios:
Short-term capital (6.0) 3.9% 4.9% 0.8% 1.0% 2.8% 5.3%
Long-term debt .3 43.8% 46.8% 40.8% 39.9% 41.7% 43.1%
Preferred stock (27.8) 0.9% 0.9% 1.1% 4.3% 4.4% 4.6%
Common stock equity 1.8 51.3% 47.4% 57.4% 54.8% 51.1% 47.0%
Ratio of earnings to fixed charges
(SEC method) .2 3.87 2.75 4.80 4.41 3.90 3.83
Embedded cost of long-term debt 6.8% 7.0% 7.2% 7.2% 7.1% 6.8%
Embedded cost of preferred stock (7.5) 4.6% 4.6% 4.6% 6.8% 6.8% 6.8%
- --------------------------------------------------------------------------------------------------------------------------
Operating Data:
Net system capacity (MW) .4 7,727 7,717 7,341 7,347 7,295 7,563
Net system peak load (MW) 3.5 8,004 8,066 8,807 7,722 6,955 6,729
Capital expenditures (in millions) (6.2) $310.2 $387.2 $217.3 $283.4 $319.5 $426.4
Net cash flow to capital expenditures 21.8 169% 76% 175% 125% 103% 63%
Average number of customers 2.0 1,340,853 1,314,508 1,292,075 1,271,784 1,243,891 1,214,653
Number of full-time employees (4.0) 4,740 4,799 4,629 4,658 4,972 5,807
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Florida Progress' 1998 consolidated earnings from continuing operations were
$281.7 million. This compared with $54.3 million in 1997 and $250.7 million in
1996. Florida Progress' 1998 earnings per share of $2.90 increased 10.7 percent
over 1997's earnings of $2.62 per share, before nonrecurring charges. The
increase reflected the customer growth in the utility's service territory and
the growth of its diversified operations.
Operating results for 1997 were negatively impacted by the extended outage of
Florida Power's Crystal River nuclear plant and the provision for loss on the
company's investment in Mid-Continent. These two events reduced Florida
Progress' 1997 earnings by $200 million, or $2.06 per share.
In 1996, Florida Progress reported an after-tax charge of $25.2 million for a
provision for loss on unprofitable coal properties owned by Electric Fuels, and
an after-tax gain of $23.5 million for the sale of AST.
24
<PAGE>
Excluding the nonrecurring items, Florida Progress' 1997 and 1996 consolidated
earnings from continuing operations were $254.3 million and $252.4 million,
respectively.
Florida Power earned $248.6 million in 1998, compared with $240.9 million,
before nuclear outage costs in 1997 and $232.6 million in 1996. Earnings from
recurring diversified operations were $33.1 million in 1998, compared with $13.4
million in 1997 and $19.8 million in 1996.
EARNINGS PER SHARE
1998 1997 1996
- ---------------------------------------------------------------------------
Florida Power Corporation $2.56 $2.48 $2.40
- ---------------------------------------------------------------------------
Electric Fuels Corporation .44 .33 .28
Mid-Continent Life Ins. Co. - - .02
Other (.10) (.19) (.09)
- ---------------------------------------------------------------------------
Diversified .34 .14 .21
- ---------------------------------------------------------------------------
Continuing operations before
nonrecurring items 2.90 2.62 2.61
Nuclear outage costs - (1.10) -
Loss related to
Mid-Continent Life Ins. Co. - (.96) -
Provision for loss on
coal properties - - (.26)
Gain on sale of business - - .24
- ---------------------------------------------------------------------------
Total continuing operations 2.90 .56 2.59
Discontinued operations - - (.27)
- ---------------------------------------------------------------------------
Consolidated $2.90 $ .56 $2.32
- ---------------------------------------------------------------------------
Florida Power's 1998 earnings per share were up 3.2 percent over 1997, before
nuclear outage costs, primarily due to strong customer growth and usage growth.
Demand for electricity during 1998 reached record levels as hotter-than-normal
weather during much of the year resulted in record annual usage by residential
and commercial customers. The benefit of the hotter-than-normal weather was
offset by several items including the accelerated amortization of certain
regulatory assets, additional spending for maintenance and reliability projects,
and the deferral of revenues as allowed by state regulators.
Electric Fuels' earnings per share were up 33 percent over 1997. This increase
was driven by improved results from all three of its business units, including
an expanded barge fleet, increased coal deliveries and an increase in demand for
railcar and track parts and services.
Florida Power's Crystal River nuclear plant was out of service during 1997 to
address design issues related to the plant's safety systems. As a result of the
outage, Florida Power's 1997 earnings were reduced by $1.10 per share. This
resulted from $100 million in additional nuclear operations and maintenance
expenses and $73 million of nonrecoverable replacement power costs. (See Item 7,
MD&A - "Extended Nuclear Outage Costs".)
In 1997, Florida Progress recorded a provision for the loss on its investment in
Mid-Continent as well as an accrual for legal fees for pending litigation. This
resulted in a $.96 per share after-tax charge to 1997 earnings. (See Item 7,
MD&A - "Mid-Continent Life Insurance Company".)
25
<PAGE>
In 1996, Florida Progress divested Echelon, formerly Progress Credit, through a
tax-free stock dividend. This resulted in a $.27 per share charge to earnings
for the write-down of certain assets of Echelon and other costs. Also in 1996,
Florida Progress sold its 80-percent interest in AST for $56 million and
realized an after-tax gain of $.24 per share.
In 1996, Electric Fuels recorded a $.26 per share after-tax charge to earnings
to establish a provision for loss on its unprofitable coal properties. The
provision was necessary because management did not consider the unfavorable
market conditions for low-sulfur coal to be temporary.
Florida Progress' 1998 results reflected the strong fundamentals inherent in
Florida Power's growing customer base and the expanding operations of Electric
Fuels. This growth should help Florida Progress achieve its aggressive five-year
objective of consistent annual earnings per share growth of 5 percent or better.
The financial return on Florida Power's common equity was 13.7 percent in 1998,
compared with 13 percent in 1997, before considering nonrecurring items, and
12.9 percent in 1996. Florida Power expects its average annual customer growth
rate of 2 percent to continue in the near future. When combined with good cost
control, Florida Power should be able to maintain an earnings growth rate of
about 3 percent. Return on equity for Electric Fuels was 19.6 percent in 1998,
17.3 percent in 1997 and 14 percent in 1996, before its provision for loss on
coal properties.
Industry Restructuring
The electric utility industry is undergoing changes designed to increase
competition in the wholesale and retail electricity markets. The wholesale power
market includes sales of electricity to utilities from other utilities and
non-utility generators. The wholesale market is regulated by the FERC. The
retail electricity market includes sales of electricity to end-use customers,
i.e., residential, commercial and industrial customers, and is regulated by
state public utility commissions.
As a result of the Public Utilities Regulatory Policies Act of 1978 ("PURPA")
and the Energy Policy Act of 1992, competition in the wholesale electricity
market has greatly increased, especially from non-utility generators of
electricity. In 1996, FERC issued new rules on transmission service to
facilitate competition in the wholesale market on a nationwide basis. The rules
give greater flexibility and more choices to wholesale power customers.
The effect of these changes on the wholesale market has been significant. From
1990 through 1997, non-utility generation capacity grew in the U.S. at a rate of
54 percent, compared with utility generation capacity, which grew at a rate of 2
percent. The development of merchant plants, which is a non-utility generating
plant without the benefit of a long-term contract for the sale of most of the
plant's generating capacity, has contributed to the growth of capacity in this
market.
In a move the company believes is contrary to existing state law, Duke Energy
filed a petition with the FPSC in August 1998 to build Florida's first merchant
power plant. The FPSC voted to grant the Duke petition in March 1999. Florida
Power intends to contest this decision. (See Item 3 "Legal Proceedings",
paragraph 11).
26
<PAGE>
To date, several states have adopted legislation that would give retail
customers the right to choose their electricity provider (retail choice) and
essentially every other state has, in some form, considered the issue.
In 1998, Rhode Island, California and Massachusetts implemented retail
competition while in a number of other states, either the legislature or the
state commission developed a plan for retail competition.
In states where electricity rates are more competitive, such as in Florida,
there has been less incentive to push forward legislative proposals concerning
retail choice. During Florida's 1998 legislative session, a bill to restructure
the industry was sponsored by one senator but was never considered by the
legislative body. The FPSC monitors, through a staff committee, the
restructuring activities in other states.
In addition to restructuring activity in various states, there have been several
industry restructuring bills introduced in Congress. Several of the federal
bills being considered would require states to implement retail choice sometime
between 2000 and 2003.
In March 1998, the Department of Energy announced the Administration's
"Comprehensive Electricity Competition Plan," which would require retail
competition by 2003 but permit states to opt out under certain conditions.
Another issue encompassed by industry restructuring concerns franchise
agreements. Most investor-owned utilities pay franchise fees to governments,
including municipalities, for the right to install equipment to deliver
electricity to retail customers. Industry restructuring (and other factors, such
as reliability) could encourage municipalities to consider not renewing existing
franchise agreements, and thus provide an opportunity for others to provide
electric service to retail customers.
A major portion of Florida Power's retail business, representing approximately
40 percent of total 1998 utility revenues, is covered under the terms of 111
franchise agreements with various municipalities. Although no franchise
agreements are due to expire in 1999, five are due to expire in 2000
(representing about 1 percent of total 1998 utility revenues), 23 are due to
expire in 2001 (about 6.9 percent of total utility revenues), 14 are due to
expire in 2002(about 4.7 percent of total utility revenues), one is due to
expire in 2003(about .4 percent of total utility revenues) and four are due to
expire in 2004(about 1.9 percent of total utility revenues). All of the
franchise agreements that expire by 2004 contain a clause that gives the
municipality the right to purchase Florida Power's distribution system within
the municipality at the expiration of the franchise. Although the exercise of
that right would require complex financial arrangements and otherwise might be
difficult, Florida Power believes that quality service and competitive rates
will continue to be important factors as franchise agreements come up for
renewal.
The issue of industry restructuring has caused many companies to develop new
corporate strategies. Some of these strategies include alliances, mergers with
or acquisitions of other electric or gas utilities, or other types of service
providers, that can offer not only the commodity but other unregulated products
and services.
Many electric utility analysts expect that, once existing regulatory barriers
are removed, a significant amount of consolidation will occur among the nearly
100 investor-owned electric utilities that exist today. During the last five
27
<PAGE>
years, approximately 40 electric utilities have announced either mergers with or
acquisitions of other electric or gas utilities. About half of these
transactions have been completed; the others are either pending regulatory
approval or have been withdrawn.
Industry Restructuring - Florida Progress' Strategic Initiatives
While it may be several years before retail choice exists in Florida, Florida
Progress believes that retail choice will eventually exist in every state.
Anticipating this change, Florida Progress has developed a corporate strategy to
position itself for a more competitive marketplace.
Long term, Florida Progress is focused on establishing a national retail energy
services business - which includes transportation of the commodity to the
customer as well as offering nonregulated products and services. To be
successful in this market, a retail services company will likely need a sizable
number of customers in order to realize the economies of scale necessary to keep
its costs competitive. As such, part of Florida Progress' corporate strategy
includes the possibility of mergers or acquisitions that would expand its
customer base.
In addition to considering mergers and acquisitions, Florida Progress has
entered into two joint ventures with two other utilities, Cinergy Corp. and New
Century Energies. The first joint venture, formed in September 1997 and named
Cadence, is a marketing alliance aimed at providing national chain account
customers with energy management and energy information systems. The other joint
venture, Centrus, began operating in July 1998 and was established to develop
products and services for residential and small commercial customers. In March
1999, Florida Progress and its utility partners decided to dissolve the Centrus
joint venture, due in part to changing strategic viewpoints among the partners.
Florida Progress remains committed, however, to its long-term objective to
establish a national retail energy services business, and intends to continue
developing products and services for residential and small commercial customers.
In May 1998, Florida Power formed a power marketing alliance with Dynegy to
capitalize on developing wholesale energy markets in Florida and in the
Southeast U.S.
Forming joint ventures and alliances can be a quicker way to achieve many of the
benefits sought through mergers and acquisitions including economies of scale,
scope and new market presence and skills.
An important issue encompassed by industry restructuring is the recovery of
"stranded costs." Stranded costs include the generation assets of utilities
whose value in a competitive marketplace would be less than their current book
value as well as above-market purchased power commitments to the QFs. Thus far,
all states that have passed restructuring legislation have provided for the
opportunity to recover a substantial portion of stranded costs.
Assessing the amount of stranded costs for a utility requires various
assumptions about future market conditions including the future price of
electricity. For Florida Power, the single largest stranded cost exposure is its
commitments to QFs.
Florida Power has taken a proactive approach to this industry issue. Since 1996,
Florida Power has been seeking ways to address the impact of escalating payments
from contracts it was obligated to sign under provisions of PURPA.
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These efforts have resulted in Florida Power successfully mitigating, through
buy-outs and buy-downs of these contracts, more than 20 percent of its purchased
power commitments to QFs. (See Note 9 and Note 11 to the Financial Statements.)
Florida Power Corporation
Florida Power's operating results and capital requirements are largely
influenced by its customers' demand for electricity. That annual demand for
electricity is based on the number of customers and their annual usage; usage is
largely influenced by weather. During 1998, Florida Power, as well as other
electric utilities in Florida and in the Southeast, experienced periods of
extreme demand for electricity due to hotter-than-normal summer temperatures.
In planning for its future generation needs, Florida Power develops a forecast
of annual demand for electricity, including a forecast of the level and duration
of peak demands during the year.
Florida Power relies, in part, upon the use of its Energy Management program
during peak demands. This program enables Florida Power to reduce the amount of
demand for electricity by remotely reducing energy usage of residential
customers who agree to participate in the program. Florida Power utilized Energy
Management last summer to a much greater degree than in the past, which resulted
in a number of complaints from customers on the program. Florida Power is
exploring several alternatives to add new generation that will provide greater
flexibility in meeting the electricity needs of its customers.
Utility Revenues and Sales
Florida Power's operating revenues were $2.6 billion in 1998, and $2.4 billion
in 1997 and in 1996.
The utility's kilowatt-hour sales were up 11.9 percent in 1998 over 1997. The
increase in sales was largely due to the hotter-than-normal weather experienced
from May through October. As a result of the unusually hot weather, usage by
residential customers, the single-largest customer class, increased
approximately 9 percent over 1997. Kilowatt-hour sales in 1997 were essentially
level with 1996. Mild weather in 1997, compared with 1996, offset the increase
in kilowatt-hour sales that would have been realized from normal customer
growth, which is around 2 percent or more than 20,000 new customers each year.
Florida Power's wholesale kilowatt-hour sales were up 57.2 percent in 1998,
compared with 1997. The primary reason for the increase was, unlike 1997, that
the company's nuclear power plant was in service for most of 1998. This enabled
Florida Power to sell excess generating capacity in the short-term wholesale
energy market, after meeting the needs of its customers. However, the impact on
earnings of these short-term bulk sales was minimal because essentially all
revenues and costs associated with this activity are passed through to retail
customers whose rates are adjusted accordingly.
The increase in revenues resulting from the higher demand for electricity was
offset by several actions taken in 1998, including steps taken to improve the
utility's overall quality of service to its customers. (See Item 7 "MD&A - Other
Utility Expenses".) In addition to these costs, Florida Power deferred $10
million of non-fuel revenues for either future accelerated amortization of the
Tiger Bay regulatory asset or other regulatory initiatives, as approved by the
FPSC.
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As indicated above, the impact of extreme weather on Florida Power's sales can
be significant. However, the impact of weather on non-fuel revenues for 1997 and
1996 was minimized because of a ratemaking concept called residential revenue
decoupling.
This concept was designed to eliminate the direct link between kilowatt-hour
sales and non-fuel revenues. Under revenue decoupling, abnormal weather does not
impact earnings from residential sales.
Over the three-year period, which ended December 31, 1997, the earnings impact
of residential revenue decoupling was not material. The termination of
residential revenue decoupling will likely result in Florida Power's earnings
being subject to greater fluctuation due to changes in weather. (See Note 1 to
the Financial Statements.)
Fuel and Purchased Power
Fuel and purchased power costs are recovered primarily through a fuel cost
recovery clause established by state and federal regulators. Fluctuations in
these costs have little impact year to year on net income, but might impact net
income in a more competitive environment. (See Item 7 "MD&A - Extended Nuclear
Outage Costs" for discussion of replacement power costs not recovered through
the fuel cost recovery clause.)
Factors influencing fuel and purchased power costs include demand for
electricity, fuel prices, the availability of generating plants and the amount
and price of electricity purchased from QFs and other utilities.
Total fuel and purchased power expenses were $1.03 billion in 1998, less than 1
percent higher than 1997's fuel and purchased power costs. The slight increase,
despite an 11.9-percent increase in total kilowatt-hours sold, was due largely
to the availability of Florida Power's Crystal River nuclear plant. The lack of
nuclear generation throughout 1997 forced Florida Power to replace this
generation with other, higher-cost replacement power.
As previously discussed, a key factor influencing Florida Power's purchased
power costs are the prices paid to QFs for electricity. Currently, Florida Power
receives 831 MW of total capacity from QFs.
In 1998, Florida Power spent $204.6 million for purchased power capacity
payments under all QF contracts. This represented approximately 20 percent of
system fuel and purchased power expenses for the year. Costs associated with
these contracts raised Florida Power's system average cost for generation in
1998 and 1997, and this trend is expected to continue based on the contracts
currently in place and the escalating payment schedules associated with each
contract.
Florida Power will continue its effort to mitigate the impact of escalating
payments from its QF contracts.
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Other Utility Expenses
The increase in revenues in 1998, as previously discussed, enabled Florida Power
to take several actions to better position itself for the future. The following
items largely offset the increase in revenues attributable to the
hotter-than-normal weather ($ in millions):
Accelerated amortization of regulatory assets
and write-off of related taxes $21
Accelerated 1999 expenditures to enhance reliability $17
Accelerated 1999 lump-sum pay increase $ 7
Utility operations and maintenance expenses increased by $49 million during
1998, compared with 1997. The increase was due to the acceleration of certain
expenses noted above and additional operations and maintenance costs related to
the Tiger Bay plant acquired in July 1997. In addition, Florida Power wrote off
$7 million of inventory deemed obsolete.
In 1997, operations and maintenance expenses, before nuclear outage costs,
increased by $8.9 million over 1996. The increase was due primarily to costs
associated with planned fossil plant outages and expenditures designed to
improve reliability and customer service.
Changes from year to year in the amount of energy conservation costs have no
significant impact on earnings because Florida Power recovers substantially all
of these costs through a clause in electric rates similar to the fuel recovery
clause. Florida Power does not expect the level of energy conservation costs to
vary materially in the future.
Depreciation of $347.1 million for 1998 included $19 million of accelerated
amortization of regulatory assets, $14 million of which was related to contract
termination costs for the Tiger Bay buy-out. (See Item 7 "MD&A - Impact of Tiger
Bay Buy-Out.") In 1997, Florida Power wrote off approximately $20 million
related to these costs. In 1996, Florida Power amortized approximately $31
million related to two oil-fired power plants and a canceled transmission line.
Excluding these and other write-offs, Florida Power's annual depreciation for
1998, 1997 and 1996 would have been $328.6 million, $305.9 million and $293.2
million, respectively.
Florida Power's interest expense in 1998 increased over 1997 primarily due to
higher debt balances resulting from the July 1997 Tiger Bay transaction. The
higher debt balances from the Tiger Bay transaction, as well as additional costs
associated with the 1997 extended nuclear outage, also resulted in increased
1997 interest expense, compared with 1996.
Extended Nuclear Outage Costs
In September 1996, Florida Power's Crystal River nuclear plant was taken out of
service to fix an oil pressure problem in the main turbine. When the repairs
were completed in October 1996, Florida Power decided to keep the plant shut
down to address certain backup safety system design issues.
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The NRC had been critical of the plant's overall performance in 1996, and in
January 1997 placed the nuclear plant on its "Watch List" as a plant whose
operations would be monitored closely until Florida Power demonstrated a period
of improved performance.
The nuclear plant was returned to service in February 1998 after being out of
service about 16 months. In July 1998, the NRC removed the plant from its "Watch
List," citing the unit's improved physical condition, more effective management
oversight and improved operator training.
Florida Power's operating results for 1997 were significantly impacted by the
costs associated with the extended outage. These costs included $100 million in
additional operations and maintenance expenses and approximately $173 million in
replacement power costs. Capital expenditures related to the outage were $42
million in 1997. (See Note 9 to the Financial Statements.)
Impact of Tiger Bay Buy-Out
In July 1997, Florida Power bought out the purchased power contracts related to
a 220-megawatt cogeneration facility (Tiger Bay). In addition to buying out the
purchased power contracts, Florida Power acquired the facility. Costs associated
with the termination of the purchased power contracts and the acquisition of the
facility totaled $445 million.
The FPSC-approved purchase allowed Florida Power to record a regulatory asset of
approximately $350 million for contract termination costs and add $75 million to
its electric plant.
Florida Power continues to collect from customers an amount equal to what it
would have been allowed to recover for capacity and energy payments made in
accordance with the original Tiger Bay purchased power contract. Based on these
payments, Florida Power is projected to recover enough revenues by the year 2008
to fully amortize the regulatory asset and related interest charges. The
regulatory asset balance as of December 31, 1998, was $321 million and reflected
normal amortization of $13.2 million and $4.4 million in 1998 and 1997,
respectively, and accelerated amortization of $14 million in 1998. (See Note 9
to the Financial Statements.)
DIVERSIFIED OPERATIONS
Overview
In 1998, Electric Fuels earned $42.3 million, or $.44 per share, compared with
$32.1 million, or $.33 per share, in 1997 and $27.1 million, or $.28 per share,
in 1996. Electric Fuels' operations include Rail Services, Inland Marine
Transportation and Energy and Related Services.
In 1997, Florida Progress established a provision for loss on its $87 million
investment in Mid-Continent and accrued for litigation costs. (See Item 7 "MD&A
- - Mid-Continent Life Insurance Company") In 1996, Florida Progress made two
restructuring decisions that had a significant impact on earnings from
diversified operations. The spin-off of Echelon resulted in a $26.3 million
after-tax charge to earnings while the sale of AST contributed an after-tax gain
of $23.5 million. Another item that affected 1996 diversified earnings was the
provision for loss on unprofitable coal properties owned by Electric Fuels. This
resulted in an after-tax charge of $25.2 million.
The diversified operations of Electric Fuels can be more volatile when compared
to the operations of an electric utility. Factors that can influence its
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operating results include weather conditions that affect barge transportation
along the Mississippi and Ohio rivers, and economic conditions that affect the
supply and demand for the various products and services offered by the three
business units.
Electric Fuels Corporation
The expansion of Electric Fuels is one of Florida Progress' key strategic
objectives. Double-digit earnings growth of Electric Fuels would enable Florida
Progress to achieve its five-year objective of consistent annual earnings per
share growth of 5 percent or better.
Over the last five years Electric Fuels has grown significantly:
Five-Year
1998 1997 1996 1995 1994 Growth Rate
(In millions)
Revenues $1,234 $1,037 $ 881 $ 844 $ 784 16.3%
Earnings $42.3 $32.1 $27.1* $24.0 $ 22.6 23.2%
*Before provision for loss on coal properties
The growth of Electric Fuels has come from growth in its Rail Services business
unit, expansion of its Inland Marine Transportation fleet and improved
operations in its Energy and Related Services group.
During 1998, Progress Rail completed approximately $200 million in acquisitions
across its various business segments. This level of activity was substantially
higher than previous years. During 1997 and 1996, Progress Rail's acquisitions
totaled $71 million.
Today, Progress Rail is one of the largest integrated suppliers of rail services
in the United States, with locations in 20 states, Mexico and Canada. Earnings
from the Rail Services unit were $15.9 million, $13.3 million and $9.7 million
in 1998, 1997 and 1996, respectively. The growth in earnings has come mostly
from acquisitions and internal expansion.
In 1998, this group was negatively impacted by substantial declines in scrap
steel prices during the second half of the year. However, the earnings
improvement from increased demand for its railcar and track parts and services,
sales of railcars from its lease portfolio and increases resulting from its 1997
acquisitions more than offset the effects of the lower scrap steel prices.
Expansion of MEMCO, Electric Fuels' Inland Marine Transportation unit, has been
achieved primarily through the purchase of river barges. Since 1992, MEMCO's
fleet of barges, which haul coal, agricultural products and other dry bulk
products along the Ohio and lower Mississippi rivers, has nearly tripled. During
1998, MEMCO acquired approximately 200 new barges and two new towboats, raising
its fleet to 1,100 barges and 27 towboats. During 1999, MEMCO plans to acquire
approximately 100 more barges and one new towboat.
Further expansion of the barge fleet after 1999 depends largely on the future
demand for barge capacity and MEMCO's ability to secure additional long-term
contracts. MEMCO's objective is to achieve and maintain approximately 70 percent
of its barge capacity under long-term contracts typically ranging from three to
five years. The remaining capacity is used to take advantage of new market
opportunities as they arise.
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Earnings from the Inland Marine Transportation unit were $10.3 million in 1998,
compared with $5.9 million in 1997. The increase was due to the expanded fleet
and the negative impact high-water conditions in March 1997 had on 1997's
results. The March floods temporarily disrupted barge traffic and terminal
services and kept 1997 earnings below 1996 earnings of $7.1 million.
Electric Fuels' Energy and Related Services business unit includes coal mining,
river terminal services and off-shore marine transportation. Annual sales of
coal average about 12 million tons, of which 5 to 6 million tons are sold to
Florida Power and the rest is sold to unaffiliated customers.
Earnings from this unit were $20.4 million in 1998, compared with $16.8 million
in 1997. The increase was due to improved productivity, higher coal deliveries
and an increase in river terminal services. In September 1997, Electric Fuels
bought out its 50-percent partner in a coal mining joint venture and now
recognizes 100 percent of the sales and earnings from that property. In the
first half of 1998, Electric Fuels completed the expansion of its Ceredo River
terminal in West Virginia, increasing its capacity by 33 percent.
In 1996, the earnings from this unit were $12.7 million, before a provision for
loss on unprofitable coal properties. In December 1996, Electric Fuels
established a provision for loss on certain coal properties after it determined
that depressed market conditions for low-sulfur coal were not temporary. The
impact of the write-down was a one-time after-tax charge to earnings of $25.2
million.
Mid-Continent Life Insurance Company
In 1997, Florida Progress recorded a provision for a loss on its investment in
Mid-Continent and accrued for estimated legal expenses, reducing 1997 earnings
by $.96 per share. This action was prompted by Mid-Continent being placed in
receivership in the spring of 1997 and subsequent events in 1997. The
receivership was based on Oklahoma Insurance Commissioner John Crawford's
contention that Mid-Continent's policy reserves were understated and that it
could not raise premiums to address the issue. Although the Oklahoma District
Court granted the Commissioner's request to place Mid-Continent in receivership,
the court ruled that premiums could be raised. Mid-Continent had planned to
raise premiums and eliminate policyholder dividends in order to avoid a
projected reserve shortfall in 2020. After placing the company in receivership,
Commissioner Crawford's principal action towards rehabilitation was to file a
lawsuit seeking to use the assets of Florida Progress for the benefit of
policyholder and creditor claims. Commissioner Crawford was defeated in his bid
for re-election in November 1998 and new Commissioner, Carroll Fisher, has
stated his intention to work with Florida Progress and others to develop a plan
to rehabilitate Mid-Continent rather than pursue litigation against Florida
Progress. Although Florida Progress hasn't had access to recent Mid-Continent
data, its estimate of the present value of the projected deficiency, after
applying Mid-Continent's statutory surplus, is in the range of $100 million,
rather than the $348 million alleged by former Commissioner Crawford. Florida
Progress is working with Commissioner Fisher to develop a viable plan to
rehabilitate Mid-Continent, which would include the sale of that company. (See
Note 11 to the Financial Statements.)
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Year 2000
Florida Progress is in the process of addressing Year 2000 (Y2K) issues and
establishing procedures to mitigate its risks. Y2K issues exist because,
historically, many computer systems have used two digits to represent a year.
With the change of the century, a two-digit year may present calculation or
sequencing errors in computer software and embedded technology.
The Florida Progress Y2K effort is overseen by the Vice President, Information
Technology of Florida Power, who provides status reports to Florida Progress'
board of directors and outside regulatory agencies and other entities such as
the FPSC, the NRC and the NERC.
Florida Progress has taken a comprehensive approach in developing its Y2K plans.
Resources have been dedicated to reviewing systems throughout all areas of the
company, with an emphasis on testing of systems, to the extent possible. Florida
Progress expects that preparations for Y2K issues, including contingency plans,
will be completed by the end of the third quarter of 1999 for Florida Power and
during the fourth quarter of 1999 for Electric Fuels.
All areas of Florida Progress are involved in identifying and addressing
software, infrastructure and embedded technology issues.
The Information Technology (IT) focus is on application and operating software,
data storage capabilities and technology infrastructure (workstations, servers,
voice and data networks, and communications equipment).
Embedded systems are internal components used to control, monitor or assist the
operation of equipment, machinery and plants including process controls used for
energy production and delivery. They are integral parts of systems, and in many
cases their presence is not obvious.
Florida Progress' methodology for identification and remediation of Y2K issues
is a five-step process, which includes:
1.) Awareness - The communication of Y2K issues and their importance
throughout Florida Power and Electric Fuels.
2.) Inventory - The itemized tabulation of all Y2K-suspect software,
infrastructure and embedded systems.
3.) Assessment and prioritization - Performing an evaluation of all
technology components, obtaining compliance information through analysis
and certifications from suppliers, product vendors, and other third
parties, to the extent possible, with which Florida Progress conducts
business, reviewing interfaces and categorizing whether identified issues
are mission critical.
4.) Remediation and verification - Correcting or upgrading systems and
components, and where possible, end-to-end integration testing.
5.) Contingency planning - Establishing contingency plans for all key
operating functions.
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The following chart represents an estimate of the current status of Florida
Progress' Y2K progress and planned completion dates for each phase as of
December 31, 1998:
Florida Power Electric Fuels
Percent Planned Percent Planned
Complete Completion Complete Completion
(12/31/98) Date (12/31/98) Date
Awareness - * * * *
Inventory - 98% Jan. 1999 70% Mar. 1999
Assessment and
prioritization - 75% Mar. 1999 50% Jun. 1999
Remediation and
verification - 40% Sep. 1999 30% Sep. 1999
Contingency
planning - 20% Sep. 1999 10% Dec. 1999
* To continue through duration of project.
Florida Progress has given the highest priority to addressing mission critical
processes for Y2K readiness. At Florida Power, these include systems and
processes that support the monitoring and control of the electric grid, maintain
generating facility control, output and safety, facilitate security and
telecommunications capabilities, and provide critical customer service
functions.
While the diversified operations of Electric Fuels have some of the same
technology-related issues as Florida Power, the risk is substantially less due
to the fact that its operations are less reliant upon integrated
technology-driven processes.
Florida Progress is in the process of developing corporate-wide contingency
plans. The objective of contingency planning is to minimize the duration and
extent of any material impacts resulting from a Y2K-induced problem.
Due to the speculative nature of contingency planning, Florida Progress cannot
ensure the extent to which such plans will in fact mitigate the risk of material
impacts on Florida Progress' operations due to Y2K issues.
Florida Progress is in the process of identifying and assessing third-party
vulnerabilities. Highest vulnerabilities from third-party vendors for Florida
Power exist in the fuel supply and telecommunications industries. Florida Power
has begun a program of working with these vendors to try to determine potential
risks and Y2K readiness. Also, Florida Power is working with industry groups
such as the FRCC, Nuclear Energy Institute/Nuclear Utility Software Management
Group, and Electric Power Research Institute to ensure the safety and
reliability of power generation and the integrity of the transmission grid. In
addition, Florida Power has initiated and participated in utility sharing
strategy sessions to identify issues with third parties. Florida Power has also
begun to request status information from significant vendors to determine
potential third-party Y2K risks.
Florida Progress' current estimate of the total costs of addressing Y2K issues,
including expenses to remedy both embedded systems and computer information
systems, is between $15 million and $25 million. No Florida Progress systems
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have been replaced on an accelerated basis due to the Y2K issue. As of December
31, 1998, Florida Progress has incurred a total of approximately $6 million of
internal and external costs related to Y2K. Currently, the company does not
separately track internal costs related to this issue. Florida Progress has
expensed all Y2K costs as incurred.
In the electric utility industry, there are many computers and software programs
that are susceptible to Y2K issues, as well as a multitude of individual
computer chips within equipment that may have Y2K implications. Computers and
computer chips are used in power plants that generate electricity, in systems
that handle billing and customer information, and in many other common devices
such as telephones, security systems and building elevators. While the potential
effects could be widespread and the exact nature of those effects is unknown,
Florida Progress does not expect the potential effect to be severe. Florida
Progress is making every effort to remediate issues and provide contingency
plans for the possibility of any disruption that could occur.
Nevertheless, achieving Y2K readiness is subject to various risks and
uncertainties, many of which are described above. It is difficult to provide a
detailed, meaningful description of the most reasonably likely worst case Y2K
scenarios. Florida Progress is not able to predict all of the factors that could
cause actual results to differ materially from its current expectations as to
its Y2K readiness.
If Florida Progress, or third parties with whom it has significant business
relationships, fail to achieve Y2K readiness with respect to critical systems,
there could be a material adverse impact on Florida Progress' financial
position, results of operations and cash flows. However, based on the milestones
that have been achieved to date and the planned completion of the Y2K project,
Florida Progress is confident that it is taking the necessary steps to minimize
the impact of Y2K.
Other
Florida Progress adopted several new accounting standards during 1998. (See
Note 1 to the Financial Statements.)
Florida Power and a former subsidiary of Florida Progress have been notified by
the EPA that each is or may be a potentially responsible party for the cleanup
costs of several contaminated sites. (See Note 11 to the Financial Statements.)
Florida Progress has off-balance sheet risk related to debt of unconsolidated
partnerships. (See Note 11 to the Financial Statements.)
Florida Progress is involved in other litigation. (See Note 11 to the Financial
Statements.)
Even though the inflation rate has been relatively low during the last three
years, inflation continues to affect Florida Progress by reducing the purchasing
power of the dollar and increasing the cost of replacing assets used in the
business. This has a negative effect on Florida Power because regulators
generally do not consider this economic loss when setting utility rates.
However, such losses are partly offset by the economic gains that result from
the repayment of long-term debt with inflated dollars.
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LIQUIDITY AND CAPITAL RESOURCES
Cash from operations has been the primary source of capital for Florida
Progress. Cash from operations in 1998 increased $435.3 million over 1997. The
significant increase was due largely to the absence of costs associated with the
1997 extended nuclear outage and tax benefits received in 1998 related to the
1997 Tiger Bay transaction.
Other sources of capital over the last three years include debt financing,
proceeds from the sale and leaseback of equipment, proceeds from the sale of
properties and businesses, and the issuance of common stock.
Florida Progress' capital requirements are primarily influenced by Florida
Power's construction program and the expansion activities of Electric Fuels.
Florida Power's construction program is not expected to require any significant
increase in equity or debt over the next several years.
The expansion activities of Electric Fuels will be financed with internally
generated funds, debt and equity contributions.
In November 1998, the Progress Plus Stock Plan and Employee Savings Plan (the
Plans) began issuing new shares of common stock instead of purchasing shares in
the open market. Florida Progress expects to receive about $50 million of new
equity annually through the Plans.
Florida Progress also is considering issuing other equity alternatives during
1999. The funds from these sources will be used primarily to reduce debt at
Progress Capital, the holding company for the diversified operations.
Florida Progress' capital structure as of December 31, 1998, was 41.1 percent
common equity, 58.1 percent debt and .8 percent preferred stock. Total debt at
Florida Power was reduced by $233 million in 1998. This decrease was offset by
an increase of $257 million at Progress Capital. Listed below are the credit
ratings for Florida Power and Progress Capital as of December 31, 1998:
CREDIT RATINGS
Standard Duff &
& Poor's Moody's Phelps
Florida Power Corporation
First mortgage bonds AA- Aa3 AA-
Medium-term notes A+ A1 A+
Commercial paper A-1+ P-1 D-1+
Progress Capital Holdings, Inc.
Medium-term notes A A2
Commercial paper A-1 P-1
Florida Power Corporation
Florida Power's construction expenditures in 1998 totaled about $310 million.
This was primarily for distribution lines related to the utility's growing
customer base and the construction of a new 500-megawatt power plant that is
planned for commercial operation in the first quarter of 1999. Florida Power's
three-year construction program totals approximately $1 billion for the
1999-2001 forecast period. It includes planned expenditures of $323 million,
$342 million and $300 million for 1999 through 2001. Florida Power expects these
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construction expenditures will be financed primarily with internally generated
funds.
In 1998, Florida Power redeemed $250 million of first mortgage bonds. The
redemption of these bonds was principally funded through the issuance of $150
million of 30-year medium-term notes bearing an interest rate of 6 3/4 percent
and commercial paper.
In July 1997, Florida Power issued $450 million of medium-term notes primarily
to finance the buy-out of purchased power contracts associated with the
220-megawatt Tiger Bay cogeneration facility. (See "MD&A - Impact of Tiger Bay
Buy-Out".)
Amendments to the Clean Air Act in 1990 require electric utilities to reduce
sulfur dioxide emissions. Florida Power is meeting these requirements with
minimal capital expenditures.
In addition to funding its construction commitments with cash from operations,
Florida Power accesses the capital markets through the issuance of commercial
paper and medium-term notes.
Florida Power's interim financing needs are funded primarily through its
commercial paper program. The utility has a $200-million, 364-day revolving bank
credit facility and a $200-million, five-year facility, which are used to back
up commercial paper. (See Note 6 to the Financial Statements.)
Florida Power's medium-term note program provides for the issuance of either
fixed or floating interest rate notes, with maturities that may range from nine
months to 30 years. Florida Power has available for issuance $250 million of
medium-term notes.
In 1998, debt levels decreased at Florida Power largely due to the improved
operating results stemming from hotter-than-normal weather, which increased
funds from operations.
In 1997, debt levels increased over 1996 at Florida Power largely due to the
costs associated with the extended nuclear outage and the buy-out of purchased
power contracts with the Tiger Bay plant.
Florida Power's embedded cost of long-term debt was 6.8 percent as of December
31, 1998, and 7 percent as of December 31, 1997.
Diversified Operations
Progress Capital provides short- and long-term financing facilities for Florida
Progress' diversified operations and, with the benefit of a guaranty and support
agreement with Florida Progress, helps to lower the cost of capital of the
diversified businesses. Progress Capital funds diversified operations primarily
through the issuance of commercial paper and medium-term notes. (See Note 6 to
the Financial Statements.)
Progress Capital has a medium-term note program for the issuance of either fixed
or floating interest rate notes, with maturities that may range from nine months
to 30 years.
In 1998 and 1997, Progress Capital issued $115 million and $35 million of
medium-term notes, respectively, with maturities ranging from two to 10 years,
leaving $185 million of medium-term notes available for issuance. The proceeds
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were primarily used to repay maturing medium-term notes and for other corporate
purposes.
In 1998, MEMCO entered into a $200-million synthetic lease financing for
approximately $175 million in barges and $25 million in towboats. The lease
financing was accomplished through a sale and leaseback, and involved the
issuance of $126 million of secured notes and $74 million in equipment trust
certificates by a special purpose Delaware trust. The notes and certificates
bear a weighted average interest rate of 6.8 percent with a final maturity in
2014. MEMCO's payment obligations under the operating lease are guaranteed by
Progress Capital. (See Note 11 to the Financial Statements.)
Progress Capital has two revolving bank credit facilities: a 364-day,
$100-million facility and a five-year, $300-million facility. These facilities
are used to back up commercial paper. (See Note 6 in Notes to the Financial
Statements.) Progress Capital also has uncommitted bank bid facilities that
authorize it to borrow and re-borrow, and have outstanding at any time, up to
$300 million. As of December 31, 1998, $150 million was outstanding. The
facilities were established to temporarily supplement commercial paper
borrowings.
In 1998, total diversified capital expenditures were $217 million, including
approximately $92 million for the purchase of barges and towboats and $125
million for property additions at Electric Fuels' diversified operations.
In 1997, diversified capital expenditures were about $120 million, primarily for
the purchase of barges.
In 1999, diversified capital expenditures are expected to be approximately $155
million, most of which is for Electric Fuels. The Inland Marine Transportation
unit plans to add approximately 100 new barges and one towboat in 1999 as it
continues to take advantage of market opportunities to expand its business.
Electric Fuels' Rail Services unit is expected to continue to grow by expanding
geographically. These expenditures are expected to be funded through cash
generated internally, through Progress Capital from outside financing sources,
and through equity contributions from Florida Progress.
Dividend Policy and Earnings Outlook
Florida Progress evaluates its dividend policy on an annual basis to ensure that
the dividend payout and dividend rate are appropriate given the business plan,
projected earnings growth and outlook for the electric utility industry. Florida
Progress' business plan forecasts sustained earnings per share growth, a key
factor in determining dividend policy.
FORWARD-LOOKING STATEMENTS
In this report, Florida Progress has stated an aggressive five-year objective of
consistent annual earnings per share growth of 5 percent or better, and
established goals to build a national retail energy services business in the
utilities sector, and continue to support the growth at Electric Fuels. Florida
Progress has made various estimates regarding its Y2K preparedness, projected
that retail choice eventually will exist in every state, and indicated its
assessment that the lawsuits related to Mid-Continent are without merit. Florida
Power has indicated that it expects to have sufficient system capacity to meet
anticipated future demand.
40
<PAGE>
These statements, and any other statements contained in this report that are not
historical facts, are forward-looking statements that are based on a series of
projections and estimates regarding the economy, the electric utility industry
and the company's other businesses in general, actions of regulatory bodies and
courts, and on key factors which impact the company directly. The projections
and estimates relate to the pricing of services, the actions of courts and
regulatory bodies, the success of new products and services, and the effects of
competition.
Key factors that have a direct bearing on the company's ability to attain these
projections include continued annual growth in customers; economic and weather
conditions affecting the demand for and supply of not only electricity but also
Electric Fuels' barge, rail and other services; successful cost containment
efforts; and the efficient operation and/or construction of Florida Power's
existing and planned generating units. Also, in developing its forward-looking
statements, the company has made certain assumptions relating to productivity
improvements and the favorable outcome of various commercial, legal and
regulatory proceedings, and the lack of disruption to its markets.
If the company's projections and estimates regarding the economy, the electric
utility industry and key factors differ materially from what actually occurs, or
if various proceedings have unfavorable outcomes, the company's actual results
could vary significantly from the performance projected.
Market Risks
Interest rate risk
Florida Progress is exposed to changes in interest rates primarily as a result
of its borrowing activities.
A hypothetical 54 basis point increase in interest rates (10 percent of Florida
Progress' weighted average interest rate) affecting its variable rate debt
($739.7 million as of December 31, 1998) would have an immaterial effect on
Florida Progress' pre-tax earnings over the next fiscal year. A hypothetical
10-percent decrease in interest rates would also have an immaterial effect on
the estimated fair value of Florida Progress' long-term debt as of December 31,
1998.
Commodity price risk
Currently at Florida Power, commodity price risk due to changes in market
conditions for fuel and purchased power are recovered through the fuel cost
recovery clause, with no effect on earnings.
Electric Fuels is exposed to commodity price risk through coal sales, the scrap
steel market and fuel for its marine transportation business. A 10-percent
change in the market price of those commodities would have an immaterial effect
on the earnings of Florida Progress.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For discussion of interest rate risk and commodity risk, see "MD&A - Market
Risks".
41
<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, 1998 and 1997, and the related consolidated statements of income, cash
flows, and common equity and comprehensive income for each of the years in the
three-year period ended December 31, 1998. 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, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, 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 LLP
- ---------------------------
KPMG LLP
St. Petersburg, Florida
January 25, 1999
42
<PAGE>
FLORIDA PROGRESS
Consolidated Financial Statements
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Income For the years ended December 31, 1998, 1997
and 1996 (In millions, except per share amounts)
1998 1997 1996
--------- --------- ---------
REVENUES:
Electric utility $2,648.2 $2,448.4 $2,393.6
Diversified 972.1 868.0 764.3
--------- --------- ---------
3,620.3 3,316.4 3,157.9
--------- --------- ---------
EXPENSES:
Electric utility:
Fuel 595.7 458.1 409.7
Purchased power 433.8 490.6 531.6
Energy conservation cost 79.6 67.0 62.6
Operation and maintenance 471.6 422.3 413.4
Extended nuclear outage -
O&M and replacement power costs 5.1 173.3 -
Depreciation 347.1 325.9 324.2
Taxes other than income taxes 203.6 193.6 183.6
---------- --------- ---------
2,136.5 2,130.8 1,925.1
---------- --------- ---------
Diversified:
Cost of sales 827.2 753.9 642.9
Provision for loss on coal properties - - 40.9
Loss related to life insurance subsidiary - 97.6 -
Other 56.3 60.4 66.6
---------- --------- ---------
883.5 911.9 750.4
---------- --------- ---------
INCOME FROM OPERATIONS 600.3 273.7 482.4
---------- --------- ---------
INTEREST EXPENSE AND OTHER:
Interest expense 187.1 158.7 135.9
Allowance for funds used during
construction (16.9) (9.7) (7.5)
(Gain) on sale of business - - (44.2)
Other expense (income), net (.2) 4.0 1.6
---------- --------- ---------
170.0 153.0 85.8
---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 430.3 120.7 396.6
Income taxes 148.6 66.4 145.9
---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 281.7 54.3 250.7
DISCONTINUED OPERATIONS, NET OF INCOME TAXES - - (26.3)
---------- --------- ---------
NET INCOME $ 281.7 $ 54.3 $ 224.4
========== ========= =========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING 97.1 97.1 96.8
========== ========= =========
EARNINGS PER AVERAGE COMMON SHARE:
Continuing operations $ 2.90 $ .56 $ 2.59
Discontinued operations - - (.27)
---------- --------- ---------
$ 2.90 $ .56 $ 2.32
========== ========= =========
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
FLORIDA PROGRESS CORPORATION Consolidated Balance Sheets December 31, 1998 and
1997 (Dollars in millions)
1998 1997
--------- ---------
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and
held for future use $6,307.8 $6,166.8
Less: Accumulated depreciation 2,716.0 2,511.0
Accumulated decommissioning
for nuclear plant 254.8 223.7
Accumulated dismantlement for fossil plants 130.7 128.5
--------- ---------
3,206.3 3,303.6
Construction work in progress 378.3 279.4
Nuclear fuel, net of amortization of $377.2
in 1998 and $356.7 in 1997 45.9 66.5
--------- ---------
Net electric utility plant 3,630.5 3,649.5
Other property, net of depreciation of $234.6
in 1998 and $219.3 in 1997 560.1 437.7
--------- ---------
4,190.6 4,087.2
--------- ---------
CURRENT ASSETS:
Cash and equivalents 2.5 3.1
Accounts receivable, net 413.4 373.7
Inventories, primarily at average cost:
Fuel 69.8 77.6
Utility materials and supplies 83.3 91.9
Diversified materials 137.0 126.8
Underrecovered utility fuel costs - 34.5
Income taxes receivable 23.4 16.8
Deferred income taxes 55.9 5.8
Prepayments and other 68.8 45.1
--------- ---------
854.1 775.3
--------- ---------
DEFERRED CHARGES AND OTHER ASSETS:
Costs deferred pursuant to regulation:
Deferred purchase power contract termination costs 321.0 348.2
Other 113.6 126.4
Investments in nuclear decommissioning fund 332.1 266.7
Goodwill 139.8 55.2
Joint ventures and partnerships 71.5 54.6
Other 138.1 46.4
---------- ---------
1,116.1 897.5
---------- ---------
$6,160.8 $5,760.0
========== =========
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
FLORIDA PROGRESS CORPORATION Consolidated Balance Sheets December 31, 1998 and
1997 (Dollars in millions)
1998 1997
-------- --------
CAPITAL AND LIABILITIES
COMMON STOCK EQUITY:
Common stock without par value, 250,000,000
shares authorized, 97,336,826 shares
outstanding in 1998 and 97,062,954 in 1997 $1,221.1 $1,209.0
Retained earnings 640.9 567.0
--------- --------
1,862.0 1,776.0
CUMULATIVE PREFERRED STOCK OF FLORIDA POWER:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 2,250.4 2,377.8
--------- --------
TOTAL CAPITAL 4,145.9 4,187.3
--------- --------
CURRENT LIABILITIES:
Accounts payable 297.9 253.2
Customers' deposits 104.1 97.1
Taxes payable 10.1 12.0
Accrued interest 70.4 56.8
Overrecovered utility fuel costs 22.2 -
Other 85.8 74.8
--------- --------
590.5 493.9
Notes payable 236.2 214.8
Current portion of long-term debt 145.9 15.2
--------- --------
972.6 723.9
--------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 595.4 471.2
Unamortized investment tax credits 77.8 85.7
Other postretirement benefit costs 116.1 107.4
Other 253.0 184.5
--------- --------
1,042.3 848.8
--------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
--------- --------
$6,160.8 $5,760.0
========= ========
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
<TABLE>
<CAPTION>
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Cash Flows For the years ended December 31, 1998,
1997 and 1996 (In millions)
1998 1997 1996
------- ------ ------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Income from continuing operations $ 281.7 $ 54.3 $250.7
Adjustments for noncash items:
Depreciation and amortization 424.6 364.2 366.7
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 44.8 (30.7) (56.6)
Increase in accrued post-employment benefit costs 8.7 8.6 15.5
Changes in working capital, net of effects from acquisition or sale of
businesses:
Accounts receivable (2.5) (108.3) 35.4
Inventories 51.1 2.2 (10.9)
Overrecovery (underrecovery) of fuel cost 51.7 (33.1) (82.3)
Accounts payable 17.8 58.3 21.6
Taxes payable (8.2) (47.1) 21.0
Other 3.1 1.2 (13.5)
Other operating activities 5.1 12.8 26.6
-------- ------ ------
Cash provided by continuing operations 877.9 442.6 570.9
-------- ------ ------
Cash used by discontinued operations - - (8.9)
-------- ------ ------
877.9 442.6 562.0
-------- ------ ------
INVESTING ACTIVITIES:
Property additions (including allowance for borrowed funds used
during construction) (543.3) (513.6) (264.0)
Acquisition of businesses (206.6) (32.7) (53.8)
Cogeneration facility acquisition and contract termination costs - (445.0) -
Proceeds from sales of properties and businesses 40.6 24.3 61.1
Proceeds from sale and leaseback 153.0 - -
Investing activities of discontinued operations - - 56.5
Other investing activities (129.3) (63.7) (107.4)
-------- ------ ------
(685.6)(1,030.7) (307.6)
-------- -------- ------
FINANCING ACTIVITIES:
Issuance of long-term debt 259.1 482.8 178.0
Repayment of long-term debt (275.1) (34.9) (190.4)
Increase (decrease) in commercial paper with long-term support - 130.6 (15.3)
Redemption of preferred stock - - (106.4)
Sale of common stock 12.7 - 18.5
Dividends paid on common stock (207.8) (203.8) (199.5)
Increase in short-term debt 21.4 210.8 4.1
Financing activities of discontinued operations - - 61.5
Other financing activities (3.2) .5 (4.0)
-------- ------ ------
(192.9) 586.0 (253.5)
-------- ------ ------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (.6) (2.1) .9
Beginning cash and equivalents 3.1 5.2 4.3
-------- ------ ------
ENDING CASH AND EQUIVALENTS $ 2.5 $ 3.1 $ 5.2
======== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 159.7 $142.7 $128.7
Income taxes (net of refunds) $ 110.4 $141.7 $189.3
The accompanying notes are an integral part of these financial statements.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
FLORIDA PROGRESS CORPORATION
Consolidated Statements of Common Equity and Comprehensive Income For the years
ended December 31, 1998, 1997 and 1996
(Dollars in millions, except per share amounts) Accumulated
Other
Common Retained Comprehensive
Total Stock Earnings Income
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $2,078.1 $1,187.6 $ 888.4 $ 2.1
Net income 224.4 224.4
Common stock issued - 586,555 shares 20.7 20.7
Echelon International stock dividend (194.5) (194.5)
Cash dividends on common stock ($2.06 per share) (199.5) (199.5)
Unrealized gain on marketable securities (2.7) (2.7)
Preferred stock redeemed - 1,050,000 shares (2.3) (2.3)
- --------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 1,924.2 1,208.3 716.5 (.6)
Net income 54.3 54.3
Common stock issued - 55,772 shares .7 .7
Cash dividends on common stock ($2.10 per share) (203.8) (203.8)
Reversal of unrealized loss on marketable securities
due to deconsolidation .6 .6
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,776.0 1,209.0 567.0 -
Net income 281.7 281.7
Common stock issued - 273,872 shares 12.1 12.1
Cash dividends on common stock ($2.14 per share) (207.8) (207.8)
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $1,862.0 $1,221.1 $640.9 $ -
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
Statements of Income
For the years ended December 31, 1998, 1997 and 1996
(In millions)
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES: $2,648.2 $2,448.4 $2,393.6
--------- --------- ---------
OPERATING EXPENSES:
Operation:
Fuel used in generation 595.7 458.1 409.7
Purchased power 433.8 490.6 531.6
Energy Conservation Cost Recovery 79.6 67.0 62.6
Operations and maintenance 471.6 422.3 413.4
Extended nuclear outage - O&M and
replacement fuel costs 5.1 173.3 -
Depreciation 347.1 325.9 324.2
Taxes other than income taxes 203.6 193.6 183.6
Income taxes 140.3 69.9 135.8
--------- --------- ---------
2,276.8 2,200.7 2,060.9
--------- --------- ---------
OPERATING INCOME 371.4 247.7 332.7
--------- --------- ---------
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
During construction 7.5 5.4 4.6
Miscellaneous other expense, net (1.7) (4.2) (3.4)
--------- --------- ---------
5.8 1.2 1.2
--------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 115.6 102.4 86.6
Other interest expense 20.9 14.9 11.8
--------- --------- ---------
136.5 117.3 98.4
Allowance for borrowed funds used
during construction (9.4) (4.3) (2.9)
--------- --------- ---------
127.1 113.0 95.5
--------- --------- ---------
NET INCOME 250.1 135.9 238.4
DIVIDENDS ON PREFERRED STOCK 1.5 1.5 5.8
--------- --------- ---------
NET INCOME AFTER DIVIDENDS
ON PREFERRED STOCK $248.6 $134.4 $232.6
========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
48
<PAGE>
FLORIDA POWER CORPORATION
Balance Sheets
For the years ended December 31, 1998, and 1997
(Dollars in millions)
1998 1997
-------- ---------
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and held $6,307.8 $6,166.8
for future use
Less - Accumulated depreciation 2,716.0 2,511.0
Accumulated decommissioning for nuclear plant 254.8 223.7
Accumulated dismantlement for fossil plants 130.7 128.5
--------- ----------
3,206.3 3,303.6
Construction work in progress 378.3 279.4
Nuclear fuel, net of amortization of $377.2
in 1998 and $356.7 in 1997 45.9 66.5
--------- ----------
3,630.5 3,649.5
Other property, net 11.5 33.2
---------- ---------
3,642.0 3,682.7
---------- ---------
CURRENT ASSETS:
Accounts receivable, less reserve of $3.8
in 1998 and $3.2 in 1997 206.0 243.9
Inventories at average cost:
Fuel 48.4 44.0
Materials and supplies 83.3 91.9
Underrecovered utility fuel cost - 34.5
Income tax receivable 16.0 13.5
Deferred income taxes 56.0 5.8
Prepaid and other 53.5 32.2
---------- --------
463.2 465.8
---------- --------
DEFERRED CHARGES AND OTHER ASSETS:
Costs deferred pursuant to regulation:
Deferred purchased power contract termination costs 321.0 348.2
Other 113.6 126.4
Nuclear plant decommissioning fund 332.1 266.7
Other 56.2 11.0
---------- --------
822.9 752.3
---------- --------
$4,928.1 $4,900.8
=========== =========
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
FLORIDA POWER CORPORATION
Balance Sheets
For the years ended December 31, 1998, and 1997
(Dollars in millions)
1998 1997
----------- ----------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock $1,004.4 $1,004.4
Retained earnings 815.7 763.1
---------- ----------
1,820.1 1,767.5
CUMULATIVE PREFERRED STOCK:
Without sinking funds 33.5 33.5
LONG-TERM DEBT 1,555.1 1,745.4
---------- ----------
TOTAL CAPITAL 3,408.7 3,546.4
---------- ----------
CURRENT LIABILITIES:
Accounts payable 173.0 161.9
Accounts payable to associated companies 27.2 26.5
Customers' deposits 104.1 97.1
Accrued other taxes 6.3 7.9
Accrued interest 55.8 45.7
Overrecovered utility fuel cost 22.2 -
Other 51.8 59.2
---------- ----------
440.4 398.3
Notes payable 47.3 179.8
Current portion of long-term debt 91.6 1.5
---------- ----------
579.3 579.6
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 563.2 451.3
Unamortized investment tax credits 77.2 85.1
Other postretirement benefit costs 112.9 104.7
Other 186.8 133.7
---------- ----------
940.1 774.8
---------- ----------
$4,928.1 $4,900.8
========== ==========
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
Statements of Cash Flows
For the years ended December 31, 1998, 1997 and 1996
(In millions)
1998 1997 1996
-------- -------- -------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income after dividends on preferred stock $ 248.6 $ 134.4 $ 232.6
Adjustments for noncash items:
Depreciation and amortization 382.7 333.8 341.1
Extended nuclear outage - Replacement power costs - 73.3 -
Deferred income taxes and investment
tax credits, net 36.5 (15.2) ( 32.8)
Increase in accrued other postretirement
benefit costs 8.2 8.3 14.9
Allowance for equity funds used during construction (7.5) (5.4) (4.6)
Changes in working capital:
Accounts receivable 37.9 (69.2) 16.2
Inventories 4.2 6.7 (.5)
Overrecovery (underrecovery) of fuel cost 51.7 (33.1) (82.3)
Accounts payable 11.1 46.4 25.7
Accounts payable to associated companies .7 5.3 (3.5)
Taxes payable (4.2) (26.0) (.8)
Other (11.6) 12.3 (12.1)
Other operating activities 20.7 (38.8) 3.8
--------- --------- --------
779.0 432.8 497.7
--------- --------- --------
INVESTING ACTIVITIES:
Construction expenditures (310.2) (387.2) (217.3)
Allowance for borrowed funds used during construction (9.4) (4.3) (2.9)
Additions to non-utility property (6.4) (3.5) (2.7)
Acquisition cogeneration facility and
Payment of contract termination costs - (445.0) -
Proceeds from sale of properties 12.2 19.7 5.5
Other investing activities (62.6) (22.2) (27.6)
--------- --------- -------
(376.4) (842.5) (245.0)
-------- --------- -------
FINANCING ACTIVITIES:
Issuance of long-term debt 144.1 447.7 -
Repayment of long-term debt (259.3) (21.3) (47.3)
Increase in commercial paper with
Long term support - - 54.8
Redemption of preferred stock - - (106.3)
Dividends paid on common stock (154.9) (192.4) (171.3)
Equity contributions from parent - - 12.5
Increase (decrease) in short-term debt (132.5) 175.7 4.1
--------- --------- --------
(402.6) 409.7 (253.5)
--------- --------- --------
NET INCREASE IN CASH AND EQUIVALENTS - - (.8)
Beginning cash and equivalents - - .8
--------- --------- --------
ENDING CASH AND EQUIVALENTS $ - $ - $ -
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 112.6 $ 98.9 $ 90.7
Income taxes (net of refunds) 107.3 108.4 166.9
Non-Cash Investing Activities:
Property Dividend to Parent $ 41.1 $ - $ -
The accompanying notes are an integral part of these financial statements
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
Statements of Common Equity and Comprehensive Income For the years ended
December 31, 1998, 1997 and 1996 (Dollars in millions, except share amounts)
Accumulated
Other
Common Retained Comprehensive
Total Stock Earnings Income
------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $1,754.0 $992.9 $761.1 $ -
Net income after dividends on
preferred stock 232.6 232.6
Capital contribution by parent company 12.5 12.5
Dividends paid to parent (171.3) (171.3)
Preferred stock redemption costs (1.3) (1.3)
Premium on preferred stock redemption (1.0) (1.0)
Preferred stock redeemed -
1,050,000 shares
------------- ----------- ---------- ------------
Balance, December 31, 1996 1,825.5 1,004.4 821.1 -
Net income after dividends on
preferred stock 134.4 134.4
Capital contribution by parent company
Dividends paid to parent (192.4) (192.4)
Preferred stock redemption costs
Premium on preferred stock redemption
Preferred stock redeemed -
1,050,000 shares
------------- ----------- ---------- ------------
Balance, December 31, 1997 1,767.5 1,004.4 763.1 -
Net income after dividends on
preferred stock 248.6 248.6
Dividends paid to parent (196.0) (196.0)
------------- ----------- ---------- ------------
Balance, December 31, 1998 $1,820.1 $1,004.4 $815.7 $ -
============= =========== ========== ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
52
<PAGE>
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 two primary subsidiaries are Florida Power and
Electric Fuels. Florida Power is a public utility engaged in the generation,
purchase, transmission, distribution and sale of electricity primarily within
Florida. Electric Fuels' operations include the mining, processing and
procurement of coal, marine and rail transportation, transfer and storage of
coal and other bulk commodities, railcar leasing and railcar maintenance and
repair.
Electric Fuels reports the results of its Rail Services, Inland Marine
Transportation, and the non-Florida Power portion of its Energy and Related
Services operations one month in arrears.
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, and the investment in Mid-Continent is accounted
for under the cost method. The deconsolidation has not been reflected in the
financial statements of prior periods.
Certain reclassifications have been made to prior-year amounts to conform to the
current year's presentation.
Use of Estimates - 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 future economic factors that 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 FPSC and the FERC. The utility
follows the accounting practices set forth in Financial Accounting Standard
(FAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." 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.
53
<PAGE>
Florida Power has total regulatory assets (liabilities) at December 31, 1998 and
1997 as detailed below:
1998 1997
(In millions)
-----------------
Deferred purchased power
contract termination costs $321.0 $ 348.2
Replacement fuel (extended nuclear outage) 39.3 55.0
Underrecovered/(overrecovered)utility
fuel costs (22.2) 34.5
Revenue decoupling - 21.8
Unamortized loss on reacquired debt 25.2 16.8
Other regulatory assets, net 27.7 25.2
------------------
Net regulatory assets $391.0 $501.5
==================
Florida Power 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.
Property, Plant and Equipment
Electric Utility Plant - Utility plant is stated at the original cost of
construction, which includes payroll and related costs such as taxes, pensions
and other fringe benefits, general and administrative costs, and an allowance
for funds used during construction. Substantially all of the utility plant is
pledged as collateral for Florida Power's first mortgage bonds.
The allowance for funds used during construction 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%.
The cost of nuclear fuel is amortized to expense based on the quantity of heat
produced for the generation of electric energy in relation to the quantity of
heat expected to be produced over the life of the nuclear fuel core.
Florida Power's annual provision for depreciation, including a provision for
nuclear plant decommissioning costs and fossil plant dismantlement costs,
expressed as a percentage of the average balances of depreciable utility plant,
was 4.7% for 1998, 4.8% for 1997 and 4.9% for 1996.
The fossil plant dismantlement accrual has been suspended for a period of four
years, effective 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.
54
<PAGE>
Florida Power accrues a reserve for maintenance and refueling expenses
anticipated to be incurred during scheduled nuclear plant outages.
Other Property - Other property consists primarily of railcar and recycling
equipment, barges, towboats, land, mineral rights and telecommunications
equipment.
Depreciation on other property is calculated principally on the straight-line
method over the estimated useful lives of assets. Depletion is provided on the
units-of-production method based upon the estimates of recoverable tons of clean
coal.
Utility Revenues, Fuel and Purchased Power Expenses - Revenues include amounts
resulting from fuel, purchased power and energy conservation cost recovery
clauses, which generally are designed to permit full recovery of these costs.
The adjustment factors are based on projected costs for a 12-month period. The
cumulative difference between actual and billed costs is included on the balance
sheet as a current regulatory asset or liability. Any difference is billed or
refunded to customers during the subsequent period.
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.
Revenue decoupling eliminated the effect of abnormal weather from revenues and
earnings. The difference between target revenues and actual revenues is included
as a current asset on the balance sheet for the period ended December 31, 1997.
The regulatory asset of $21.8 million at December 31, 1997, is currently being
recovered from customers over a two-year period, ending in the year 2000,
through the energy conservation cost recovery clause as directed by the FPSC
decoupling order.
Florida Power accrues the non-fuel portion of base revenues for services
rendered but unbilled.
Diversified Revenues - Revenues are recognized at the time products are shipped
or as services are rendered. Leasing activities are accounted for in accordance
with FAS No. 13, "Accounting for Leases."
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.
Deferred investment tax credits, subject to regulatory accounting practices, are
amortized to income over the lives of the related properties.
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 value with unrealized
gains and losses included
in earnings
- --------------------------------------------------------------------
55
<PAGE>
Securities available for sale Fair value with unrealized
gains and losses, net of taxes,
reported separately in
comprehensive income
- ----------------------------------------------------------------------
Florida Progress held only securities classified as available for sale at both
December 31, 1998 and 1997. A decline in the market value of any security
available for sale 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. (See Note 2
contained herein.) 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 exceeds 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.
Acquisitions - During 1998 and 1997, subsidiaries of Electric Fuels acquired 13
and three businesses, respectively, in separate transactions. The cash paid for
the 1998 and 1997 acquisitions was $206.6 million and $32.7 million,
respectively. The excess of the aggregate purchase price over the fair value of
net assets acquired was approximately $87.8 million and $15.6 million in 1998
and 1997, respectively. The acquisitions were accounted for under the purchase
method of accounting and, accordingly, the operating results of the acquired
businesses have been included in Florida Progress' consolidated financial
statements since the date of acquisition. Each of the acquired companies
conducted operations similar to those of the subsidiaries and has been
integrated into their operations. The pro forma results of consolidated
operations for 1998 and 1997, assuming the 1998 acquisitions were made at the
beginning of each year, would not differ significantly from the historical
results.
Goodwill - Goodwill is being amortized on a straight-line basis over the
expected periods to be benefited, generally 40 years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
Stock-Based Compensation - Florida Progress' Long-Term Incentive Plan ("LTIP")
authorizes the granting of up to 2,250,000 shares of common stock to certain
executives in various forms, including stock options, stock appreciation rights,
56
<PAGE>
restricted stock and performance shares. Currently, the Company has only granted
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 Opinion No. 25, "Accounting for Stock Issued to
Employees," as allowed under FAS No. 123, "Accounting for Stock Based
Compensation." Compensation costs for performance shares have been recognized at
the fair market value of the Company's stock and are recognized over the
performance cycle.
Environmental - Florida Progress accrues environmental remediation liabilities
when the criteria of FAS No. 5, "Accounting for Contingencies," have been met.
Environmental expenditures are expensed as incurred or capitalized depending on
their future economic benefit. Expenditures that relate to an existing condition
caused by past operations and 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.
New Accounting Standards - Florida Progress adopted FAS No. 130, "Reporting
Comprehensive Income," on January 1, 1998. The standard defines comprehensive
income as all changes in equity of an enterprise during a period except those
resulting from shareholder transactions. As the standard addresses reporting and
presentation issues only, there was no impact on earnings from the adoption of
this standard. Comprehensive income is included for Florida Progress in the
accompanying Consolidated Statements of Common Equity and Comprehensive Income.
Prior-year financial statements have been reclassified to conform to the
requirements of FAS No. 130.
Florida Progress adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for the year ended December 31, 1998. 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. As the
standard addresses reporting and disclosure issues only, there was no impact on
earnings. (See Note 8 contained herein.)
Florida Progress adopted FAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" for the year ended December 31, 1998. As the
standard addresses reporting and disclosure issues only, there was no impact on
earnings. (See Note 7 contained herein.)
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair values. Florida Progress will be required to adopt this standard for
financial statements issued beginning the first quarter of fiscal year 2000.
Florida Progress is currently evaluating the effect the standard will have on
its financial statements.
57
<PAGE>
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, 1998 and 1997, Florida Progress had the following financial
instruments with estimated fair values and carrying amounts:
1998 1997
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
ASSETS:
- -----------------------------------------------------------------------------
Investments for nonqualified
retirement plans $80.4 $80.4 $5.0 $5.0
Nuclear decommissioning
fund 332.1 332.1 266.7 266.7
- -----------------------------------------------------------------------------
CAPITAL AND LIABILITIES:
Long-term debt:
Florida Power Corporation $1,646.7 $1,740.4 $1,746.9 $1,801.1
Progress Capital Holdings 749.6 763.9 646.1 656.5
- ----------------------------------------------------------------------------
NOTE 3: INCOME TAXES
FLORIDA PROGRESS
(In millions) 1998 1997 1996
- ----------------------------------------------------------------------------
Components of income tax expense:
Payable currently:
Federal $ 85.8 $ 86.6 $179.7
State 15.3 10.5 23.0
- ----------------------------------------------------------------------------
101.1 97.1 202.7
- ----------------------------------------------------------------------------
Deferred, net:
Federal 47.2 (22.4) (41.9)
State 8.2 (.5) (6.9)
- ----------------------------------------------------------------------------
55.4 (22.9) (48.8)
- ----------------------------------------------------------------------------
Amortization of investment
tax credits, net (7.9) (7.8) (8.0)
- ----------------------------------------------------------------------------
$ 148.6 $ 66.4 $ 145.9
============================================================================
58
<PAGE>
FLORIDA POWER
(In millions) 1998 1997 1996
- ----------------------------------------------------------------------------
Components of income tax expense:
Payable currently:
Federal $ 89.2 $ 73.5 $143.6
State 15.3 11.6 24.9
- ----------------------------------------------------------------------------
104.5 85.1 168.5
- ----------------------------------------------------------------------------
Deferred, net:
Federal 37.7 (7.6) (20.9)
State 6.6 .2 (4.0)
- ----------------------------------------------------------------------------
44.3 ( 7.4) (24.9)
- ----------------------------------------------------------------------------
Amortization of investment
tax credits, net (7.9) (7.8) (7.9)
- ----------------------------------------------------------------------------
Total income tax expense 140.9 69.9 135.7
Less: Amounts charged or (credited)
to non-operating income .7 -- (.1)
- ----------------------------------------------------------------------------
Amounts charged to operating income $ 140.2 $ 69.9 $ 135.8
============================================================================
The primary differences between the statutory rates and the effective income tax
rates are detailed below:
FLORIDA PROGRESS
1998 1997 1996
- ----------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
income tax benefits 3.5 5.4 2.6
Amortization of investment tax credits (1.8) (6.4) (2.0)
Other income tax credits (1.9) (2.7) -
Provision for loss on investment in
life insurance subsidiary - 24.9 -
Preferred dividends .1 - -
Other (.4) (1.8) .6
- ----------------------------------------------------------------------------
Effective income tax rates 34.5% 54.4% 36.2%
============================================================================
FLORIDA POWER
1998 1997 1996
- ----------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal
income tax benefits 3.6 3.7 3.6
Amortization of investment tax credits (2.0) (3.8) (2.2)
Other (.4) (.9) -
- ----------------------------------------------------------------------------
Effective income tax rates 36.2% 34.0% 36.4%
============================================================================
59
<PAGE>
The following summarizes the components of deferred tax liabilities and assets
at December 31, 1998 and 1997:
FLORIDA PROGRESS
(In millions) 1998 1997
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Difference in tax basis of property,
plant and equipment $624.5 $539.0
Investment in partnerships 19.2 19.7
Deferred book expenses 23.4 34.1
Other 47.2 29.7
- ---------------------------------------------------------------------------
Total deferred tax liabilities $ 714.3 $ 622.5
===========================================================================
Deferred tax assets:
Loss reserves not currently deductible $ 18.0 $ 17.0
Accrued book expenses 108.7 110.8
Unbilled revenues 17.6 17.6
Other 30.5 11.7
- ---------------------------------------------------------------------------
Total deferred tax assets $ 174.8 $ 157.1
===========================================================================
At December 31, 1998 and 1997, Florida Progress had net noncurrent deferred tax
liabilities of $595.4 million and $471.2 million and net current deferred tax
assets of $55.9 million and $5.8 million, respectively. Florida Progress
believes it is more likely than not that the results of future operations will
generate sufficient taxable income to allow for the utilization of deferred tax
assets.
FLORIDA POWER
(In millions) 1998 1997
- --------------------------------------------------------------------------
Deferred tax liabilities:
Difference in tax basis of property,
plant and equipment $ 575.1 $ 506.3
Deferred book expenses 23.3 34.1
Under recovery of fuel 3.8 2.8
Carrying value of securities over cost 22.0 15.0
Other 10.5 1.5
-------------------------------------------------------------------------
Total deferred tax liabilities $ 634.7 $ 559.7
==========================================================================
Deferred tax assets:
Accrued book expenses $ 90.2 $ 95.0
Unbilled revenues 17.6 17.6
Regulatory liability for deferred income taxes - 1.6
Other 19.7 -
- --------------------------------------------------------------------------
Total deferred tax assets $ 127.5 $ 114.2
==========================================================================
At December 31, 1998 and 1997, Florida Power had net noncurrent deferred tax
liabilities of $563.1 million and $451.3 million and net current deferred tax
assets of $55.9 million and $5.8 million, respectively. Florida Power expects
the results of future operations will generate sufficient taxable income to
allow the utilization of deferred tax assets.
60
<PAGE>
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," as a plant whose operations will be closely monitored until the
plant demonstrates a period of improved performance. In January 1998, the NRC
granted Florida Power permission to restart the plant. On February 15, 1998, the
plant returned to service. On July 29, 1998, the NRC removed CR3 from the "Watch
List." Earlier in July 1998, the NRC gave CR3 an overall report of good
performance and improvements in all areas assessed for the agency's Systematic
Assessment of Licensee Performance (SALP) ratings. CR3 has produced more than
100% of its rated capacity since its restart in February 1998. (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, 1998 and 1997:
(In millions) 1998 1997
- ----------------------------------------------------------------------
Utility plant in service $708.9 $673.8
Construction work in progress 44.2 49.3
Unamortized nuclear fuel 45.9 66.5
Accumulated depreciation 368.7 341.0
Accumulated decommissioning 254.8 223.7
======================================================================
Net capital additions for Florida Power were $30.0 million in 1998 and $64.7
million in 1997. Depreciation expense, exclusive of nuclear decommissioning, was
$32.8 million in 1998 and $29 million in 1997. Each co-owner provides for its
own financing of their investment. Florida Power's share of the asset balances
and operating costs is included in the appropriate consolidated financial
statements. Amounts exclude any allocation of costs related to common
facilities.
Decommissioning Costs - Florida Power's nuclear plant depreciation expenses
include a provision for future decommissioning costs, which are recoverable
through rates charged to customers. Florida Power is placing amounts collected
in an externally managed trust fund. The recovery from customers, plus income
earned on the trust fund, is intended to be sufficient to cover Florida Power's
share of the future dismantlement, removal and land restoration costs. Florida
Power has a license to operate the nuclear unit through December 3, 2016, and
contemplates decommissioning beginning at that time.
In November 1995, the FPSC approved the current site-specific study that
estimates total future decommissioning costs at approximately $2 billion, which
corresponds to $464.8 million in 1998 dollars. Florida Power's share of the
total annual decommissioning expense is $21.7 million.
Florida Power is required to file a new site-specific study with the FPSC at
least every five years, which will incorporate current cost factors, technology
and radiological criteria.
Fuel Disposal Costs - Florida Power has entered into a contract with the U.S.
Department of Energy for the transportation and disposal of SNF. Disposal costs
for nuclear fuel consumed are being collected from customers through the fuel
adjustment clause at a rate of $.001 per net nuclear kilowatt-hour sold and are
paid to the DOE quarterly. Florida Power currently is storing SNF on-site and
has sufficient storage capacity in place for fuel consumed through the year
2011.
61
<PAGE>
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 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 the Company on terms not approved by
the Company's Board of Directors. The rights have no voting or dividend rights
and expire in December 2001, unless redeemed earlier by the Company.
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 Cumulative Preferred Stock, $100
par value, were issued and outstanding at December 31, 1998 and 1997. Florida
Power redeemed 1,050,000 shares of its Cumulative Preferred Stock in 1996 for
$106.4 million
Cumulative Preferred Stock for Florida Power is detailed below:
Current Outstanding at
Dividend Redemption Shares December 31,
Rate Price Outstanding 1998 & 1997
(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.
NOTE 6 DEBT
Florida Progress' long-term debt at December 31, 1998 and 1997, is scheduled to
mature as follows:
<TABLE>
<CAPTION>
Interest Rate(a) 1998 1997
- -----------------------------------------------------------------------------------------------
Florida Power Corporation
(In millions)
<S> <C> <C> <C>
First mortgage bonds, maturing 1999-2023 6.88% $585.0 $835.0
Pollution control revenue bonds, maturing 2014-2027 6.59% 240.9 240.9
Medium-term notes, maturing 1999-2028 6.63% 624.5 476.0
Commercial paper, supported by revolver
maturing November 30, 2003 5.25% 200.0 200.0
Discount, net of premium, being amortized over term of bonds (3.7) (5.0)
- ----------------------------------------------------------------------------------------------
1,646.7 1,746.9
62
<PAGE>
Progress Capital Holdings:
Medium-term notes,maturing 1999-2008 6.63% 444.0 339.0
Commercial paper, supported by revolver
maturing November 30, 2003 5.38% 300.0 300.0
Other debt, maturing 1999-2006 6.13% 5.6 7.1
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
2,396.3 2393.0
Less: Current portion of long-term debt 145.9 15.2
- ---------------------------------------------------------------------------------------------
$2,250.4 $2,377.8
</TABLE>
(a)Weighted average interest rate at December 31, 1998.
Florida Progress' consolidated subsidiaries have lines of credit totaling $800
million, which are used to support commercial paper. The lines of credit were
not drawn on as of December 31, 1998. Interest rate options under the lines of
credit arrangements vary from subprime or money market rates to the prime rate.
Banks providing lines of credit are compensated through fees. Commitment fees on
lines of credit vary between .06 and .10 of 1%.
The lines of credit consist of four revolving bank credit facilities, two each
for Florida Power and Progress Capital. The Florida Power facilities consist of
$200 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 1998, both 364-day facilities were extended to
November 1999. In addition, both five-year facilities were extended to November
2003. Based on the duration of the underlying backup credit facilities, $500
million of outstanding commercial paper at December 31, 1998, and December 31,
1997, are classified as long-term debt. Additionally, as of December 31, 1998,
Florida Power and Progress Capital had an additional $47.3 million and $38.9
million, respectively, of outstanding commercial paper classified as short-term
debt.
Progress Capital has uncommitted bank bid facilities authorizing it to borrow
and re-borrow, and have outstanding at any time, up to $300 million. As of
December 31, 1998, $150 million was outstanding under these bid facilities.
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 $250 million is available for
issuance.
In March 1998, Florida Power redeemed all of its $150 million principal amount
of first mortgage bonds, 8 5/8% series due November 2021 at a redemption price
of 105.17% of the principal amount thereof. Substantially all of this redemption
was funded from the net proceeds of $150 million of medium-term notes issued in
February 1998, which bear an interest rate of 6 3/4% and mature in February
2028. Florida Power also redeemed in November 1998, an additional $100 million
of first mortgage bonds. The entire $50 million principal of the 7 3/8% series
was redeemed at a price of 100.93%, and the entire $50 million principal of the
7 1/4% series was redeemed at a price of 100.86%. Both issues were due in 2002.
The redemption was funded from internally generated funds and commercial paper.
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 $185 million is available for
issuance under this program.
63
<PAGE>
The combined aggregate maturities of long-term debt for 1999 through 2003 are
$145.9 million, $147.6 million, $183 million, $32.2 million and $775.4 million,
respectively.
Florida Progress and Progress Capital entered into an amended guaranty and
support agreement in 1996, pursuant to which Florida Progress has
unconditionally guaranteed the payment of Progress Capital's debt.
NOTE 7 RETIREMENT BENEFIT PLANS
Pension Benefits - Florida Progress and some of its subsidiaries have a
noncontributory defined benefit pension plan (Retirement Plan) covering most
employees. Florida Progress also has two supplementary defined benefit pension
plans that provide benefits to higher-level employees. Effective January 1,
1998, the Retirement Plan was split into two separate plans, one covering
eligible bargaining unit employees and the other covering all other eligible
employees. Plan assets were allocated to each plan in accordance with applicable
law.
Other Postretirement Benefits - Florida Progress and some of its subsidiaries
also provide certain health care and life insurance benefits for retired
employees when they reach retirement age while working for Florida Progress.
Shown below are the components of the net pension expense and net postretirement
benefit expense calculations for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
(In millions) 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 22.3 $ 18.7 $ 18.3 $ 3.5 $ 3.2 $ 5.3
Interest cost 37.7 34.9 32.3 10.5 10.4 12.4
Expected return on plan assets (68.5) (58.4) (52.0) (.3) (.4) (.3)
Net amortization and deferral (12.5) (6.5) (6.5) 3.2 3.4 6.1
Net cost/(benefit) recognized $(21.0) $(11.3) $ (7.9) $16.9 $16.6 $23.5
</TABLE>
The following weighted average actuarial assumptions at December 31 were used in
the calculation of the year-end funded status:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.00% 7.25% 7.50% 7.00% 7.25% 7.50%
Expected long-term rate of return 9.00% 9.00% 9.00% 5.00% 5.00% 5.00%
Rate of compensation increase:
Bargaining unit employees 3.50% 4.50% 4.50% 3.50% 4.50% 4.50%
Nonbargaining unit employees 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Nonqualified plans 4.00% 4.00% 4.00% N/A N/A N/A
</TABLE>
64
<PAGE>
The following summarizes the change in the benefit obligation and plan assets
for both the pension plan and postretirement benefit plan for 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
(In millions) 1998 1997 1998 1997
Change in benefit obligation
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $523.9 $472.0 $ 153.2 $ 182.6
Service cost 22.3 18.7 3.5 3.2
Interest cost 37.7 34.9 10.5 10.4
Plan amendment - 9.5 - (36.1)
Actuarial (gain)/loss 16.1 12.6 1.2 (.3)
Benefits paid (25.8) (23.8) (6.9) (6.6)
Benefit obligation at end of year 574.2 523.9 161.5 153.2
Change in plan assets
Fair value of plan assets at beginning of year 769.0 655.0 6.4 4.7
Return on plan assets (net of expenses) 140.2 136.6 .4 .4
Employer contributions - - 1.3 1.3
Benefits paid (24.2) (22.6) - -
Fair value of plan assets at end of year 885.0 769.0 8.1 6.4
Funded status 310.8 245.1 (153.4) (146.8)
Unrecognized transition (asset) obligation (20.5) (25.4) 51.4 55.0
Unrecognized prior service cost 13.3 14.5 - -
Unrecognized net actuarial (gain)/loss (283.5) (236.6) (14.1) (15.6)
Prepaid (accrued) benefit cost $ 20.1 $ (2.4) $(116.1) $(107.4)
</TABLE>
Between 1996 and 1998, Florida Progress set assets aside in a rabbi trust for
the purpose of providing benefits to the participants in the supplementary
retirement plans. The assets of the rabbi trust are not reflected as plan assets
because the assets could be subject to creditors' claims. The assets and
liabilities of the supplementary defined benefit retirement plans are included
in Other Assets and Other Liabilities on the accompanying Consolidated Balance
Sheets.
A one-percentage point increase or decrease in the assumed health care cost
trend rate would change the total service and interest cost by approximately $1
million and the postretirement benefit obligation by approximately $10 million.
Due to different retail and wholesale regulatory rate requirements, Florida
Power began making quarterly contributions for the postretirement benefit plan
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 annually
in both 1998 and 1997 to the trust fund.
NOTE 8 BUSINESS SEGMENTS
Florida Progress' principal business segment is Florida Power, an electric
utility engaged in the generation, purchase, transmission, distribution and sale
of electricity. The other reportable business segments are Electric Fuels'
Energy and Related Services, Rail Services and Inland Marine Transportation
units. Energy and Related Services includes coal operations, river terminal
services and off-shore marine transportation. Rail Services' operations include
railcar repair, rail parts reconditioning and sales, railcar leasing and sales,
providing rail and track material, and metal recycling. Inland Marine provides
transportation of coal, agricultural and other dry-bulk commodities as well as
fleet management services. The other category includes the parent holding
company Florida Progress, which allocates a portion of its operating expenses to
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business segments. This category also includes segments below the quantitative
threshold required for separate disclosure.
Florida Progress' business segment information for 1998, 1997 and 1996 is
summarized below. Florida Progress' significant operations are geographically
located in the United States. Florida Progess' segments are based on differences
in products and services, and therefore no additional disclosures are presented.
Intersegment sales and transfers consist of coal sales from Electric Fuels to
Florida Power. The price Electric Fuels charges Florida Power is based on market
rates for coal procurement and for water borne transportation under a
methodology approved by the FPSC. Rail transportation is also based on market
rates plus a return allowed by the FPSC on equity utilized in transporting coal
to Florida Power. The allowed rate of return is currently 12%. No single
customer accounted for 10% or more of unaffiliated revenues.
<TABLE>
<CAPTION>
Energy and Rail Inland Marine
(In millions) Utility Related Services Services Transportation Other Eliminations Consolidated
1998
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $2,648.2 $173.8 $658.5 $124.6 $ 10.9 $ 4.3 $3,620.3
Intersegment revenues - 273.9 1.3 14.0 - (289.2) -
Depreciation and amortization 382.7 14.4 19.4 4.5 3.6 - 424.6
Interest expense 136.5 5.8 21.3 4.4 20.8 (1.7) 187.1
Income taxes 141.0 6.3 12.3 6.3 (17.3) - 148.6
Segment net income (loss) 248.6 20.4 15.9 10.3 (13.5) - 281.7
Total assets 4,928.1 316.5 680.0 99.5 334.0 (197.3) 6,160.8
Property additions 326.0 32.0 91.0 93.6 .7 - 543.3
1997
Revenues $2,448.4 $165.6 $477.1 $105.5 $115.7 $ 4.1 $3,316.4
Intersegment revenues - 286.0 1.3 14.2 - (301.5) -
Depreciation and amortization 333.8 11.7 11.2 4.3 3.2 - 364.2
Interest expense 117.3 6.5 13.9 2.5 19.1 (.6) 158.7
Income taxes 69.9 8.4 9.8 3.3 (25.0) - 66.4
Segment net income (loss) 134.4 16.8 13.3 5.9 (116.1) - 54.3
Total assets 4,900.8 299.2 385.3 138.9 210.4 (174.6) 5,760.0
Property additions 395.0 16.8 41.6 59.0 1.2 - 513.6
1996
Revenues $2,393.6 $165.6 $353.7 $ 86.4 $155.2 $ 3.4 $3,157.9
Intersegment revenues - 273.2 .8 13.7 - (287.7) -
Depreciation and amortization 341.1 11.4 7.4 4.5 2.3 - 366.7
Interest expense 98.4 6.3 9.9 1.9 20.5 (1.1) 135.9
Income taxes 135.7 (9.3) 6.9 4.4 8.2 - 145.9
Segment net income (loss) 232.6 (12.5) 9.7 7.1 (12.5) - 224.4
Total assets 4,264.0 272.4 294.2 79.0 577.2 (138.4) 5,348.4
Property additions 222.9 11.7 16.1 12.7 .6 - 264.0
</TABLE>
In December 1996, the Energy and Related Services segment of 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.
NOTE 9 RATES
Florida Power's retail rates are set by the FPSC, while its wholesale rates are
governed by the FERC. 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%.
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
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<PAGE>
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 an agreement between Florida
Power and several intervening parties, which was approved by the FPSC in June
1997. The amortization of the regulatory asset is calculated using revenues
collected under the fuel adjustment clause as if the purchased power agreements
related to the facility were still in effect, less the actual fuel costs and the
related debt interest expense. This will continue until the regulatory asset is
fully amortized. Florida Power has the option to accelerate the amortization.
Approximately $27.2 million and $4.4 million of amortization expense was
recorded in 1998 and 1997, respectively.
In December 1998, Florida Power received approval from the FPSC to defer
non-fuel revenues towards the development of a plan that would allow customers
to realize the benefits earlier than if they are used to accelerate the
amortization of the Tiger Bay regulatory asset. If this plan is not submitted by
May 1, 1999, or not approved by the FPSC, then deferred revenues of $10.1
million plus interest will be applied towards the amortization of Tiger Bay.
Extended Nuclear Outage - In June 1997, a settlement agreement between Florida
Power and all parties who intervened in Florida Power's request to recover
replacement fuel and purchased power costs resulting from the extended outage of
its nuclear plant was approved by the FPSC. The plant was taken off-line in
September 1996 to address certain design issues related to its safety systems.
In late January 1998, Florida Power notified the NRC that it had completed all
of the requirements and was subsequently granted permission to restart the
plant. The plant returned to service in February 1998.
Florida Power incurred approximately $174 million in 1997 and an additional $5
million in 1998 in total system replacement power costs. In accordance with the
settlement agreement, Florida Power recorded a charge of approximately $73
million in 1997 and $5 million in 1998 for retail replacement power costs
incurred that will not be recovered through its fuel cost recovery clause.
Florida Power is currently recovering approximately $38 million through its fuel
cost recovery clause, and approximately $63 million of replacement power costs
were recorded as a regulatory asset in 1997. The regulatory asset is being
amortized for a period of up to four years. The amortization is being recovered
by the suspension of fossil plant dismantlement accruals during the amortization
period.
The parties to the settlement agreement 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 resolved all present and
future disputed issues between the parties regarding the extended outage of the
nuclear plant.
NOTE 10 DISCONTINUED OPERATIONS
On November 21, 1996, Florida Progress' Board of Directors declared a spin-off
distribution to common shareholders of record on December 5, 1996, of the common
shares of Echelon, which comprised the Company's 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.
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<PAGE>
In connection with the spin-off in 1996, Florida Progress has presented Echelon
as a discontinued operation in the accompanying Consolidated Statements of
Income.
Summarized income statement information relating to Echelon's results of
operations (as reported in discontinued operations) for the year ended December
31 is as follows:
(In millions) 1996
- ---------------------------------------------------------------------
Sales and revenues $ 63.2
- ---------------------------------------------------------------------
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)
=====================================================================
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 $56 million, $56 million, $62 million, $63 million and $64 million
for 1999 through 2003, respectively, and $499 million in total thereafter.
Additional commitments will be required in the future to supply Florida Power's
fuel needs.
Electric Fuels has two coal supply contracts with Florida Power, the provisions
of which require Florida Power to buy and Electric Fuels to supply substantially
all of the coal requirements of four of Florida Power's power plants, two
through 2002 and two through 2004. In connection with these contracts, Electric
Fuels has entered into several contracts with outside parties for the purchase
of coal. The annual obligations for coal purchases and transportation under
these contracts are $107.1 million, $61 million, $48.9 million and $22.7 million
for 1999 through 2002, respectively, with no further obligations thereafter. The
total cost incurred for these commitments was $117.7 million in 1998, $156.8
million in 1997 and $161.5 million in 1996.
Florida Power has long-term contracts for about 460 MW of purchased power with
other utilities, including a contract with The Southern Company for
approximately 400 MW of purchased power annually through 2010. This represents
4.5% of Florida Power's total current system capacity. Florida Power has an
option to lower these Southern purchases to approximately 200 MW annually with a
three-year notice. The purchased power from Southern is supplied by generating
units with a capacity of approximately 3,500 MW and is guaranteed by Southern's
entire system, totaling more than 30,000 MW.
As of December 31, 1998, Florida Power had entered into purchased power
contracts with certain qualifying facilities for 871 MW of capacity with
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<PAGE>
expiration dates ranging from 2002 to 2025. The purchased power contracts
provide for capacity and energy payments. Energy payments are based on the
actual power taken under these contracts. Capacity payments are subject to the
qualifying facilities meeting certain contract performance obligations. In most
cases, these contracts account for 100% of the generating capacity of each of
the facilities. Of the 871 MW under contract, approximately 831 MW currently are
available to Florida Power. All commitments have been approved by the FPSC.
The FPSC allows the capacity payments to be recovered through a capacity cost
recovery clause, which is similar to, and works in conjunction with, energy
payments recovered through the fuel cost recovery clause.
In 1997, through the buy-out of the Tiger Bay purchased power contracts, Florida
Power reduced its long-term purchased power commitments by 20 percent. Florida
Power incurred purchased power capacity costs totaling $260.1 million in 1998,
$292.3 million in 1997 and $284 million in 1996. The following table shows
minimum expected future capacity payments for purchased power commitments.
Because the purchased power commitments have relatively long durations, the
total present value of these payments using a 10% discount rate also is
presented. These amounts assume that all units are brought into service as
contracted and meet contract performance requirements:
Purchased Power Capacity Payments
(In millions) Utilities Cogenerators Total
- ----------------------------------------------------------------------------
1999 58 215 273
2000 59 223 282
2001 58 230 288
2002 32 236 268
2003 32 244 276
2004-2025 212 5,555 5,767
- ----------------------------------------------------------------------------
Total $451 $6,703 $ 7,154
============================================================================
Total net present value $ 2,577
============================================================================
Leases - Electric Fuels has several noncancelable operating leases, primarily
for transportation equipment, with varying terms extending to 2015, and
generally require Electric Fuels to pay all executory costs such as maintenance
and insurance. Some rental payments include minimum rentals plus contingent
rentals based on mileage. Contingent rentals were not significant. The minimum
future lease payments under noncancelable operating leases, including the
synthetic lease described below, are $38.7 million, $31.7 million, $27.7
million, $23.4 million and $23.4 million for 1999 through 2003, respectively,
with a $227 million total obligation thereafter. The total costs incurred under
these commitments were $30.9 million, $34.8 million and $33.3 million during
1998, 1997 and 1996, respectively.
On August 6, 1998, MEMCO, a wholly owned subsidiary of Electric Fuels, entered
into a synthetic lease financing, accomplished via a sale and leaseback, for an
aggregate of approximately $175 million in inland river barges and $25 million
in towboats (vessels). As of December 31, 1998, MEMCO had sold and leased back
$153 million of vessels. Acquisition and subsequent sale and leaseback of the
remaining $47 million of vessels are expected to occur by June 30, 1999. The
lease (charter) is an operating lease for financial reporting purposes and a
secured financing for tax purposes.
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<PAGE>
The term of the noncancelable charter expires on December 30, 2012, and provides
MEMCO one 18-month renewal option on the same terms and conditions. MEMCO is
responsible for all executory costs, including insurance, maintenance and taxes,
in addition to the charter payments. MEMCO has options to purchase the vessels
throughout the term of the charter, as well as an option to purchase at the
termination of the charter. Assuming MEMCO exercises no purchase options during
the term of the charter, the purchase price for all vessels aggregates $141.8
million at June 30, 2014. In the event that MEMCO does not exercise its purchase
option for all vessels, it will be obligated to remarket the vessels, and, at
the expiration of the charter, pay a maximum residual guarantee amount of $89.3
million.
The minimum future charter payments as of December 31, 1998 are $14.4 million,
$15.3 million, $15.4 million, $15.4 million and $15.8 million for 1999 through
2003 and $172.2 million thereafter (excluding the purchase option payment). All
MEMCO payment obligations under the transaction documents are unconditionally
guaranteed by Progress Capital; those obligations in turn are guaranteed by
Florida Progress.
Construction Program - Substantial commitments have been made in connection with
the Company's construction program. In 1999, Florida Power has projected
construction expenditures of $323 million, primarily for electric plant and
nuclear fuel. Diversified operations have projected capital additions of $155
million in 1999, primarily for barges and equipment.
Off-Balance Sheet Risk - Several of Florida Progress' subsidiaries are general
partners in unconsolidated partnerships and joint ventures. Florida Progress or
subsidiaries have agreed to support certain loan agreements of the partnerships
and joint ventures. These credit risks are not material to the financial
statements and Florida Progress considers these credit risks to be minimal,
based upon the asset values supporting the partnership liabilities.
Insurance - Florida Progress and its subsidiaries utilize various risk
management techniques to protect assets from risk of loss, including the
purchase of insurance. Risk avoidance, risk transfer and self-insurance
techniques are utilized depending on Florida Progress' ability to assume risk,
the relative cost and availability of methods for transferring risk to third
parties, and the requirements of applicable regulatory bodies.
Florida Power self-insures its transmission and distribution lines against loss
due to storm damage and other natural disasters. Pursuant to a regulatory order,
Florida Power is accruing $6 million annually to a storm damage reserve and may
defer any losses in excess of the reserve. The reserve balance at December 31,
1998 and 1997 was $24.1 million and $18.1 million, respectively.
Under the provisions of the Price Anderson Act, which limits liability for
accidents at nuclear power plants, Florida Power, as an owner of a nuclear
plant, can be assessed for a portion of any third-party liability claims arising
from an accident at any commercial nuclear power plant in the United States. If
total third-party claims relating to a single nuclear incident exceed $200
million (the amount of currently available commercial liability insurance),
Florida Power could be assessed up to $88.1 million per incident, with a maximum
assessment of $10 million per year.
Florida Power 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
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<PAGE>
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 - The Company is subject to regulation with respect to
the environmental impact of its operations. The Company's disposal of hazardous
waste through third-party vendors 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 U.S. EPA as PRPs at certain
sites, including the Sanford, Florida 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.
An agreement has been reached among the PRPs to spend up to $1.5 million to
perform the Risk Investigation and Feasibility Study (RI/FS). Florida Power is
liable for 39.7% of those costs. On September 25, 1998, the EPA formally
approved the PRP RI/FS Work Plan. The RI/FS field work was completed in January
1999. The EPA is expected to review the final Treatability Study report and
provide further guidance to the PRPs by August 1999.
The discussions and resolution of liability for cleanup costs could cause
Florida Power to increase its estimate of its liability for those costs.
Although estimates of any additional costs are not currently available, the
outcome is not expected to have a material effect on Florida Progress' financial
position, results of operations or liquidity.
In addition to these designated sites, there are other sites where affiliates
may be responsible for additional environmental cleanup.
Florida Progress believes that its subsidiaries will not be required to pay a
disproportionate share of the costs for cleanup of any of these designated
sites. Florida Progress' best estimates indicate that its proportionate share of
liability for cleaning up all designated sites ranges from $2.5 million to $7.5
million. It has accrued $4.4 million against these potential costs.
Legal Matters
Age Discrimination Suit - Florida Power and Florida Progress have been named
defendants in an age discrimination lawsuit. The number of plaintiffs remains at
116, however, four of those plaintiffs have had their federal claims dismissed
and five others have had their state age claims dismissed. While no dollar
amount was requested, each plaintiff seeks back pay, reinstatement or front pay
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<PAGE>
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. On August 10, 1998, Florida Power filed a
motion to decertify the class, and the plaintiffs filed their response in
opposition on September 30, 1998. A hearing date for the motion has not yet been
set. Florida Power has entered into settlement discussions with the plaintiffs.
In December 1998, plaintiffs alleged damages of $100 million. Company
management, while not believing plaintiffs' claim to have merit, offered $5
million in an attempted settlement of all claims. Plaintiffs rejected that
offer. As a result, management has identified a probable range of $5 million to
$100 million with no amount within that range a better estimate of probable loss
than any other amount; accordingly, Florida Power has accrued $5 million. There
can be no assurance that this litigation will be settled, or if settled, that
the settlement will not exceed $5 million. Additionally, the ultimate outcome,
if litigated, cannot presently be determined.
Advanced Separation Technologies, Inc. - In 1996, Florida Progress sold its
80%-interest in AST to Calgon for $56 million in cash. Calgon filed a lawsuit in
January 1998, and amended it in April 1998, alleging misstatement of AST's 1996
revenues, assets and liabilities, seeking damages and 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 believes the lawsuit is without merit and intends to vigorously defend
itself. Accordingly, Florida Progress has not made provision for any loss for
this matter.
Qualifying Facilities Contracts - The purchased power contracts with qualifying
facilities employ separate pricing methodologies for capacity payments and
energy payments. Florida Power has interpreted the pricing provision in these
contracts to allow it to pay an as-available energy price rather than a higher
firm energy price when the avoided unit upon which the applicable contract is
based would not have been operated.
Owners of four qualifying facilities filed suit against Florida Power in state
court over the contract payment terms, one of which also filed in federal court.
Two of the suits have been settled, and the federal case was dismissed, although
the plaintiff has appealed. Of the two remaining suits, one trial concluded in
December 1998. The other remaining suit remains with no date presently set for
trial. Management does not expect that the results of these legal actions will
have a material impact on Florida Power's financial position, operations or
liquidity. Florida Power anticipates that all fuel and capacity expenses will be
recovered from its customers.
Mid-Continent Life Insurance Company - A series of events in 1997 as discussed
below, significantly jeopardized the ability of Mid-Continent to implement a
plan to eliminate a projected reserve deficiency resulting in the impairment of
Florida Progress' investment in Mid-Continent.
Therefore, the Company 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.
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<PAGE>
In the spring of 1997, the Commissioner received court approval to seize control
of the operations of Mid-Continent. The Commissioner had alleged that
Mid-Continent's reserves were understated by more than $125 million, thus
causing Mid-Continent to be statutorily impaired. The Commissioner further
alleged that Mid-Continent had violated Oklahoma law relating to deceptive trade
practices in connection with the sale of its "Extra Life" insurance policies and
was not entitled to raise premiums, a key element to Mid-Continent's plan to
address the projected reserve deficiency. While sustaining the receivership, the
court also ruled that premiums could be raised. Although both sides appealed the
decision to the Oklahoma Supreme Court, those appeals were withdrawn in early
1999.
In December 1997, the Commissioner filed a lawsuit against Florida Progress,
certain of its directors and officers, and certain former Mid-Continent
officers, making a number of allegations and seeking access to Florida Progress'
assets to satisfy policyholder and creditor claims. On April 17, 1998, the court
granted motions to dismiss the individual defendants, leaving Florida Progress
as the sole remaining defendant in the lawsuit.
A new Commissioner was elected in November 1998 and has stated his intention to
work with Florida Progress and others to develop a plan to rehabilitate
Mid-Continent rather than pursue litigation against Florida Progress. Although
Florida Progress hasn't had access to recent Mid-Continent data, its estimate of
the present value of the projected deficiency, after applying Mid-Continent's
statutory surplus, is in the range of $100 million, rather than the $348 million
alleged by the former Commissioner. Florida Progress believes that the former
Commissioner's estimate is untenable and not based on sound actuarial
principles. Florida Progress is working with the new Commissioner to develop a
viable plan to rehabilitate Mid-Continent, which would include the sale of that
company.
In January 1999, five Mid-Continent policyholders filed a purported class action
against Mid-Continent and the same defendants named in the case filed by the
former Commissioner. The complaint contains substantially the same factual
allegations as those made by the Commissioner. The suit asserts "Extra Life"
policyholders have been injured as a result of representations made in
connection with the sale of that policy. The suit seeks unspecified actual and
punitive damages.
Although Florida Progress hopes to reach a negotiated resolution of these
matters, it would continue to vigorously defend itself against the two lawsuits
should negotiations fail, since it believes they are without merit. Because
neither the outcome of the litigation nor the ultimate effects of any
rehabilitation plan, including the possible sale of Mid-Continent, can be
estimated, Florida Progress has not made provision for any additional losses
that might result.
Other Legal Matters - Florida Progress is involved in various other claims and
legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect upon Florida Progress' consolidated financial position, results
of operations or liquidity.
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<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
FLORIDA PROGRESS CORPORATION
(Unaudited)
Three Months Ended
(In millions, except per share amounts) March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------
1998
OPERATING RESULTS
<S> <C> <C> <C> <C>
Revenues $787.5 $903.1 $1,031.5 $898.2
Income (loss) from operations 118.2 167.7 228.1 86.3
Net income (loss) 50.5 77.8 117.3 36.1
DATA PER SHARE
Earnings (loss) per common share 0.52 0.80 1.21 0.37
Dividends per common share .535 .535 .535 .535
Common stock price per share:
High 42 1/4 42 7/8 43 15/16 47 1/8
Low 37 11/16 39 38 1/16 41
- -------------------------------------------------------------------------------------------------------------------
1997
OPERATING RESULTS
Revenues $747.5 $797.3 $ 922.5 $849.1
Income(loss) from operations 95.0 37.9 166.0 (25.2)
Net income (loss) 42.0 6.3 81.6 (75.6)
DATA PER SHARE
Earnings(loss)per common share .43 .07 .84 (.78)
Dividends per common share .525 .525 .525 .525
Common stock price per share:
High 32 7/8 31 5/8 33 5/8 39 1/4
Low 29 1/2 27 3/4 30 9/16 31 1/8
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FLORIDA POWER CORPORATION
(Unaudited)
- ----------------------------------------------------------------------------------------------------
Three Months Ended
(In millions) March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------
1998
<S> <C> <C> <C> <C>
Operating revenues $565.2 $663.8 $795.6 $623.6
Net income (loss) $46.2 $68.1 $109.1 $26.7
Earnings (loss) on common stock $45.8 $67.7 $108.8 $26.3
1997
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
</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. In June 1998, Florida Power restated its financial
results for the second, third and fourth quarters of 1997 to reflect recognition
of the extended nuclear outage as incurred. The change affected the financial
results for the interim reporting periods but did not have any effect on results
for the fiscal year ended 1997. Effective December 31, 1997, Florida Progress
deconsolidated the financial statements of Mid-Continent 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
FLORIDA PROGRESS
Information concerning the Directors of Florida Progress is included under the
headings "Information as to Nominees" and "Information as to Continuing
Directors" in Florida Progress' Proxy Statement and is incorporated herein by
reference. Information concerning the executive officers of Florida Progress is
set forth in Part I, Item 1 hereof under the heading "Executive Officers".
Information concerning compliance by Florida Progress' directors and officers,
and persons who own more than 10% of Florida Progress' common stock, with the
reporting requirements of Section 16(a) of the Securities Act of 1934, is
included under the heading "Compliance with Section 16(a) of the Exchange Act"
in Florida Progress' Proxy statement and is incorporated have in by reference.
In addition, it has come to Florida Progress' attention that a Form 5 report of
the gift of 4,318 shares by Joseph Richardson to his wife was filed 24 days late
in March 1999.
FLORIDA POWER
DIRECTORS
W. D. ("Bill") Frederick, Jr., Age 64, Director since 1997.
Chairman - Compliance Committee
Mr. Frederick's principal occupation for the past five years has been as an
investor and citrus grower in Orlando, Florida. He served as Mayor of the City
of Orlando from 1980 to 1992. In 1966 he founded the Orlando law firm of
Frederick, Wooten & Honeywell P.A., and subsequently became a partner in the
Orlando law office of Holland & Knight, from which he retired in 1995. He is a
member of the Board of Directors of Florida Progress, Blue Cross/Blue Shield of
Florida, and SunTrust Bank, Central Florida, N.A.
Michael P. Graney, Esquire, Age 55, Director since 1997.
Member - Executive Committee
Mr. Graney has practiced law with the New York based law firm of Simpson Thacher
& Bartlett since 1980 and is now resident partner in its Ohio office. His
specialties are utilities, anti-trust and litigation. He is a member of the
American, District of Columbia, Ohio and Columbus Bar Associations and the
Federal Energy Bar Association. He is a director of Florida Progress.
Richard Korpan, Age 57, Director since 1989.
Chairman - Executive Committee
Information concerning Mr. Korpan is set forth in Part I, Item 1 hereof under
the heading "Executive Officers".
Clarence V. McKee, Esquire, Age 56, Director since 1988.
Mr. McKee's principal occupation is Chairman and Chief Executive Officer of
McKee Communications, Inc., Tampa, Florida, a firm involved in the acquisition
and management of television and radio stations. He served as Counsel to Pepper
& Corazinni, a Washington, D.C. communications law firm, from 1980 until 1987
when he became a co-owner of WTVT Holdings, Inc., where he held the position of
Chairman and Chief Executive Officer until 1992. He is a director of Florida
Progress, American Heritage Life Insurance Company, and Checkers Drive-In
Restaurants, Inc.
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Vincent J. Naimoli, Age 61, Director since 1997.
Mr. Naimoli's principal occupation for more than five years has been as
Chairman, President and Chief Executive Officer of Anchor Industries
International, Inc., Tampa, Florida, an operating and holding company. He is
also Managing General Partner and Chief Executive Officer of the Tampa Bay Devil
Rays, Ltd. Major League Baseball Club, St. Petersburg, Florida. Mr. Naimoli is a
director of Florida Progress, and in conjunction with the business activities of
Anchor Industries, serves as a director of Russell Stanley Corp., and Players
International, Inc.
Richard A. Nunis, Age 66, Director since 1997.
Member - Executive Committee
Mr. Nunis' principal occupation for more than five years has been Chairman of
Walt Disney Attractions, Orlando, Florida, from which he retired in December
1998. He has held various positions with the Disney organization since 1955,
including Vice President, Operations in 1968, Executive Vice President of
DISNEYLAND and Walt Disney World in 1972, President of Walt Disney Attractions
in 1980, and Chairman in 1991. He is a director of Florida Progress, SunTrust
Bank, Central Florida N.A., and Director Emeritus of the Walt Disney Company.
Joseph H. Richardson, Age 49, Director since 1996.
Member - Executive Committee
Information concerning Mr. Richardson is set forth in Part I, Item 1 hereof
under the heading "Executive Officers".
Joan D. Ruffier, Age 59, Director since 1991.
Member - Compliance Committee
Ms. Ruffier's principal occupation is Chairman of Human Service Technologies,
Inc., a computer software products company. She also serves as Chairman of the
University of Florida Foundation and Chair of the Finance Committee of Shands
Healthcare,Inc. For more than five years and until November 1998, she was a
general partner of Sunshine Cafes, Ltd., Orlando, Florida, a food and beverage
concession business at major Florida airports. Previously, she practiced public
accounting with the firm of Colley, Trumbower & Howell from 1982 until 1986. She
also serves on the boards of directors of Florida Progress, Cyprus Equity Fund
and INVEST, Inc.
Robert T. Stuart, Jr., Age 66, Director since 1997
Mr. Stuart's principal occupation for more than five years has been as a rancher
and investor. Since 1949, he has held numerous executive positions with
Mid-Continent, including Vice President, President, Chairman of the Board and
Chief Executive Officer until 1986 when Mid-Continent was acquired by Florida
Progress. He is a director of Florida Progress.
Jean Giles Wittner, Age 64, Director since 1977.
Member - Compliance Committee
Mrs. Wittner's principal occupation is President of Wittner & Co. and Wittner &
Associates, Inc., St. Petersburg, Florida, firms involved in real estate
management, insurance brokerage and consulting, positions she has held for more
than five years. She previously served as President and Chief Executive Officer
of a savings association until it was sold in 1986. She serves on the boards of
Florida Progress and Raymond James Bank, F.S.B.
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Each director holds office until the next Annual Meeting of Shareholders and
until the election and qualification of a successor.
EXECUTIVE OFFICERS
Information concerning the executive officers of Florida Power is set forth in
Part I, Item 1 hereof under the heading "Executive Officers" and is incorporated
herein by reference.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on a review of the copies of Section 16(a) forms furnished to
Florida Power during 1998, or written representations that no forms were
required, Florida Power believes that all persons who at any time during 1998
were officers, directors or greater than 10% beneficial owners of Florida
Power's preferred stock, filed their applicable Section 16(a) reports on a
timely basis during 1998 and prior fiscal years.
ITEM 11. EXECUTIVE COMPENSATION
FLORIDA PROGRESS
The information under the headings "Compensation of Directors", "Executive
Compensation", "Pension Plan Table" and "Employment Contracts, Termination of
Employment and Change-in-Control Arrangements" in Florida Progress' Proxy
Statement is incorporated herein by reference.
FLORIDA POWER
COMPENSATION OF DIRECTORS
Compensation for all directors of Florida Power (excluding employees of Florida
Progress or subsidiaries) was $1,000 for attendance at each meeting of the
Florida Power Board of Directors or a committee of the Board of Directors. A
$750 fee is paid to each committee chairman for each meeting chaired.
EXECUTIVE COMPENSATION
The following table contains information with respect to compensation
awarded, earned or paid during the years 1996-1998, to (i) the current Chief
Executive Officer ("CEO") and (ii) the other four most highly compensated
executive officers of Florida Power (the individuals referred to in (i) and (ii)
are referred to collectively as the "Named Executive Officers") in 1998, whose
total remuneration paid in 1998 exceeded $100,000.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Payouts
----------------------------------------- ------------------
Other
Name and Principal Annual LTIP All Other
Position Year Salary Bonus Compensation(1) Payouts(2) Compensation(3)
- -------------------------- ----- ------ ----- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
RICHARD KORPAN 1998 $650,766 $594,000 $16,891 $792,754 $28,650
Chairman 1997 592,304 41,500 11,850 324,028 26,490
1996 535,610 333,500 1,489 339,107 18,900
JOSEPH H. RICHARDSON 1998 $421,158 $382,500 $2,625 $437,994 $18,900
President and Chief 1997 384,619 -0- 1,685 162,091 13,890
Executive Officer 1996 288,884 214,000 -0- 128,858 16,585(4)
ROY A. ANDERSON(5) 1998 $261,926 $290,802 $394 $136,371 $11,025
Senior Vice President, 1997 226,157 -0- 343,035(6) 32,518 5,643
Energy Supply 1996 N/A N/A N/A N/A N/A
JEFFREY R. HEINICKA 1998 $278,530 $190,000 $1,772 $208,288 $12,318
Senior Vice President and 1997 264,992 15,500 -0- 110,393 12,315
Chief Financial Officer 1996 258,456 169,000 -0- 113,139 8,585
KENNETH E. ARMSTRONG 1998 $231,933 $127,500 -0- $170,849 $9,882
Vice President and 1997 215,009 10,000 -0- 88,944 9,963
General Counsel 1996 212,785 144,500 -0- 101,748 8,595
(1) Except as otherwise noted, amounts represent the reimbursement of
taxes on certain perquisites and other personal benefits.
(2) Information for fiscal year 1998, represents the dollar value as of
February 17, 1999, the date of award, of shares of Common Stock
earned under the 1996-1998 performance cycle of Florida Progress'
Long-Term Incentive Plan ("LTIP"), none of which are restricted.
The total number of share earned including dividend equivalent
shares, is as follows: Richard Korpan 19,544 shares; Joseph H.
Richardson 10,798 shares; Roy A. Anderson 3,362 shares; Jeffery R.
Heinicka 5,135 shares; and Kenneth E. Armstrong 4,212 shares.
(See the discussion of the method of calculating payouts contained
in the Long-Term Incentive Compensation portion of the Compensation
Committee Report of the Board of Directors from the Florida
Progress Proxy Statement, which is incorporated herein by
reference.
(3) Company contributions to its Savings Plan and Executive Optional
Deferred Compensation Plan on behalf of the Named Executive Officers.
(4) Represents $8,835 in Company Contributions to the Savings Plan of
Florida Progress and the Executive Optional Deferred Compensation
Plan and $7,750 of director fees for services as a director of
Echelon International Corporation, a former subsidiary of Florida
Progress.
(5) No compensation information is provided for 1996 because Mr.
Anderson was not an executive officer or employee of Florida Power
during that year.
(6) Includes $282,686 paid to Mr. Anderson under the terms of his
employment agreement to place Mr. Anderson in substantially the
same economic position as he would have been had he remained
with his previous employer. Also includes reimbursement for
Mr. Anderson's moving expenses and tax reimbursement payments
for moving expenses and imputed flight income.
</TABLE>
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The following table contains information with respect to Performance Shares
granted in 1998 to each of the Named Executive Officers of Florida Power under
the LTIP: <TABLE> <CAPTION>
LONG-TERM INCENTIVE PLAN(1)
AWARDS IN 1998
Number of Performance Estimated Payout in Shares at End of Period(3)
Performance Period ---------------------------------------------
Name Shares(2) Covered Threshold Target Maximum
- ------------------- ----------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard Korpan 17,171 1998-2000 4,293 17,171 34,342
Joseph H. Richardson 8,293 1998-2000 2,073 8,293 16,586
Roy A. Anderson 2,758 1998-2000 690 2,758 5,516
Jeffrey R. Heinicka 2,924 1998-2000 731 2,924 5,848
Kenneth E. Armstrong 2,446 1998-2000 612 2,446 4,892
(1) The LTIP is a Common Stock and cash-based incentive plan to reward
participants for long-term performance of Florida Progress. It was approved
by the Florida Progress shareholders in 1990.
(2) The number of performance shares granted are based on a percentage of base
salary in effect at the time of each award and is subject to automatic
increase or decrease on a prorated basis in accordance with changes to a
participant's base salary or LTIP percentages throughout the performance
cycle.
In the event of a change in control of Florida Progress, 150% of all
performance shares granted to the Named Executive Officers under the LTIP
and then outstanding would automatically be considered earned and would be
paid in shares of unrestricted Common Stock together with shares of
unrestricted Common Stock payable for dividend equivalents accrued through
the date of the change in control.
(3) Payouts for the 1998-2000 performance cycle are based on achievement of
total shareholder return goals established by the Florida Progress
Corporation Compensation Committee.
</TABLE>
Pension Plan Table
The table below illustrates the estimated annual benefits (computed as a
straight life annuity beginning at retirement at age 65) payable under the
Florida Progress Corporation Retirement Plan for Exempt and Nonexempt
Employees("Retirement Plan"), Nondiscrimination Plan and Supplemental Executive
Retirement Plan ("SERP") for specified final average compensation and years of
service levels.
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefits Payable Under the Retirement Plan for Exempt and Nonexempt Employees,
Nondiscrimination Plan and the Supplemental Executive Retirement Plan
---------------------------------------------------------------------
Average Annual
Compensation Service Years
- ------------------------------------------------------------------------------------------------------
5 10 15 20 25 30 35 or more
<S> <C> <C> <C> <C> <C> <C> <C>
200,000 $37,500 $75,000 $112,000 $120,000 $120,000 $120,000 $126,000
300,000 56,250 112,500 168,750 180,000 180,000 180,000 189,000
400,000 75,000 150,000 225,000 240,000 240,000 240,000 252,000
500,000 93,750 187,500 281,250 300,000 300,000 300,000 315,000
600,000 112,500 225,000 337,500 360,000 360,000 360,000 378,000
700,000 131,250 262,500 393,750 420,000 420,000 420,000 441,000
800,000 150,000 300,000 450,000 480,000 480,000 480,000 504,000
900,000 168,750 337,500 506,250 540,000 540,000 540,000 567,000
1,000,000 187,500 375,000 562,500 600,000 600,000 600,000 630,000
1,100,000 206,250 412,500 618,750 660,000 660,000 660,000 693,000
1,200,000 225,000 450,000 675,000 720,000 720,000 720,000 756,000
1,300,000 243,750 487,500 731,250 780,000 780,000 780,000 819,000
1,400,000 262,500 525,000 787,500 840,000 840,000 840,000 882,000
1,500,000 281,250 562,500 843,000 900,000 900,000 900,000 945,000
1,600,000 300,000 600,000 900,000 960,000 960,000 960,000 1,008,000
</TABLE>
The Named Executive Officers are entitled to benefits under the SERP. These
benefits are offset by the benefits payable under the Retirement Plan and the
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<PAGE>
Nondiscrimination Plan, as well as 50% of the executive's primary Social
Security benefit. The estimated annual SERP benefit for the Named Executive
Officers (prior to any offsets) may be determined using the Pension Plan Table
set forth above. For these purposes, the current compensation for each executive
that would be used in calculating benefits under the SERP is substantially the
same as the three-year average of the salary and bonus reported in the summary
compensation table, and the number of years of deemed credited service that
would be used in calculating benefits under the SERP for each such executive is
as follows: Mr. Korpan, 35 years of service; Mr. Richardson, 23 years of
service; ; Mr. Anderson 5 years of service; Mr. Heinicka, 21 years of service
and Mr. Armstrong, 15 years of service. Under the formula used for calculating
benefits under the SERP, the maximum benefit payable to each Named Executive
Officer is reached at 16 years of deemed credited service unless the Named
Executive Officer achieves 35 years of service.
Accrued benefits may also be paid under each of the Retirement Plan,
Nondiscrimination Plan and SERP if a participant terminates employment before
age 65 and meets the requirements for early retirement, disability, death or
other termination-of-employment benefits after becoming vested under the rules
of the particular plan.
Under the Retirement Plan and the Nondiscrimination Plan, the compensation taken
into account in calculating benefits is salary only. The years of credited
service that would be used in calculating benefits under the formula applicable
to the Retirement Plan and the Nondiscrimination Plan (1.8% of final average
earnings for each year of service) for the Named Executive Officers in the
summary compensation table are as follows: Mr. Korpan, 10 years of service; Mr.
Richardson, 23 years of service; Mr. Anderson, 2 years of service; Mr. Heinicka,
21 years of service; Mr. Armstrong, 12 years of service. The benefits under the
Retirement Plan and the Nondiscrimination Plan are subject to offset by an
amount equal to 1 1/7% of a participant's primary Social Security benefit for
each year of service (with a maximum offset of 40%).
In the event of a change in control of Florida Progress, each Named Executive
Officer will receive credit under the SERP for five additional years of service,
but in no event would such additional years of credited service cause the
maximum benefit to be increased. If a participant's employment were terminated
following a change in control, the benefit payable from the SERP would be as
follows: (1) an annuity beginning at age 55 through 59, subject to early payment
reductions in the amount of 3% for each year prior to age 60, or age 60 without
reduction; (2) the amount of any federal excise taxes (and income taxes on any
reimbursement under this provision) imposed on the executive under Section 4999
of the Internal Revenue Code; and (3) a 50% surviving spouse benefit payable
upon death.
In April 1998, Florida Power entered into an Amended and Restated Employment
Agreement with Roy A. Anderson which provides for his employment through April
30, 2003. His annual base salary will be $245,000, or such greater sum as shall
be mutually agreed, with additional award opportunities as a participant in the
Management Incentive Compensation Plan ("MICP") and LTIP , with minimum award
target levels of 40% of base salary for each plan. He is entitled to participate
in the SERP, and shall be credited with up to 22 years of additional service
constituting "Deemed Credited Service" thereunder depending on the number of
years of actual service. The agreement also provides that if Mr. Anderson's
employment with Florida Power continues until or beyond age 60 and his
employment terminates
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<PAGE>
thereafter other than as a result of a termination for good cause, Florida Power
shall pay to Mr. Anderson certain deferral award payments, based on his age,
with a maximum deferral award, if his employment terminates at age 65, of
$1,000,000 ($231,000 payable annually over five years). The agreement also
provides for certain payments designed to compensate Mr. Anderson for certain
benefits he would have enjoyed had he remained with his former employer. If Mr.
Anderson's employment terminates other than as a result of termination for good
cause, he will receive a $105,960 15-year annuity, to be offset by payments made
by his former employer pursuant to comparable arrangements. In the Amended and
Restated Agreement, Mr. Anderson also acknowledges that other payments due him
under his former employment agreement with Florida Power have been satisfied.
The agreement contains a confidentiality agreement and covenant not to compete.
In the event of a change in control of Florida Progress, all of the Named
Executive Officers are entitled to benefits under individual agreements
described in Florida Progress' Proxy Statement under the heading "Employment
Contracts, Termination of Employment and Change in Control Arrangements."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
FLORIDA PROGRESS
The information included under the headings "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in Florida Progress'
Proxy Statement is incorporated herein by reference.
FLORIDA POWER
All of Florida Power's common stock is held beneficially and of record by
Florida Progress. None of Florida Power's directors or executive officers owns
any shares of Florida Power's common or preferred stock. Information concerning
shares of Florida Progress common stock that are held by persons known to
Florida Progress to be the beneficial owners of more than 5% of Florida
Progress' common stock is set forth in the table under the heading "Security
Ownership of Certain Beneficial Owners" in the Florida Progress Proxy Statement
and is incorporated herein by reference.
The table below sets forth as of December 31, 1998, the number of shares of
common stock of Florida Progress owned by Florida Power's directors and Named
Executive Officers individually and the directors and all executive officers of
Florida Power as a group.
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Florida Power Number of Shares Percent of
Officer or Director Name Beneficially Owned (1) Class (2)
- ------------------------ ---------------------- ----------
W. D. ("Bill") Frederick 3,409(3)
Michael P. Graney 4,335
Richard Korpan 26,057
Clarence V. McKee 2,537
Vincent J. Naimoli 11,148(4)
Richard A. Nunis 25,577
Joseph H. Richardson 14,075(5)
Joan D. Ruffier 5,462
Robert T. Stuart, Jr. 1,505,462(6) 1.55%
Jean Giles Wittner 11,036
Roy A. Anderson 2,279
Kenneth E. Armstrong 7,430
Jeffrey R. Heinicka 7,325(7)
All 16 directors, named executive
officers and executive officers
as a group, including those
named above 1,634,530 1.68%
(1) Unless otherwise noted, the directors, and named executive officers, and the
directors, and executive officers as a group, have sole voting and investment
power with respect to the shares listed.
(2) Unless otherwise noted, each director, and named executive officer and all
directors, and executive officers as a group, own less than one percent of the
outstanding shares of Florida Progress' common stock.
(3) Voting and investment power with respect to 1,500 shares is shared.
(4) Voting and investment power with respect to 1,600 shares is shared.
(5) Voting power with respect to 4,318 shares is shared.
(6) Voting and investment power with respect to 150,473 shares is shared.
(7) Voting and investment power with respect to 140 shares is shared.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the heading "Certain Relationships and Related
Transactions" in Florida Progress' Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FOR FLORIDA PROGRESS AND FLORIDA POWER
(a) 1. Financial Statements, notes to Financial Statements and
report thereon of KPMG LLP are found in Item 8 "Financial
Statements and Supplementary Data" herein.
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<PAGE>
2. The following Financial Statement Schedules and reports are
included herein:
Florida Progress
II-Valuation and Qualifying Accounts
for the years ended December 31,
1998, 1997 and 1996
Florida Power
II-Valuation and Qualifying Accounts
for the years ended December 31,
1998, 1997 and 1996
All other schedules are not submitted because they are not
applicable or not required or because the required information
is included in the financial statements or notes thereto.
3. Exhibits filed herewith:
Florida Florida
Number Exhibit Progress Power
------ ------- -------- -------
3.(a) Bylaws of Florida Progress, as amended X
February 18, 1999.
10.(a) Phantom Stock Plan for the benefit of X X
Non-Employee Directors of Florida Progress
Corporation. *
10.(b) Agreement between Florida Progress and X
William G. Kelly dated as of January 30,
1998, regarding change in control. *
12 Statement of Computation of Ratios. X
21 Subsidiaries of Florida Progress. X
23.(a) Consent of Independent Certified Public X
Accountants to the incorporation by reference
of their report on the financial statements
into the following registration statements of
Florida Progress: Form S-3 (No. 33-51573)
(relating to the registration of 4.5 million
shares of common stock and filed with the SEC
on December 17, 1993); Forms S-8 (No.333-19037
and 333-66161)(relating to the Savings Plan
for Employees of Florida Progress and filed
with the SEC on December 31, 1996); Form S-3
(No.333-07853)(relating to the Progress Plus
Plan and filed with the SEC on July 10, 1996);
Form S-8 (No.33-47623)(relating to Florida
Progress' Long-Term Incentive Plan and filed
with the SEC on May 1, 1992); Form S-3
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(No. 2-93111)(relating to the acquisition of
Better Business Forms and filed with the SEC
on September 5, 1984.
23.(b) Consent of Independent Certified Public X
Accountants to the incorporation by reference
of their report on the financial statements
into Florida Power's registration statements
on Form S-3 (Nos. 33-62210 and 33-55273)
(relating to Florida Power's first mortgage
bonds) and Form S-3 (No. 333-29897)
(relating to Florida Power's medium-term
notes).
24 Powers of Attorney are included in the
signature pages of this Form 10-K.
27.(a) Florida Progress Financial Data Schedule X
27.(b) Florida Power Financial Data Schedule X
4. Exhibits incorporated herein by reference:
Florida Florida
Number Exhibit Progress Power
------ -------- -------- -------
3.(b) Bylaws of Florida Power, as amended to date. X
(Filed as Exhibit 3.(b) to the Florida Power
Form 10-K for the year ended December 31,
1995, as filed with the SEC on March 20,
1996.)
3.(c) Restated Articles of Incorporation, as X
amended, of Florida Progress. (Filed
as Exhibit 3(a) to Florida Progress'
Form 10-K for the year ended December
31, 1991, as filed with the SEC on
March 30, 1992.)
3.(d) Amended Articles of Incorporation, as X X
amended, of Florida Power. (Filed as
Exhibit 3(a) to the Florida Power Form
10-K for the year ended December 31,
1991, as filed with the SEC (File No.
1-3274) on March 30, 1992.)
4.(a) Amendment to Shareholder Rights X
Agreement dated February 20, 1997,
between Florida Progress and The First
National Bank of Boston. (Filed as
Exhibit 4(a) to the Florida Progress
Form 10-K for the year ended December
31, 1996, as filed with the SEC on
March 27, 1997.)
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<PAGE>
4.(b) Form of Certificate representing shares of X
Florida Progress Common Stock. (Filed as
Exhibit 4(b) to the Florida Progress Form
10-K for the year ended December 31,1996,
as filed with the SEC on March 27, 1997.)
4.(c) Rights Agreement, dated as of November 21, X
1991, between Florida Progress and
Manufacturers Hanover Trust Company,
including as Exhibit A the form of Rights
Certificate. (Filed as Exhibit 4(a) to
Florida Progress' Form 8-K dated November
21, 1991, as filed with the SEC on November
27, 1991.)
4.(d) Indenture, dated as of January 1, 1944 (the X X
"Indenture"), between Florida Power and
Guaranty Trust Company of New York and The
Florida National Bank of Jacksonville, as
Trustees. (Filed as Exhibit B-18 to Florida
Power's Registration Statement on Form A-2
(No. 2-5293) filed with the SEC on January
24, 1944.)
4.(e) Seventh Supplemental Indenture, dated as of X X
July 1, 1956, between Florida Power and
Guaranty Trust Company of New York and The
Florida National Bank of Jacksonville, as
Trustees, with reference to the modification
and amendment of the Indenture. (Filed as
Exhibit 4(b) to Florida Power's Registration
Statement on Form S-3 (No. 33-16788) filed
with the SEC on September 27, 1991.)
4.(f) Eighth Supplemental Indenture, dated as of X X
July 1, 1958, between Florida Power and
Guaranty Trust Company of New York and The
Florida National Bank of Jacksonville, as
Trustees, with reference to the modification
and amendment of the Indenture. (Filed as
Exhibit 4(c) to Florida Power's Registration
Statement on Form S-3 (No. 33-16788) filed
with the SEC on September 27, 1991.)
4.(g) Sixteenth Supplemental Indenture, dated as of X X
February 1, 1970, between Florida Power and
Morgan Guaranty Trust Company of New York and
The Florida National Bank of Jacksonville, as
Trustees, with reference to the modification
and amendment of the Indenture. (Filed as
Exhibit 4(d) to Florida Power's Registration
Statement on Form S-3 (No. 33-16788) filed
with the SEC on September 27, 1991.)
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4.(h) Twenty-Ninth Supplemental Indenture, dated as X X
of September 1, 1982, between Florida Power
and Morgan Guaranty Trust Company of New York
and Florida National Bank, as Trustees, with
reference to the modification and amendment
of the Indenture. (Filed as Exhibit 4(c) to
Florida Power's Registration Statement on
Form S-3 (No. 2-79832) filed with the SEC on
September 17, 1982.)
4.(i) Thirty-Eighth Supplemental Indenture dated as X X
of July 25, 1994, between Florida Power and
First Chicago Trust Company of New York, as
successor Trustee, Morgan Guaranty Trust
Company of New York, as resigning Trustee,
and First Union National Bank of Florida, as
resigning Co-Trustee, with reference to
confirmation of First Chicago Trust Company
of New York as successor Trustee under the
Indenture. (Filed as exhibit 4(f) to Florida
Power's Registration Statement on Form S-3
(No. 33-55273) as filed with the SEC on August
29, 1994.)
10.(c) Management Incentive Compensation Plan X X
of Florida Progress Corporation, as
amended to date. (Filed as Exhibit 10(a)
to the Florida Progress Form 10-K for the
year ended December 31, 1997 as filed
with the SEC on March 18, 1998.)*
10.(d) Agreement between Florida Progress and X
Kenneth E. Armstrong dated as of January
30, 1998 regarding change in control.
(Filed as Exhibit 10(b) to the Florida
Progress Form 10-K for the year ended
December 31, 1997, as filed with the SEC
on March 18, 1998.)*
10.(e) Agreement between Florida Progress and X
Stanley I. Garnett, II dated as of
January 30, 1998 regarding change in
control. (Filed as Exhibit 10(c) to the
Florida Progress Form 10-K for the year
ended December 31, 1997, as filed with
the SEC on March 18, 1998.)*
10.(f) Agreement between Florida Progress and X
Jeffrey R. Heinicka dated as of January
30, 1998 regarding change in control.
(Filed as Exhibit 10(d) to the Florida
Progress Form 10-K for the year ended
December 31, 1997, as filed with the SEC
on March 18, 1998.)*
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10.(g) Agreement between Florida Progress and X
Richard D. Keller dated as of January 30,
1998 regarding change in control. (Filed
as Exhibit 10(e) to the Florida Progress
Form 10-K for the year ended December 31,
1997, as filed with the SEC on March 18,
1998.)*
10.(h) Agreement between Florida Progress and X
Richard Korpan dated as of January 30,
1998 regarding change in control. (Filed
as Exhibit 10(f) to the Florida Progress
Form 10-K for the year ended December 31,
1997, as filed with the SEC on March 18,
1998.)*
10.(i) Agreement between Florida Progress and X
Joseph H. Richardson dated as of January
30, 1998 regarding change in control.
(Filed as Exhibit 10(g) to the Florida
Progress Form 10-K for the year ended
December 31, 1997, as filed with the SEC
on March 18, 1998.)*
10.(j) Employment Agreement between Florida X
Progress and Richard Korpan dated as of
March 1, 1998. (Filed as Exhibit 10(h)
to the Florida Progress Form 10-K for
the year ended December 31, 1997, as
filed with the SEC on March 18, 1998.)*
10.(k) Executive Optional Deferred Compensation X X
Plan*. (Filed as Exhibit 10.(c) to the
Florida Progress Form 10-K for the year
ended December 31, 1996 as filed with the
SEC on March 27, 1997.)
10.(l) Florida Progress Supplemental Executive X X
Retirement Plan*. (Filed as Exhibit 10.(b)
to the Florida Progress Form 10-K for the
year ended December 31, 1996 as filed
with the SEC on March 27, 1997.)
10.(m) Second Amended and Restated Guaranty and X
Support Agreement dated as of August 7,
1996. (Filed as Exhibit 4 to Florida
Progress' Form 10-Q for the quarter
ended June 30, 1996).
10.(n) Florida Progress Corporation Long-Term X X
Incentive Plan, approved by Florida
Progress' Shareholders on April 19,
1990. (Filed as Exhibit 10(d) to Florida
Progress' Form 10-Q for the quarter
ended March 31, 1990, as filed with
the SEC on May 14, 1990). *
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<PAGE>
10.(o) Stock Plan for Non-Employee Directors of X X
Florida Progress Corporation and Subsidiaries.
(Filed as Exhibit 4.(k) to the Florida Progress
Registration Statement on Form S-8 (No. 333-
02619) as filed with the SEC on April 18, 1996.)*
X = Exhibit is filed for that respective company.
* = Exhibit constitutes an executive compensation plan or arrangement.
In reliance upon Item 601(b)(4)(iii) of Regulation S-K, certain instruments
defining the rights of holders of long-term debt of Florida Progress and its
consolidated subsidiaries are not being filed herewith, because the total amount
authorized thereunder does not exceed 10% of the total assets of Florida
Progress and its subsidiaries on a consolidated basis. Florida Progress hereby
agrees to furnish a copy of any such instruments to the SEC upon request.
Florida Progress will furnish to its security holders who so request a copy of
any exhibit included or incorporated by reference in this Annual Report on Form
10-K upon payment of a fee of $.25 per page to cover expenses in furnishing such
exhibit.
(b) Reports on Form 8-K:
During the fourth quarter of the year ended December 31, 1998,
Florida Progress and Florida Power filed the following reports on
Form 8-K:
Form 8-K dated October 16, 1998, reporting under Item 5
"Other Events" a press release and related Investor
Information Report reporting Florida Progress' and Florida
Power's third quarter 1998 earnings.
Form 8-K dated November 18, 1998, reporting under Item 5
"Other Events" an Investor News Report providing an update
on Florida Power regulatory matters, and another Investor
News Report regarding the formation of a fiber-optic
telecommunications business.
In addition, Florida Progress and Florida Power filed the
following reports on Form 8-K subsequent to the fourth quarter of
1998:
Form 8-K dated January 25, 1999, reporting under Item 5
"Other Events" a press release and related Investor News
report which stated Florida Progress' and Florida Power's
1998 year-end earnings.
Form 8-K dated February 18, 1999 reporting under Item 5
"Other Events" an increase in Florida Progress' annual
dividend and the construction by Florida Power of peaking
units.
88
<PAGE>
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
March 19, 1999 By: /s/ Richard Korpan
---------------------------
Richard Korpan, Chairman of the Board,
President and Chief Executive Officer
KNOWN BY ALL MEN BY THESE PRESENTS that each of the undersigned officers
and directors of Florida Progress Corporation, a Florida corporation, for
himself or herself and not for one another, does hereby constitute and appoint
KENNETH E. ARMSTRONG, PAMELA A. SAARI and DOUGLAS E. WENTZ, and each of them, a
true and lawful attorney in his or her name, place and stead, in any and all
capacities, to sign his or her name to any and all amendments to this report,
and to cause the same to be filed with the Securities and Exchange Commission,
granting unto said attorneys and each of them full power and authority to do and
perform any act and thing necessary and proper to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present, and each of the undersigned for himself or herself hereby ratifies and
confirms all that said attorneys or any one of them shall lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
---------- ----- -----
/s/ Richard Korpan Chairman of the Board, March 19,1999
- --------------------------- President,Chief Executive
Richard Korpan Officer and Director
Principal Executive Officer
/s/ Edward W. Moneypenny Senior Vice President and March 19, 1999
- ---------------------------- Chief Financial Officer
Edward W. Moneypenny
Principal Financial Officer
/s/ John Scardino, Jr. Vice President and March 19, 1999
- ---------------------------- Controller
John Scardino, Jr.
Principal Accounting Officer
s/ W. D. Frederick, Jr. Director March 19, 1999
- ----------------------------
W. D. Frederick, Jr.
(Continued)
89
<PAGE>
Signature Title Date
----------- ----- -----
/s/ Michael P. Graney Director March 19, 1999
- ----------------------------
Michael P. Graney
/s/ Clarence V. McKee Director March 19, 1999
- --------------------------
Clarence V. McKee
/s/ Vincent J. Naimoli Director March 19, 1999
- --------------------------
Vincent J. Naimoli
/s/ Richard A. Nunis Director March 19, 1999
- --------------------------
Richard A. Nunis
/s/ Joan D. Ruffier Director March 19, 1999
- --------------------------
Joan D. Ruffier
/s/ Robert T. Stuart, Jr. Director March 19, 1999
- --------------------------
Robert T. Stuart, Jr.
/s/ Jean Giles Wittner Director March 19, 1999
- --------------------------
Jean Giles Wittner
90
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized. The signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company.
FLORIDA POWER CORPORATION
March 19, 1999 By: /s/ Joseph H. Richardson
--------------------------------
Joseph H. Richardson, President
and Chief Executive Officer
KNOWN BY ALL MEN BY THESE PRESENTS that each of the undersigned officers
and directors of Florida Power Corporation, a Florida corporation, for himself
or herself and not for one another, does hereby constitute and appoint KENNETH
E. ARMSTRONG, PAMELA A. SAARI and DOUGLAS E. WENTZ, and each of them, a true and
lawful attorney in his or her name, place and stead, in any and all capacities,
to sign his or her name to any and all amendments to this report, and to cause
the same to be filed with the Securities and Exchange Commission, granting unto
said attorneys and each of them full power and authority to do and perform any
act and thing necessary and proper to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present, and each
of the undersigned for himself or herself hereby ratifies and confirms all that
said attorneys or any one of them shall lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph H. Richardson President, Chief March 19, 1999
- -------------------------- Executive Officer
Joseph H. Richardson and Director
/s/ Jeffrey R. Heinicka Senior Vice President March 19, 1999
- -------------------------- and
Jeffrey R. Heinicka Chief Financial Officer
Principal Financial Officer
/s/ John Scardino, Jr. Vice President March 19, 1999
- -------------------------- and Controller
John Scardino, Jr.
Principal Accounting Officer
/s/ Richard Korpan Chairman of the Board, March 19, 1999
- -------------------------- and Director
Richard Korpan
/s/ W. D. Frederick, Jr. Director March 19, 1999
- --------------------------
W. D. Frederick, Jr. (Continued)
91
<PAGE>
Signature Title Date
- ----------- ----- -----
/s/ Michael P. Graney Director March 19, 1999
- --------------------------
Michael P. Graney
/s/ Clarence V. McKee Director March 19, 1999
- --------------------------
Clarence V. McKee
/s/ Vincent J. Naimoli Director March 19, 1999
- --------------------------
Vincent J. Naimoli
/s/ Richard A. Nunis Director March 19, 1999
- --------------------------
Richard A. Nunis
/s/ Joan D. Ruffier Director March 19, 1999
- --------------------------
Joan D. Ruffier
/s/ Robert T. Stuart, Jr. Director March 19, 1999
- --------------------------
Robert T. Stuart, Jr.
/s/ Jean Giles Wittner Director March 19, 1999
- --------------------------
Jean Giles Wittner
92
<PAGE>
<TABLE>
<CAPTION>
Schedule II
FLORIDA PROGRESS CORPORATION
Valuation and Qualifying Accounts
For the Years Ended December 31, 1998, 1997, and 1996
(In millions)
Balance at Additions Balance at
Beginning Charged to Other End of
Description of Period Expense Deductions Add (Ded) Period
- -------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C>
Nuclear Refueling Outage Reserve $22.2 $ - $2.3 $ - $19.9
======= ======= ======= ======= =======
Provision for loss on coal properties $12.8 $ - $ - $(6.2) $ 6.6
======= ======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1997
Nuclear Refueling Outage Reserve $8.7 $14.0 $ 0.5 $ - $22.2
======= ======= ======= ======= =======
Insurance policy benefit reserves $325.3 $52.7 $ - $(378.0) $ -
======= ======= ======= ======= =======
Provision for loss on coal properties $40.9 $ - $ - $ (28.1) $12.8
======= ======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1996
Nuclear Refueling Outage Reserve $14.7 $17.4 $23.4 $ - $8.7
======= ======= ======= ======= =======
Insurance policy benefit reserves $265.0 $60.3 $ - $ - $325.3
======= ======= ======= ======= =======
Provision for loss on coal properties $ - $40.9 $ - $ - $40.9
======= ======= ======= ======= =======
</TABLE>
(A) Effective December 31, 1997, Florida Progress deconsolidated the financial
statements of Mid-Continent Life in its consolidated financial statements.
Florida Progress' investment from Mid-Continent is accounted for under the cost
method.
93
<PAGE>
<TABLE>
<CAPTION>
Schedule II
FLORIDA POWER CORPORATION
Valuation and Qualifying Accounts
For the Years Ended December 31, 1998, 1997, and 1996
(In millions)
Balance at Additions Balance at
Beginning Charged to Deductions End of
Description of Period Expense (See Note) Period
- -----------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C>
1998 Nuclear Refueling Outage Reserve (#11) $22.2 $0.0 $2.3 $19.9
------ ------ ------ ------
$22.2 $0.0 $2.3 $19.9
======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1997
1996 Nuclear Refueling Outage Reserve (#10) $0.5 $0.0 $0.5 $0.0
1998 Nuclear Refueling Outage Revenue (#11) $8.2 $14.0 $0.0 $22.2
------- ------- ------- -------
$8.7 $14.0 $0.5 $22.2
======= ======= ======= =======
FOR THE YEAR ENDED DECEMBER 31, 1996
1996 Nuclear Refueling Outage Reserve (#10) $14.7 9.2 $23.4 $0.5
1996 Nuclear Refueling Outage Reserve (#11) 0.0 8.2 0.0 8.2
------- ------- ------- -------
$14.7 $17.4 $23.4 $8.7
======= ======= ======= =======
</TABLE>
Note: Deductions are payments of actual expenditures related to the outage.
EXHIBIT 3.(a)
Adopted January 21, 1982
Amended August 16, 1984
Amended November 19, 1987
Amended January 21, 1988
Amended November 17, 1988
Amended April 19, 1990
Amended August 16, 1990
Amended February 7, 1991, effective April 18, 1991
Amended and Restated April 18, 1991
Amended February 6, 1992
Amended November 19, 1992
Amended February 8, 1996, effective April 1, 1996
Amended May 15, 1997
Amended February 19, 1998
Amended February 19, 1998, effective April 17, 1998
Amended April 17, 1998, effective July 1, 1998
Amended February 18, 1999
FLORIDA PROGRESS CORPORATION
BYLAWS
-1-
<PAGE>
BYLAWS
FLORIDA PROGRESS CORPORATION
ARTICLE I
Offices
Section 1. The registered office and headquarters of the
Corporation are in the City of St. Petersburg, County of Pinellas,
State of Florida.
Section 2. The Corporation may also have an office at such other places
as the business of the Corporation may require.
ARTICLE II
Seal
The Corporate seal shall be circular in form and have inscribed thereon
the following:
Florida Progress Corporation
Corporate Seal
Florida
1982
ARTICLE III
Meetings of Shareholders
Section 1. Annual Meeting. There shall be an annual meeting of
shareholders in the month of April of each year on such date and at such time
and place as shall be designated by the Board of Directors for the election of
Directors and for the transaction of such other business as may properly be
brought before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders of the
Corporation, or of the holders of any class or series of stock, required or
authorized by law, shall be held for the purpose or purposes stated in the call
of said meeting, on the call of the Chairman of the Board, or the President, or
the Board of Directors, or when the holders of not less than ten percent (10%)
of all the votes entitled to be cast on any issue proposed to be considered at
the proposed special meeting sign, date, and deliver to the Corporation's
Secretary one or more written demands for the meeting describing the purpose or
purposes for which it is to be held.
-1-
<PAGE>
Section 3. Place; Record Date. Meetings of shareholders may be held
within or without the State of Florida. The Board of Directors shall fix a
record date in order to determine the shareholders entitled to notice of a
shareholders' meeting, to demand a special meeting, to vote or to take any other
action.
Section 4. Notice. Written notice stating the date, time and place of
each meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the meeting, either personally or by first class
mail, by or at the direction of the President, the Secretary or the officer or
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If the notice is mailed at least thirty (30) days before the date
of the meeting, it may be done by a class of United States mail other than first
class. If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail addressed to the shareholder as the address appears on
the stock transfer books of the Corporation, with postage thereon prepaid.
Section 5. Notice of Adjourned Meetings. When a meeting is adjourned to
another date, time or place, it shall not be necessary to give any notice of the
adjourned meeting if the date, time or place to which the meeting is adjourned
is announced at the meeting before the adjournment is taken, and at the
adjourned meeting any business may be transacted that might have been transacted
on the original date of the meeting. If, however, after the adjournment, the
Board of Directors fixes a new record date for the adjourned meeting, a notice
of the adjourned meeting shall be given as provided in Section 4 to each
shareholder of record as of the new record date who is entitled to notice of
such meeting.
Section 6. Quorum and Voting. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. When a specified item of business is required to be voted on by a
class or series of stock, the holders of a majority of the shares of such class
or series shall constitute a quorum for the transaction of such item of business
by that class or series.
If a quorum exists, action on a matter, other than
the election of Directors, is approved if the votes cast by the holders of the
shares represented at the meeting and entitled to vote on the subject matter
favoring the action exceed the votes cast opposing the action, unless a greater
number of affirmative votes or voting by classes is required by law or the
Articles of Incorporation. The Directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
-2-
<PAGE>
If a quorum does not exist, the holders of a
majority of the shares represented in person or by proxy and who would be
entitled to vote if a quorum had been present shall have the power to adjourn
the meeting from time to time, until the requisite amount of stock shall be
represented. At such adjourned meeting at which the requisite amount of stock
shall be represented any business may be transacted which might have been
transacted at the original meeting if a quorum had been present.
Section 7. Manner of Voting. A shareholder, other person entitled to
vote on behalf of a shareholder pursuant to law, or attorney-in-fact may vote
the shareholder's shares either in person or by proxy executed in writing by the
shareholder or his duly authorized attorney-in-fact in accordance with law.
Section 8. Action by Shareholders Without a Meeting. Any
----------------------------------------
action required by law, these Bylaws or the Articles of Incorporation of the
Corporation to be taken at any annual or special meeting of shareholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such shareholders, may be taken without a meeting, without prior notice and
without a vote, if one or more written consents, setting forth the action so
taken, shall be dated and signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted, and shall be delivered to the Corporation within sixty (60)
days of the date of the earliest dated consent. If any class of shares is
entitled to vote thereon as a class, such written consent shall be required of
the holders of a majority of the shares of each class of shares entitled to vote
as a class thereon and of the total shares entitled to vote thereon.
Any written consent may be revoked prior to the
date that the Corporation receives the required number of consents to authorize
the proposed action. No revocation is effective unless in writing and until
received by the Corporation.
Within ten (10) days after obtaining such
authorization by written consent, notice shall be given to those shareholders
who have not consented in writing or who are not entitled to vote on the action.
The notice shall fairly summarize the material features of the authorized action
and, if the action be a merger, consolidation, sale or exchange of assets or
other action for which dissenters' rights are provided by law, the notice shall
contain a clear statement of the right of shareholders dissenting therefrom to
be paid the fair value of their shares upon compliance with further provisions
of law regarding the rights of dissenting shareholders.
-3-
<PAGE>
A written consent shall have the same effect as a
vote cast at a meeting and may be described as such in any document.
Whenever any action is taken by written consent,
the written consents of the shareholders consenting to such action or the
written reports of inspectors appointed to tabulate such consents shall be filed
with the minutes of proceedings of shareholders.
Section 9. Advance Notice Provisions for Election of Directors. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
shareholders, or at any special meeting of shareholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any shareholder of the
Corporation (i) who is a shareholder of record on the date of the giving of the
notice provided for in this Section 9 and on the record date for the
determination of shareholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 9.
In addition to any other applicable requirements,
for a nomination to be made by a shareholder such shareholder must have given
timely notice thereof in proper written form to the Secretary of the
Corporation.
To be timely, a shareholder's notice to the
Secretary must be delivered to or mailed and received at the principal executive
offices of the Corporation (a) in the case of an annual meeting, not less than
90 days nor more than 120 days prior to the date of the annual meeting;
provided, however, that in the event that less than 100 days' notice or prior
public disclosure of the date of the annual meeting is given or made to
shareholders, notice by the shareholder in order to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever occurs first;
and (b) in the case of a special meeting of shareholders called for the purpose
of electing directors, not later than the close of business on the 10th day
following the day on which the notice of the date of the special meeting was
mailed or public disclosure of the date of the special meeting was made,
whichever occurs first.
To be in proper written form, a shareholder's
notice to the Secretary must set forth (a) as to each person whom the
shareholder proposes to nominate for election as a director (i) the name, age,
business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the number of shares of common
stock of the Corporation which are owned beneficially or of record by the person
and (iv) any other
-4-
<PAGE>
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the shareholder giving the
notice (i) the name and record address of such shareholder, (ii) the number of
shares of common stock of the Corporation which are owned beneficially or of
record by such shareholder, (iii) a description of all arrangements or
understandings between such shareholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such shareholder, (iv) a representation that such shareholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such shareholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to be named as a nominee and to serve as a
director if elected.
No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth in this Section 9. If the Chairman of the meeting determines that a
nomination was not made in accordance with the foregoing procedures, the
Chairman shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
Section 10. Advance Notice Provisions for Business to be Transacted at
Annual Meeting. No business may be transacted at an annual meeting of
shareholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any shareholder of the Corporation (i) who
is a shareholder of record on the date of the giving of the notice provided for
in this Section 10 and on the record date for the determination of shareholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 10.
In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a shareholder,
such shareholder must have given timely notice thereof in proper written form to
the Secretary of the Corporation.
-5-
<PAGE>
To be timely, a shareholder's notice to the
Secretary must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 90 days nor more than 120 days prior to
the date of the annual meeting; provided, however, that in the event that less
than 100 days' notice or prior public disclosure of the date of the annual
meeting is given or made to shareholders, notice by the shareholder in order to
be timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever occurs first.
To be in proper written form, a shareholder's
notice to the Secretary must set forth as to each matter such shareholder
proposes to bring before the annual meeting (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of such shareholder, (iii) the number of shares of common stock of the
Corporation which are owned beneficially or of record by such shareholder, (iv)
a description of all arrangements or understandings between such shareholder and
any other person or persons (including their names) in connection with the
proposal of such business by such shareholder and any material interest of such
shareholder in such business and (v) a representation that such shareholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual
meeting of shareholders except business brought before the annual meeting in
accordance with the procedures set forth in this Section 10, provided, however,
that, once business has been properly brought before the annual meeting in
accordance with such procedures, nothing in this Section 10 shall be deemed to
preclude discussion by any shareholder of any such business. If the Chairman of
an annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted.
ARTICLE IV
Directors
Section 1. Number and Term of Office. The Board of Directors of the
Corporation shall consist of nine (9) members, divided into three (3) classes
serving staggered three-year terms in accordance with the Articles of
Incorporation. The three classes shall be designated Class I, Class II and Class
III with each Class consisting of three directors.
-6-
<PAGE>
Section 2. Function. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, the Board of
Directors.
Section 3. Qualification. Directors need not be residents of
this state or shareholders of the Corporation.
Section 4. Authority to Fix Compensation. The Board of
Directors shall have authority to fix the compensation of the
Directors of the Corporation.
Section 5. Duties of Directors. A Director shall discharge his duties as
a Director, including his duties as a member of any committee of the Board upon
which he may serve, in good faith, in a manner he reasonably believes to be in
the best interests of the Corporation, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances.
In discharging his duties, a Director shall be
entitled to rely on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by:
(a) one or more officers or employees of the
Corporation whom the Director reasonably believes to be reliable and
competent in the matters presented;
(b) legal counsel, public accountants or other
persons as to matters which the Director reasonably believes to be
within the persons' professional or expert competence; or
(c) a committee of the Board of Directors
upon which he does not serve, duly designated in accordance with a provision of
the Articles of Incorporation or the Bylaws, as to matters within its designated
authority, which committee the Director reasonably believes to merit confidence.
In discharging his duties, a Director may consider
such factors as the Director deems relevant, including the long-term prospects
and interests of the Corporation and its shareholders, and the social, economic,
legal, or other effects of any action on the employees, suppliers, customers of
the Corporation or its subsidiaries, the communities and society in which the
Corporation or its subsidiaries operate, and the economy of the state and the
nation.
A Director shall not be considered to be acting in
good faith if he has knowledge concerning the matter in question which would
cause such reliance described above to be unwarranted.
-7-
<PAGE>
A Director is not liable for any action taken as
a Director, or any failure to take any action, if he performed the duties of his
office in compliance with this Section 5.
Section 6. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any Director may be removed, only for cause, if the
number of votes cast to remove him exceeds the number of votes cast not to
remove him. If a Director is elected by a voting group or class of shares under
the Articles of Incorporation, only the shareholders of that voting group or
class may participate in the vote to remove him.
Section 7. Vacancies. Until the next election of Directors upon the
expiration of their terms, any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
Directors, may be filled only by the affirmative vote of a majority of the
remaining Directors, though less than a quorum of the Board of Directors. A
Director elected to fill a vacancy shall hold office only until the next
election of Directors by the shareholders and until his successor shall have
been elected and shall qualify.
ARTICLE V
Chairman of the Board
The Corporation may have a Chairman of the Board who shall be a Director
and who shall preside at all meetings of the shareholders and of the Board of
Directors. He shall advise and counsel with the President. In addition to the
responsibility for maintaining effective external relationships on behalf of the
Corporation with industry groups, governmental agencies, scientific, educational
and other similar groups, he shall exercise such other responsibilities and
duties as shall be assigned to him by the Board of Directors. The Board of
Directors shall have the power at any time to leave the office of Chairman of
the Board vacant and, in such eventuality, the President shall assume and
exercise all of the powers and responsibilities of this office.
ARTICLE VI
Meetings of the Board
Section 1. Time, Place, and Call of Meetings. Meetings of the Board of
Directors may be held within or without the State of Florida at the time fixed
by these Bylaws or upon call of the Chairman of the Board or the President or
the Secretary or any two Directors.
Section 2. Annual Meeting. The annual meeting of the Board
of Directors shall be held promptly following the annual meeting of
shareholders.
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<PAGE>
Section 3. Notice of Meetings. Written notice of the date, time and
place of special meetings of the Board of Directors shall be given to each
Director by either personal delivery, mail, telegram or cablegram at least two
(2) days before the meeting.
Notice need not be given of regular meetings held
each quarter on dates promulgated before the end of the preceding year. Notice
of a meeting of the Board of Directors need not be given to any Director who
signs a waiver of notice, either before or after the meeting. Attendance of a
Director at a meeting shall constitute a waiver of notice of such meeting and
waiver of any and all objection to the place of the meeting, the time of the
meeting, or the manner in which it has been called or convened, except when a
Director states, at the beginning of the meeting or promptly upon arrival at the
meeting, any objection to the transaction of business because the meeting is not
lawfully called or convened.
Neither the business to be transacted at, nor the
purpose of, any meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
A majority of the Directors present, whether or
not a quorum exists, may adjourn any meeting of the Board of Directors to
another time and place. Notice of any such adjourned meeting shall be given to
the Directors who were not present at the time of the adjournment and, unless
the time and place of the adjourned meeting are announced at the time of the
adjournment, to the other Directors.
Members of the Board of Directors or any committee
of the Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment by means of which all Directors
participating in the meeting may simultaneously hear each other during the
meeting. Participation by such means shall constitute presence in person at a
meeting. The vote on any matter before the Board or any committee of the Board,
when members are present by means of a conference telephone or similar
communication equipment, shall be by roll call.
Section 4. Action Without a Meeting. Any action required to be taken at
a meeting of the Board of Directors or a committee thereof may be taken without
a meeting if one or more written consents, setting forth the action so to be
taken, signed by all of the Directors, or all of the members of the committee,
as the case may be, is filed in the minutes of the proceeding. Action taken
under this section is effective when the last Director signs the consent, unless
the consent specifies a different effective date. A consent under this section
has the effect of a meeting vote and may be described as such in any document.
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<PAGE>
Section 5. Quorum and Voting. A majority of the number of Directors
fixed by these Bylaws shall constitute a quorum for the transaction of business.
The act of the majority of the Directors present at a meeting at which a quorum
is present when a vote is taken shall be the act of the Board of Directors.
Section 6. Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors or a committee thereof when
corporate action is taken shall be deemed to have assented to the action taken
unless he objects at the beginning of the meeting (or promptly upon his arrival)
to holding it or transacting specified business at the meeting, or he votes
against or abstains from the action taken.
Section 7. Director Conflicts of Interest. No contract or other
transaction between the Corporation and one or more of its Directors or any
other corporation, firm, association or entity in which one or more of the
Directors are directors or officers or are financially interested shall be
either void or voidable because of such relationship or interest or because such
Director or Directors are present at the meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such contract or
transaction or because his or their votes are counted for such purpose, if:
(a) The fact of such relationship or interest
is disclosed or known to the Board of Directors or committee which authorizes,
approves or ratifies the contract or transaction by a vote or consent sufficient
for the purpose without counting the votes or consents of such interested
Directors; or
(b) The fact of such relationship or interest is
disclosed or known to the shareholders entitled to vote and they authorize,
approve or ratify such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and
reasonable as to the Corporation at the time it is authorized by the
Board, a committee, or the shareholders.
Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such contract or
transaction.
Shares owned by or voted under the control of a Director who
has a relationship or interest in the subject transaction may not be counted in
the shareholders' vote to determine whether to authorize, approve, or ratify a
conflict of interest transaction under subparagraph (b) above.
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<PAGE>
ARTICLE VII
Committees
Section 1. Committees. The Board of Directors, by resolution adopted by
a majority of the full Board, may designate from among its members an Executive
Committee, Audit Committee, Finance and Budget Committee, Compensation
Committee, Nominating Committee and one or more other committees and may
designate one or more Directors as alternate members of any such committee who
may act in the place and stead of any absent member or members at any meeting of
such committee.
The members of committees, who shall be at least
two in number, shall act only as a committee and the individual members shall
have no power as such. Unless the Board of Directors elects a committee
chairman, each committee shall elect its own chairman and secretary, and have
full power and authority to make rules for the conduct of its business. The
Board shall have the power at any time to change the membership of committees,
fill vacancies, and to abolish committees.
Neither the designation of any such committee, the
delegation thereto of authority, nor action by such committee pursuant to such
authority shall alone constitute compliance by any member of the Board of
Directors not a member of the committee in question with his responsibility to
act in good faith, in a manner he reasonably believes to be in the best
interests of the Corporation, and with such care as an ordinarily prudent person
in a like position would use under similar circumstances.
Section 2. Executive Committee. The Executive Committee shall have and
may exercise all of the powers of the Board of Directors during the intervals
between the meetings of the Board in the management of the business and affairs
of the Corporation. A majority of the Executive Committee shall constitute a
quorum for the transaction of business, and the act of a majority of those
present at a meeting, at which a quorum is present, shall be the act of the
Executive Committee. The Executive Committee shall keep a record of its acts and
proceedings and make a report thereof from time to time to the Board of
Directors.
The Executive Committee shall not have the
authority to:
(a) approve or recommend to shareholders actions
or proposals required by the Florida Business Corporation Act to be
approved by shareholders;
(b) fill vacancies on the Board of Directors or
any committee thereof;
(c) adopt, amend or repeal the Bylaws;
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<PAGE>
(d) authorize or approve the reacquisition of
shares unless pursuant to a general formula or method specified by
the Board of Directors; or
(e) authorize or approve the issuance or sale
or contract for the sale of shares, or determine the designation and relative
rights, preferences, and limitations of a voting group except that the Board of
Directors may authorize a committee (or a senior executive officer of the
Corporation) to do so within limits specifically prescribed by the Board of
Directors.
Section 3. Audit Committee: The Audit Committee shall be composed of at
least three outside Directors. The Committee will nominate the public accounting
firm to conduct the annual audit of the Corporation and submit the nomination to
the Board of Directors for approval. The Audit Committee shall keep a record of
its acts and proceedings and make a report thereof from time to time to the
Board of Directors.
ARTICLE VIII
Officers
Section 1. Executive Officers. The officers of the Corporation may
consist of a Chairman of the Board of Directors, and shall consist of a
President, a Secretary, a Treasurer, and such other officers as may be
determined and appointed by the Board of Directors. Officers shall be appointed
by the Board of Directors at least annually, at the first meeting of Directors
immediately following the annual meeting of shareholders of the Corporation, and
shall serve until their successors are appointed and shall qualify. Any two or
more offices may be held by the same person.
Section 2. Duties. The officers of the Corporation shall
have the following duties:
(a) President. The President shall have general
and active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect,
subject, however, to the right of the Board to delegate to others, so far as it
lawfully may, any specific powers; and shall, in the absence of the Chairman of
the Board, preside at all meetings of the shareholders and of the Board of
Directors. The President may appoint such agents as he may deem necessary, who
shall hold office during his pleasure, and who shall have such authority and
shall perform such duties as from time to time he may prescribe.
(b) Secretary. The Secretary shall have custody
of, and maintain, all of the corporate records except the financial records,
shall record the minutes of all meetings of the shareholders and of the Board of
Directors, send all notices of meetings, authenticate records of the Corporation
and perform such other duties as may be prescribed by the Board of Directors or
the President.
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<PAGE>
(c) Treasurer. The Treasurer shall have custody
of all corporate funds and shall perform such other duties as may be prescribed
by the Board of Directors or the President.
Section 3. Removal of Officers. Any officer or agent appointed by the
Board of Directors may be removed by the Board with or without cause, whenever
in its judgment the best interests of the Corporation will be served thereby.
Any vacancy, however occurring, in any office may
be filled by the Board of Directors.
An officer's removal does not affect the officer's
contract rights, if any, with the Corporation. An officer's resignation does not
affect the Corporation's contract rights, if any, with the officer. The
appointment of an officer does not of itself create contract rights.
ARTICLE IX
Capital Stock
Section 1. Certificates of Stock. The Board of Directors
shall provide for the issue and transfer of the capital stock of the
Corporation and prescribe the form of the certificates for such
stock.
Section 2. Form. Certificates representing shares in the Corporation
shall be signed (either manually or in facsimile) by the President or Vice
President and the Treasurer or an Assistant Treasurer and may be sealed with the
seal of the Corporation or a facsimile thereof. In case any officer who signed
such certificate, or whose facsimile signature has been placed upon such
certificate, shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issuance.
If and to the extent the Corporation is authorized
to issue different classes of shares or different series within a class, each
certificate representing shares shall state or fairly summarize upon the front
or back of the certificate, or shall state conspicuously on its front or back
that the Corporation will furnish to any shareholder upon request and without
charge a full statement of:
(a) The designations, preferences, limitations,
and relative rights applicable to each class.
(b) The variations in the relative rights,
preferences and limitations determined for each series, and the authority of the
Board of Directors to determine the variations for future series.
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<PAGE>
Every certificate representing shares which are
restricted as to the sale, disposition or other transfer of such shares shall
state that such shares are restricted as to transfer and shall set forth or
fairly summarize upon the certificate such restrictions, or shall state that the
Corporation will furnish to any shareholder upon request and without charge a
full statement of such restrictions.
Each certificate representing shares shall state
upon the face thereof: the name of the Corporation; that the Corporation is
organized under the laws of the State of Florida; the name of the person or
persons to whom issued; the number and class of shares; and the designation of
the series, if any, which such certificate represents.
Section 3. Transfer of Stock. The stock of the Corporation
shall be transferable or assignable on the books of the Corporation
by the holders in person or by attorney on the surrender of the
certificates therefor.
ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall be the calendar year.
ARTICLE XI
Indemnification of Directors, Officers and Employees
The Corporation shall indemnify any Director, officer, or employee or
any former Director, officer, or employee to the full extent permitted by law.
ARTICLE XII
Dividends
The Board of Directors of the Corporation may, from time to time,
declare, and the Corporation may pay, dividends on its shares in cash, property
or its own shares, except as prohibited by law, or when contrary to any
restrictions contained in corporate indentures, bonds, or other financing
agreements.
ARTICLE XIII
Amendment
Except as provided in Article VIII of the Articles of Incorporation,
these Bylaws may be altered, amended or repealed and new Bylaws may be adopted
by an affirmative vote of at least two-thirds of the number of Directors
constituting the Board of Directors or by an affirmative vote of the holders of
at least two-thirds of
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<PAGE>
the outstanding Voting Stock (as defined in Article VIII of the
Articles of Incorporation) of the Corporation.
ARTICLE XIV
Gender
All references herein to the masculine pronoun shall be deemed to
include the feminine pronoun.
PROGRESS.FL4
As amended 2-18-99
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EXHIBIT 10.(a)
PHANTOM STOCK PLAN
FOR THE BENEFIT OF
NON-EMPLOYEE DIRECTORS OF
FLORIDA PROGRESS CORPORATION
Effective as of January 1, 1999
<PAGE>
PHANTOM STOCK PLAN
FOR THE BENEFIT OF
NON-EMPLOYEE DIRECTORS OF
FLORIDA PROGRESS CORPORATION
Table of Contents
Page
ARTICLE I Definitions............................................1
-----------
ARTICLE II Administration.........................................3
--------------
ARTICLE III Participation..........................................4
-------------
ARTICLE IV Phantom Stock Unit Awards and Accounts.................5
--------------------------------------
ARTICLE V Financing..............................................8
---------
ARTICLE VI Payment for Phantom Stock Units........................8
-------------------------------
ARTICLE VII Confidentiality and Restrictions on Competition........9
-----------------------------------------------
ARTICLE VIII Amendment and Termination.............................10
-------------------------
ARTICLE IX Miscellaneous.........................................11
-------------
<PAGE>
PHANTOM STOCK PLAN
FOR THE BENEFIT OF
NON-EMPLOYEE DIRECTORS OF
FLORIDA PROGRESS CORPORATION
PURPOSE
Florida Progress Corporation (the "Company") hereby establishes the
Phantom Stock Plan for the Benefit of Non-Employee Directors of Florida Progress
Corporation (the "Plan"), effective as of January 1, 1999, as part of the
Company's compensation program in order to attract, retain and motivate
qualified members of its Board of Directors. The Plan is intended to provide
non-employee members of the Board of Directors who contribute their services to
the Company with the opportunity to share in the continued success of the
Company.
ARTICLE I
Definitions
(a) "Account" shall mean a Participant's Phantom Stock Unit Account as
described in Article IV.
(b) "Board" or "Board of Directors" shall mean the board of directors of the
Company.
(c) "Change in Control" shall mean and be deemed to have occurred if:
(1) Any person is or becomes the "Beneficial Owner" (as that term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Exchange Act")), directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such person any
securities acquired directly from the Company) representing twenty-five
percent (25%) or more of the combined voting power of the Company's
then outstanding securities; or
(2) During any period of twenty-four (24) consecutive months, individuals
who at the beginning of such period constitute the Board and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (1), (3) or (4) of this definition or any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents) whose election by the
Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of such
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board;
or
(3) The closing of a reorganization, merger or consolidation, other than a
reorganization, merger or consolidation with respect to which all or
substantially all of the individuals and entities who were Beneficial
Owners, immediately prior to such reorganization, merger or
consolidation, of the combined voting power of the Company's then
outstanding securities beneficially own, directly or indirectly,
immediately after such reorganization, merger or consolidation, more
than seventy-five percent (75%) of the combined voting power of the
securities of the Company resulting from such reorganization, merger or
consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or
consolidation, of the combined voting power of the Company's
securities; or
(4) (A) The closing of the sale or disposition by the Company (other
than to a subsidiary of the Company) of all or substantially all of
the assets of the Company (or any such sale or disposition is
effected through condemnation proceedings), or
(B) the adoption by the Company of a plan of liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a Change in Control shall not include any event,
circumstance or transaction which results from the action (excluding the
Participant's service as a member of the Board of Directors) of any person or
group of persons which includes, is directly affiliated with or is wholly or
partly controlled by one (1) or more executive officers of the Company or its
subsidiaries and in which the Plan Participant actively participates.
(d) "Company" shall mean Florida Progress Corporation and its
successors.
(e) "Effective Date" of the Plan shall mean January 1, 1999.
(f) "Non-Employee Director" shall mean any member of the Board of
Directors who is not an employee of the Company.
(g) "Participant" shall mean any Non-Employee Director who is
covered by this Plan as provided in Article III. When required by the
context of the Plan, the term Participant shall include any former
Participant in the Plan.
(h) "Phantom Stock Unit" shall mean a right to receive, without
payment to the Company, an amount equal to the fair market value of a share
of common stock of the Company determined as of the close of the last
business day coincident with or immediately preceding the date of the
Participant's termination of service as a member of the Board of Directors.
(i) "Plan" shall mean the Phantom Stock Plan for the Benefit of
Non-Employee Directors of Florida Progress Corporation hereby created and
as it may be amended from time to time.
(j) "Plan Administrator" shall mean the Company.
(k) "Plan Year" shall mean 12-month period ending on each March 31.
(l) "Year of Service" shall mean each Plan Year in which a
Non-Employee Director serves as a member of the Board of Directors of the
Company on the last day of the Plan Year. The term "Year of Service" shall
include Plan Years beginning before the Effective Date of the Plan.
ARTICLE II
Administration
(a) Plan Administrator.
(1) The Plan Administrator shall have complete control and discretion
to manage the operation and administration of the Plan, with all powers
necessary to enable it to carry out its duties in that respect. Not in
limitation, but in amplification of the foregoing, the Plan Administrator shall
have the following powers:
(A) To determine all questions relating to the eligibility
of Non-Employee Directors to continue to participate;
(B) To maintain all records and books of account necessary
for the administration of the Plan;
(C) To interpret the provisions of the Plan and to make and to
publish such interpretive or procedural rules as are not inconsistent
with the Plan and applicable law;
(D) To compute, certify and arrange for the payment of benefits
to which any Participant or beneficiary is entitled;
(E) To process claims for benefits under the Plan by
Participants or beneficiaries;
(F) To engage consultants and professionals to assist the Plan
Administrator in carrying out its duties under this Plan; and
(G) To develop and maintain such instruments as may be deemed
necessary from time to time by the Plan Administrator to facilitate
payment of benefits under the Plan.
(2) The Plan Administrator may designate employees of the Company to
assist the Plan Administrator in the administration of the Plan and
perform the duties required of the Plan Administrator hereunder.
(b) Plan Administrator's Authority. The Plan Administrator may consult
with Company officers, legal and financial advisers to the Company and others,
but nevertheless the Plan Administrator shall have the full authority and
discretion to act, and the Plan Administrator's actions shall be final and
conclusive on all parties.
(c) Liability; Indemnification. Notwithstanding any other provision of
this Plan, no member of the Board, nor any staff member of the Company acting on
behalf of the Company, shall be liable to any Participant, beneficiary, or other
person for any action taken or omitted in connection with the interpretation and
administration of this Plan. The Plan Administrator and its employees shall be
entitled to rely conclusively on all tables, valuations, certificates, opinions
and reports that shall be furnished by any actuary, accountant, insurance
company, consultant, counsel or other expert who shall be employed or engaged by
the Plan Administrator in good faith. The Company shall indemnify the members of
the Board, and any such staff member, against any and all claims, losses,
damages and expenses, including counsel fees, reasonably incurred by them, and
any liability, including any amounts paid in settlement with their approval,
arising from their action or failure to act in connection with the
interpretation and administration of this Plan. The provisions of this paragraph
are not intended to be exclusive, and nothing contained in this paragraph shall
in any way limit indemnification provided members of the Board, and any such
staff member, under the by-laws of the Company, by contract, by statute or
otherwise.
ARTICLE III
Participation
Each Non-Employee Director of the Company on the Effective Date of this
Plan shall become a Participant as of such date. Thereafter, any individual who
subsequently becomes a Non-Employee Director of the Company shall become a
Participant in the Plan as of the date he or she is elected to the Board of
Directors (or, if later, as of the first day of the first Plan Year in which he
or she serves as a Non-Employee Director).
ARTICLE IV
Phantom Stock Unit Awards and Accounts
(a) In General. Except as provided in paragraph (b) of this Article IV,
awards of Phantom Stock Units under this Plan shall be automatic and
non-discretionary, and subject to the terms and conditions provided in Articles
IV, V, VI and VII.
(b) Initial Awards. Each Participant who is a member of the Board of
Directors on the Effective Date shall be awarded 2,000 Phantom Stock Units as of
such date. Each Non-Employee Director who first participates in the Plan after
the Effective Date shall be awarded Phantom Stock Units in an amount to be
determined by the Board upon his or her initial commencement of participation in
the Plan.
(c) Recurring Awards. Each Participant who is reelected to the Board of
Directors at any time after the Effective Date shall be awarded 600 Phantom
Stock Units upon his or her reelection to a new term as a member of the Board of
Directors. In addition, each Participant who is a Participant in the Plan as of
the Effective Date and whose term is scheduled to expire in April, 2000 shall be
awarded 200 Phantom Stock Units as of April 1, 1999. Each Participant who is a
Participant in the Plan as of the Effective Date and whose term is scheduled to
expire in April, 2001 shall be awarded 400 Phantom Stock Units as of April 1,
1999.
(d) Dividend Equivalent Awards. The Company shall award additional Phantom
Stock Units to Participants as of the last day of each Plan Year based upon the
following formula: Whenever cash dividends are paid to stockholders with respect
to the common stock of the Company, each Participant shall be awarded additional
Phantom Stock Units pursuant to this paragraph (d). Each such award shall be
equal to the number of shares of common stock of the Company that would be
purchased with cash dividends for the Participant (1) if the Participant was
participating in the Florida Progress Corporation Progress Plus Stock Plan and
(2) if, prior to the cash dividend payment, the Participant was credited with a
number of shares of common stock of the Company under the Florida Progress
Corporation Progress Plus Stock Plan that was equal to the number of Phantom
Stock Units actually credited to the Participant under the terms of this Plan.
(e) Changes in Common Stock. In the event that the Plan Administrator
determines that any recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination, exchange of shares, stock dividend, warrants,
or rights offering to purchase common stock at a price below Fair Market Value,
or other similar transaction affects the Company's common stock such that an
adjustment is required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Plan Administrator shall
equitably adjust any or all of the number of Phantom Stock Units credited to
Participants' Accounts. <PAGE>
(f) Participants' Accounts.
(1) Each Phantom Stock Unit award made pursuant to this Plan shall be
recorded by the Plan Administrator in a Phantom Stock Unit Account
maintained in the name of the Participant.
(2) Phantom Stock Units awarded to the Participant shall be credited
to his or her Account as of the Effective Date of the award and such
Account shall be charged from time to time with all amounts that are paid
to, or forfeited with respect to, the Participant.
(3) All amounts that are credited to a Participant's Account shall be
credited solely for purposes of accounting and computation. A Participant
shall not have any interest in or right to such Account at any time.
(g) Vested Interests. The vested Phantom Stock Units credited to a
Participant's Account shall be payable to the Participant at the time, and in
the form and manner, provided in Article VI.
(1) Phantom Stock Units awarded to a Participant pursuant to paragraph
(b) of this Article IV shall vest according to the following schedule,
based upon Years of Service credited to a Non-Employee Director from his or
her initial date of service as a member of the Board of Directors:
Years of Service Vested Percentage
1 Year of Service 16.66%
2 Years of Service 33.33%
3 Years of Service 50.00%
4 Years of Service 66.67%
5 Years of Service 83.33%
6 Years of Service 100%
(2) Phantom Stock Units awarded to a Participant pursuant to paragraph
(c) of this Article IV shall vest according to the following schedule,
based upon Years of Service credited to a Participant after the reelection
with respect to which the Phantom Stock Units are awarded:
Years of Service Vested Percentage
1 Year of Service 33.33%
2 Years of Service 66.67%
3 Years of Service 100%
<PAGE>
Each recurring award credited to a participant pursuant to paragraph
(c) of Article IV shall be subject to a separate three year vesting
schedule. Notwithstanding the foregoing provisions of this subparagraph
(2),
(A) each 200 Phantom Stock Unit award made as of April 1, 1999,
to a Participant who is a Participant in the Plan as of the Effective
Date and whose term is scheduled to expire in April, 2000 shall be
non-vested prior to March 31, 2000 and shall become 100% vested as of
March 31, 2000 if the Participant is credited with an additional Year
of Service as of such date; and
(B) each 400 Phantom Stock Unit award made as of April 1, 1999,
to a Participant who is a Participant in the Plan as of the Effective
Date and whose term is scheduled to expire in April, 2001 shall be
non-vested prior to March 31, 2000 and shall become 50% vested as of
March 31, 2000 if the Participant is credited with an additional Year
of Service as of such date, and shall be 100% vested as of March 31,
2001 if the Participant is credited with an additional Year of Service
as of such date.
(3) Phantom Stock Units awarded to a Participant pursuant to
paragraph (d) of this Article IV shall be treated as vested to the
extent such units are attributable to vested Phantom Stock Units
credited to the Participant's Account.
(4) Notwithstanding the provisions of subparagraphs (1), (2), and
(3) above, all Phantom Stock Units awarded to a Participant shall
become fully vested in the event of a Change in Control.
(5) If a Participant is less than 100% vested in all of the
Phantom Stock Units credited to his or her Account at the time he or
she first receives a benefit payment pursuant to Article VI, his or
her non-vested Phantom Stock Units will be forfeited.
(h) Valuation; Annual Statement. The value of a Participant's Account shall
be determined by the Plan Administrator and the Plan Administrator may establish
such accounting procedures as are necessary to account for the Participant's
interest in the Plan. Each Participant's Account shall be valued as of the last
day of each Plan Year or more frequently as determined by the Plan
Administrator. The Plan Administrator shall furnish each Participant with an
annual statement of his or her Account.
<PAGE>
ARTICLE V
Financing
(a) Financing. The benefits under this Plan shall be paid out of the
general assets of the Company which shall remain subject to the claims of the
Company's creditors until such amounts are paid to the Participants.
(b) No Trust Created. Nothing contained in this Plan, and no action taken
pursuant to the provisions of this Plan, shall create or be construed to create
a funded plan, a trust of any kind or a fiduciary relationship between the
Company and the Participant, his or her Beneficiary or any other person.
(c) Unsecured Interest. The Participant shall not have any interest
whatsoever in any specific asset of the Company. To the extent that any person
acquires a right to receive payments under this Plan, such right shall be no
greater than the right of any unsecured general creditor of the Company.
ARTICLE VI
Payment for Phantom Stock Units
(a) Timing of Payment. Subject to the restrictions of Article VII, the
payment of a Participant's vested interest in the amount credited to his or her
Account shall commence as soon as practicable following (1) his or her
termination of service with the Board of Directors, (2) his or her death, or (3)
a Change in
Control.
(b) Form and Manner of Benefit Payment.
(1) In the case of a Participant who terminates his or her service
with the Board of Directors by reason of his or her death, or in the case
of a Change in Control, the Participant's benefit shall be paid in a lump
sum cash payment.
(2) In the case of a Participant who terminates his or her service
with the Board of Directors for any other reason, the Participant's benefit
shall be paid as a series of annual cash installments (not in excess of 10)
or as a lump sum cash payment, as selected by the Participant. A
Participant shall elect the manner of payment for his or her benefit upon
commencing participation in the Plan. Prior to the commencement of benefit
payments under the Plan, the Participant may, subject to the approval of
the Plan Administrator, revise the manner of payment. Any request by a
Participant to revise the manner of payment must be received by the Plan
Administrator not later than December 31 of the calendar year preceding the
year in which benefit payments commence.
<PAGE>
(3) If a Participant dies before he or she has received all of his or
her vested benefits under the Plan, all unpaid amounts shall be paid in a
lump sum as soon as administratively practicable after the death of the
Participant to the beneficiary or beneficiaries designated by the
Participant to receive such benefits. A designation of beneficiaries may be
made in the Participant's will or on a separate form prescribed by and
filed with the Plan Administrator, which form shall comply with the laws of
the state of the Participant's residence. Any separate form filed with the
Plan Administrator may be changed at any time by filing a new form with the
Plan Administrator. If the Participant has designated no beneficiary, or if
no beneficiary that he or she has designated survives him or her, then such
unpaid amounts shall be paid to his or her estate. In the event of any
dispute as to the entitlement of any beneficiary, the Plan Administrator
may withhold any payment until such dispute has been resolved.
(c) Tax Withholding. The Company may withhold, or require the withholding
from any benefit payment which it is required to make, any federal, state or
local taxes required by law to be withheld with respect to a benefit payment and
such sum as the Company may reasonably estimate as necessary to cover any taxes
for which the Company may be liable and which may be assessed with regard to
such payment. Upon discharge or settlement of such tax liability, the Company
shall pay the balance of such sum, if any, to the Participant, or if the
Participant is then deceased, to the beneficiary of the Participant. Prior to
making any payment hereunder, the Company may require such documents from any
taxing authority, or may require such indemnities or surety bond, as the Company
shall reasonably deem necessary for its protection.
ARTICLE VII
Confidentiality and Restrictions on Competition
(a) Confidentiality. As a condition of receiving benefits under this Plan,
a Participant shall not, after the termination of his or her service as a member
of the Board of Directors, voluntarily appear against the Company or any
affiliate of the Company before any judicial or administrative tribunal or
legislative body, on any matter about which the Participant possesses any
expertise or special knowledge relative to the Company's or such affiliate's
business. Any breach of this condition will result in a complete forfeiture of
any further benefits under the Plan for both the Participant and any surviving
beneficiary of the Participant. The Company may require the Participant to
execute a separate confidentiality agreement prior to the Participant's receipt
of benefits, which agreement may provide for liquidated damages, in the event of
a breach by the Participant, in an amount equal to the benefits paid under this
Plan.
(b) Restrictions on Competition. As a condition of receiving benefits under
this Plan, a Participant shall not directly or indirectly engage in competition
with the <PAGE>
Company or any affiliate of the Company at any time prior to or during the one
year period following his or her initial entitlement to benefits payable under
this Plan. Any breach of this condition will result in a complete forfeiture of
any further benefits under the Plan for both the Participant and any surviving
beneficiary of the Participant. The Company may require the Participant to
execute a separate agreement establishing restrictions on competition prior to
the Participant's receipt of benefits, which agreement may provide for
liquidated damages, in the event of a breach by the Participant, in an amount
equal to the benefits paid under this Plan. For purposes of this paragraph (b),
a Participant shall be deemed to "engage in competition" with the Company (or an
affiliate of the Company) if he or she
(1) discloses proprietary information with respect to the Company (or
any affiliate of the Company) to any person, corporation, or other entity
for any purpose whatsoever;
(2) owns, manages, operates, controls, is employed by, acts as an
agent for, consults with, advises, participates in or is connected in any
manner with the ownership, management, operation or control of any business
(in any state of the United States in which the Company or any affiliate of
the Company is doing business) which is engaged in businesses that are or
may be competitive to the businesses of the Company or any affiliate of the
Company; or
(3) solicits any of the employees or agents of the Company (or any
affiliate of the Company) to terminate their employment or relationship
with the Company (or any affiliate of the Company).
(c) Essential Elements. The provisions of this Article VII are essential
elements of this Plan, and, but for the confidentiality requirements in
paragraph (a) and the restrictions on competition in paragraph (b) applicable to
the Participants, the Company would not agree to sponsor this Plan for the
benefit of the Participants.
ARTICLE VIII
Amendment and Termination
(a) Amendment and Termination. The Plan may be amended or terminated at any
time by the Board of Directors. Notice of any such amendment or termination
shall be given in writing to each Participant having an interest in the Plan.
(b) Effect of Amendment or Termination.
(1) No amendment or termination of the Plan shall adversely affect the
rights of any Participant with respect to any vested benefit credited to
the Account of the Participant prior to such amendment or termination.
<PAGE>
(2) Upon termination of the Plan, each Participant (or his or her
beneficiaries) shall be paid the balance of his or her Account in a lump
sum cash payment.
ARTICLE IX
Miscellaneous
(a) Payments to Minors and Incompetents. If the Plan Administrator receives
satisfactory evidence that a person who is entitled to receive any benefit under
the Plan, at the time such benefit becomes available, is a minor or is
physically unable or mentally incompetent to receive such benefit and to give a
valid release therefor, and that another person or an institution is then
maintaining or has custody of such person, and that no guardian or other
representative of the estate of such person shall have been duly appointed, the
Plan Administrator may authorize payment of such benefit otherwise payable to
such person to such other person or institution; and the release of such other
person or institution shall be a valid and complete discharge for the payment of
such benefit.
(b) No Interest in Assets. Nothing contained in the Plan shall be deemed to
give any Participant any equity or other interest in the assets, business or
affairs of the Company. No Participant in the Plan shall have a security
interest in assets of the Company used to pay benefits.
(c) Recordkeeping. Appropriate records shall be maintained for the purpose
of the Plan by the officers and employees of the Company at the Company's
expense and subject to the supervision and control of the Plan Administrator.
(d) Non-Alienation of Benefits. No benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any attempt to do so shall be void. No benefit under
the Plan shall in any manner be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person. If any person entitled to
benefits under the Plan shall become bankrupt or shall attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge any benefit under
the Plan, or if any attempt shall be made to subject any such benefit to the
debts, contracts, liabilities, engagements or torts of the person entitled to
any such benefit, except as specifically provided in the Plan, then such
benefits shall cease and terminate at the discretion of the Plan Administrator.
The Plan Administrator may then hold or apply the same or any part thereof to or
for the benefit of such person or any dependent or beneficiary of such person in
such manner and proportions as it shall deem proper.
(e) State Law. This Plan shall be construed in accordance with the laws of
Florida.
<PAGE>
(f) Number. Except when otherwise indicated by the context, the definition
of any term herein in the singular shall include the plural.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officers on this 18th day of February, 1999.
ATTEST: FLORIDA PROGRESS CORPORATION
(CORPORATE SEAL)
/s/ Kathleen M. Haley /s/ Richard Korpan
_____________________________ By: _________________________
Secretary
Its: President, Chief Executive Officer
95550
EXHIBIT 10.(b)
AGREEMENT
THIS AGREEMENT, dated as of January 30, 1998 (this
"Agreement"), is made by and between Florida Progress Corporation, having its
principal offices at One Progress Plaza, St. Petersburg, Florida 33701 (the
"Corporation"), and William G. Kelley, residing at 4515 Shark Drive, Bradenton,
Florida 34208 (the "Executive").
WHEREAS, the Corporation considers it essential to the best
interests of its shareholders to foster the continued employment of key
executive and management personnel; and
WHEREAS, the Board of Directors of the Corporation (the
"Board") recognizes that the possibility of a Change in Control (as defined in
Section 1.3 below) of the Corporation exists from time to time and that such
possibility, and the uncertainty, instability and questions that it may raise
for and among key executive and management personnel, may result in the
premature departure or significant distraction of such individuals to the
material detriment of the Corporation and its shareholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce, focus and encourage the continued attention and
dedication of key executive and management personnel of the Corporation and its
subsidiaries, such as the Executive, to their assigned duties without
distraction in the face of potentially disturbing or unsettling circumstances
arising from the possibility of a Change in Control of the Corporation;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Corporation and the Executive hereby agree as
follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the meanings set forth below:
1.1 "Annual Base Salary" shall mean the Executive's rate of
regular base annual compensation (prior to any reduction under (i) a salary
reduction agreement pursuant to section 401(k) or section 125 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code") or (ii) any plan
or arrangement deferring any base salary or bonus payments), and shall not
include (without limitation) allowances, fees, retainers, reimbursements,
bonuses, incentive awards, prizes or similar payments.
<PAGE>
1.2 "Cause" shall mean:
(i) the Executive engaging in fraud, misappropriation
or willful misconduct that is demonstrably and materially injurious to
the property or business of the Corporation and/or its subsidiaries,
monetarily or otherwise; or
(ii) the Executive's conviction of, or plea of no
contest to, a felony.
For purposes of clause (i) of this definition, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by the Executive in bad faith and without reasonable belief that the Executive's
act, or failure to act, was in the best interest of the Corporation or its
subsidiaries. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Board or upon the instructions of the Board (or
a committee thereof), the Corporation's chief executive officer or other duly
authorized senior officer of the Corporation (as appropriate) or based upon the
advice of counsel for the Corporation shall be conclusively presumed to be done,
or omitted to be done, by the Executive in good faith and in the best interests
of the Corporation or its subsidiaries. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall have
been delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice of any such meeting is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, (a) the Executive
has acted in a manner described in clause (i) above, and specifying the
particulars thereof in detail, or (b) one of the events set forth in (ii) has
occurred.
1.3 "Change in Control" shall mean and be deemed to have occurred if:
(i) any Person is or becomes, after the date of this
Agreement, the Beneficial Owner (as that term is defined in Rule 13d-3
under the Securities Exchange Act of 1934 (the "Exchange Act")),
directly or indirectly, of securities of the Corporation (not including
in the securities beneficially owned by such Person any securities
acquired directly from the Corporation) representing twenty-five
percent (25%) or more of the combined voting power of the Corporation's
then outstanding securities; or
(ii) during any period of twenty-four (24)
consecutive months (not including any period prior to January 1, 1998),
individuals who at the beginning of such period constitute the Board
and any new director (other than a director designated by a Person who
has entered into an agreement with the Corporation to effect a
transaction described in clause (i), (iii) or (iv) of this definition
or any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote
<PAGE>
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority of the Board; or
(iii) the shareholders of the Corporation approve a
reorganization, merger or consolidation, other than a reorganization,
merger or consolidation with respect to which all or substantially all
of the individuals and entities who were Beneficial Owners, immediately
prior to such reorganization, merger or consolidation, of the combined
voting power of the Corporation's then outstanding securities
beneficially own, directly or indirectly, immediately after such
reorganization, merger or consolidation, more than seventy-five percent
(75%) of the combined voting power of the securities of the corporation
resulting from such reorganization, merger or consolidation in
substantially the same proportions as their respective ownership,
immediately prior to such reorganization, merger or consolidation, of
the combined voting power of the Corporation's securities; or
(iv) the shareholders of the Corporation approve (a)
the sale or disposition by the Corporation (other than to a subsidiary
of the Corporation) of all or substantially all of the assets of the
Corporation (or any such sale or disposition is effected through
condemnation proceedings), or (b) a complete liquidation or dissolution
of the Corporation.
Notwithstanding the foregoing, a Change in Control shall not include any event,
circumstance or transaction which results from the action (excluding the
Executive's employment activities with the Corporation, Florida Power
Corporation or any of their respective subsidiaries) of any Person or group of
Persons which includes, is directly affiliated with or is wholly or partly
controlled by one or more executive officers of the Corporation or its
subsidiaries and in which the Executive actively participates.
1.4 "Corporation" shall include Florida Progress Corporation
and any successor to its business and/or assets which assumes (either expressly,
by operation of law or otherwise) and/or agrees to perform this Agreement by
operation of law or otherwise (except in determining, under Section 1.3 hereof,
whether or not any Change in Control of the Corporation has occurred in
connection with such succession).
1.5 "Disability" shall mean and be deemed the reason for the
termination by the Corporation of the Executive's employment, if, as a result of
the Executive's incapacity due to physical and/or mental illness, (i) the
Executive shall have been absent from the full-time performance of the
Executive's duties with the Corporation or any affiliate of the Corporation for
a period of six (6) consecutive months, (ii) the Corporation and/or such
affiliate gives the Executive a Notice of Termination for Disability, and (iii)
within thirty (30) days after such Notice of Termination is given, the Executive
does not return to the full-time performance of the Executive's duties.
<PAGE>
1.6 "Employment Period" shall mean the period commencing on
the date of any Change in Control until the earliest to occur of (i) the date
which is thirty-six (36) months from the date of any such Change in Control,
(ii) the date of termination by the Executive of the Executive's employment for
Good Reason, or (iii) the termination by the Corporation of the Executive's
employment for any reason.
1.7 "Good Reason" shall mean the occurrence (without the
Executive's express written consent) of any one of the following acts, or
failures to act, unless, in the case of any act or failure to act described in
clauses (i), (iv), (v) or (vi) below, such act or failure to act is corrected by
the Corporation prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof not later than six (6)
months after the occurrence of the event that serves as the basis for the Notice
of Termination:
(i) the assignment to the Executive of any duties or
responsibilities inconsistent with those described in Section 3.2 below
or with the Executive's position(s) or status (including, without
limitation, offices, titles, and reporting relationships) as an
executive officer of the Corporation and/or its primary subsidiaries or
a substantial adverse alteration in the nature of the Executive's
authorities, duties, responsibilities, position(s) or status from those
described in Section 3.2 below or otherwise;
(ii) a reduction in the Executive's Annual Base
Salary or annual bonus opportunity as in effect on the date of this
Agreement or as the same may be increased at any time thereafter and
from time to time;
(iii) the relocation of the Corporation's principal
executive offices to a location more than thirty (30) miles from its
location on the date of this Agreement (or, if different, more than
thirty (30) miles from where such offices are located immediately prior
to any Potential Change in Control) or the Corporation's requiring the
Executive to be based anywhere other than the Corporation's principal
Florida executive offices, except for required travel on the
Corporation's business to an extent substantially consistent with the
Executive's business travel obligations as of the date of this
Agreement;
(iv) the failure by the Corporation or a subsidiary
to continue in effect any pension benefit or deferred compensation plan
in which the Executive participates immediately prior to any Potential
Change in Control which is material to the Executive's total
compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan or arrangement) has been made with
respect to such plan, or the failure by the Corporation or a subsidiary
to continue the Executive's participation therein (or in such
substitute or alternative plan or arrangement) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Potential Change in
Control;
<PAGE>
(v) the failure by the Corporation or a subsidiary to
continue to provide the Executive with health and welfare benefits
substantially similar to those enjoyed by the Executive under any
retirement, life insurance, medical, health and accident, or disability
or similar plan of the Corporation or a subsidiary in which the
Executive was participating at the time of any Potential Change in
Control, the taking of any action by the Corporation or a subsidiary
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Potential Change in
Control, or the failure by the Corporation or a subsidiary to provide
the Executive with the greater number of paid vacation days to which
the Executive is entitled pursuant to the terms of the Executive's
employment agreement or in accordance with the Corporation's or a
subsidiary's normal vacation policy, in either case, as in effect at
the time of the Potential Change in Control;
(vi) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1;
(vii) the failure of the Corporation to obtain a
written agreement reasonably satisfactory to the Executive from any
successor to the Corporation (as described in Section 9.1) to perform
this Agreement; and/or
(viii) any termination of employment by the Executive
which occurs during the one-month period commencing on the first
anniversary of the consummation of the transaction that produced the
Change in Control.
1.8 "Person" shall have the meaning ascribed thereto in
Section 3(a)(9) of the Exchange Act, as modified, applied and used in Sections
13(d) and 14(d) thereof; provided, however, that a Person shall not include (i)
the Corporation or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Corporation or any of
its subsidiaries (in its capacity as such), (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same character and proportions as their
ownership of stock of the Corporation.
1.9 "Potential Change in Control" shall mean and be deemed to
have occurred if:
(i) the Corporation enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(ii) the Corporation or any Person publicly announces
an intention to take actions which, if consummated, would constitute a
Change in Control; and/or
<PAGE>
(iii) any Person becomes the Beneficial Owner,
directly or indirectly, of securities of the Corporation representing
fifteen (15) percent or more of the combined voting power of the
Corporation's then outstanding securities, or any Person increases such
Person's beneficial ownership of such securities by ten (10) percentage
points or more over the percentage so owned by such Person on December
31, 1997.
1.10 "Retirement" shall mean and be deemed the reason for the
termination by the Executive of the Executive's employment if such employment is
terminated upon or after normal retirement age pursuant to the pension plan of
the Corporation or any subsidiary of the Corporation in which the Executive
participates, not including any early retirement or so-called "window period"
retirements, generally applicable to its officers, as in effect immediately
prior to any Potential Change in Control.
2. Term of this Agreement. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 2001; provided,
however, that the term of this Agreement shall automatically be extended each
January 1 after the date hereof for an additional period of one (1) year unless,
not later than 6 months prior to such January 1, the Corporation gives written
notice to the Executive that it does not wish to continue such automatic
extension; and provided, further, however, that if a Change in Control shall
have occurred during the term of this Agreement, this Agreement shall continue
in effect for a period of not less than thirty-six (36) months beyond the month
in which such Change in Control occurred or, if later, eighteen (18) months
after the consummation within such thirty-six (36) month period of the
transaction that produced the Change in Control (the "Term"). Notwithstanding
the foregoing provisions of this Section 2, the Term shall terminate upon
attainment of normal retirement age as defined in the pension plan of the
Corporation.
3. Corporation's Covenants.
3.1 Severance Payments. In order to induce the Executive to
remain in the employ of the Corporation and/or one or more of its subsidiaries
and in consideration of the Executive's covenants set forth in Section 4 below,
the Corporation agrees, under the terms and conditions described herein and in
addition to the amounts payable to the Executive under Section 5 below, to pay
the Executive the "Severance Payments" described in Section 6.1 below and the
other payments and benefits described herein in the event the Executive's
employment is terminated during the Employment Period or under the other
circumstances set forth in Section 6.1 below.
3.2 Position and Duties. During the Employment Period, (i) the
Executive's position (including status, offices, titles and reporting
relationships), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the one hundred eighty (180) day
period immediately preceding any related Potential Change in Control, and (ii)
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding any
such Potential Change in Control, or any
office or location less than thirty (30) miles from such location.
3.3 Base Salary. During the Employment Period, the Executive
shall receive Annual Base Salary at least equal to twenty-six (26) times the
highest bi-weekly base salary paid or payable, including (without limitation)
any base salary which has been earned but deferred, to the Executive by the
Corporation and its affiliated companies in respect of the twelve (12) month
period immediately preceding the month in which any related Potential Change in
Control occurs. The Executive's Annual Base Salary shall be reviewed annually
for potential increase. In addition, Annual Base Salary shall not be reduced
after the occurrence of a Potential Change in Control. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Corporation.
3.4 Incentive Plans.
a. MICP. The Executive shall be awarded for each fiscal
year ending within the Employment Period an annual bonus (the "Annual Bonus") in
cash at least equal to the target annual incentive bonus of the Executive under
the Corporation's Management Incentive Compensation Plan (the "MICP"), or any
other annual incentive bonus plan maintained by the Corporation from time to
time for the fiscal year in which the Change in Control occurs. Each Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus in accordance
with rules established by the Corporation for that purpose.
b. LTIP. The Executive shall be awarded for each award
period that begins within the Employment Period a grant of performance shares at
least equal to the annual long-term incentive award received by the Executive
(not taking into account any pro-ration) under the Corporation's Long-Term
Incentive Plan or any other long-term incentive bonus plan maintained by the
Corporation from time to time (the "LTIP") for the fiscal year in which the
Change in Control occurs, and such shares shall be subject to performance goals
consistent with those established by the Corporation for the fiscal years prior
to the fiscal year in which the Change in Control occurs.
3.5 Savings and Retirement Plans. During the Employment
Period, the Executive (in addition to the Incentive Plans) shall be entitled to
participate in all other incentive, savings and retirement plans, practices,
policies and programs applicable generally to other peer executives of the
Corporation and its subsidiaries, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive opportunities, to
the extent, if any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Corporation and its
affiliated companies for the Executive under such plans, practices, policies and
programs as in effect at any time during the one hundred eighty (180) day period
immediately preceding any related Potential Change in Control or, if more
favorable to the Executive, those provided
<PAGE>
generally at any time thereafter to other peer executives of the
Corporation and its affiliated companies.
3.6 Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be entitled
to participate in and shall receive all benefits under all of the health and
welfare benefit plans, practices, policies and programs provided by the
Corporation and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent (and at
the same cost, excluding increases in the employee contribution amounts which
are consistent with and equivalent to the historical rates of increase imposed
by the Corporation in respect thereof) applicable generally to other peer
executives of the Corporation and its subsidiaries, but in no event shall such
plans, practices, policies and programs provide the Executive with benefits that
are less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the one hundred eighty (180) day period immediately preceding any related
Potential Change in Control or, if more favorable to the Executive, those
provided generally at any time thereafter to other peer executives of the
Corporation and its affiliated companies.
3.7 Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable business
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Corporation and its affiliated
companies in effect for the Executive at any time during the one hundred eighty
(180) day period immediately preceding any related Potential Change in Control
or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Corporation and its
affiliated companies.
3.8 Office Support; Perquisites. During the Employment Period,
the Executive shall be entitled to secretarial support and other facilities,
perquisites and programs to enable the Executive to be able to discharge the
Executive's responsibilities hereunder in accordance with the most favorable
plans, practices, programs and policies of the Corporation and its affiliated
companies in effect for the Executive at any time during the one hundred eighty
(180) day period immediately preceding any related Potential Change in Control
or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Corporation and its
affiliated companies.
3.9 Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Corporation and its affiliated
companies, or pursuant to the terms and provisions of any employment agreement,
as in effect for the Executive at any time during the one hundred eighty (180)
day period immediately preceding any related Potential Change in Control or, if
more favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Corporation and its affiliated
companies.
<PAGE>
4. The Executive's Covenants.
4.1 Employment. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Change in Control
during the Term the Executive will remain in the employ of the Corporation
during any related Employment Period.
4.2 Time and Attention. During the Employment Period, and
excluding any periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Corporation and to use
the Executive's reasonable best efforts to perform faithfully and efficiently
the responsibilities and duties assigned to the Executive hereunder. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (i) serve on corporate, civic or charitable boards or committees,
(ii) deliver lectures and fulfill speaking engagements and (iii) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Corporation and its subsidiaries in accordance with this Agreement. It is
expressly understood and agreed that to the extent that any such activities have
been conducted by the Executive prior to any Potential Change in Control, the
reinstatement or continued conduct of such activities (or the reinstatement or
conduct of activities similar in nature and scope thereto) subsequent to any
related Potential Change in Control shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Corporation and
its subsidiaries.
4.3. Non-interference; Confidential Information; Non-Competition
(a) No Interference. For so long as the Executive is employed
by the Corporation, and for a period of one (1) year after termination of the
Executive's employment for any reason after a Change in Control, the Executive
shall not, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization (other
than the Corporation or one of its affiliates), directly or indirectly,
intentionally solicit, endeavor to entice away from the Corporation (or any of
its affiliates), or otherwise interfere with the relationship of the Corporation
(or any of its affiliates) with, any person who is employed by or otherwise
engaged to perform services for the Corporation (or any of its affiliates)
including, but not limited to, any independent representatives or organizations,
or any person or entity that is a customer of the Corporation (or any of its
affiliates); provided, however, that if a customer of the Corporation (or any of
its affiliates) also engages in business in areas outside of Florida that are
not served by the business of the Corporation (and/or any of its affiliates)
with which the Executive is involved, the Board of Directors may determine, in
an appropriate situation, that the solicitation of such customer in such areas
does not violate the restrictions of this Section 4.3(a). The Executive
understands and agrees that the rights and obligations set forth in this Section
4.3(a) could extend beyond the Term.
(b) Confidential Information. The Executive covenants and
agrees with the Corporation that he will not at any time, during or after
employment with the Corporation, except in performance of the Executive's
obligations to the Corporation or with the prior express written consent of the
Board of Directors, directly or indirectly, intentionally or unintentionally,
disclose any Confidential Information that he may learn or has learned by reason
of his employment or association with the Corporation or any of its affiliates,
or any predecessors to its business, or use
<PAGE>
any such information for his own personal benefit or gain. The term
"Confidential Information" includes, without limitation, information not
previously disclosed to the public or to the trade by the Corporation's
management with respect to the products, facilities and methods, trade secrets
and other intellectual property, systems, procedures, manuals, confidential
reports, fee or rate information, customer lists, financial information
(including without limitation the revenues, costs or profits associated with any
of the Corporation's (or any of its affiliates') activities or products),
business plans, prospects, opportunities or other information of the Corporation
or any of its affiliates. Confidential Information shall not include information
which (i) is or becomes generally available to the public other than as a result
of disclosure by the Executive in violation of this Section 4.3(b) or (ii) the
Executive is required to disclose under any applicable laws, regulations or
directives of any government agency, tribunal or authority having jurisdiction
in the matter or under subpoena or other process of law. The Executive
understands and agrees that the rights and obligations set forth in this Section
4.3 (b) shall extend beyond the Term.
(c) Exclusive Property. The Executive confirms that all
Confidential Information is and shall remain the exclusive property of the
Corporation or any of its affiliates. All business records, papers and documents
kept or made by the Executive relating to the business of the Corporation (or
any of its affiliates) or any Confidential Information shall be and remain the
property of the Corporation and/or any such affiliates. Upon termination of
employment or upon the request of the Corporation at any time, the Executive
shall promptly deliver to the Corporation, and shall not without the prior
express written consent of the Corporation retain, any and all copies of (i) any
written materials not previously made available to the public, or (ii) records
and documents made by the Executive or coming into his possession concerning any
Confidential Information or the business or affairs of the Corporation or any
predecessors to its business, or any of its affiliates. The Executive
understands and agrees that the rights and obligations set forth in this Section
4.3(c) shall extend beyond the Term.
(d) Covenant Not to Compete. During the Employment Period and
for one (1) year after termination of the Executive's employment for any reason
after a Change in Control, the Executive shall not compete, directly or
indirectly, with the Corporation or its affiliates within fifty (50) miles of
any geographic area in which the Corporation or its affiliates has material
business interests with which the Executive is involved at the time of the
termination of the Executive's employment. If it is judicially determined that
this provision, or any portion thereof, is unenforceable under applicable law(s)
(statute, common law or otherwise), then it is hereby agreed by the Executive
and the Corporation that the unenforceable portion shall be redrafted to the
extent necessary to render it enforceable, while leaving the remaining portions
intact. By agreeing to this contractual modification prospectively at this time,
the parties intend to make this provision enforceable under the law(s) of all
applicable states so that the entire agreement not to compete and/or this
Agreement as prospectively modified shall remain in full force and effect and
shall not be rendered void or illegal. Such modifications shall not affect the
payments made to the Executive under this Agreement. The Executive acknowledges
that his skills are such that he can be gainfully employed in noncompetitive
employment and that the agreement not to compete will in no way prevent him from
earning a living. The Executive understands and agrees that the rights and
obligations set forth in this Section 4.3(d) shall extend beyond the Term.
<PAGE>
(e) Injunctive Relief. Without intending to limit the remedies
available to the Corporation, the Executive acknowledges that a breach of any of
the covenants contained in this Section 4.3 may result in material irreparable
injury to the Corporation or its affiliates for which there is no adequate
remedy at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of such a breach or threat thereof, the
Corporation shall be entitled to obtain a temporary restraining order and/or a
preliminary or permanent injunction restraining the Executive from engaging in
activities prohibited by this Section 4.3 or such other relief as may be
required to specifically enforce any of the covenants in this Section 4.3.
5. Compensation Other Than Severance Payments.
5.1 Disability. Following a Potential Change in Control and
during the Term, during any period that the Executive fails to perform the
Executive's full-time duties with the Corporation as a result of incapacity due
to physical or mental illness, the Executive's full salary shall be paid to the
Executive at a rate no less than the rate in effect at the commencement of any
such disability period, together with all compensation and benefits payable to
the Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Corporation or its subsidiaries during such
disability period, until the Executive's employment is terminated by the
Corporation for Disability.
5.2 Base Salary. If the Executive's employment shall be
terminated for any reason following a Potential Change in Control and during the
Term, the Executive's full salary shall be paid to the Executive through the
Date of Termination (as defined below in Section 7.2) at the rate in effect at
the time the Notice of Termination is given, together with all compensation and
benefits payable to or with respect to the Executive through the Date of
Termination under the terms of any compensation or benefit plan, program or
arrangement maintained by the Corporation or its subsidiaries during such
period.
5.3 Benefits. If the Executive's employment shall be
terminated for any reason following a Potential Change in Control and during the
Term, the Executive's normal post-termination compensation and benefits shall be
paid to the Executive as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in accordance
with, the retirement, health insurance, life insurance and other compensation
(including without limitation any bonus and/or incentive compensation) or
benefit plans, programs and arrangements maintained by the Corporation or its
subsidiaries or affiliates.
6. Severance Payments.
6.1 Severance. The Corporation shall pay the Executive the
payments and benefits described in Section 6.1(a), (b) and (c) (the "Severance
Payments") upon the termination of the Executive's employment following a Change
in Control and during the Term, in addition to the payments and benefits
described in Section 5 hereof, unless such termination is (i) by the Corporation
for Cause, (ii) by reason of Retirement, (iii) by the Executive without Good
Reason, (iv) due to death, or (v) due to Disability. In addition, the
Executive's employment shall be
<PAGE>
deemed to have been terminated following a Change in Control by the Corporation
without Cause or by the Executive with Good Reason (a) if the Executive
reasonably demonstrates that the Executive's employment was terminated prior to
a Change in Control without Cause (1) at the request of a Person who has entered
into an agreement with the Corporation the consummation of which will constitute
a Change in Control (or who has taken other steps reasonably calculated to
effect a Change in Control) or (2) otherwise in connection with, as a result of
or in anticipation of a Change in Control, or (b) if the Executive terminates
his employment for Good Reason prior to a Change in Control and the Executive
reasonably demonstrates that the circumstance(s) or event(s) which constitute
such Good Reason occurred (1) at the request of such Person or (2) otherwise in
connection with, as a result of or in anticipation of a Change in Control. The
Executive's right to terminate the Executive's employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder. In the event of Disability or death of the Executive after the
Date of Termination in respect of any termination without Cause or any
termination for Good Reason, payments and benefits shall be made to the
Executive, or the Executive's beneficiaries or legal representative, as the case
may be.
(a) Lump Sum Payment. A lump sum payment equal to two
and one-half (2.50) times the highest "total 12-month compensation" of
the Executive (whether or not deferred) for any 12-month period during
the five (5) completed calendar years prior to the Date of Termination,
where "total 12-month compensation" means the sum of the Executive's
Annual Base Salary during such 12-month period and the full amount of
the Executive's MICP award (target or actual, whichever is greater)
that was payable during such 12-month period (or annualized 12-month
period if the Executive has not completed 12 months of employment).
(b) Welfare Plan Continuation. For a thirty (30)
month period after the Date of Termination, or if sooner, until the
Executive reaches the age of sixty-five (65) years, the Corporation
shall provide the Executive (at no cost to the Executive) with life,
disability, accident and health insurance benefits substantially
similar to those that the Executive is receiving immediately prior to
any related Potential Change in Control or the receipt of the Notice of
Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control which reduction constitutes Good
Reason), whichever is greater; provided, however, that the final 18
months of the continued coverage period hereunder shall be deemed to
constitute the full amount of the Executive's entitlement to COBRA
benefits as a result of the Executive's termination of employment. Upon
the termination of the Executive's continued benefits provided under
the prior sentence, the Executive shall be eligible to continue such
benefits (at the Executive's cost) to the same extent that such
benefits are provided by the Corporation thereafter (the "Continued
Access Period") to comparable executives and, after the Executive
attains age 65, to retired executives. Benefits otherwise receivable by
the Executive pursuant to the first
<PAGE>
sentence of this Section 6.1(b) shall be reduced to the extent
comparable benefits are actually received by or made available to the
Executive without cost during such period following the Executive's
termination of employment (and any such benefits actually received by
the Executive shall be reported to the Corporation by the Executive).
Continued coverage during the Continued Access Period shall terminate
if comparable benefits are made available to the Executive under any
other policy or program (and the availability of any such benefits
shall be reported to the Corporation by the Executive).
(c) LTIP. Performance shares granted to the Executive
under the LTIP for performance cycles commencing after a Change in
Control has occurred and remaining uncompleted will be deemed earned as
of the Date of Termination to the extent of one hundred fifty percent
(150%) of target under each award agreement, and the value of each such
award will be paid out to the Executive in a lump-sum cash payment.
Performance shares granted to the Executive under the LTIP for
performance cycles which commenced after a Change in Control occurred
and were completed before the Date of Termination will be paid out to
the extent earned, and the value of such award will be paid out to the
Executive in a lump-sum cash payment.
(d) SERP; Other Deferred Compensation. The Executive
shall receive credit under the Corporation's Supplemental Executive
Retirement Plan ("SERP") for five (5) additional years of service and
shall immediately become 100% vested in the Executive's accrued benefit
and/or account balance to date under the SERP and any non-qualified
deferred compensation plan, and any amendment, modification or
termination of any such plan occurring during the Term of this
Agreement after any Change in Control shall not be effective against
the Executive to decrease or change any of the Executive's rights
thereunder.
(e) Relocation and Other Assistance. Should the
Executive be required to move his or her primary residence in order to
pursue other business opportunities within thirty (30) months of the
Date of Termination, the Company will reimburse the Executive for any
expenses (not in excess of $10,000) incurred in that relocation that
are not reimbursed by another employer, including, without limitation,
assistance in selling the Executive's home and all other assistance and
benefits that were customarily provided by the Corporation to
transferred executives prior to the Change in Control. In addition, if
the Executive retains legal counsel with respect to the taxation of
payments to be made to the Executive under this Agreement, the
Corporation shall reimburse the Executive for such reasonable legal
fees and disbursements (but not in excess of $15,000).
6.2 Special Reimbursement. (a) Notwithstanding any other
provisions of this Agreement, in the event that any payment or benefit received
or to be received by the Executive in connection with a Change in Control or the
termination of the Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Corporation or
any of its subsidiaries, any Person whose actions result in a Change in Control
or any Person affiliated with the Corporation or such Person) (all such payments
and benefits, including the Severance Payments, being hereinafter called "Total
<PAGE>
Payments") would subject the Executive to the excise tax imposed under Section
4999 of the Code or any successor section thereto (the "Excise Tax"), the
Corporation shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction of
any Excise Tax on the Total Payments and any federal, state and local income tax
and Excise Tax upon the payment provided for by this Section 6.2(a), shall be
equal to the Total Payments.
(b) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise
Tax, (i) the Total Payments shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless in the opinion of tax counsel selected by the
Corporation's general counsel and reasonably acceptable to the Executive such
Total Payments (in whole or in part) do not constitute parachute payments,
including by reason of Section 280G(b)(4)(A) of the Code, or such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered, within the meaning of section 280G(b)(4)(B) of the
Code, in excess of the Base Amount allocable to such reasonable compensation, or
are otherwise not subject to the Excise Tax, and (ii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Corporation's independent auditors in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and applicable state and local income
taxes at the highest marginal rate of taxation, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(c) In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the
time of termination of the Executive's employment, the Executive shall repay to
the Corporation, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to such
reduction plus interest on the amount of such repayment at the rate provided in
section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the time of the
termination of the Executive's employment (including by reason of any payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Corporation shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Corporation shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of any such subsequent
liability for Excise Tax with respect to the Total Payments.
6.3 Date of Payment. The payments provided for in Section 6.2
hereof shall be made not later than the fifteenth (15th) day following the Date
of Termination; provided, however, that if the amounts of such payments cannot
be finally determined on or before such day, the Corporation shall pay to the
Executive on such day an estimate, as determined in good faith by the
Corporation, of the minimum amount of such payments to which the Executive is
<PAGE>
likely to be entitled to and shall pay the remainder of such payments (together
with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon
as the amount thereof can be determined but in no event later than the sixtieth
(60th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Corporation to the Executive, payable
on the tenth (10th) business day after demand by the Corporation (together with
interest at the rate provided in section 7872(f)(2)(A) of the Code). At the time
that payments are made under this Section 6.3, the Corporation shall provide the
Executive with a detailed written statement setting forth the manner in which
such payments were calculated and the basis for such calculations including,
without limitation, any opinions or other advice the Corporation has received
from outside counsel, auditors or consultants (and any such opinions or advice
which are in writing shall be attached to the statement).
6.4 Legal Costs. The Corporation shall reimburse the Executive
for reasonable legal fees and expenses incurred in good faith by the Executive
as a result of any dispute with any party (including, but not limited to, the
Corporation or any subsidiary of the Corporation) regarding the payment or
receipt of any benefit provided for in this Agreement (including, but not
limited, all such fees and expenses incurred in disputing any termination or in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code) plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
section 7872(f)(2)(A) of the Code. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied by such evidence of fees and expenses incurred as the Corporation
reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and
during the Term, any purported termination of the Executive's employment (other
than by reason of death) shall be communicated by written Notice of Termination
from one party hereto to the other party hereto in accordance with Section 10
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (which meeting may be a regular meeting of the Board where
prior notice of consideration of such termination is given to members of the
Board) finding that, in the good faith opinion of the Board, (i) the Executive
engaged in conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail, or (ii) one of the
events set forth in clause (ii) of such definition has occurred. For purposes of
this Agreement, any purported termination not effected in accordance with this
Section 7.1 shall not be considered effective.
<PAGE>
7.2 Date of Termination. "Date of Termination", with respect
to any purported termination of the Executive's employment after a Potential
Change in Control and during the Term, shall mean (i) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
full-time performance of the Executive's duties during such thirty (30) day
period), and (ii) if the Executive's employment is terminated for any other
reason, the date specified in the Notice of Termination (which, in the case of a
termination by the Corporation, shall not be less than thirty (30) days (except
in the case of a termination for Cause) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days, respectively, after the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally resolved either by mutual written agreement of the
parties or by a final judgement, order, or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall not be extended by a
notice of dispute if the basis for such notice, as determined in good faith by
the party receiving such notice is not given in good faith or the party giving
such notice does not pursue the resolution of such dispute with reasonable
diligence. Subject to the rights granted by Section 4.3, any controversy or
claim arising out of, or relating to, any provision of this Agreement shall be
settled by binding arbitration in accordance with the laws of The State of
Florida by three arbitrators, one of whom shall be appointed by the Corporation,
one by the Executive, and the third by the first two arbitrators. If the first
two arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association.
Such arbitration shall be conducted in Florida in accordance with the rules of
the American Arbitration Association, except with respect to the selection of
arbitrators which shall be as provided in this Section. Judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control and during the Term, and such termination
is disputed in accordance with Section 7.3 above (and pursuant thereto the Date
of Termination is extended), the Corporation shall continue to pay the Executive
the full Annual Base Salary in effect at the time of any related Potential
Change in Control or when the notice giving rise to the dispute was given
(whichever is greater). Amounts paid under this Section 7.4 are in addition to
all other amounts due under this Agreement (other than those due under Section
5.2 hereof) and shall not be offset against or reduce any other amounts due
under this Agreement or any other plan, agreement or arrangement.
8. No Mitigation. The Corporation agrees that, if the Executive's
employment is terminated during the Term, the Executive is not required to seek
other employment or to attempt in any way to reduce any amounts payable to the
Executive by the Corporation pursuant to
Section 6 or Section 7.4. Further, the amount of any payment or benefit provided
for in Section 6 (other than pursuant to Section 6.1.(b)) or Section 7.4
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, or offset against
any amount claimed to be owed by the Executive to the Corporation or any of its
subsidiaries, or otherwise.
9. Successors; Binding Agreement.
9.1 Successors. In addition to any obligations imposed by law
upon any successor to the Corporation, the Corporation will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. Failure of the Corporation to obtain
such assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation from the Corporation in the same amount and on the same terms as
the Executive would be entitled to hereunder if the Executive were to terminate
employment with the Corporation for Good Reason after a Change in Control,
except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination.
9.2 Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the beneficiary (or
beneficiaries) designated by the Executive from time to time in accordance with
the procedures for notice set out in Section 10; provided, however, that if
there shall be no effective designation of beneficiary by the Executive, such
amounts shall be paid to the executors, personal representatives or
administrators of the Executive's estate.
10. Notices; Other Communications. For the purpose of this Agreement,
notices and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or mailed by
United States certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Corporation: Florida Progress Corporation
P.O. Box 33042
St. Petersburg, Florida 33733
<PAGE>
With a copy to: Mr. William G. Kelley
Vice President, Human Resources
Florida Progress Corporation
3201 34th Street South
St. Petersburg, Florida 33711
To the Executive: Mr. William G. Kelley
4515 Shark Drive
Bradenton, Florida 34208
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Florida without regard to the principles of conflict
of laws thereof. All references to sections of the Exchange Act or the Code (or
the rules and/or regulations under either) shall be deemed also to refer to and
include any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the
Executive has agreed. The rights and obligations of the Corporation and the
Executive under this Agreement shall survive the expiration of the Term and the
Employment Period.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, all of which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. No Limitation. Nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Corporation or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any other contract or
agreement with the Corporation or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement with
the Corporation or any of its affiliated companies at or subsequent to the Date
of Termination shall be payable in accordance with such plan, policy, practice
or program or contract or agreement as in effect from time to time except as
explicitly modified by this Agreement.
<PAGE>
15. Other Agreements. This Agreement contains the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior agreements understandings, discussions, negotiations and undertakings,
whether written or oral, between the parties with respect thereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
FLORIDA PROGRESS CORPORATION
/s/ Richard Korpan
By:_____________________________________
RICHARD KORPAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ William G. Kelley
-----------------------------------------
Executive
Exhibit 12
FLORIDA POWER CORPORATION
Statement of Computation of Ratios
(Dollars In Millions)
Ratio of Earnings to Fixed Charges:
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net Income $250.1 $135.9 $238.4 $227.0 $200.8
Add:
Operating Income Taxes 140.3 69.9 135.8 129.5 114.7
Other Income Taxes .7 -- (.1) (.1) (.8)
------- ------- ------- ------- -------
Income Before Taxes 391.1 205.8 374.1 356.6 314.7
Total Interest Charges 136.5 117.3 98.4 104.5 108.4
------- ------- ------- ------- -------
Total Earnings (A) $527.6 $323.1 $472.5 $461.1 $423.1
------- ------- ------- ------- -------
Fixed Charges (B) $136.5 $117.3 $98.4 $104.5 $108.4
------- ------- ------- ------- -------
Ratio of Earnings to
Fixed Charges (A/B) 3.87 2.75 4.80 4.41 3.90
======= ======= ======= ======= =======
EXHIBIT 21
Subsidiaries of Florida Progress Corporation
December 31, 1998
Name of Subsidiary * State of Incorporation
---------------------- ------------------------
Utility segment:
Florida Power Corporation Florida
Diversified segment:
Progress Capital Holdings, Inc. Florida
Electric Fuels Corporation Florida
MEMCO Barge Line, Inc. Delaware
Progress Rail Services Corporation Alabama
Progress Telecommunications Corporation Florida
----------
* Each subsidiary does business under its own name.
Exhibit 23.(a)
The Shareholders
Florida Progress Corporation:
We consent to incorporation by reference in the registration statements No.
33-51573 on Form S-3, No. 33-47623 on Form S-8, No. 2-93111 on Form S-3, No.
333-19037 on Form S-8, 333-66161 on Form S-8, and No. 333-07853 on Form S-3 of
Florida Progress Corporation of our report dated January 25, 1999, relating to
the consolidated balance sheets of Florida Progress Corporation and subsidiaries
as of December 31, 1998 and 1997, and the related consolidated statements of
income, cash flows and common equity and comprehensive income for each of the
years in the three-year period ended December 31, 1998, and all related
schedules, which report appears in the December 31, 1998 annual report on Form
10-K of Florida Progress Corporation.
/s/KPMG LLP
- --------------------------------
KPMG LLP
St. Petersburg, Florida
March 19, 1999
Exhibit 23.(b)
The Shareholders
Florida Power Corporation:
We consent to incorporation by reference in the registration statements No.
33-62210 on Form S-3, No. 33-55273 on Form S-3, and No. 333-29897 on Form S-3 of
Florida Power Corporation of our report dated January 25, 1999, relating to the
balance sheets of Florida Power Corporation as of December 31, 1998 and 1997,
and the related statements of income, cash flows and common equity and
comprehensive income for each of the years in the three-year period ended
December 31, 1998, and all related schedules which report appears in the
December 31, 1998 annual report on Form 10-K of Florida Power Corporation.
/s/KPMG LLP
- ------------------------------
KPMG LLP
St. Petersburg, Florida
March 19, 1999
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