SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[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
Commission file number 0-1055
FLORIDA PUBLIC UTILITIES COMPANY
(Exact name of registrant as specified in its charter)
Florida 59-0539080
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 South Dixie Highway, West Palm Beach, FL 33401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 832-2461
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $1.50 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K(Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment of this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price on March 10, 1999, was
$45,281,508.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. At March 10, 1999, there were
3,006,341 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement for Annual Meeting of Stockholders, April 20, 1999. (Part III)
PART I
Item 1. Business
General
The Company was incorporated on April 29, 1925 under the 1925 Florida
Corporation Law and is continuing its corporate existence pursuant to such
law and its Certificate of Reincorporation, as amended. The Company is
regulated by the Florida Public Service Commission (except for propane gas
service)and provides natural and propane gas service, electric service and
water service to consumers in Florida. The Company is comprised of the
following four divisions and number of customers as of December 31, 1998:
(1) West Palm Beach, located in southeast Florida, serves natural gas to
28,275 customers and propane gas to 5,428 customers; (2) Mid-Florida,
consisting of the Sanford and DeLand districts, serves 8,814 natural gas
customers and 3,401 propane customers; (3) Marianna, located in the Florida
panhandle, provides electricity to 11,745 customers; and (4) Fernandina Beach,
located in extreme northeast Florida, serves 12,503 electric customers and
6,361 water customers. The economies of West Palm Beach, Sanford, and DeLand
rely somewhat on the migration of seasonal residents and tourists during the
winter season. Agriculture and citrus processing, together with light
industry, provide year-round stability. Marianna's economy is predominantly
agricultural including peanuts, soy beans, corn, pork and beef. The area has
many small industries. Fernandina's economy is centered around two large
paper mills; ITT Rayonier, Inc. and Container Corporation of America. The
beach area, Amelia Island, is noted for its fine beaches and resort
amenities.
The population by counties, as estimated by the University of Florida's
Bureau of Economic and Business Research, in which the service areas are
located, as of April 1, 1998, is as follows:
West Palm Beach (Palm Beach County) 1,021,000
Sanford (Seminole County) 345,000
DeLand (Volusia County) 420,000
Marianna (Jackson, Calhoun & Liberty Counties) 71,000
Fernandina Beach (Nassau County) 55,000
In Fernandina Beach, two large paper mills accounted for 15.9% of total 1998
electric division operating revenues and 8.4% of the Company's total
operating revenues. However, such mills accounted for 5.6% of total 1998
electric division operating margin and 2.0% of the Company's total operating
margin.
Sources of Gas and Electricity
Natural Gas
The Company receives its total supply of natural gas at eleven city gate
stations connected to Florida Gas Transmission Company's (FGT) pipeline
system. In 1998, the Company constructed its eleventh gate station, DeLand
South, to meet the increasing requirements of our DeLand distribution
territory. The DeLand South gate station also provides an alternate gas
supply in the event the other DeLand gate station malfunctions. The Company
now has adequate redundancy of gate stations in each distribution system to
assure continuous service to our customers.
FGT is the sole natural gas pipeline serving peninsular Florida and is under
the jurisdiction of the Federal Energy Regulatory Commission (FERC). The
Company utilizes FGT solely as a transporter of natural gas. All gas
supplies for the Company's traditional sales markets are independently
procured by the Company from gas marketers and producers. The Company's
transportation customers are responsible for obtaining their own gas supplies
and arranging for pipeline transportation.
During 1998, the Company has been actively involved in the settlement of
FGT's rate proceeding, FERC Docket No. RP96-366. This proceeding was
expected and was based on FGT's Phase III construction settlement filing.
FGT's Phase III construction increased the pipelines deliverable within
Florida by over 50%. The settlement set rates retroactive to March 1, 1998,
which, over the next three years and continuing until FGT's next rate
proceeding, will result in lower payments of reservation charges to FGT.
Reservation rates will be as much as 5.6% lower than March 1997 levels.
During 1998, reservation charges accounted for approximately one-third of the
Company's $16.4 million gas cost.
The Company is in full compliance with the Gas Industry Standards Board's
(GISB) standards. The GISB was formed to develop a uniform nationwide
network of natural gas producers, marketers, gathering systems, pipelines,
distribution companies and customers. The standards put all participants on
the same time schedules for procurement, capacity transactions, invoicing,
etc. It caused the network to be fully available twenty-four hours per day,
365 days per year. FGT implemented the GISB standards for their customers,
including the Company, on April 1, 1997. The additional GISB tasks had a
minimum incremental cost to the Company and our customers.
Over the last seven years, the Company has gained considerable experience
contracting directly with marketers and producers for gas supplies while
separately contracting for transportation services from FGT. This experience
appropriately postures the Company to be very effective in operating within
an unbundled industry environment. The Company lowered its fuel cost
substantially by directly purchasing gas supplies from sources other than
FGT. All fuel cost savings are passed along to our traditional customers.
Additionally, the Company has actively reduced the demand charges it pays for
the pipeline capacity by "subletting" unused capacity to other shippers on
FGT's system.
The Company continues to be active in Off-System Sales since receiving
approval of the appropriate tariff from the Florida Public Service Commission
(FPSC). Off-System Sales allows the Company to broaden its market to include
any customer within the state of Florida who currently uses natural gas.
Since inception, Off-Systems Sales have been transacted between the Company
and national marketers, electric generators, other gas distributors and
agricultural firms. The tariff requires the sharing of any profits between
the Company and its customers. Florida Public Utilities Company continues to
explore all potential opportunities to keep its total cost of gas as low as
possible.
The Company is expanding the installation of its Systems Control and Data
Acquisitions system (SCADA) terminals to new interruptible sales and
transportation customers' sites. This system effectively allows the Company
to closely monitor the usage of such customers to maximize sales and avoid
high pipeline penalties. New technologies and new generations of equipment
are evaluated for their potential to reduce the cost of operating our SCADA
system.
Electricity
The Company purchases most of its electrical power supply requirements at
wholesale rates from two nearby generating utilities. Less than 1% of the
Company's power supply is purchased on an "as available" basis from a self-
generating paper mill.
Deregulation of the wholesale power market has enabled the Company to
negotiate long term power supply agreements which reduced our cost of
purchased power. Cost savings from these lower power supply costs are passed
on to our customers. The Company's residential and commercial electric rates
are lower than most of Florida's other electric utilities.
During 1996, the Company executed a power supply agreement with Gulf Power
Company to supply electric power for the Marianna Division. It is an eleven-
year agreement which became effective January 1, 1997.
The Jacksonville Electric Authority executed a new power supply agreement
with the Company which commenced on January 1, 1996. The contract has a
seven-year primary term and provides for substantial cost reductions.
The following table sets forth the revenues, operating profit and identi-
fiable assets of each of the Company's business segments. (See "Segment
Information" in the Notes to Consolidated Financial Statements.)
1998 1997 1996
(in thousands)
Revenues
Natural gas $29,734 $33,475 $31,854
Electric 40,254 38,683 40,701
Water 2,161 1,911 1,854
Propane gas 4,043 4,065 4,401
Operating profit
Natural gas 3,444 3,288 3,250
Electric 3,213 3,065 3,141
Water 599 468 495
Propane gas 207 (17) 138
Identifiable assets
Natural gas 36,870 35,227 33,977
Electric 34,605 34,021 33,038
Water 5,941 5,270 4,584
Propane gas 5,134 5,877 6,100
Regulation
The Florida Public Service Commission, pursuant to State Statutes, has
authority encompassing natural gas, electric and water rates, conditions of
service, the issuance of securities and certain other matters affecting the
operations of the Company.
Franchises
The Company holds franchises in each of the incorporated municipalities where
natural gas, electric and water operations take place. These franchises
generally have terms from 15 to 30 years and terminate at various dates.
Employees
On December 31, 1998 the Company had 296 employees, of whom approximately 87
were covered under union contracts with two labor unions, the International
Brotherhood of Electrical Workers and the International Chemical Workers
Union. The Company does not engage in research activities.
Competition
Generally, in municipalities and other areas where the Company provides
natural gas, electric and water services, no other utility directly renders
such service.
Item 2. Properties
The Company's properties consist primarily of distribution systems and
related facilities. At December 31, 1998 the Company owned 22 miles of
electric transmission lines and 1,021 miles of electric distribution lines.
The gas properties distribute gas through 1,144 miles of gas main. The water
property consists of deep wells, pumping equipment, water treatment
facilities and a distribution system. The propane gas systems operated by
the Company's subsidiary have bulk storage facilities and tank installations
on the customers' premises.
Certain properties of the Company and the shares of Flo-Gas Corporation, a
wholly-owned subsidiary, are subject to a lien collateralizing the funded
indebtedness of the Company under its Mortgage Indenture.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common shares are traded on the American Stock Exchange under
the symbol FPU.
1998 1997
Low High Low High
STOCK PRICES
Quarter ended
March 31 $11.56 - $13.63 $ 9.82 - $10.50
June 30 12.81 - 16.38 9.94 - 10.63
September 30 14.25 - 16.50 10.25 - 10.85
December 31 13.13 - 17.50 11.25 - 12.32
DIVIDENDS PAID
January 1 $.15 $.15
April 1 .15 .15
July 1 .16 .15
October 1 .16 .15
All per share data have been restated for the two-for-one common stock
split in 1998.
At March 10, 1999, there were 956 holders of record of the Registrant's
Common Stock.
See "Capitalization, Dividend Restriction" in the Notes to Consolidated
Financial Statements for information concerning restriction on the
payment of cash dividends.
Item 6. Selected Financial Data (in thousands, except per share data)
Years Ended December 31,
1998 1997 1996 1995 1994
Revenues $76,192 $78,134 $78,810 $72,027 $64,755
Operating margin 28,491 26,679 26,937 25,514 23,293
Net income 3,068 3,191(1) 2,751 2,438 1,717
Earnings per common share 1.02 1.07(1) .93 .83 .59
Dividends per common share .62 .60 .60 .58 .58
Total assets 92,406 89,050 88,169 85,240 82,281
Utility plant - net 75,227 72,724 69,876 66,278 63,713
Current debt 8,200 7,600 7,900 5,600 4,673
Long-term debt 23,500 23,500 23,500 23,500 23,500
Common shareholders' equity 27,622 26,189 24,511 23,302 22,334
(1) 1997 includes a gain after income taxes from the sale of non-utility
real property of $522,000, $0.18 per share.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Overview. The Company is organized into three regulated business segments,
natural gas, electric and water and one non-regulated business segment,
propane gas. The gas and electric segments aggregate approximately 93% of
total operating margin.
Contributing to variations in operating margins are the effects of seasonal
weather conditions, the timing of rate increases and the migration of winter
residents and tourists to Florida during the winter season.
From the Florida Public Service Commission's (FPSC) perspective, the Company
operates four distinct "entities", i.e., Marianna electric, Fernandina Beach
electric, Fernandina Beach water and natural gas, consisting of Palm Beach
County, Sanford and DeLand. The Company last received rate increases as
follows: natural gas operations, May 1995; Marianna electric division,
February 1994; and Fernandina Beach electric division, February 1989. The
Company receives an increase each year for its water operation through a
price index mechanism provided by the FPSC. The Company anticipates filing
for a rate increase in its Fernandina Beach Water Division during the summer
of 1999. See "Rate Matters" in the Notes to Consolidated Financial
Statements (Notes).
Summary of Operating Margins
(in thousands)
1998 1997 1996
Natural and Propane Gas
Operating margin $16,481 $15,642 $15,958
Less propane gas 2,602 2,300 2,573
Remainder $13,879 $13,342 $13,385
Electric Operating Margin $ 9,946 $ 9,214 $ 9,210
Operating Margin. Operating margin, defined as gross operating revenues less
cost of fuel and taxes based on revenues which are passed-through to
customers, provides a more meaningful basis for evaluating utility
operations. Fuel costs and taxes passed-through to customers have no effect
on results of operations and fluctuations in such costs distort the
relationship of gross operating revenues and operating margin (net revenues
retained by the company for operating purposes).
Natural and Propane Gas Service. Total natural and propane gas service
operating margin increased $839,000 or 5.4% in 1998 as compared with 1997.
Excluding propane gas operating margin from total gas operating margin,
remaining operating margin increased $537,000, or 4.0%. The increase in
natural gas operating margin was due principally to a 2.6% increase in
average customers as compared with 1997. Propane gas operating margin
increased $302,000 or about 13% versus 1997. Propane gas had a 4.4% decrease
in average customers for 1998, most of whom were converted to natural gas.
The net increase in propane operating margin is due primarily to the propane
rate increase that became effective in April 1998.
Total natural and propane gas service operating margin decreased $316,000 or
about 2% in 1997 as compared with 1996. Excluding propane gas operating
margin from total gas operating margin, remaining operating margin decreased
$43,000 in 1997 as compared with 1996. Propane gas operating margin
decreased $273,000, or about 11%. Two factors resulted in a net decrease in
natural gas operating margin. First, there was an approximate 42% decrease
in heating degree days in 1997 which was significantly mitigated by a 2%
increase in customers, some of which were propane gas customers who converted
to natural gas. The decrease in propane gas operating margin is due
principally to the decrease in heating degree days and the conversion of
customers to natural gas.
In 1998, operating expenses, excluding cost of fuel and taxes passed-through
to customers, increased $458,000. Operating expenses have increased in all
classifications of expense due to inflationary pressures, with depreciation,
maintenance, increased payroll and related costs and expenses and a decrease
in the credit amortization of net periodic pension cost accounting for most
of the increase.
In 1997, operating expenses, excluding cost of fuel and taxes passed-through
to customers, decreased $199,000. The net decrease is attributable to
decreases in two classifications of expense. Administrative and general
expenses decreased as the credit amortization of the net periodic pension
cost increased by $90,000 in 1997 versus 1996 and casualty and workers'
compensation insurance costs decreased by $146,000 as compared with 1996.
Also, maintenance expenses decreased by $104,000, due principally to a
reduction in maintenance personnel in 1997. Other classifications of
operating expenses increased $192,000 or 1.2% due primarily to inflationary
pressures.
Electric Service. Total electric service operating margin increased $732,000
or 8% versus 1997. There was a 6% increase in average consumption per
customer due primarily to warmer weather in 1998 as compared with 1997, and
an increase in customers of almost 2%. Resulting from such increase in
consumption and customers was an increase of more than 6% in average
operating margin per customer, excluding industrial customers.
Total electric service operating margin remained virtually unchanged in 1997
as compared with 1996. The effect on consumption of the warmer weather early
in 1997 more than offset customer growth of 2.4%.
In 1998, operating expenses, excluding cost of fuel and taxes passed-through
to customers, increased 9.5%. Operating expenses have increased in all
classifications of expense due to inflationary pressures with larger than
normal increases in administrative and general expenses, maintenance and
taxes other than income taxes. These increases were caused by a decrease in
the credit amortization of the net periodic pension cost, additional tree
trimming and facilities maintenance and an increase in ad valorem taxes in
the Fernandina Beach Division, excluding cost of fuel and taxes passed-
through to customers, accounting for most of the increase.
In 1997, total operating expenses, excluding cost of fuel and taxes passed-
through to customers, increased $80,000. The net increase is due primarily
to two factors. The credit amortization of the net periodic pension cost
increased in 1997 versus 1996 by $33,000 and casualty and workers'
compensation insurance costs decreased by $89,000 as compared with 1996. All
other classifications of operating expenses increased $237,000.
Approximately 60% of such increases occurred in the Fernandina Beach
division. Other than inflationary pressures, tree trimming expenses
accounted for most of the increase.
Interest Charges. Interest charges consist of interest on bonds, short-term
borrowings and customer deposits. The primary factor causing interest
amounts to fluctuate are changes in amounts borrowed under the line of credit
and related interest rate changes. See "Notes Payable" and "Capitalization"
in the Notes for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows. Net cash provided by operating activities increased $1,431,000
when compared with 1997. Accounts payable and accrued expenses is the most
significant change in operating assets and liabilities, increasing $1,988,000
from 1997. Accounts payable and accrued expenses at December 31, 1998 were
at traditional levels, the apparent increase results from a decrease of
$4,435,000 from December, 1996 to December, 1997. That decrease was due
principally to significantly higher gas and electric fuel costs in 1996
versus 1995, such costs leveled off in 1997.
Cash used in investing activities usually fluctuates within a narrow range as
construction expenditures, excluding unusual items, have averaged about $6.8
million over the last five years. Included in construction expenditures in
1998 are more than $500,000 towards modernizing our water plant in Fernandina
Beach. Included in 1997 expenditures was approximately $500,000 for cost of
removal of facilities and included in construction expenditures in 1996 was
$1,343,000 relating to the general office addition and an additional $189,000
was incurred in 1997. Included in 1997 are proceeds of $886,000 from the sale
of non-utility real property.
Cash used by financing activities fluctuated principally because of changes
in short-term borrowings.
The Company has a $15,000,000 line of credit with its primary bank of which
$8,200,000 is outstanding at December 31, 1998. The line provides for
interest at LIBOR plus 50 basis points and expires in 2000. The Company is
approved by the FPSC to borrow up to $15,000,000 on a line of credit basis,
$14,000,000 of which is available for general corporate purposes with the
remaining $1,000,000 reserved as a contingency for major storm repairs in the
Marianna electric division.
The Company usually has no material commitments for construction expend-
itures. Capital expenditures for 1999 have been budgeted for $7,984,000;
however, while the actual amount expended for construction is influenced by
many factors, the Company anticipates that expenditures for 1999 will not be
significantly different from amounts historically incurred. For additional
information see "Notes Payable" and "Capitalization" in the Notes.
The Company anticipates that its future construction expenditures and
commitments are likely to require additional debt and/or equity financing.
Issuance of Additional Bonds. The Company's 1942 Indenture of Mortgage and
Deed of Trust, which is a mortgage on all real and personal property, permits
the issuance of additional bonds based upon a calculation of unencumbered net
real and personal property. At December 31, 1998, such calculation would
permit the issuance of approximately $39,000,000 of additional bonds.
OTHER
The Year 2000 Project. The Company has evaluated and identified its state of
readiness regarding all known Year 2000 issues and their effect on the
Company's information systems. The Company is utilizing both internal and
external resources to evaluate and remediate required modifications. The
Company's software profile consists of approximately one-half purchased
software systems and one-half internally developed systems. The purchased
software consists of various financial applications and the meter reading
system. The Company plans to complete the Year 2000 project, including
testing of all systems by June 1999. Such plans are based on management's
best estimates and the ability to locate and correct all relevant computer
codes on a timely basis. However, there is no guarantee that everything will
proceed as planned and actual results could differ from these plans.
The Company is utilizing its in-house programming staff to modify internally
developed systems in preparation for the Year 2000. The modification costs,
consisting of salary and related costs, are not significant and are being
expensed as incurred. The purchased financial software systems were Year
2000 compliant when they were placed in service several years ago and do not
require any modifications. The Company's meter reading system will be
replaced with a Year 2000 compliant system in the first quarter of 1999 at an
estimated expenditure of $80,000.
The Company is communicating with its significant suppliers to determine
their Year 2000 status and is attempting to identify areas of concern.
However, there can be no guarantee that the systems of other companies will
be converted timely, or that a failure to convert by a supplier would not
have a material adverse effect on the Company.
The Company presently believes that with modifications to existing internal
software systems and conversion to a new meter reading software, any Year
2000 issues will be neutralized with no significant adverse effect on
customers or disruption to business operations. If such modifications are
not completed, the Year 2000 issue could have a material adverse effect on
the Company. The Company is currently in the process of adopting a contingency
plan to address possible risks to its systems.
Forward Looking Information. This report contains forward looking informa-
tion that is intended to qualify for the safe harbor provided by the Private
Securities Litigation Reform Act of 1995. Although the Company believes that
its expectations are based on reasonable assumptions, actual results could
differ materially from those currently anticipated. Factors that could cause
actual results to differ from those anticipated include, but are not limited
to, uncertainties relative to the impact of Year 2000, the effects of
regulatory actions, competition, future economic conditions and weather.
Environmental Matters. The Company has several contamination sites in
various stages of assessment investigation, see "Contingencies" in the Notes.
The Company believes that all future contamination assessment and remedial
costs, legal fees and other related costs will not be in excess of the rate
relief granted the Company and insurance settlement proceeds received.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The long-term debt due in 2018 can be retired beginning in 2013 with a
premium that is not interest rate sensitive that decreases until maturity
and the long-term debt due in 2022 cannot be retired early. Investments held
in escrow for environmental costs are invested in fixed income debt
securities at an average yield of 6.3% whose carrying amounts approximate
fair value. The investments mature from 1999 to 2004 and are held to
maturity. Therefore, such long-term debt and investments are not subject to
changes in interest rates.
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of Florida Public Utilities Company:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Florida Public Utilities Company and its wholly-owned
subsidiary, Flo-Gas Corporation, as of December 31, 1998 and 1997, and the
related consolidated statements of income, common shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Florida Public Utilities Company
and its wholly-owned subsidiary, Flo-Gas Corporation, at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
February 19, 1999
Item 8.Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Years Ended December 31
1998 1997 1996
Revenues
Electric $40,254 $38,683 $40,701
Natural gas 29,734 33,475 31,854
Propane gas 4,043 4,065 4,401
Water 2,161 1,911 1,854
Total revenues 76,192 78,134 78,810
Cost of fuel and taxes based on revenues 47,701 51,455 51,873
Operating Margin 28,491 26,679 26,937
Operating Expenses
Operations 11,755 11,283 11,533
Maintenance 2,807 2,512 2,526
Depreciation and amortization 4,269 4,029 3,876
Taxes other than income taxes 2,196 2,051 1,978
Income taxes 1,568 1,286 1,396
Total operating expenses 22,595 21,161 21,309
Operating Income 5,896 5,518 5,628
Interest Charges and Other
Long-term debt 2,235 2,235 2,235
Short-term borrowings 355 407 348
Customer deposits and other interest 250 253 275
Other-net (12) (46) 19
Gain from sale of non-utility property (837)
Income taxes on above gain 315
Total interest charges and other 2,828 2,327 2,877
Net Income 3,068 3,191 2,751
Preferred Stock Dividends 29 29 29
Earnings for Common Stock $ 3,039 $ 3,162 $ 2,722
Earnings Per Common Share $ 1.02 $ 1.07 $ .93
Dividends Per Common Share .62 .60 .60
Average Shares Outstanding 2,992,938 2,967,504 2,937,948
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
ASSETS 1998 1997
Utility Plant
Electric $ 48,955 $ 47,085
Natural gas 50,644 47,498
Propane gas 6,658 7,292
Water 8,033 7,188
Common 3,366 3,293
Total 117,656 112,356
Less accumulated depreciation 42,429 39,632
Net utility plant 75,227 72,724
Current Assets
Cash 564 123
Accounts receivable 7,879 7,686
Allowance for uncollectible accounts (114) (65)
Inventories (at average or unit cost) 2,172 2,587
Prepayments and deferrals 1,652 1,476
Total current assets 12,153 11,807
Other Assets
Investments held in escrow for
environmental costs 3,133 3,024
Deferred charges 1,893 1,495
Total other assets 5,026 4,519
Total $ 92,406 $ 89,050
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 27,622 $ 26,189
Preferred stock 600 600
Long-term debt 23,500 23,500
Total capitalization 51,722 50,289
Current Liabilities
Notes payable 8,200 7,600
Accounts payable 5,388 5,596
Insurance accrued 2,113 1,986
Interest accrued 597 517
Other accruals and payables 2,115 2,090
Customer deposits 3,867 3,782
Total current liabilities 22,280 21,571
Other Liabilities
Deferred income taxes 6,110 5,825
Unamortized investment tax credits 1,222 1,342
Environmental liability 5,004 4,833
Regulatory tax liabilities 1,968 2,326
Over recovery of fuel costs 1,124 393
Customer advances for construction 1,317 1,269
Storm damage and environmental reserve 1,602 1,130
Other 57 72
Commitments and contingencies
Total other liabilities 18,404 17,190
Total $ 92,406 $ 89,050
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(dollars in thousands)
December 31,
1998 1997
Common Shareholders' Equity
Common stock, $1.50 par value, authorized
3,500,000 shares; issued 3,200,860 shares
in 1998; 1,594,352 shares in 1997 $ 4,801 $ 2,392
Paid-in capital 9,065 11,233
Retained earnings 15,686 14,532
Treasury stock - at cost (200,945 shares
in 1998; 105,766 shares in 1997) (1,930) (1,968)
Total common shareholders' equity 27,622 26,189
Preferred Stock
4 3/4% Series A, $100 par value, redemption
price $106.00, authorized and outstanding
6,000 shares 600 600
Long-Term Debt
First mortgage bonds
Series
9.57% due 2018 10,000 10,000
10.03% due 2018 5,500 5,500
9.08% due 2022 8,000 8,000
Total long-term debt 23,500 23,500
Total Capitalization $51,722 $50,289
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(dollars in thousands)
Common Stock
Shares Aggregate Paid-in Retained Treasury Stock
Issued Par Value Capital Earnings Shares Cost
Balance,
December 31, 1995 1,577,782 $2,367 $10,797 $12,191 117,686 $(2,053)
Net income 2,751
Dividends (1,791)
Stock plans 7,696 12 195 (5,855) 42
Balance,
December 31, 1996 1,585,478 2,379 10,992 13,151 111,831 (2,011)
Net income 3,191
Dividends (1,810)
Stock plans 8,874 13 241 (6,065) 43
Balance
December 31, 1997 1,594,352 2,392 11,233 14,532 105,766 (1,968)
Net income 3,068
Dividends (1,914)
Stock plans 9,006 13 228 (7,630) 38
Two-for-one stock
split 1,597,502 2,396 (2,396) 102,809
Balance
December 31, 1998 3,200,860 $4,801 $9,065 $15,686 200,945 $(1,930)
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1998 1997 1996
Cash Flows from Operating Activities
Net income $ 3,068 $ 3,191 $ 2,751
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 4,269 4,029 3,876
Deferred income taxes (73) (349) 578
Investment tax credits (120) (121) (120)
Other 216 385 405
Gain on sale of non-utility property (837)
Effects of changes in
Receivables (158) 269 (936)
Inventories and prepayments 253 16 (924)
Accounts payable and accruals 547 1,341) 3,094
Over/(under) recovery of fuel costs 731 1,722 (1,197)
Other (278) 60 (110)
Net cash provided by operating
activities 8,455 7,024 7,417
Cash Flows from Investing Activities
Construction expenditures (6,952) (7,034) (7,653)
Customer advances for construction 48 287 175
Other (109) (73) (145)
Proceeds from sale of non-utility property 886
Net cash used by investing
activities (7,013) (5,934) (7,623)
Cash Flows from Financing Activities
Net short-term borrowings (repayments) 600 (300) 2,300
Proceeds from common stock plans 279 297 250
Dividends paid (1,880) (1,805) (1,773)
Net cash provided (used) by
financing activities (1,001) (1,808) 777
Net Increase (Decrease) in Cash 441 (718) 571
Cash at Beginning of Year 123 841 270
Cash at End of Year $ 564 $ 123 $ 841
Supplemental Cash Flow Information
Cash was paid during the years as follows:
Interest $ 2,513 $ 2,719 $ 2,585
Income Taxes 1,729 1,845 1,534
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting and Reporting Policies
Business and Regulation. Florida Public Utilities Company (the Company) is an
operating public utility engaged principally in the purchase, transmission,
distribution and sale of electricity and in the purchase, transmission,
distribution, sale and transportation of natural gas. The Company is subject to
the jurisdiction of the Florida Public Service Commission (FPSC) with respect to
its electric, natural gas and water operations. The suppliers of electrical
power to the Marianna division and of natural gas to the natural gas divisions
are subject to the jurisdiction of the Federal Energy Regulatory Commission
(FERC). The Fernandina Beach division is supplied most of its electrical power
by a municipality which is exempt from FERC and FPSC regulation. The Company
also distributes propane gas through a non-regulated subsidiary. The Company's
accounting policies and practices conform to generally accepted accounting
principles as applied to regulated public utilities and are in accordance with
the accounting requirements and rate making practices of the FPSC.
The Company prepares its financial statements in accordance with the provisions
of Statement of Financial Accounting Standards No. 71 - "Accounting for the
Effects of Certain Types of Regulation" (SFAS 71). In general, SFAS 71
recognizes that accounting for rate regulated enterprises should reflect the
relationship of costs and revenues introduced by rate regulation. As a result,
a regulated utility may defer recognition of a cost (a regulatory asset) or
recognize an obligation (a regulatory liability) if it is probable that, through
the rate making process, there will be a corresponding increase or decrease in
revenues.
Accordingly, the Company has recognized certain regulatory assets and
liabilities. Such regulatory items relate to deferred income taxes, conversion
costs, unamortized debt reacquisition costs, and storm and environmental self-
insurance reserves. The Company believes that the FPSC will continue to allow
the Company to recover such items through its rates.
The Company has agreed with the FPSC staff to limit its earned return on equity
for its regulated electric and natural gas operations. The disposition of any
excess earnings is left to the discretion of the FPSC, with alternatives
including a refund to customers, additional contributions to storm damage
reserves, or the reduction of any depreciation reserve deficiency. Excess
earnings for 1997 at one of the Company's electric divisions was ordered by the
FPSC to be added to that division's storm damage reserve. The Company believes
it has adequately reserved for 1998 excess earnings.
Following FPSC rules for water utilities, the Company filed for and was granted
a price index revenue increase in the Fernandina Beach water division. This
increase, approximating $19,000 on an annual basis, was placed into effect in
June 1998. A similar price index filing is planned for 1999. The Company also
received a revenue increase of $85,000 in December 1998, relating to an increase
in ad valorem taxes.
Various states, other than Florida, have enacted or are considering enacting
legislation or other initiatives that would provide utility customers with the
ability to choose their supplier, thus establishing competition between the
suppliers of utility services. No such proposals are currently being considered
in Florida.
Revenues. The Company records utility revenues as service is provided and bills
its customers monthly on a cycle billing basis. Accordingly, at the end of each
month, the Company accrues for estimated unbilled revenues.
The rates of the Company include base revenues, fuel adjustment charges and the
pass-through of certain governmental imposed taxes based on revenues. The base
revenues are determined by the FPSC and remain constant until a request for an
increase in such rates is filed and approved by the FPSC. From the FPSC
perspective, the Company operates four distinct "entities", i.e., Marianna
electric, Fernandina Beach electric, Fernandina Beach water, and natural gas,
consisting of Palm Beach County, Sanford and DeLand. Thus, for the Company to
recover through rate relief the effects of inflation for all such "entities", a
request for an increase in base revenues would require the filing of four
separate rate cases. The FPSC allows for an annual automatic rate increase for
water operations through the use of a price index. Fuel adjustment charges are
estimated for customer billing purposes and any under/over-recovery difference
between the incurred cost of fuel and estimated amounts billed to customers is
deferred for future recovery or refund and either charged or credited to
customers. Interest accrues on such under/over-recoveries and is included in
the subsequent adjustment.
Consolidation. The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Flo-Gas Corporation. All
significant inter-company balances and transactions have been eliminated.
Certain reclassifications have been made to the prior years' financial
statements and other financial information contained herein to conform with the
1998 presentation.
Utility Plant and Depreciation. Utility plant is stated at original cost. The
costs of additions to utility plant include contracted services, direct labor
and materials. The costs of units of property retired are removed from utility
plant, and such costs plus removal costs, less salvage, are charged to
accumulated depreciation. Maintenance and repairs of property and replacement
and renewal of items determined to be less than units of property are charged
to operating expenses. Substantially all of the utility plant and the shares
of Flo-Gas Corporation collateralize the Company's First Mortgage Bonds.
Depreciation is computed using the composite straight-line method at rates
prescribed by the FPSC for financial accounting purposes. Such rates are based
on estimated service lives of the various classes of property. Depreciation
provisions on average depreciable property approximate 3.7% per year.
Income Taxes. Deferred income taxes are provided on all significant temporary
differences between the financial statement and tax basis of assets and
liabilities at currently enacted tax rates. Investment tax credits have been
deferred and are amortized based upon the average useful life of the related
property in accordance with the rate treatment.
Deferred Charges. Deferred charges include unamortized debt issuance expense
and early extinguishment premium. Such expenses are being amortized over the
lives of the issues to which they pertain.
Use of Estimates. Inherent in the accounting process is the use of estimates
when preparing financial statements in accordance with generally accepted
accounting principles. Actual results could differ from these estimates. The
Company has used estimates in the preparation of its financial statements
including the accrual for uninsured liability claims. The Company is self-
insured for the first $250,000 of each liability claim and therefore accrues for
estimated losses occurring from both asserted and unasserted claims. The
estimate for unasserted claims arising from unreported incidents is based on an
analysis of historical claims data. The Company's portion of liability claims
incurred for the ten year period ended in 1998 averaged approximately $75,000
per year and the accrual for such claims was approximately $1,000,000 at
December 31, 1998. The Company believes that its accrual for potential
liability claims is adequate.
Notes Payable
The Company has a line of credit agreement with its primary bank providing for
a $15,000,000 loan with interest at LIBOR plus fifty basis points. $14,000,000
of such loan is available for general corporate purposes with the remaining
$1,000,000 reserved as a contingency for major storm repairs in the Marianna
electric division. The weighted-average interest rates at both December 31,
1998 and 1997 were approximately 6.2%.
Capitalization
Common Stock Split. In July 1998, the Company effected a two-for-one stock
split in the form of a stock dividend and, accordingly, transferred from
paid-in capital to common stock, an amount equal to the aggregate par value of
the additional shares. All per share data included herein have been
retroactively restated to reflect the stock split.
Common Shares Reserved. The Company has reserved 24,840 common shares for
issuance under the Dividend Reinvestment Plan and 33,984 common shares for
issuance under the Employee Stock Purchase Plan.
Dividend Restriction. The Indenture of Mortgage and Deed of Trust and
supplements thereto provide for restriction of the payment of cash dividends.
At December 31, 1998 approximately $6,000,000 of retained earnings were free of
such restriction.
Maturities of Long-Term Debt. Sinking fund payments are scheduled to begin in
2008.
Segment Information
The Company operates distribution systems providing natural and propane gas
service in three locations in central and southern Florida, electric service in
two locations in northern Florida and water service in one location in northern
Florida. There are no material intersegment sales or transfers.
Operating profit consists of revenues less operating expenses and does not
include other income, interest income, interest expense and income taxes.
Identifiable assets are those assets used in the Company's operations in each
business segment. Common assets are principally cash and overnight investments,
deferred tax assets and common plant.
Business segment information for 1998, 1997, and 1996 is summarized as follows
(in thousands):
Non-
Regulated Regulated
1998 Gas Electric Water Common Propane Gas Consolidated
Revenues $29,734 $40,254 $2,161 $ $4,043 $76,192
Operating profit 3,444 3,213 599 207 7,463
Identifiable assets 36,870 34,605 5,941 9,856 5,134 92,406
Depreciation 1,838 1,733 223 135 340 4,269
Construction
expenditures 3,136 2,585 767 158 306 6,952
Income tax expense 688 715 157 17 8 1,585
1997
Revenues 33,475 38,683 1,911 4,065 78,134
Operating profit 3,288 3,065 468 (17) 6,804
Identifiable assets 35,227 34,021 5,270 8,655 5,877 89,050
Depreciation 1,733 1,629 208 116 343 4,029
Construction
expenditures 2,925 2,641 866 323 279 7,034
Income tax expense 695 580 98 351 (87) 1,637
1996
Revenues 31,854 40,701 1,854 4,401 78,810
Operating profit 3,250 3,141 495 138 7,024
Identifiable assets 33,977 33,038 4,584 10,470 6,100 88,169
Depreciation 1,654 1,540 201 137 344 3,876
Construction
expenditures 3,369 2,360 257 1,324 343 7,653
Income tax expense 631 673 107 (14) (15) 1,382
Income Taxes
The provision (credit) for income taxes consists of the following
(in thousands):
1998 1997 1996
Current payable
Federal $1,484 $1,547 $ 751
State 277 208 188
1,761 1,755 939
Deferred
Federal (54) (378) 532
State (19) 29 46
(73) (349) 578
Investment tax credit (120) (120) (121)
Total - operating 1,568 1,286 1,396
Included in interest charges
and other-net 17 351* (14)
Total $1,585 $1,637 $1,382
*Includes income tax of $315,000 on gain from the sale of non-utility property.
The difference between the effective income tax rate and the statutory federal
income tax rate applied to pretax income is accounted for as follows (in
thousands):
1998 1997 1996
Federal income tax at
statutory rate $1,582 $1,642 $1,406
State income taxes,
net of federal benefit 170 156 154
Investment tax credit (120) (120) (121)
Other (47) (41) (57)
Total provision for income taxes $1,585 $1,637 $1,382
The tax effects of temporary differences producing accumulated deferred income
taxes in the accompanying consolidated balance sheets are as follows (in
thousands):
1998 1997
Deferred tax assets
Environmental $2,083 $1,983
Alternative minimum tax credit 177
Other 468 307
Total deferred tax assets 2,551 2,467
Deferred tax liabilities
Utility plant related 8,395 7,850
Under recovery of fuel costs 208
Other 266 234
Total deferred tax liabilities 8,661 8,292
Net deferred income taxes $6,110 $5,825
Employee Benefit Plans
The Company sponsors a qualified pension plan and post-retirement medical and
life benefit plans for its employees. The life plan obligations are
insignificant and are not reflected in the following disclosures. In 1998, the
Company changed the benefit formula to provide for improved pension benefits.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ending December 31,
1998 and 1997, and a statement of the funded status at December 31, 1998 and
1997 (in thousands):
Pension Benefits Medical Benefits
1998 1997 1998 1997
Reconciliation of Benefit Obligation
Prior year obligation at December 31 $ 14,803 $ 14,403 $ 1,318 $ 1,248
Service cost 764 549 73 65
Interest cost 1,245 963 96 83
Participant contributions 0 0 14 13
Plan amendments 3,440 0 0 0
Actuarial (gain) loss (137) (352) 87 (50)
Benefit payments (836) (760) (113) (41)
Current year obligation at December 31 $ 19,279 $ 14,803 $ 1,475 $ 1,318
Reconciliation of Fair Value of Plan Assets
Prior year fair value of plan assets at
December 31 $ 29,080 $ 24,179 $ 0 $ 0
Actual return on plan assets 4,287 5,661 0 0
Employer contributions 0 0 99 29
Participant contributions 0 0 14 12
Benefit payments (836) (760) (113) (41)
Current year fair value of plan
assets at December 31 $ 32,531 $ 29,080 $ 0 $ 0
Funded Status
Funded status at December 31 $ 13,252 $ 14,277 $(1,475) $(1,318)
Unrecognized transition (asset) obligation (367) (550) 600 643
Unrecognized prior service cost 4,401 1,362 0 0
Unrecognized (gain) loss (15,990) (13,933) 50 (36)
Net amount recognized $ 1,296 $ 1,156 $ (825) $ (711)
The following table provides the components of net periodic benefit cost for
the Plans for 1998 and 1997 (in thousands):
Pension Benefits Medical Benefits
1998 1997 1996 1998 1997 1996
Service cost $ 764 $ 549 $ 539 $ 73 $ 65 $ 66
Interest cost 1,245 963 935 96 83 78
Expected return on plan
assets (1,943) (1,546) (1,421) 0 0 0
Amortization of transition
(asset) obligation (183) (183) (183) 43 43 43
Amortization of prior
service cost 401 151 151 0 0 0
Amortization of net
(gain)loss (424) (255) (189) 0 0 0
Net periodic benefit cost $ (140) $ (321) $ (168) $ 212 $ 191 $ 187
The prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Gains and losses in excess of
10% of the greater of the benefit obligation and the market-related value of
assets are amortized over the average remaining service period of active
participants.
The pension plan is non-contributory; the postretirement medical plan is
contributory with participants' contributions subject to adjustment annually.
The accounting for the health care plan anticipates future cost-sharing changes
to the written plan such that retiree contributions will increase at the same
rate as the total plan cost.
The assumptions used in the measurement of the Company's benefit obligation are
shown in the following table:
Pension Benefits Medical Benefits
Weighted-average assumptions
as of December 31 1998 1997 1996 1998 1997
Discount rate-benefit obligation 7.0% 7.0% - 7.0% 7.0%
Expected return on plan assets 8.5% 8.0% 8.0% N/A N/A
Rate of compensation increase 5.5% 5.5% 5.0% N/A N/A
For measurement purposes, the annual rate of increase in the per capita cost of
covered health care benefits during 1998 was 8.4% for retirees under 65 and 7.5%
for retirees over 65. These rates were assumed to decrease gradually each year
to a rate of 5.5% for 2007 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1% change in assumed health care cost
trend rates would have the following effects:
1% Increase 1% Decrease
Effect on total of service and interest
cost components of net periodic post-
retirement health care benefit cost $ 26,429 $ (22,860)
Effect on the health care component of
the accumulated postretirement benefit
obligation $ 206,950 $(181,475)
Health Plan. The Company is principally self-insured for its employee and
retiree medical insurance plan. The Company's health care liability under the
plan is limited to $60,000 per individual per year, with a maximum total
liability of $940,000.
A reserve for future benefit payments for active employees is maintained at a
level sufficient to provide for estimated outstanding claims under the plan net
of amounts contributed by employees. Net health care benefits paid by the
Company for active employees were approximately $455,000, $457,000 and $408,000
for 1998, 1997 and 1996, respectively.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan offers
common stock at a discount to qualified employees. During 1998, 1997 and 1996,
7,230, 5,665 and 5,455 shares, respectively, were issued under the Plan for
aggregate consideration of $100,000, $103,000 and $90,000 respectively.
Dividend Reinvestment Plan. During 1998, 1997 and 1996, 9,006, 8,874 and 7,696
shares, respectively, were issued under the Company's dividend reinvestment plan
for aggregate consideration of $169,000, $185,000 and $152,000, respectively.
Financial Instruments
The carrying amounts reported in the balance sheet for investments held in
escrow for environmental costs, notes payable, taxes accrued and other accrued
liabilities' approximate fair value. The Company does not enjoy a debt rating
and therefore the Company has no reasonable way of estimating the current rate
at which similar first mortgage bonds would be made to borrowers with similar
debt ratings and maturities. However, the current bonds outstanding were issued
in 1988 and 1992 and since that time interest rates have declined substantially,
and thus it is reasonable to assume that the fair value of existing first
mortgage bonds would be more than their carrying value.
Contingencies
The Company is subject to federal and state legislation with respect to soil,
groundwater and employee health and safety matters and to environmental regula-
tions issued by the Florida Department of Environmental Protection (FDEP), the
United States Environmental Protection Agency (EPA)and other federal and state
agencies. Except as discussed below, the Company does not expect to incur
material future expenditures for compliance with existing environmental laws and
regulations.
West Palm Beach Site. The Company is currently conducting a contamination
assessment investigation of a parcel of property owned by it in West Palm Beach,
Florida. After a preliminary contamination assessment investigation indicated
soil and groundwater impacts, the Company entered into a consent order with the
FDEP. The consent order requires the Company to delineate the extent of soil
and groundwater impacts associated with the prior operation of a gasification
plant on the property and requires the Company to remediate any soil and
groundwater impacts, if necessary. In June 1992 the Company commenced the
contamination assessment investigation. At this time, contamination assessment
activities are still being performed under the direct oversight of FDEP. Prior
to the completion of this work, it is not possible to determine to an
acceptable degree of certainty the complete extent or cost of remedial action,
if any, which may be required. However, a preliminary estimate from the
Company's environmental consultant suggested that additional contamination
assessment and remediation costs for this site may reach approximately
$1,400,000. Until the FDEP concludes that the contamination assessment
investigation is complete, it is not possible to determine whether remediation
is necessary and, if so, when and how much of such costs the Company will have
to pay. A portion of the on-site impacts had been determined to be eligible
for reimbursement from a state fund and the FDEP has determined that a portion
of the work conducted off-site is eligible for reimbursement under state law.
Sanford Site. The Company owns a parcel of property located in Sanford,
Florida. Prior to the Company's acquisition of this property, it had been the
site of a gasification plant. The FDEP issued a Warning Notice to the Company
which required the Company to conduct a contamination assessment investigation
of the property. A preliminary investigation revealed that soil was impacted
throughout the center of the property.
Thereafter, in cooperation with four former owners and operators of the
gasification plant, the Company participated in the funding of an initial
contamination assessment investigation, the results of which are set forth in a
Contamination Assessment Report delivered to FDEP on February 4, 1994. On July
11, 1997, EPA notified the Company of its potential liability under applicable
federal laws for assessment and remediation of the site. Similar notices were
sent by EPA to the four former owners and operators of the site. On or about
March 25, 1998, the Company and the four former owners and operators
(collectively, the "Group") and the EPA executed an Administrative Order on
Consent ("AOC") that obligates the Group to implement a Remedial
Investigation/Feasibility Study ("RI/FS") task. The Group also entered into a
Participation Agreement and an Escrow Agreement on or about April 13, 1998.
These agreements govern the manner and means by which all parties will satisfy
their respective obligations under the AOC. On or about April 13, 1998, the
Group also entered into services agreements (collectively, the "RI/FS
Agreement") with two environmental consulting entities, to undertake RI/FS and
associated risk assessment activities called for under the terms of the AOC.
The total combined budget for the consultants' services is presently
approximately $440,000. The Company has agreed to pay approximately 13.7% of
the cost for the RI/FS. Field work for the RI/FS was initiated in 1998. The
RI/FS draft report is due to EPA by March 1, 1999. Prior to the completion
of the RI/FS field activities and approval by EPA of the RI/FS Report, the
Company is unable to determine the appropriate remedy for the site or, what
the Company's share of the cost of that remedy would be. However, a
preliminary estimate from the Group's environmental consultant suggested that
interim remedial costs for removal of the visible extent of impacted soils at
the site and adjacent thereto may range between $3,340,000 and $5,800,000.
Insurance Claims and Rate Relief. The Company notified its insurance carriers
of environmental impacts detected at the former manufactured gas plant (MGP)
sites discussed above. As a result of negotiations with the Company's major
insurance carriers that concluded in 1997, such carriers agreed to pay
settlement proceeds totaling approximately $4,300,000 for certain environmental
costs. In addition, the FPSC has allowed the Company to recover through rate
relief environmental expenses of approximately $2,400,000 over a ten-year
period at the rate of approximately $240,000 per year.
The Company believes that all future contamination assessment and remedial
costs, legal fees and other related costs will not be in excess of the rate
relief granted the Company and insurance settlement proceeds received.
Commitments
To ensure a reliable supply of power and natural gas at competitive prices, the
Company has entered into long-term purchase and transportation contracts with
various suppliers and producers which expire at various dates through 2015. In
general, purchase prices under these contracts are determined by formulas based
on market prices. At December 31, 1998, the Company has firm purchase and
transportation commitments adequate to supply its expected future sales
requirements. The Company is committed to pay demand or similar fixed charges of
approximately $6,000,000 during 1999 related to these agreements. Substantially
all costs incurred under these agreements are recoverable from customers through
fuel adjustment clause mechanisms.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (FAS) 133, "Accounting for Derivative Instruments and
Hedging Activities". FAS 133 requires derivatives, as defined in the statement,
to be measured at their fair value. The Company is currently assessing the
effect, if any, of implementing FAS 133 in 2000 on its financial statements.
Quarterly Financial Data (Unaudited)
The quarterly financial data presented below reflects the influence of, among
other things, seasonal weather conditions, the timing of rate increases and the
migration of winter residents and tourists to central and southern Florida
during the winter season (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1998
Revenues $20,712 $18,115 $18,644 $18,721
Operating margin 7,919 6,740 6,652 7,180
Operating profit 2,870 1,577 1,382 1,634
Net income 1,403 571 448 646
Earnings per share .47 .19 .15 .21
1997
Revenues $22,143 $17,878 $18,732 $19,381
Operating margin 7,357 6,386 6,309 6,627
Operating profit 2,385 1,486 1,279 1,654
Net income(1) 1,046 526 917 702
Earnings per share(1) .35 .17 .31 .23
(1) The third quarter includes a gain after income taxes from the sale of
non-utility real property of $522,000, $0.18 per share. The sum of the
quarterly earnings per share amounts does not equal the annual earnings
per share amount reflected in the consolidated statement of income due
to the effect of changes in weighted average common shares outstanding
during the year.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors and nominees of the Registrant is included
under the caption "Nominees and Continuing Directors" in the Registrant's
Proxy Statement for the 1998 Annual Meeting of Shareholders and is
incorporated by reference herein.
The following table sets forth certain information about the executive
officers of the Registrant as of March 10, 1999.
Name Age Position Date
Robert L. Terry 79 Chairman of the Executive
Committee 1985 - Present
John T. English 55 Chief Executive Officer 1998 - Present
President 1997 - Present
Chief Operating Officer 1997 - Present
Charles L. Stein 49 Senior Vice President 1997 - Present
Darryl L. Troy 57 Vice President 1993 - Present
Jack R. Brown 64 Corporate Secretary 1995 - Present
Treasurer 1988 - Present
Mr. English was Senior Vice President from 1993 preceding his appointment as
President and Chief Operating Officer.
Mr. Stein was Vice President from 1993 preceding his appointment as Senior
Vice President.
There are no family relationships between the executive officers.
All executive officers are elected for a one year term.
Item 11. Executive Compensation
Information concerning executive compensation is included under the caption
"Executive Compensation" in the Registrant's Proxy Statement and is
incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning the security ownership of certain of the Registrant's
beneficial owners and management is included under the captions "Security
Ownership of Certain Beneficial Owners" and "Nominees and Continuing
Directors" in the Registrant's Proxy Statement and is incorporated by
reference herein.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
included under the caption "Transactions with Management" in the
Registrant's Proxy Statement and is incorporated by reference herein.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of Florida Public
Utilities Company are included herein and in the Registrant's 1998
Annual Report to Shareholders.
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Capitalization
Consolidated Statements of Common Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Financial Statement Schedules
All schedules are omitted because of the absence of the conditions
under which they are required or because the required information
is included in the financial statements and related notes thereto.
3. Exhibits
See Exhibit Index following signatures.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
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 PUBLIC UTILITIES COMPANY
By /s/ Jack R. Brown Date: March 19, 1999
Jack R. Brown, Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ Robert L. Terry Date: March 19, 1999
Robert L. Terry
Chairman of the Executive Committee and Director
/s/ John T. English Date: March 19, 1999
John T. English
President, Chief Executive Officer, Chief Operating Officer and
Director
/s/ Franklin C. Cressman Date: March 19, 1999
Franklin C. Cressman
Director
/s/ E. James Carr, Jr. Date: March 19, 1999
E. James Carr, Jr.
Director
/s/ Daniel Downey Date: March 19, 1999
Daniel Downey
Director
/s/ Richard C. Hitchins Date: March 19, 1999
Richard C. Hitchins
Director
/s/ Gordon O. Jerauld Date: March 19, 1999
Gordon O. Jerauld
Director
/s/ Paul L. Maddock, Jr. Date: March 19, 1999
Paul L. Maddock, Jr.
Director
/s/ Rudy E. Schupp Date: March 19, 1999
Rudy E. Schupp
Director
FLORIDA PUBLIC UTILITIES COMPANY
EXHIBIT INDEX
(a) Exhibits
Regulation S-K
Item Number 21. Subsidiary of the registrant
23. Independent auditors' consent
27. Financial data schedule
EXHIBIT 21
Subsidiary of the registrant
Name Jurisdiction of Incorporation
Flo-Gas Corporation Florida
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 2-79935 on Form S-3 and Post-Effective Amendment No. 16 to Registration
Statement No. 2-24986 on Form S-8 of Florida Public Utilities Company, of
our report dated February 19, 1999, appearing in this Annual Report on Form
10-K of Florida Public Utilities Company for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
March 22, 1999
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