-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vinh2pGwWcg+giRLWoa8uJ4oLZZJaerb9P9g3OOF4Q3cy9k74n6n4CG5Ww6Iesux WGYFShz6tD5EUk3Pz7RVKw== 0000357261-97-000048.txt : 19970328 0000357261-97-000048.hdr.sgml : 19970328 ACCESSION NUMBER: 0000357261-97-000048 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLORIDA PROGRESS CORP CENTRAL INDEX KEY: 0000357261 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 592147112 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08349 FILM NUMBER: 97565666 BUSINESS ADDRESS: STREET 1: ONE PROGRESS PLZ STREET 2: SUITE 2600 CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 8138246400 MAIL ADDRESS: STREET 1: ONE PROGRESS PLZ STREET 2: SUITE 2600 CITY: ST PETERSBURG STATE: FL ZIP: 33701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLORIDA POWER CORP / CENTRAL INDEX KEY: 0000037637 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590247770 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03274 FILM NUMBER: 97565667 BUSINESS ADDRESS: STREET 1: 3201 34TH ST SOUTH CITY: ST PETERSBURG STATE: FL ZIP: 33711 BUSINESS PHONE: 8138665151 10-K 1 FLORIDA PROGRESS/FLORIDA POWER 12/31/96 FORM 10-K 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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Exact name of each Registrant as specified in I.R.S. Employer Commission its charter, state of incorporation, address Identification File No. of principal executive offices, telephone Number ------------ -------------------------------------------- --------------- 1-8349 FLORIDA PROGRESS CORPORATION 59-2147112 A Florida Corporation One Progress Plaza St. Petersburg, Florida 33701 Telephone (813) 824-6400 1-3274 FLORIDA POWER CORPORATION 59-0247770 A Florida Corporation 3201 34th Street South St. Petersburg, Florida 33711 Telephone (813) 866-5151 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered -------------------------------------- ----------------------- Florida Progress Corporation: Common Stock without par value and New York Stock Exchange Preferred Stock Purchase Rights Pacific Stock Exchange Florida Power Corporation: None Securities registered pursuant to Section 12(g) of the Act: Florida Progress Corporation: None Florida Power Corporation: Cumulative Preferred Stock, par value $100 per share Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. YES X . NO . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of Florida Progress Corporation as of December 31, 1996 was $3,075,692,949 (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, 1997 was $-0-. As of February 28, 1997, 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, 1996 was 97,007,182. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for Florida Progress Corporation dated March 10, 1997, relating to the 1997 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. [THIS SPACE INTENTIONALLY BLANK] TABLE OF CONTENTS -Page- ------ PART I. Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 10 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 14 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 20 PART II. Item 5. Market for the Registrants' Common Equity and Related Stockholder Matters . . . . . . . . . . . 20 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 22 Item 8. Financial Statements and Supplementary Data . . . . . . 32 Combined Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . 32 Consolidated Financial Statements of Florida Progress 33 Financial Statements of Florida Power . . . . . . . . 38 Combined Notes to the Financial Statements. . . . . . 43 Quarterly Financial Data (unaudited). . . . . . . . . 61 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . 62 PART III. Item 10. Directors and Executive Officers of the Registrants . . 62 Item 11. Executive Compensation. . . . . . . . . . . . . . . . . 64 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . 68 Item 13. Certain Relationships and Related Transactions. . . . . 69 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 69 Signatures - Florida Progress Corporation . . . . . . . . . . . . 75 Signatures - Florida Power Corporation. . . . . . . . . . . . . . 77 Financial Statement Schedules . . . . . . . . . . . . . . . . . . 79 GLOSSARY When used herein, the following terms will have the meanings indicated: TERM MEANING 1935 Act. . . . . . . . . . . . .Public Utility Holding Company Act of 1935 Btu . . . . . . . . . . . . . . .British thermal units CAAA. . . . . . . . . . . . . . .Clean Air Act Amendments of 1990 CERCLA or Superfund . . . . . . .Comprehensive Environmental Response Compensation and Liability Act CR3 . . . . . . . . . . . . . . .Florida Power's nuclear generating plant, Crystal River Unit No. 3 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 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, 1996 contained under Item 8 herein Florida Power . . . . . . . . . .Florida Power Corporation Florida Progress. . . . . . . . .Florida Progress Corporation FP&L. . . . . . . . . . . . . . .Florida Power & Light Company FPSC. . . . . . . . . . . . . . .Florida Public Service Commission FPUC. . . . . . . . . . . . . . .Florida Public Utilities Company FRCC. . . . . . . . . . . . . . .Florida Reliability Coordinating Council Georgia Power . . . . . . . . . .Georgia Power Company KV. . . . . . . . . . . . . . . .kilovolts KVA . . . . . . . . . . . . . . .kilovolt amperes KWH . . . . . . . . . . . . . . .kilowatt hours LTIP. . . . . . . . . . . . . . .Florida Progress Long-Term Incentive Plan MD&A. . . . . . . . . . . . . . .Management's Discussion and Analysis of Financial Condition and Results of Operations Mid-Continent . . . . . . . . . .Mid-Continent Life Insurance Company MW. . . . . . . . . . . . . . . .megawatts NERC. . . . . . . . . . . . . . .North American Electric Reliability Council NRC . . . . . . . . . . . . . . .United States Nuclear Regulatory Commission NWPA. . . . . . . . . . . . . . .Nuclear Waste Policy Act PCBs. . . . . . . . . . . . . . .polychlorinated biphenyls Progress Capital. . . . . . . . .Progress Capital Holdings, Inc. Progress Credit . . . . . . . . .Progress Credit Corporation Proxy Statement . . . . . . . . .The definitive proxy statement dated March 10, 1997, relating to Florida Progress' 1997 Annual Meeting of Shareholders PRP . . . . . . . . . . . . . . .potentially responsible party, as defined in CERCLA SBUs. . . . . . . . . . . . . . .Strategic Business Units SEC . . . . . . . . . . . . . . .United States Securities and Exchange Commission SERP. . . . . . . . . . . . . . .Florida Progress Supplemental Employee Retirement Plan SOP . . . . . . . . . . . . . . . Statement of Position issued by American Institute of Certified Public Accountants Southern. . . . . . . . . . . . .The Southern Company SNF . . . . . . . . . . . . . . .spent nuclear fuel the nuclear plant . . . . . . . .Florida Power's nuclear generating plant, Crystal River Unit No. 3 the utility . . . . . . . . . . .Florida Power Corporation 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, 1996 were $3.2 billion and assets at year end were $5.3 billion. Its principal executive offices are located at One Progress Plaza, St. Petersburg, Florida 33701, telephone number (813) 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 nonutility operations. The diversified operations segment includes Electric Fuels Corporation ("Electric Fuels"), an energy and transportation company, and Mid-Continent Life Insurance Company ("Mid-Continent"), a life insurance company. See Item 1 "Business Diversified Operations". For information concerning the operating profit and assets attributable to these business segments, see Note 9 to Florida Progress' consolidated financial statements and Florida Power's financial statements for the year ended December 31, 1996 contained herein under Item 8 (the "Financial Statements"). In December 1996, Florida Progress spun off Echelon International Corporation ("Echelon"). Echelon, successor to Progress Credit Corporation ("Progress Credit"), was the Florida Progress subsidiary with lending, leasing and real estate operations. The spin-off was accomplished through a tax-free stock dividend to Florida Progress' shareholders, thus completing a strategy begun in 1991 to exit those businesses. 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 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 7,341 megawatts ("MW"). In 1996, the utility accounted for 76% of Florida Progress' consolidated revenues, 92% of its earnings from continuing operations and 80% of its assets. Florida Power provided electric service during 1996 to an average of 1,292,075 customers in west central Florida from its headquarters in St. Petersburg. 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 1996 electric revenues billed, approximately 56% were derived from residential sales, 23% from commercial sales, 9% from industrial sales, 5% from other retail sales and 7% from wholesale 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. 1 COMPETITION Florida Power made a number of changes in 1996 to help prepare it for increased competition. In July 1996, the utility reorganized its operations into strategic business units ("SBUs"), making it one of the first electric companies in the country to adopt this operational structure. The three SBUs are Energy Supply, Energy Delivery and Energy Solutions. Each will focus on a targeted segment of the overall utility business. Energy Supply is responsible for strengthening Florida Power's position as an efficient, low-cost producer of electricity. Energy Delivery oversees the utility's transmission and distribution lines as well as system operations and planning. Its mission is to maintain and improve service reliability in the most cost-effective manner possible. Energy Solutions is focused on customer service, sales and marketing and finding ways to use emerging technology to develop new products and services. For additional information with respect to Florida Power and competition, see Item 7 "Management's Discussion and Analysis of Financial Condition and Operating Results ("MD&A") - Operating Results - Florida Power Corporation - Utility Competition". FUEL AND PURCHASED POWER GENERAL: Florida Power's consumption of various types of fuels 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 1996 1995 1994 --------- ---- ---- ---- Coal 43% 39% 45% Oil 16% 12% 16% Nuclear* 6% 19% 17% Gas 3% 4% 1% Purchased Power 32% 26% 21% * See "NUCLEAR" below for information regarding outages at Florida Power's nuclear generating plant, which negatively impacted nuclear plant availability in 1996. Florida Power is permitted to pass the cost of recoverable fuel and purchased power to its customers through fuel adjustment clauses. (See Note 1 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. 2 Florida Power's average fuel costs per million British thermal units ("Btu") for each year of the five-year period ended December 31, 1996, were as follows: AVERAGE FUEL COST (per million Btu) 1996 1995 1994 1993 1992 Coal $1.91 $1.93 $1.96 $1.96 $1.97 Oil 2.80 2.70 2.39 2.49 2.53 Nuclear .50 .49 .55 .54 .57 Gas 2.78 1.98 2.46 4.27 2.54 Weighted Average 2.04 1.69 1.75 1.79 1.86 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 the 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. 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. When the repairs were completed in October, Florida Power decided to keep the plant down to address certain backup safety system design issues. The utility expects to be able to restart the plant by year-end 1997. For more information regarding the current outage and recent performance at CR3, see Item 7 "MD&A - Operating Results - Florida Power Corporation - Nuclear Operations." 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 entail 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 and Item 3 "Legal Proceedings", paragraph 9.) At the present time, Florida Power has facilities on site for the temporary storage of SNF generated through the year 2010. COAL: Florida Power anticipates a requirement of approximately 5,400,000 tons of coal in 1997. Current environmental regulations limit sulfur content, at 12,000 Btu per pound, to 1.2% for Crystal River Unit Nos. 1 and 2, and 0.7% for Unit Nos. 4 and 5. 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 being supplied by Electric Fuels pursuant to contracts between Florida Power and Electric Fuels. 3 For 1997, Electric Fuels has long-term contracts with various sources for approximately 70% 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 problem obtaining the remaining Florida Power requirements with short-term contracts and 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 480 MW of purchased power with other utilities, including a contract with The Southern Company ("Southern") for approximately 400 MW. Also, Florida Power has entered into purchased power contracts with certain cogenerators for 1,160 MW of capacity, of which 1,050 MW have been completed and are currently operating. The capacity currently available from cogenerators represents about 12% of Florida Power's total system capacity. (See Item 3 "Legal Proceedings", paragraphs 2 through 8, Item 7 "MD&A - Operating Results - Florida Power Corporation - Fuel and Purchased Power" and Note 11 to the Financial Statements.) REGULATORY MATTERS AND FRANCHISES Florida Power is subject to the jurisdiction of the Florida Public Service Commission ("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. 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 allows utilities to recover fuel, purchased power and conservation costs through an adjustment charge on monthly electric bills. Beginning in 1995, the FPSC ordered Florida Power to conduct a three-year test of revenue decoupling for its residential customers. (See Notes 1 and 5 to the Financial Statements.) Florida Power is interconnected with 22 municipal electric systems. Florida Power's wholesale customers include Seminole Electric Cooperative, Inc., the Florida Municipal Power Agency and 11 municipalities. During 1996, about 7% of Florida Power's electric revenues were from its wholesale business. For further information with respect to rates, see Note 5 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 has a 90.4% ownership interest in CR3. (See Note 4 to the Financial Statements.) By virtue of state and municipal legislation, Florida Power holds franchises with varying expiration dates to provide electric service in nearly all municipalities in which it distributes electric energy. Approximately 99% of revenues from customers in incorporated areas are covered by franchises. The 4 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. There are 112 franchises, of which 32 expire before December 31, 2001, 27 expire between January 1, 2002 and December 31, 2011, and 53 expire between January 1, 2012 and December 31, 2026. (For further information concerning these franchise agreements, see Item 7 "MD&A - Operating Results - Florida Power Corporation Utility Competition".) ENVIRONMENTAL MATTERS Florida Power is subject to federal, state and local regulations dealing with air and water quality and other environmental matters. 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 United States Environmental Protection Agency ("EPA"). The Clean Air Act Amendments of 1990 ("CAAA"), under Title IV, Acid Rain Control, require reduction in sulfur dioxide and nitrogen oxide emissions by the year 2000 and set a permanent cap on those emissions. The reductions are to be implemented in two phases. Phase I limitations became effective in 1995 and Phase II limitations are effective by 2000. Florida Power has not been and does not expect to be materially affected by either Phase I or Phase II. Continuous emission monitors were installed on most of Florida Power's units by the end of 1994 as required under Title IV at a total cost of $11 million. To meet Phase II limitations, Florida Power expects to spend about $10 million by 2000 to implement a strategy based primarily on burning cleaner fuels and installing burners that reduce nitrogen oxide emissions on some coal units. 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. In 1997, these fees are expected to total approximately $775,000 and are expected to increase to approximately $1 million by 2000. Florida Power's construction program includes approximately $7 million of planned environmental expenditures for air quality projects for the two-year period ending December 31, 1998. WATER: To help meet the future electricity needs of its customers, Florida Power is building a new power plant complex in Polk County, Florida. Florida Power plans to have the complex's first plant on line in 1998. This plant will use combined cycle technology and be capable of producing up to 470 MW of power. (See Item 2, "Properties - Utility Operations - Planned Generation".) Approximately $26 million was spent through December 31, 1996 on environmental projects related to site development, mainly for water resource related facilities. For the two-year period ending December 31, 1998, Florida Power expects that approximately $1 million will be expended on environmental projects related to site development. In addition, Florida Power's construction program includes approximately $4 million of additional environmental expenditures for water resource projects at other Florida Power facilities for the two-year period ending December 31, 1998. 5 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 having greater than 500 ppm PCB) have been removed from all of Florida Power's electric generating plants, except for one small plant. Removal of PCB transformers from this final 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 above-ground storage tanks has expanded to affect virtually every Florida Power 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 containment capabilities for spills and leaks. These requirements must be met by 1999. Florida Power expects the annual expenditures through 1999 related to compliance with these regulations to be $1 million and $3 million for operating expense and construction, respectively. Under a FDEP program, revenues from taxes on imported oil either have been or are expected to be used to reimburse Florida Power for the majority of past storage tank contamination cleanup expenditures. In March 1995, the Governor of Florida ordered a moratorium on this FDEP program. However, Florida Power expects to receive reimbursement for cleanup activities completed prior to the moratorium. The expenditures needed to clean up the remaining storage tank contamination are not expected to be material. With expansion of regulation and the resulting increased monitoring of tank systems and oil filled electrical equipment, further expenditures for contamination cleanup and retrofitting and upgrading equipment are likely, but these expenditures are not expected to be material to Florida Power. 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. Because of its exclusive jurisdiction to regulate EMF associated with electric transmission and distribution lines and substation facilities in Florida, the FDEP has adopted rules which 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 provided its progress report to the Environmental Regulation Commission in February 1997; 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 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 and reports to Florida Power's Board of Directors at least annually on 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. 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 6 "Superfund") and the Superfund Amendment and Reauthorization Act and may be liable, together with others, for the costs of cleaning up several contaminated sites identified by the FDEP. 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 13 and 14 under Item 3 "Legal Proceedings" and "Contaminated Site Cleanup" in Note 11 to the Financial Statements. EMPLOYEES As of December 31, 1996, Florida Power had 4,629 full-time employees. The International Brotherhood of Electrical Workers represents approximately 2,035 of these full-time employees. The current union contract, which was to have expired in December 1996, was extended one year to December 1997. Florida Power's management believes that it will eventually agree on a new contract with Florida Power's union employees. 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' nonutility subsidiaries, which include the following: 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, under the flag of Marine Equipment Management Corporation ("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, is one of the largest integrated processors and suppliers of railroad materials in the country. With operations in 14 states, Progress Rail offers a full range of railcar parts, rail and other track material, railcar repair facilities, railcar scrapping and metal recycling as well as railcar sales and leasing. MID-CONTINENT - Acquired in 1986, Mid-Continent is a life insurance company headquartered in Oklahoma City, Oklahoma. Mid-Continent has been in business since 1909. Its principal product is a death benefit policy which is sold through independent agents. Long-term, Mid Continent does not fit with the strategic direction of Florida Progress. Accordingly, Florida Progress is considering divestiture of the business. Florida Progress expects that it will take three to five years to divest this business. (For information regarding competition in the life insurance industry and Mid-Continent's operating results and plans, see the "COMPETITION" section below and Item 7 "MD&A - Operating Results - Diversified Operations - Mid-Continent Life Insurance Company".) As of December 31, 1996, Progress Capital and its subsidiaries had 2,624 full-time employees. (For additional information with respect to Progress Capital and its subsidiaries, see Item 7 "MD&A - Operating Results - Diversified Operations".) COMPETITION Florida Progress' nonutility subsidiaries compete in their respective marketplaces in terms of price, service reliability, location and other factors. Electric Fuels competes in several distinct markets: its coal operations compete 7 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 and, to a limited extent, 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. Mid-Continent competes with other insurance companies in all jurisdictions in which it is licensed to do business. Many of Mid-Continent's competitors have more diversified lines of insurance coverage, substantially greater financial resources and direct sales forces. Over the past few years, the life insurance industry has become more competitive, resulting in lower sales of new policies at Mid-Continent. In an effort to reverse declining sales, Mid-Continent introduced a new insurance product in early 1996. The new policy replaced Mid-Continent's principal product, which was determined to be inadequately priced. In December 1996, cost-reduction measures were taken and restructuring occurred at Mid- Continent in an effort to improve profitability. In 1997, Mid-Continent plans to begin an orderly process to resolve the pricing issue that is expected to involve reducing policy dividends and increasing premiums. For further information with respect to Florida Progress' nonutility subsidiaries and competition, see Item 7 "MD&A - Operating Results - 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 Affairs 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 1998. For further information concerning certain environmental matters relating to Florida Progress' diversified operations, see paragraph 15 under Item 3 "Legal Proceedings" and Note 11 to the Financial Statements. 8 EXECUTIVE OFFICERS Roy A. Anderson, Senior Vice President, Nuclear Operations of Florida Power, Age 48. Mr. Anderson became Senior Vice President, Nuclear Operations, effective January 20, 1997. 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 49. Mr. Armstrong has served as General Counsel of Florida Progress since July 1990 and as Vice President since April 1992. In March 1995, he was appointed Vice President and General Counsel of Florida Power effective April 3, 1995. 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. Dr. Percy M. Beard, Jr., Senior Vice President, Nuclear Operations of Florida Power, Age 60. Effective April 1, 1997, Dr. Beard is retiring from the above positions which he held since November 1989. Janice B. Case, Vice President, Energy SolutionsSM of Florida Power Corporation, Age 44. Mrs. Case was named Vice President, Energy SolutionsSM effective July 1, 1996. From October 1990 until July 1996, she served as Vice President, Suncoast Florida Region of Florida Power. Jack B. Critchfield, Chairman of the Board and Chief Executive Officer of Florida Progress, Age 63. Since December 1, 1991, Dr. Critchfield's principal occupation has been as shown above. Since 1983, he has held numerous executive positions with Florida Progress and its subsidiaries including President, Chief Operating Officer, Group Vice President, President of Electric Fuels and Vice President of the Eastern and Ridge Divisions of Florida Power. He has been a director of Florida Power since 1988 and served as a director from 1975 through 1978 and as Chairman of its Board from 1990 until April 1996. He is a director of Barnett Banks, Inc., Jacksonville. Michael B. Foley, Jr., Senior Vice President, Energy Delivery of Florida Power, Age 53. Mr. Foley became Senior Vice President, Energy Delivery, effective July 1, 1996, after serving 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. John A. Hancock, Senior Vice President, Energy Supply of Florida Power, Age 56. Mr. Hancock became Senior Vice President, Energy Supply, effective January 1993. From September 1989, to January 1993, Mr. Hancock was Senior Vice President, Power Operations, of Florida Power. Jeffrey R. Heinicka, Senior Vice President and Chief Financial Officer of Florida Progress and Florida Power, Age 42. 9 From December 1990 until appointment to his current positions in 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 43. 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. Richard Korpan, President and Chief Operating Officer of Florida Progress, and Chairman of the Board and Chief Executive Officer of Florida Power, Age 55. For more than five years, Mr. Korpan's principal occupation has been President and Chief Operating Officer of Florida Progress. In April 1996, Mr. Korpan also became Chairman of the Board and Chief Executive Officer of Florida Power. He joined Florida Progress in 1989 as Executive Vice President and Chief Financial Officer. Mr. Korpan is a director of SunTrust Bank of Tampa Bay and Acordia Central Florida, Inc. Joseph H. Richardson, Group Vice President, Utility Group of Florida Progress and President and Chief Operating Officer of Florida Power, Age 47. Since April 1, 1996, Mr. Richardson's principal occupation has been as shown above. 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 was President and Chief Executive Officer of Talquin Corporation, a former subsidiary of Florida Progress from May 1990 until September 1993. He is a director of Echelon. 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 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, 1996, the total net winter generating capacity of Florida Power's generating facilities was 7,341 MW. This capacity was generated by 13 steam units with a capacity of 4,661 MW and 44 combustion turbine peaking units with a capacity of 2,680 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 10 "Business - Utility Operations - Florida Power.") Operation of these generating units may also be substantially curtailed by unanticipated equipment failures or interruption of fuel supplies. On February 5, 1996, Florida Power experienced a new peak of 8,807 MW. Florida Power met this demand through system generating capacity, purchased power and demand-side management programs. Florida Power expects to have sufficient system capacity, access to purchased power and demand-side management capabilities to meet anticipated future demand. Florida Power's existing generating plants (all located in Florida) and their capacities at December 31, 1996 are as follows: Winter Net Maximum Dependable Primary Location Steam Peaking 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 517 - 517 Bartow Oil Pinellas 449 217 666 Turner Oil Volusia - 200 200 Intercession City Oil Osceola - 744 744 DeBary Oil Volusia - 786 786 Higgins Oil Pinellas - 158 158 Bayboro Oil Pinellas - 232 232 Avon Park Oil Highlands - 64 64 Port St. Joe Oil Gulf - 18 18 Rio Pinar Oil Orange - 18 18 Suwannee River Oil Suwannee 147 201 348 University of Fla. Gas Alachua - 42 42 ----- ----- ----- 4,661 2,680 7,341 ===== ===== ===== * Represents 90.4% of total plant capacity. The remaining 9.6% of capacity is owned by other parties. The CR3 nuclear plant was shut down in September 1996 for repairs and remains down to address certain backup safety system design concerns. Florida Power expects to be able to restart CR3 by year-end 1997. Florida Power and Georgia Power Company ("Georgia Power") are co-owners of a 165-MW advanced combustion turbine located at Florida Power's Intercession City site. The unit went into commercial operation in January 1997. Florida Power operates and maintains the unit for both owners. 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: Florida Power has agreed to sell between 150 and 400 MW of summer-peaking capacity annually to Georgia Power from 1996 through 1999. Since Florida Power is a winter-peaking utility and Georgia Power is a summer-peaking utility, this transaction benefits both parties. Florida Power's generation strategy includes continuing efforts to sign similar energy agreements with other utilities. 11 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. Site development activities were completed in 1996. Commencement of construction of the initial unit began in January 1997. The first power block is a 470-MW combined cycle unit that is expected to come on line in 1998. Florida Power plans to use natural gas to fuel the first phase of the new energy complex in Polk County. (See Item 7 "MD&A - Liquidity and Capital Resources - Florida Power Corporation".) Florida Power has obtained capacity on the Florida Gas Transmission Company's system for the transportation of natural gas to the planned combined cycle plant in Polk County. The capacity will be released beginning in November 1996 with all capacity available to Florida Power by March 1998. Florida Power has contracted for natural gas and its transportation for a portion of the plant's requirements. Some of the capacity at the Polk County site 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 Electric Cooperative, beginning in 1999. 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. Although this rule could eventually affect Florida Power's ability to construct its own power plants, it will not affect the construction of the gas-fired combined cycle generating unit at Florida Power's site in Polk County, Florida, because as noted above, the FPSC already has granted Florida Power a certificate of need for this unit. NUCLEAR PLANT AND NUCLEAR INSURANCE: Information regarding nuclear plant and nuclear insurance is contained in Notes 4 and 11 to the Financial Statements. TRANSMISSION AND DISTRIBUTION: As of December 31, 1996, Florida Power distributed electricity through 353 substations with an installed transformer capacity of 41,522,275 kilovolt amperes ("KVA"). Of this capacity, 28,366,750 KVA is located in transmission substations and 13,155,525 KVA in distribution substations. Florida Power has the second largest transmission network in Florida. Florida Power has 4,600 circuit miles of transmission lines, of which 2,610 circuit miles are operated at 500, 230, or 115 kilovolts ("KV") and the balance at 69 KV. Florida Power has 23,914 circuit miles of distribution lines which operate at various voltages ranging from 2.4 to 25 KV. Florida Power, along with 12 other electric utilities in the state, formed 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 will directly address the unique electric reliability needs of the Florida peninsula electric system rather than participating as a subregion of the larger Southeastern Electric Reliability Council. In response to the FERC orders on open access transmission systems, Florida Power and other major transmission owners in Florida established the Florida Open Access Same-time Information System, which is a single internet location where transmission customers may obtain transmission information and submit requests for service or resell service rights. 12 DIVERSIFIED OPERATIONS ELECTRIC FUELS Electric Fuels owns and/or operates approximately 4,000 railcars, 45 locomotives, 700 river barges and 30 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 170 million tons and controls, through mineral leases, additional estimated proven and probable coal reserves of approximately 55 million tons. Electric Fuels also owns a 50% undivided interest in coal reserves located in West Virginia that currently are being leased to a third party under an agreement that expires in March 1998. 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 1996 was approximately 3.7 million tons. In connection with its coal operations, an Electric Fuels subsidiary, through a joint venture, has a 50% ownership interest in the operation of an underground mining complex 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. An Electric Fuels subsidiary owns railroad car repair and parts reconditioning and rail and trackworks facilities in 14 states, including a railcar hydraulic cushioning unit manufacturing and reconditioning facility in Fort Worth, Texas. Electric Fuels subsidiaries are also involved in scrap metal recycling and railcar leasing. 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. MID-CONTINENT Mid-Continent owns an office building in Oklahoma City, Oklahoma. 13 ITEM 3. LEGAL PROCEEDINGS 1. In Re: Fuel And Purchased Power Cost Recovery Clause and Generating Performance Incentive Factor, Florida Public Service Commission, Docket No. 970001-EI. Review Of Nuclear Outage At Florida Power Corporation's Crystal River Unit 3, Florida Public Service Commission, Docket No. 970261-EI. On February 19, 1997, the FPSC approved, subject to refund, an increase of approximately $2 per 1,000 kilowatt hours ("KWH") in the monthly retail residential customer bills for replacement fuel costs associated with the extended outage of CR3. This increase covers replacement fuel for the period from September 2, 1996 through March 31, 1997. At a later time, Florida Power plans to request FPSC approval of additional replacement fuel charges for the period from April 1, 1997 to the date the unit eventually restarts, which is expected to occur by year-end 1997. In conjunction with approving the $2 adjustment, the FPSC instituted an investigation concerning the reasons for the current outage. On February 28, 1997, the FPSC issued an order establishing procedures for this docket. On March 19, 1997, Florida Power filed a preliminary report outlining the specific actions and circumstances that led to the shut-down of CR3 on September 2, 1996, and the reasons why Florida Power determined that it was necessary to keep CR3 down for an extended outage. The schedule also calls for a hearing in June 1997, with a final FPSC decision in August 1997. Purchased Power Contracts Florida Power has entered into purchased power contracts with certain cogenerators which provide for capacity 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 contract is based would not have been operated. Four cogenerators filed suit against Florida Power over the level of payments made by Florida Power under the contracts. Florida Power has entered into settlement agreements with three of the four cogenerators, two of which are awaiting certain approvals from the FPSC and others. The settlement agreements generally provide for a mutually agreed upon methodology for computing the energy payments under the contracts, and a reduction of the length of terms of the contracts. Additional details regarding the legal proceedings with these four cogenerators are covered in paragraphs 2-5 below: 2. Pasco Cogen, Ltd. v. Florida Power Corporation, Florida Circuit Court, Sixth Judicial Circuit for Pasco County, Case No. 94-5331-CA-DIV-Y. In re: Petition for Expedited Approval of Settlement with Pasco Cogen, Ltd., Florida Public Service Commission, Docket No. 961407-EI. On October 14, 1994, Florida Power was served with a complaint brought by Pasco Cogen, Ltd. ("Pasco") seeking declaratory relief with respect to the pricing provision in its cogeneration contract and unspecified damages for breach of contract and violations of antitrust laws. In October 1996, Florida Power and Pasco resolved their dispute by executing a final settlement agreement, subject to approval by the FPSC and lenders to Pasco. On March 20, 1997, the FPSC's staff issued a primary recommendation in favor of approving the settlement and two alternative recommendations against the settlement. The FPSC is scheduled to make its decision regarding the petition in April 1997. 14 3. 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 Expedited Approval of Settlement with Lake Cogen, Ltd., Florida Public Service Commission, Docket No. 961477-EQ. Lake Interest Holdings, Inc. v. Lake Cogen, Ltd., NCP Lake Power, Inc., Lake Investments, L.P. and Florida Power Corporation, Fifth Judicial Circuit for Lake County, Florida, Case No. 97-549-CA-01. In October 1996, Florida Power was served with a complaint brought by NCP Lake Power, Inc. ("Lake") seeking unspecified damages for breach of contract with respect to the pricing provision in its cogeneration contract. In December 1996, Florida Power and Lake resolved their dispute by executing a final settlement agreement, subject to approval by the FPSC and lenders to Lake. The settlement agreement was executed by NCP Lake Power, Inc., as general partner of Lake Cogen, Ltd. On March 11, 1997, Florida Power was served with a complaint filed by Lake Interest Holdings, Inc., a partner of Lake Cogen, Ltd., alleging among other things that the settlement agreement was signed without authority and is void and of no force and effect, and seeking declaratory relief, attorneys fees and costs. On March 21, 1997, Florida Power moved to dismiss Lake Interest Holdings' claim against Florida Power, to consolidate the two Lake County circuit court cases, and for an order ratifying and enforcing its settlement agreement. 4. Orlando Cogen (1), Inc. and Orlando Power Generation I Inc., as general partners of and on behalf of Orlando CoGen Limited, L.P. v. Florida Power Corporation, U.S. District Court, Middle District of Florida, Orlando Division, Case No. 94-303-CIV-ORL-22. In re: Petition for approval of an early termination amendment to negotiated qualifying facility contract with Orlando CoGen Limited, FPSC Docket No. 970002-EI. On March 10, 1994, the general partners of Orlando CoGen Limited, L.P. ("OCL") filed suit against Florida Power seeking an order directing Florida Power to pay the capacity payment under its cogeneration contract and unspecified damages under federal and state antitrust laws. In February 1996, the parties executed a final settlement agreement, which was approved by the FPSC and OCL's lenders. In October 1996, Florida Power filed a petition for approval of an early termination amendment to reduce the term of the cogeneration contract from 30 to 20 years, expiring 2013. In January 1997, the FPSC issued a preliminary order denying the petition to reduce the term of the contract, citing among other things that the projected benefits of the early termination were overly sensitive to certain assumptions and would not be realized until too far into the future. Florida Power has requested a hearing on this matter. 5. 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 Progress Corporation, Florida Power Corporation and Electric Fuels Corporation, U.S. District Court, Southern District, Miami Division, Florida, Case No 96-594-CIV-LENARD. 15 On February 13, 1996, Metropolitan Dade County ("Dade") and Montenay Power Corp. ("Montenay") filed a complaint in the Circuit Court of the Eleventh Circuit for Dade County, Florida, seeking a declaratory judgment that their interpretation of the energy pricing provision in the cogeneration contract is correct, and damages in excess of $1.3 million for breach of that contract. No court schedule has as yet been set in this case. On May 14, 1996, Dade and Montenay lodged a complaint against Florida Power in the U.S. District Court for the Southern District, Miami Division, 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. The current schedule established by the court contemplates a trial commencing in December 1997. In March 1997, the plaintiffs amended the federal court case to include Florida Progress and Electric Fuels. 6. In re: Standard Offer Contract for the purchase of firm capacity and energy from a qualifying facility between Panda-Kathleen, L.P. and Florida Power Corporation, FPSC Docket No. 950110-EI. On January 23, 1995, Florida Power petitioned the FPSC for a declaratory statement that Florida Power's standard offer contract is not available to Panda-Kathleen, L.P. ("Panda L.P.") if it constructs a 115 MW cogeneration facility. In May 1996, the FPSC ruled that Panda L.P.'s proposed 115 MW facility does not comply with the 75 MW limitation contained in the FPSC's standard offer rules, and that Florida Power is required to make capacity payments only for 20 years rather than 30 years. In June 1996, Panda L.P. appealed this order to the Florida Supreme Court. Oral arguments were held in February 1997 and the Supreme Court is expected to render a decision in the first half of 1997. 7. Florida Power Corporation v. Panda-Kathleen Corp., United States District Court for the Middle District of Florida, Tampa, Division, Case No. 95-2145-CIV-T-25-B. In late 1995, Panda-Kathleen Corp. ("Panda Corp.") threatened Florida Power with litigation, alleging that Florida Power tortiously interfered with Panda Corp.'s rights by contracting with the City of Lakeland, Florida for certain rights to transport natural gas over an interstate natural gas pipeline. No legal action was taken by Panda Corp., but on December 27, 1995, Florida Power filed a complaint in the U.S. District Court for the Middle District of Florida seeking declaratory and other relief in response to Panda Corp.'s allegations. The current schedule, which the court is expected to revise, calls for a trial in the second quarter of 1997. 8. In re: Petition for expedited approval of an agreement to purchase the Tiger Bay cogeneration facility and terminate the related purchased power contracts, FPSC Docket No. 970096-EQ. On January 22, 1997, Florida Power petitioned the FPSC for approval of an agreement between the Tiger Bay Limited Partnership ("Tiger Bay") and Florida Power. Tiger Bay is Florida Power's largest cogeneration power supplier, representing 220 MW (21%) of the 1050 MW of total capacity that it receives from 16 cogenerators. The agreement provides for the purchase of the Tiger Bay cogeneration facility and related assets by Florida Power, resulting in the termination of five separate purchased power agreements under which Florida Power purchases power produced by the facility. Florida Power has requested authority to recover the purchase price over a period not to exceed five years, through Florida Power's capacity cost recovery clause. Florida Power also requested that it be allowed to recover the cost of fuel consumed by the Tiger Bay facility through Florida Power's fuel and purchased power cost recovery clause. Florida Power has asked the FPSC to expedite its consideration of this petition in order to satisfy the conditions precedent for closing the agreement on or before July 1, 1997. The FPSC has scheduled this matter for hearing in April 1997, with a decision to be rendered in June 1997. 16 9. Northern States Power Company, et al., v. United States Department of Energy, Case Number 97-1064, U.S. Court of Appeals, D.C. Circuit. On January 31, 1997, Florida Power joined approximately 35 other utilities with nuclear plants in an action brought against DOE under the Nuclear Waste Policy Act ("NWPA") to suspend payments to the Nuclear Waste Fund. Under the NWPA and contracts between utilities (including Florida Power) and DOE, utilities are required to make payments into the Nuclear Waste Fund based on the KWH of electricity generated by and sold from nuclear plants. In exchange, the NWPA and those contracts require DOE to begin accepting utilities' SNF by January 31, 1998. The U.S. Court of Appeals for the District of Columbia Circuit recently confirmed DOE's unconditional statutory and contractual responsibility to take SNF by January 31, 1998. See Indiana Michigan Power Co. v. DOE, 88 F.3d 1272 (D.C. Cir. 1996). In December 1996, DOE announced that it would be unable to meet its court-affirmed obligation to commence disposing of SNF by January 31, 1998 and conceded that a national high-level waste repository will not be available until 2010. The utilities request that, in view of DOE's recent announcement, the court issue a declaration that the utilities are relieved of their reciprocal obligation to pay fees into the Nuclear Waste Fund and are authorized to place those fees into escrow accounts unless and until DOE commences disposing of SNF. Failure of DOE to accept SNF will not immediately affect Florida Power, which has sufficient on-site temporary storage capacity for SNF through the year 2010. If, however, DOE does not begin accepting SNF, eventually Florida Power will be forced to seek other temporary storage options. 10. Florida Power Corp. v. United States, United States Court of Federal Claims, Case No. 96-702C. In November 1996, Florida Power filed suit against the United States alleging breach of contract and illegal taking of property without just compensation. Florida Power seeks more than $7.5 million in damages, plus interest, and has requested declaratory and injunctive relief. The suit arises out of several contracts under which the United States provided Florida Power uranium enrichment services at fixed prices. After Florida Power fully paid for all such services under the contracts, the United States, through congressional legislation enacted in 1992, imposed a retroactive price increase on the completed enrichment services contracts in order to fund the decontamination and decommissioning of the United States' gaseous diffusion uranium enrichment facilities. The United States is collecting this increase through an annual "special assessment" levied on all utilities that had enrichment services contracts with the United States. 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 $7.5 million in special assessments. If the payments continue for the full fifteen year period, they will increase the cost of Florida Power's contracts by a total of more than $23 million. In its complaint, Florida Power is seeking (1) an order declaring that all special assessments are unlawful, (2) an injunction prohibiting the United States from collecting future special assessments, and (3) an award of more than $7.5 million, plus interest, as damages for the United States' wrongful acts. In December 1996, the court granted the parties' joint motion to stay proceedings in this matter until 45 days after the entry of a final judgement in Yankee Atomic Electric Co. v. United States, 33 Fed. Ct. 580 (1995), which is now on appeal to the U.S. Court of Appeals, No. 96-5021-5025. That case is similar to Florida Power's suit. A decision in the Yankee Atomic Electric matter is expected in the second quarter of 1997. 17 11. 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-CIV-OC-10. In October 1995, Florida Power and Florida Progress were served with a multi-party lawsuit involving 17 named plaintiffs. Subsequent motions to the case seek to add 39 additional plaintiffs. If successful, the motions would increase the total number to 56 named plaintiffs. The plaintiffs, all former Florida Power employees, generally allege age discrimination in violation of the Age Discrimination in Employment Act and wrongful interference with pension rights in violation of the Employee Retirement Income Security Act as a result of their involuntary terminations. While no dollar amount is requested, each plaintiff seeks back pay, reinstatement or front pay through their projected dates of normal retirement, costs and attorneys' fees. In November 1995, Florida Power filed its answer, a motion to dismiss Florida Progress, and a counterclaim against the plaintiffs who signed a career transition agreement and general release, promising, among other things, not to sue Florida Power with respect to this matter. On October 29, 1996, the court approved a joint stipulation whereby it provisionally certified the case as a class action. As a result, a notice was sent to all former employees terminated during Florida Power's recent reduction- in-force who were over the age of forty at the time of their terminations. The notice informed those persons of the existence of the lawsuit and of their 90 day right to "opt-in." A status conference is scheduled for April 22, 1997. 12. Gulf Power et al v. United States and the Federal Communications Commission, U.S. District Court, Northern District of Florida, Pensacola Division, Case No. 3:96-CV-381-LAC. On July 30, 1996, Florida Power, together with six other electric utilities, filed the above-referenced suit against the United States challenging the constitutionality of the pole attachment amendments to the Telecommunications Act of 1996. The suit seeks a declaration that the act's requirements are unconstitutional because they impose a mandatory obligation on utilities to provide access to poles they own or control to cable television and telecommunications service providers without providing just compensation for this use. The suit also seeks a permanent injunction against the Federal Communications Commission preventing it from enforcing the mandatory access provision. On October 11, 1996, the United States and the Federal Communications Commission filed their answers and asked the court to dismiss the case with prejudice. 13. Sanford Gasification Plant Site, Sanford, Florida The Sanford gasification site is a former manufactured gas plant site located in the city of Sanford, Florida. It began operation in the 1880's and continued through the early 1950's. Originally owned by Southern Utilities Company, the plant was purchased in 1924 by the City of Sanford, then sold again in 1928 to Sanford Gas Company. Sanford Gas Company, which merged into Florida Power in 1944, operated the plant until 1946 when it was sold to South Atlantic Gas Company (now known as Atlanta Gas Light Company). The plant was conveyed three more times, being purchased by the current owner, Florida Public Utilities Company ("FPUC"), in 1965. The FDEP began investigating the site in 1990. FPUC subsequently initiated an action styled FPUC v. Florida Power, Florida Power & 18 Light, Atlanta Gas Company and City of Sanford, Florida, United States District Court for the Middle District of Florida, Orlando Division, Civil Action No. 92-115-CIV-ORL-19, seeking contribution from former owners or operators of the site, including Florida Power. The complaint alleged that Florida Power's liability was based on prior ownership and operation of the gasification plant between the years 1928 and 1946. This action was dismissed without prejudice in February 1995. In response to the FDEP, the parties to the action initiated by FPUC had a contamination assessment conducted. The report of this assessment was forwarded to FDEP in February 1994. The FDEP reviewed the report and issued its site prioritization report, scoring the site with regard to the national priorities list. Currently, the site is evaluated at 25.9 with 28.5 as the threshold for listing the site on the national priorities list. The EPA is performing a supplemental study of nearby Lake Monroe to determine if contamination exists in the water or sediment. If associated contamination is confirmed, the site could score over the 28.5 threshold, thereby causing the EPA to add this site to the EPA's National Priorities List of sites that require cleanup. The EPA is expected to coordinate with the FDEP in scoring the site. Florida Power cannot at this time reasonably ascertain its share of the costs of cleaning up this site because of variables beyond its control, including: (i) whether the EPA will score nearby Lake Monroe above 28.5, thus placing the site under federal regulations and possibly requiring a more costly cleanup; (ii) whether litigation will ensue to determine the allocation of liability, and if so, among what number of other PRPs; and (iii) the cost of potential cleanup, monitoring or other work. Although estimates of any additional costs are not available, the results of the EPA's additional testing is not expected to have a material effect on Florida Power's financial position, operations or liquidity. This matter is being reported because liability for the cleanup of certain sites is technically joint and several and because the extent to which other parties will ultimately share in the cleanup costs at this site is not yet determinable. For further information regarding contaminated site cleanup, see Note 11 to the Financial Statements. 14. Peak Oil Company, Missouri Electric Works, 62nd Street, AKO Bayside, Bluff Electric and Sidney Mine 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. In 1996, Florida Power settled the Sydney Mine Superfund site litigation. In connection with the settlement, Florida Power paid approximately $56,000 in exchange for a release from liability in connection with the site. For further information regarding contaminated site cleanup, see Note 11 to the Financial Statements. 15. Peak Oil Company and Zellwood Groundwater Superfund Sites. In 1992, Florida Progress was notified by the EPA that Progress Packaging Corporation ("Progress Packaging") is or could be a PRP in reference to the Zellwood Groundwater site. Florida Progress sold the assets of Progress Packaging in 1988. Based upon the information presently available, Florida 19 Progress believes that its total liability for the cleanup of this site will not be material. The EPA recently issued Special Notice Letters to newly identified PRPs. To date, Florida Progress has not received such a letter. Florida Progress has been advised orally by the EPA that if Florida Progress did not receive such a letter then Progress Packaging will not be held liable for any damages related to this matter. Florida Progress is currently awaiting written confirmation from the EPA that Progress Packaging was not mailed a letter naming it as a PRP, as none has been received to date. For further information regarding contaminated site cleanup, see Note 11 to the Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 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 1997, Florida Progress' Board announced an increase of about 2% in the common stock quarterly dividend, which on an annual basis would increase the dividend from $2.06 to $2.10 per share. In 1996, Florida Progress' dividend payout ratio from continuing operations was 79% of earnings. Information concerning the Florida Progress dividend payout ratio and dividend policy is set forth in Item 7 "MD&A - Liquidity and Capital Resources". Florida Progress' Restated Articles of Incorporation, as amended, 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, as amended, 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, 1996, 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). The approximate number of equity security holders of Florida Progress is as follows: Number of Registered Holders* Title of Class as of December 31, 1996 - ------------------------------ ---------------------------- Common Stock without par value 54,195 * The computation of registered holders includes record holders as well as individual positions in the Progress Plus Stock Plan. 20 FLORIDA POWER All of Florida Power's common stock is owned by Florida Progress, its corporate parent, 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, as amended, 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, 1996, Florida Power's ability to pay dividends was not limited by these restrictions. ITEM 6. SELECTED FINANCIAL DATA
Annual Growth Rates (in percent) 1991-1996 1996 1995 1994 1993 1992 1991 ------------------------------------------------------------------------------------------------------------------ FLORIDA PROGRESS CORPORATION Summary of operations (in millions) Utility revenues 7.0 $2,393.6 $2,271.7 $2,080.5 $1,957.6 $1,774.1 $1,718.8 Diversified revenues (continuing) 27.5 764.3 736.1 644.8 430.3 281.1 263.8 Income from continuing operations 8.0 250.7 238.9 212.0 196.0 183.8 167.9 Income (loss) from discontinued operations and change in accounting (26.3) - - 0.6 (8.1) 4.2 Net income 6.4 224.4 238.9 212.0 196.6 175.7 172.1 ------------------------------------------------------------------------------------------------------------------ Balance sheet data (in millions): Total assets 2.7 $5,348.4 $5,550.4 $5,453.1 $5,338.0 $4,978.8 $4,683.4 Capitalization: Short-term capital (43.0) $ 39.0 $173.7 $ 99.9 $195.2 $177.6 $60.8 Long-term debt 6.7 1,776.9 1,662.3 1,835.2 1,840.5 1,651.3 1,631.8 Preferred stock (32.2) 33.5 138.5 143.5 148.5 216.0 231.0 Common stock equity 6.2 1,924.2 2,078.1 1,984.4 1,820.5 1,737.6 1,587.7 ------------------------------------------------------------------------------------------------------------------- Total capitalization .6 $3,773.6 $4,052.6 $4,063.0 $4,004.7 $3,782.5 $3,511.3 ------------------------------------------------------------------------------------------------------------------- Common stock data: Average shares outstanding (in millions) 4.7 96.8 95.7 93.0 88.3 85.4 80.8 Earnings per share: Utility 2.2 $2.40 $2.27 $2.05 $2.06 $1.99 $2.03 Diversified (continuing) 7.9 .19 .23 .23 .16 .21 .11 Discontinued operations and change in accounting (.27) - - .01 (.14) (.01) Consolidated 1.6 2.32 2.50 2.28 2.23 2.06 2.13 Dividends per common share 3.0 2.06 2.02 1.99 1.95 1.905 1.843 Dividend payout 88.9% 81.0% 87.7% 87.6% 93.0% 87.0% Dividend yield 6.4% 5.7% 6.7% 5.9% 5.9% 6.0% Book value per share of common stock 1.6 $19.84 $21.55 $20.85 $20.40 $19.85 $19.14 Return on common equity 10.9% 11.8% 11.1% 11.1% 10.6% 11.4% -------------------------------------------------------------------------------------------------------------------- Common stock price per share: High 36 3/8 35 3/4 33 5/8 36 3/8 33 1/4 31 1/2 Low 31 5/8 29 3/8 24 3/4 31 1/4 27 7/8 24 3/8 Close 4.8 32 1/4 35 3/8 30 33 5/8 32 5/8 31 1/4 Price earnings ratio (year-end) 13.9 14.2 13.2 15.1 15.8 14.7 - --------------------------------------------------------------------------------------------------------------------- Other year-end data: Number of employees (1.9) 7,291 7,174 7,394 7,825 7,301 7,350 - ---------------------------------------------------------------------------------------------------------------------
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Annual Growth Rates (in percent) 1991-1996 1996 1995 1994 1993 1992 1991 ------------------------------------------------------------------------------------------------------------------ FLORIDA POWER CORPORATION Electric sales (million of KWH) Residential 4.5 15,481.4 14,938.0 13,863.4 13,372.6 12,825.8 12,623.9 Commercial 3.8 8,848.0 8,612.1 8,252.1 7,884.8 7,544.1 7,489.2 Industrial 4.1 4,223.7 3,864.4 3,579.6 3,380.8 3,254.5 3,303.0 Total retail sales 4.4 30,784.8 29,499.5 27,675.2 26,528.3 25,414.0 25,179.1 Total electric sales 4.3 33,492.5 32,402.6 30,014.6 28,647.8 27,375.5 27,350.2 - --------------------------------------------------------------------------------------------------------------------- Residential service (average annual): KWH sales per customer 1.9 13,560 13,282 12,597 12,420 12,214 12,257 Revenue per customer 4.9 $1,138 $1,114 $1,038 $983 $884 $899 Revenue per KWH 2.7 $0.0839 $0.0839 $0.0824 $0.0792 $0.0724 $0.0733 - --------------------------------------------------------------------------------------------------------------------- Financial Data: Operating revenues 7.0 $2,393.6 $2,271.7 $2,080.5 $1,957.6 $1,774.1 $1,718.8 Net income after dividends on preferred stock 7.2 $ 232.6 $217.3 $190.7 $181.5 $170.2 $164.1 Total assets 3.2 $4,264.0 $4,284.9 $4,284.5 $4,259.5 $3,980.6 $3,643.2 Long-term debt and preferred stock subject to mandatory redemption 1.3 $1,296.4 $1,304.1 $1,393.8 $1,433.6 $1,318.3 $1,213.1 Total capitalization including short-term debt (in millions) 3.4 $3,180.8 $3,202.2 $3,265.4 $3,240.4 $3,029.2 $2,692.2 Capitalization ratios: Short-term capital (10.6) 0.8% 1.0% 2.8% 5.3% 4.4% 1.4% Long-term debt (0.3) 40.8% 39.9% 41.7% 43.1% 40.8% 41.4% Preferred stock (35.0) 1.0% 4.3% 4.4% 4.6% 7.1% 8.6% Common stock equity 3.4 57.4% 54.8% 51.1% 47.0% 47.7% 48.6% Ratio of earnings to fixed charges (SEC method) 4.3 4.80 4.41 3.90 3.83 3.84 3.87 Embedded cost of long-term debt (1.9) 7.2% 7.2% 7.1% 6.8% 7.5% 7.7% Embedded cost of preferred stock (8.7) 4.6% 6.8% 6.8% 6.8% 7.3% 7.3% - --------------------------------------------------------------------------------------------------------------------- Operating Data: Net system capacity (MW) 2.2 7,341 7,347 7,295 7,563 7,002 6,623 Net system peak load (MW) 11.9 8,807 7,722 6,955 6,729 6,982 6,056 Capital expenditures (in millions) (3.9) $217.3 $283.4 $319.5 $426.4 $472.9 $345.9 Net cash flow to capital expenditures 20.2 175% 125% 103% 63% 52% 66% Fuel cost per million BTU 1.5 $2.04 $1.69 $1.75 $1.79 $1.86 $1.89 Average number of customers 2.6 1,292,075 1,271,784 1,243,891 1,214,653 1,182,170 1,159,237 Number of full-time employees (3.6) 4,629 4,658 4,972 5,807 5,806 5,677 - ---------------------------------------------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATING RESULTS Florida Progress' 1996 consolidated earnings from continuing operations were $250.7 million, or $252.4 million before nonrecurring items. This compares with $238.9 million in 1995 and $212 million in 1994. Florida Power earned $232.6 million in 1996, compared with $217.3 million in 1995 and $190.7 million in 1994. Earnings from continuing diversified operations were $19.8 million in 1996, compared with $21.6 million in 1995 and $21.3 million in 1994. 22
EARNINGS PER SHARE 1996 1995 1994 ------------------------------------------------------------------------------ Florida Power Corporation $2.40 $2.27 $2.05 ------------------------------------------------------------------------------ Electric Fuels Corporation .28 .25 .25 Mid-Continent Life Insurance Co. .02 .07 .08 Other (.09) (.09) (.10) ------------------------------------------------------------------------------ Diversified .21 .23 .23 Continuing operations before nonrecurring items 2.61 2.50 2.28 Provision for loss on coal properties (.26) - - Gain on sale of business .24 - - ------------------------------------------------------------------------------ Total continuing operations 2.59 2.50 2.28 Discontinued operations (.27) - - ------------------------------------------------------------------------------ Consolidated $2.32 $2.50 $2.28 ------------------------------------------------------------------------------
Florida Power's 1996 earnings per share were up 5.7% over 1995 primarily due to continued customer growth. Residential customer growth of about 2% in 1996 continues to have the most significant effect on Florida Power's earnings growth. Contributing to Florida Power's 1996 earnings growth were lower interest and preferred dividend charges for 1996, compared with 1995. Lower debt balances resulting from improved cash flow and the redemption of preferred stock lowered these costs by $10 million. The increase in 1995 earnings per share when compared with 1994 was due in part to certain charges in 1994 that related to work-force reductions and the write-off of a proposed natural gas pipeline project. These charges totaled $15.4 million, or $.16 per share, in 1994. In 1996, Florida Progress made significant strides toward accomplishing its objective of divesting itself of businesses that are not strategically related to its core businesses - Florida Power, the electric utility, and Electric Fuels, its energy and transportation subsidiary. In December 1996, Florida Progress completed the divestiture of Echelon, formerly Progress Credit, through a tax-free stock dividend. As a part of this transaction, Florida Progress recorded a $26.3-million charge to earnings for the write-down of certain assets of Echelon and other costs associated with the divestiture. Echelon is reported as discontinued operations. (See Note 10 to the Financial Statements.) In December 1996, Florida Progress sold its 80% interest in Advanced Separation Technologies, Inc. for $56 million and realized an after-tax gain of $23.5 million, or $.24 per share. Mid-Continent's earnings have declined in each of the last three years primarily due to declining sales of its primary life insurance product and higher death-benefit claims. In December 1996, Electric Fuels recorded a $25.2-million after-tax charge to earnings to establish a provision for loss on its unprofitable coal properties, now available for sale. The provision was necessary because management did not consider the unfavorable market conditions for low-sulfur coal to be temporary. 23 The financial return on Florida Power's common equity was 12.9% in 1996, compared with 12.7% in 1995 and 11.9% in 1994. Increases in retail energy sales and tight control over costs are enabling Florida Power to maintain its return on equity and continue its earnings growth. Florida Progress' diversification strategy has centered on growing Electric Fuels. Return on equity from the energy and transportation subsidiary, before its provision for loss on coal properties, was 14% in 1996, 13.8% in 1995 and 14.5% in 1994. FLORIDA POWER CORPORATION Utility Competition In 1996, the FERC issued new rules on transmission service to facilitate competition in wholesale generation on a nationwide basis. The rules give greater flexibility and more choices to wholesale power customers. (See Note 1 to the Financial Statements.) Florida Power established a Power Marketing organization as part of its response to the new rules issued by federal regulators. The rules are designed to encourage increased competition in the wholesale power market. In 1995, Florida Power was successful in obtaining a three-year agreement to provide an additional 455 MW of power to Seminole Electric Cooperative, Inc., beginning in 1999. The cooperative is Florida Power's largest wholesale customer. The contract will increase annual wholesale revenues by more than 40% and is projected to expand this market segment to about 8% of total sales in 1999. A major portion of Florida Power's retail business is covered under terms of franchise agreements with municipalities and counties. In 1996, 15 franchise customers elected early renewal of their 30-year agreements with Florida Power while five amended their existing agreements. The utility believes quality service and competitive rates will continue to be important factors as other franchise agreements come up for renewal. No franchise agreements representing significant revenues are due to expire before the year 2000. The power generation segment of the electric power business is expected to be the most competitive in a deregulated environment. While Florida Power's total production costs are comparable with the other investor-owned utilities in Florida, the utility is committed to further improving the efficiency of its power plants. In 1998, a new 470-MW natural gas-fired combined-cycle power plant is planned to be in service. It is expected to be one of the most cost-effective plants in the country. The pace of change in the electric utility industry continued to accelerate in 1996. Today, there are a record number of mergers pending in the industry. Many U.S. electric utilities are merging or forming alliances with utilities overseas or investing in international projects. Several states are pursuing electric utility restructuring plans to provide retail customers with a choice for their energy suppliers. The momentum for retail competition has not been as strong in Florida as it has been in other states, where some provisions for retail choice have been passed. Competitive electric rates and the comparatively small number of large industrial and commercial customers are the main reasons there has been less incentive for change in Florida. There is proposed federal legislation that could be enacted in the next couple of years that would expedite the development of retail customer choice in all states. Florida Power is regulated by the FPSC and the FERC. The utility is able to capitalize or defer certain costs or revenues if it is probable these items will be recovered through the ratemaking process. In the future, regulatory changes due to competition or other reasons could result in the write-off of regulatory assets and liabilities. 24 Florida Power is committed to providing high-quality, cost-competitive service in order to retain customers while, at the same time, developing new products and services that will attract new customers. Utility Revenues and Sales Florida Power's operating revenues were $2.4 billion in 1996, compared with $2.3 billion in 1995 and $2.1 billion in 1994. Revenues rose in 1996 and in 1995, primarily because of customer growth and continued improvement in the economy. The utility's retail KWH sales increased 2.9% in 1996 and 7.8% in 1995. Residential customer growth was about 2% in 1996 and in 1995. Florida Power's annual customer growth rate continues to be twice the national average for electric utilities. Beginning in 1995, Florida Power was ordered by the FPSC to conduct a three-year test of residential revenue decoupling. This ratemaking concept is designed to eliminate the direct link between KWH sales and revenues. Under revenue decoupling, abnormal weather does not impact earnings from residential sales, which represents the single-largest customer group for Florida Power. A change in customer usage due to extreme heating or cooling conditions will not have a material effect on Florida Power's earnings, whereas customer growth and higher usage due to nonweather-related factors can affect earnings. (See Note 1 to the Financial Statements.) Under Florida Power's revenue decoupling plan, the utility recorded a regulatory liability of $3.6 million for 1996 and $18.7 million for 1995. Fuel and Purchased Power Fuel and purchased power costs primarily are recovered through an adjustment recovery clause established by state and federal regulators. Fluctuations in these costs have little impact year to year on net income, but could become increasingly important in a more competitive environment. Fuel and purchased power costs increased $152.2 million in 1996. This increase was offset by the deferral of $82.3 million, which is recorded as a regulatory asset. The increase resulted primarily from the need for replacement power due to an extended maintenance outage at the CR3 nuclear plant. In February 1997, the FPSC approved Florida Power's request to increase fuel rates to recover the deferred costs of replacement power incurred through March 1997. In conjunction with this approval, the FPSC ordered its staff to begin an immediate investigation concerning the reasons for CR3's current outage. The additional revenues generated by the increased fuel rates associated with the extended outage are subject to refund pending the outcome of this investigation. Florida Power estimates that replacement fuel costs related to that outage are approximately $10 million per month, with weather and the availability of alternative energy sources being the principal factors that can affect actual costs. Florida Power expects to file an additional request with the FPSC for replacement power costs that are incurred after March 1997. Management believes it is probable that the FPSC, after completing its investigation, will approve the recovery of replacement power costs incurred during the entire outage. For additional information regarding the FPSC's investigation, see paragraph 1 under Item 3 "Legal Proceedings". In 1995, fuel and purchased power costs increased $147.7 million over the previous year. This was due to increased purchased power costs and higher system requirements. For 1997, fuel and purchased power costs likely will increase over 1996 because of higher replacement fuel costs associated with the expected unavailability of CR3 for most of 1997. 25 Florida Power receives 1,050 MW of total capacity from cogeneration facilities. In 1996, Florida Power spent $222 million for purchased power under these contracts. This represented 24% of system fuel and purchased power expenses for the year. Costs associated with those contracts raised Florida Power's system average cost for generation in 1995 and 1996, and this trend is expected to continue. Florida Power is continuing to seek ways to mitigate the impact of escalating payments from contracts it was obligated to sign under provisions of the federal Public Utilities Regulatory Policies Act of 1978. One strategy being pursued is to buy down those contracts that have prices that are projected to be above future market prices. While paying a discounted price today for these future obligations increases costs in the short term, the long-term benefit to ratepayers can be significant. Florida Power has several purchased power buy-down proposals before state regulators as well as a petition to recover the costs associated with the acquisition of the 220-MW Tiger Bay cogeneration facility and to terminate the purchased power contracts relating to that facility for $445 million. Tiger Bay is Florida Power's largest cogeneration power supplier, representing more than 20% of the 1,050 MW of total capacity Florida Power receives from cogeneration facilities. Other Utility Expenses Utility operation and maintenance expenses increased by $19.7 million in 1996. The increase was due primarily to additional costs associated with the extended maintenance outage of CR3 and expenses related to improving service and reliability. In 1995, operation and maintenance expenses decreased by $18.5 million when compared with the previous year primarily due to companywide cost-reduction efforts. The utility's commitment to cost control has resulted in minimal increases in operation and maintenance costs except for nuclear outage expenses. The utility's goal for 1997 is to limit increases in nonnuclear operation and maintenance costs to less than the national inflation rate. Recoverable energy conservation program costs decreased by $21.4 million in 1996 and by $20.3 million in 1995 due to a reduction in the credits paid to customers who participate in Florida Power's load management program. The reduction began in April 1995. The change had no significant impact on earnings because Florida Power recovers substantially all of these costs through a clause in electric rates similar to the fuel adjustment clause. Depreciation expense increased by $30.5 million in 1996 and by $32.2 million in 1995. In 1995, Florida Power began amortizing $23.9 million of accumulated costs for the canceled Lake Tarpon-Kathleen transmission line over a four-year period. However, the utility chose to accelerate amortization and complete the write-off in 1996. Florida Power also wrote off two oil-fired power plants in 1996 that were placed in extended cold shutdown in 1994, increasing depreciation in 1996 by $11.7 million. Other factors contributing to the increase in 1996 were plant additions, primarily distribution facilities. The increase of $32.2 million in 1995 over 1994 was primarily due to increased nuclear decommissioning costs, amortization of accumulated costs for the Lake Tarpon-Kathleen line, and plant additions. Nuclear Operations After completing a record performance in 1995 by achieving a capacity factor of 100%, the CR3 nuclear plant was shut down for much of 1996. Beginning in February, the plant underwent a scheduled refueling outage that lasted until May when the nuclear plant returned to service. 26 In September, an oil pressure problem in the main turbine forced the plant to shut down until repairs could be made. When the repairs were completed in October, Florida Power decided to keep CR3 down to address certain backup safety system design issues. The primary issue involves an electrical loading problem with one of the plant's two emergency diesel generators that are part of the emergency core cooling system. These generators would be activated in the event there is a loss of off-site power. The utility is assessing several options to address the diesel loading issue and expects to be able to restart the plant by year-end 1997. The NRC established a special panel in late 1996 to provide regulatory oversight to restarting the nuclear plant. The NRC was critical of the nuclear plant's overall performance in 1996, particularly in the areas of management oversight and engineering. In January 1997, the NRC placed the nuclear plant on its "Watch List" as a plant whose operations will be monitored closely. Florida Power is disappointed with the NRC's action, but remains committed to implementing safe, reliable and cost-effective solutions to resolve the issues. Florida Power hired two senior nuclear officers and added other personnel to further strengthen the nuclear plant's engineering staff. The utility's nuclear management and staff have developed a thorough corrective action plan that is designed to address those areas identified by regulators as needing improvement. Florida Power's management is confident that its action plan will return CR3 to top performance. The new nuclear management team is reviewing previous estimates of the operating and maintenance expenses and capital costs associated with the outage. Management believes that it will have sufficient information to provide final estimates of these costs during the second quarter of 1997. DIVERSIFIED OPERATIONS For several years, Florida Progress has been executing an orderly withdrawal strategy from those diversified operations no longer related to its core utility and energy and transportation businesses. Two restructuring decisions were made in 1996 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 Advanced Separation Technologies contributed an after-tax gain of $23.5 million. Another nonrecurring 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 or $.26 a share. Electric Fuels Corporation Electric Fuels, Florida Progress' energy and transportation subsidiary, has three principal business units: energy and related services, inland marine transportation and rail services. Florida Progress continues to build on Electric Fuels' existing operations through internal expansion and by pursuing new market opportunities, primarily with its inland marine transportation and rail services units. In July 1996, an Electric Fuels subsidiary, Progress Rail Services Corporation ("Progress Rail"), acquired Railcar, Ltd., an Atlanta-based railcar leasing company. In August 1996, Electric Fuels acquired the assets of Mansbach Metal Company, a metal recycling and railcar dismantling, repair, and leasing company based in Ashland, Kentucky. Progress Rail is one of the largest integrated suppliers of rail services in the United States with locations in 14 states. Revenues from rail services in 1996 were $355.5 million, an increase of $33.3 million over 1995. The increase is due to recent acquisitions and increased sales volumes as railroads continue outsourcing portions of their service and repair needs. 27 Expansion of Electric Fuels' inland marine transportation unit has been achieved primarily through the purchase of river barges. At the end of 1996, the unit operated about 700 inland river barges with a commitment to purchase approximately 200 new high-capacity barges in 1997 and options for additional units in 1998 and beyond if market demand warrants additional expansion. Expansion of the fleet is expected to enable Electric Fuels to increase its market share by focusing on long-term contracts for hauling coal, wood chips, agricultural products and other dry cargoes. Electric Fuels began purchasing low-sulfur coal properties in the late 1980s as part of a strategy to take advantage of the expected increase in demand for low-sulfur coal. The increase was expected because of more stringent sulfur dioxide emission requirements imposed on electric utilities by the CAAA. The supply of inexpensive low-sulfur coal from mines in the western United States and the low cost of emission allowance credits have kept the price of central Appalachian low-sulfur coal lower than originally projected. Because these coal market conditions are not considered by management to be temporary, Electric Fuels established a provision for loss on its unprofitable coal properties. Electric Fuels has a business plan to improve productivity and quality control in its coal operations in 1997. The plan calls for increasing output from Electric Fuels' remaining mines and directing production to higher-profit markets. Earnings from Electric Fuels in 1996, before the provision for loss on unprofitable coal properties, were $27.1 million, compared with $24 million in 1995 and $22.6 million in 1994. The $3.1-million increase in 1996 was due largely to better results from Electric Fuels' energy and related services operations. Before the provision for loss on coal properties in 1996, Electric Fuels' earnings yielded a 22% average annual compound earnings growth rate over the last three years and averaged a 14.1% return on equity for the same period. Electric Fuels expects to have a continuation of double-digit earnings growth for the foreseeable future. Mid-Continent Life Insurance Company When Mid-Continent was acquired in 1986, it sold a popular, low-priced death-benefit insurance policy. Over the last few years, the insurance industry has become more competitive, resulting in lower sales of new policies at Mid-Continent. A new management team at Mid-Continent determined that the old product was not adequately priced. In 1996, Mid-Continent replaced its existing principal policy with a new product called "Basic Life." It resembled the old product that had been Mid-Continent's principal policy, but offered more flexibility and guarantees to policyholders at a higher price. Mid-Continent was hoping to rebuild market share and achieve increased profitability with the "Basic Life" product. Sales of the new policy, however, have not met management's expectations. In December, Mid-Continent reduced its work force to be able to compete on a more focused and cost-efficient basis. In 1997, Mid-Continent plans to begin an orderly process to resolve the pricing issue that is expected to involve reducing policy dividends and increasing premiums. 28 Mid-Continent does not fit with the long-term strategic direction of Florida Progress. It is expected to take three to five years for Mid-Continent's business plan to result in sufficient value before Florida Progress can prudently divest this business. Mid-Continent's earnings in 1996 were $1.9 million, compared with $6.5 million in 1995 and $7.3 million in 1994. Florida Progress does not expect significant future earnings contributions from Mid-Continent. Other Florida Progress adopted several new accounting standards during the last three years. (See Note 1 to the Financial Statements.) Florida Power and a former Florida Progress subsidiary have been notified by the EPA that each is or may be a PRP 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.) 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. LIQUIDITY AND CAPITAL RESOURCES Cash from operations has been the primary source of capital for Florida Progress. Other sources of capital included proceeds from the sales of properties and businesses, debt financing, issuance of common stock and the orderly withdrawal from Florida Progress' lending and leasing and real estate portfolio. Florida Progress has been issuing new equity in recent years primarily to fund Florida Power's construction program. Florida Power is forecasting lower construction expenditures in the years ahead. The utility does not expect construction to require any significant increase in equity or debt over the next five years. Because of the reduced equity requirements, Florida Progress' stock purchase plan, the Progress Plus Stock Plan (the "Stock Purchase Plan"), began purchasing shares in the open market instead of issuing new shares beginning in July 1996. For the first half of 1996 and for all of 1995 and 1994, new equity was issued through the Stock Purchase Plan. During the last three years, Florida Progress raised $103 million of equity capital through the Stock Purchase Plan. In a May 1994 public offering, Florida Progress sold 3.6 million shares of common stock with net proceeds of $92.2 million. In December 1994, Electric Fuels acquired FM Industries, Inc. for 700,000 shares of Florida Progress common stock. Florida Progress contributed $12.5 million in 1996, $50 million in 1995 and $130 million in 1994 to Florida Power from the proceeds of Florida Progress' public stock offerings and the Stock Purchase Plan. These funds were used to further strengthen Florida Power's financial position. Florida Progress' capital structure as of December 31, 1996, was 51% common equity, 48.1% debt and .9% preferred stock of Florida Power. Florida Progress' goal is to maintain capital structures for its utility and diversified operations at levels that will enable its subsidiaries to preserve their current credit ratings. 29 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 Earnings per share growth over the past three years has allowed Florida Progress to continue its long-standing tradition of increasing the dividend while, at the same time, following the Florida Progress board of director's strategy of lowering the dividend payout ratio. The payout from continuing operations was 79% in 1996 and 81% in 1995. This is down significantly from several years ago. Florida Progress has increased the dividends paid per share each year for 44 consecutive years. Florida Progress' board realizes, however, that the dividend policy should be evaluated annually, and it does so each February. The board will continue to re-examine the dividend payout policy to ensure that Florida Progress' dividend payout and dividend rate are appropriate, given its business plan and projected earnings growth and the outlook for the electric utility industry. Florida Progress anticipates sustained earnings growth in the five-year business plan. The level of confidence in earnings growth will continue to be one of several considerations used in setting dividend policy. In February 1997, Florida Progress' board increased the quarterly cash dividend on Florida Progress common stock by approximately 2%. This board action increased the annual dividend by four cents per share, therefore raising the annual dividend to $2.10 per share. Florida Power Corporation Florida Power's construction expenditures in 1996 totaled about $217 million. This was primarily for distribution lines and other facilities related to the utility's growing customer base. Florida Power's five-year construction program totals $1.4 billion for the 1997-2001 forecast period. It includes planned expenditures of $372 million, $307 million, $252 million, $230 million and $269 million for 1997 through 2001. Florida Power expects construction expenditures during this period will be financed with internally generated funds. Florida Power has agreed to acquire the 220-MW Tiger Bay cogeneration facility and to terminate the purchased power contracts related to that facility for $445 million in 1997, subject to approval by other parties. Tiger Bay is Florida Power's largest cogeneration power supplier. Florida Power plans on financing the Tiger Bay acquisition primarily through debt financing. The CAAA require electric utilities to reduce sulfur dioxide emissions. Florida Power expects to meet these requirements with minimal capital expenditures. In 1996, Florida Power's net cash flow to capital expenditures was 175%. In addition to funding its construction commitments with cash from operations, Florida Power receives equity from Florida Progress and accesses the capital markets through the issuance of commercial paper, medium-term notes and first mortgage bonds. 30 Florida Power has a public $300-million, medium-term note program, providing for the issuance of either fixed or floating interest rate notes, with maturities that may range from nine months to 30 years. Florida Power's interim financing needs are funded primarily through its commercial paper program. The utility has a 364-day revolving bank credit facility and a five-year facility, $200 million each, which are used to back up commercial paper. (See Note 6 to the Financial Statements.) Florida Power used additional cash generated by operations to redeem $105 million of preferred stock in 1996 and reduced total debt levels by about $145 million in 1995. Florida Power's embedded cost of long-term debt was 7.2% as of December 31, 1996 and 1995. Diversified Operations Progress Capital, the downstream holding company of Florida Progress, consolidates the collective financial strength of these operations and, with the benefit of a recently amended 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 private $300-million, 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 1996, Progress Capital issued $178 million of medium-term notes with maturities ranging from five to 10 years. The proceeds were used mainly to repay $140 million of maturing medium-term notes. Progress Capital also 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 to the Financial Statements.) In 1996, total diversified capital expenditures were about $41 million, primarily for operations at Electric Fuels. In 1996, Progress Capital received net proceeds of $53 million from the sale of Advanced Separation Technologies and expended $54 million related to acquisitions made by Electric Fuels or its affiliates. In 1997, diversified capital expenditures are expected to be about $88 million, with most of these planned expenditures designated for operations of Electric Fuels. The inland marine transportation unit plans to add new barges in 1997 as it continues to take advantage of market opportunities that expand its business. Electric Fuels' rail services unit is expected to continue to grow by expanding geographically into the midwest and western markets. These expenditures are expected to be funded through cash generated internally and from outside financing sources. FORWARD-LOOKING STATEMENTS In this report, Florida Progress has projected the population will grow to 5.1 million in Florida Power's service area by the year 2000, sustained earnings growth of 4% to 5% for Florida Progress over the next five years, and double-digit earnings growth at Electric Fuels. Florida Power has projected that it's CR3 nuclear plant will return to service by year-end 1997. Florida Progress believes that it will take three to five years to rebuild sufficient value in Mid-Continent before that company can be divested at fair value. 31 Risk Factors 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 Florida Progress' other businesses in general, and on key factors which impact Florida Progress directly. The projections and estimates relate to the pricing of services, the actions of regulatory bodies, the success of new products and services, and the effects of competition. Key factors that have a direct bearing on Florida Progress' ability to attain these projections include continued annual growth in customers, successful cost containment efforts and the efficient operation of Florida Power's existing and future generating units. Also, in developing its forward-looking statements, Florida Progress 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 Florida Progress' 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, Florida Progress' actual results could vary significantly from the performance projected in the forward-looking statements. 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, 1996 and 1995, and the related consolidated statements of income, cash flows, and shareholders' equity for each of the years in the three-year period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/KPMG Peat Marwick LLP - --------------------------- KPMG Peat Marwick LLP St. Petersburg, Florida January 27, 1997 32 FLORIDA PROGRESS Consolidated Financial Statements FLORIDA PROGRESS CORPORATION Consolidated Statements of Income For the years ended December 31, 1996, 1995 and 1994 (In millions, except per share amounts) 1996 1995 1994 --------- --------- --------- REVENUES: Electric utility $2,393.6 $2,271.7 $2,080.5 Diversified 764.3 736.1 644.8 --------- --------- --------- 3,157.9 3,007.8 2,725.3 --------- --------- --------- EXPENSES: Electric utility: Fuel 409.7 431.3 425.6 Purchased power 531.6 436.5 294.6 Energy conservation costs 62.6 84.0 104.3 Operation and maintenance 413.4 393.7 412.2 Depreciation 324.2 293.7 261.5 Taxes other than income taxes 183.6 176.2 162.8 --------- --------- --------- 1,925.1 1,815.4 1,661.0 --------- --------- --------- Diversified: Cost of sales 642.9 624.6 552.1 Provision for loss on coal properties 40.9 - - Other 66.6 58.9 51.1 --------- --------- --------- 750.4 683.5 603.2 --------- --------- --------- INCOME FROM OPERATIONS 482.4 508.9 461.1 --------- --------- --------- INTEREST EXPENSE AND OTHER: Interest expense 135.9 139.4 141.5 Allowance for funds used during construction (7.5) (7.3) (10.9) Preferred dividend requirements of Florida Power 5.8 9.7 10.1 Gain on sale of business (44.2) - - Other expense (income), net (4.2) (9.9) (2.4) --------- --------- --------- 85.8 131.9 138.3 --------- --------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 396.6 377.0 322.8 Income taxes 145.9 138.1 110.8 --------- --------- --------- INCOME FROM CONTINUING OPERATIONS 250.7 238.9 212.0 DISCONTINUED OPERATIONS, NET OF INCOME TAXES (26.3) - - --------- --------- --------- NET INCOME $ 224.4 $ 238.9 $ 212.0 ========= ========= ========= AVERAGE SHARES OF COMMON STOCK OUTSTANDING 96.8 95.7 93.0 ========= ========= ========= EARNINGS PER AVERAGE COMMON SHARE: Continuing operations $2.59 $2.50 $2.28 Discontinued operations (.27) - - --------- --------- --------- $2.32 $2.50 $2.28 ========= ========= ========= The accompanying notes are an integral part of these financial statements. 33 FLORIDA PROGRESS CORPORATION Consolidated Balance Sheets December 31, 1996 and 1995 (Dollars in millions) 1996 1995 --------- --------- ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and held for future use $5,965.6 $5,867.5 Less: Accumulated depreciation 2,335.8 2,179.7 Accumulated decommissioning for nuclear plant 193.3 165.2 Accumulated dismantlement for fossil plants 119.6 104.4 --------- --------- 3,316.9 3,418.2 Construction work in progress 140.3 131.8 Nuclear fuel, net of amortization of $356.7 in 1996 and $348.7 in 1995 59.9 59.1 --------- --------- Net electric utility plant 3,517.1 3,609.1 Other property, net of depreciation of $173.8 in 1996 and $157.3 in 1995 309.3 307.0 --------- --------- 3,826.4 3,916.1 --------- --------- CURRENT ASSETS: Cash and equivalents 5.2 4.3 Accounts receivable, net 265.0 307.3 Inventories, primarily at average cost: Fuel 67.1 63.0 Utility materials and supplies 95.4 101.3 Diversified materials 125.5 111.0 Underrecovery of fuel costs 82.6 .3 Other 48.2 41.6 --------- --------- 689.0 628.8 --------- --------- DISCONTINUED OPERATIONS: Advances to discontinued operations - 116.0 Net assets of discontinued operations - 200.8 --------- --------- - 316.8 --------- --------- OTHER ASSETS: Investments: Loans receivable, net 68.1 31.5 Marketable securities 217.9 188.2 Nuclear plant decommissioning fund 207.8 161.1 Joint ventures and partnerships 41.9 33.9 Deferred insurance policy acquisition costs 120.9 106.4 Other 176.4 167.6 --------- --------- 833.0 688.7 --------- --------- $5,348.4 $5,550.4 ========= ========= The accompanying notes are an integral part of these financial statements. 34 FLORIDA PROGRESS CORPORATION Consolidated Balance Sheets December 31, 1996 and 1995 (Dollars in millions) 1996 1995 --------- --------- CAPITAL AND LIABILITIES COMMON STOCK EQUITY: Common stock without par value, 250,000,000 shares authorized, 97,007,182 shares outstanding in 1996 and 96,420,627 in 1995 $1,208.3 $1,187.6 Retained earnings 716.5 888.4 Unrealized gain (loss) on securities available for sale (.6) 2.1 --------- --------- 1,924.2 2,078.1 CUMULATIVE PREFERRED STOCK OF FLORIDA POWER: Without sinking funds 33.5 113.5 With sinking funds - 25.0 LONG-TERM DEBT 1,776.9 1,662.3 --------- --------- TOTAL CAPITAL 3,734.6 3,878.9 --------- --------- CURRENT LIABILITIES: Accounts payable 193.2 165.7 Customers' deposits 81.8 85.3 Taxes payable 41.2 17.3 Accrued interest 48.3 46.9 Other 78.5 97.0 --------- --------- 443.0 412.2 Notes payable 4.1 - Current portion of long-term debt 34.9 173.7 --------- --------- 482.0 585.9 --------- --------- DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes 475.4 512.0 Unamortized investment tax credits 93.5 101.5 Insurance policy benefit reserves 325.3 265.0 Other postretirement benefit costs 100.0 84.5 Other 137.6 122.6 --------- --------- 1,131.8 1,085.6 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 11) --------- --------- $5,348.4 $5,550.4 ========= ========= The accompanying notes are an integral part of these financial statements. 35
FLORIDA PROGRESS CORPORATION Consolidated Statements of Cash Flows For the years ended December 31, 1996, 1995 and 1994 (In millions) 1996 1995 1994 ------ ------ ------ OPERATING ACTIVITIES: Income from continuing operations $250.7 $238.9 $212.0 Adjustments for noncash items: Depreciation and amortization 366.7 352.7 316.4 Gain on sale of business (44.2) - - Provision for loss on coal properties 40.9 - - Deferred income taxes and investment tax credits, net (56.6) (38.0) (11.7) Allowance for equity funds used during construction (4.6) (3.8) (6.1) Increase in accrued postemployment benefit costs 15.5 16.8 20.3 Net change in deferred insurance policy acquisition costs (14.5) (14.5) (10.4) Net change in insurance policy benefits reserves 60.3 42.5 36.0 Changes in working capital, net of effects from acquisition or sale of businesses: Accounts receivable 35.4 (35.2) (18.0) Inventories (10.9) (29.1) (10.0) Overrecovery (underrecovery) of fuel cost (82.3) 1.5 5.3 Accounts payable 21.6 16.4 (4.0) Taxes payable 21.0 (7.6) (13.1) Other (13.5) 29.0 15.1 Other operating activities (14.6) 11.1 15.7 ------ ------ ------ Cash provided by continuing operations 570.9 580.7 547.5 ------ ------ ------ Loss from discontinued operations (26.3) - - Adjustments for noncash items 17.4 (17.6) (15.3) ------ ------ ------ Cash used by discontinued operations (8.9) (17.6) (15.3) ------ ------ ------ 562.0 563.1 532.2 ------ ------ ------ INVESTING ACTIVITIES: Property additions (including allowance for borrowed funds used during construction) (264.0) (331.4) (366.8) Purchase of loans and securities, net (including issuance of Echelon note) (70.4) (28.9) (31.6) Acquisition of businesses (53.8) (9.2) (17.1) Proceeds from sales of properties and businesses 61.1 13.1 9.3 Investing activities of discontinued operations 56.5 69.8 68.9 Other investing activities (37.0) (15.0) (15.6) ------ ------ ------ (307.6) (301.6) (352.9) ------ ------ ------ FINANCING ACTIVITIES: Issuance of long-term debt 178.0 - 103.9 Repayment of long-term debt (190.4) (45.8) (78.9) Increase (decrease) in commercial paper with long-term support (15.3) 1.0 (61.2) Redemption of preferred stock (106.4) (5.0) (5.0) Sale of common stock 18.5 38.4 138.0 Equity contributions to discontinued operations (23.7) - - Dividends paid on common stock (199.5) (193.4) (185.9) Increase (decrease) in short-term debt 4.1 (55.3) (75.6) Financing activities of discontinued operations 85.2 (9.7) (8.2) Other financing activities (4.0) (1.2) (1.6) ------ ------ ------ (253.5) (271.0) (174.5) ------ ------ ------ NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS .9 (9.5) 4.8 Beginning cash and equivalents 4.3 13.8 9.0 ------ ------ ------ ENDING CASH AND EQUIVALENTS $ 5.2 $ 4.3 $ 13.8 ====== ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $128.7 $135.5 $135.2 Income taxes (net of refunds) $189.3 $214.7 $171.5 The accompanying notes are an integral part of these financial statements.
36 FLORIDA PROGRESS CORPORATION Consolidated Statements of Shareholders' Equity For the years ended December 31, 1996, 1995 and 1994 (Dollars in millions, except per share amounts)
Cumulative Unrealized Preferred Stock Gain of Florida Power (Loss) on ---------------- Securities Without With Common Retained Available Sinking Sinking Stock Earnings for Sale Funds Funds ----------------------------------------------------------- Balance, December 31, 1993 $ 1,008.3 $812.2 $ - $113.5 $ 35.0 Net income 212.0 Common stock issued - 5,215,788 shares 138.9 Common stock issued in pooling of interests - 700,000 shares .9 4.1 Cash dividends on common stock ($1.99 per share) (185.4) Unrealized loss on marketable securities available for sale (6.6) Preferred stock redeemed - 50,000 shares (5.0) -------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 1,148.1 842.9 (6.6) 113.5 30.0 Net income 238.9 Common stock issued - 1,245,267 shares 39.5 Cash dividends on common stock ($2.02 per share) (193.4) Unrealized gain on marketable securities available for sale 8.7 Preferred stock redeemed - 50,000 shares (5.0) -------------------------------------------------------------------------------------------------------------- Balance December 31, 1995 1,187.6 888.4 2.1 113.5 25.0 Net income 224.4 Common stock issued - 586,555 shares 20.7 Echelon International stock dividend (194.5) Cash dividends on common stock ($2.06 per share) (199.5) Unrealized loss on marketable securities available for sale (2.7) Preferred stock redeemed - 1,050,000 shares (2.3) (80.0) (25.0) -------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 $1,208.3 $716.5 $ (.6) $ 33.5 $ - -------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
37 FLORIDA POWER Financial Statements FLORIDA POWER CORPORATION Statements of Income For the years ended December, 31 1996, 1995 and 1994 (In millions) 1996 1995 1994 --------- --------- --------- OPERATING REVENUES: $2,393.6 $2,271.7 $2,080.5 --------- --------- --------- OPERATING EXPENSES: Operation: Fuel used in generation 409.7 431.3 425.6 Purchased power 531.6 436.5 294.6 Energy Conservation Cost Recovery 62.6 84.0 104.3 Operations and maintenance 413.4 393.7 412.2 Depreciation 324.2 293.7 261.5 Taxes other than income taxes 183.6 176.2 162.8 Income taxes 135.8 129.5 114.7 --------- --------- --------- 2,060.9 1,944.9 1,775.7 --------- --------- --------- OPERATING INCOME 332.7 326.8 304.8 --------- --------- --------- OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 4.6 3.8 6.1 Miscellaneous other expense, net (3.4) (2.6) (6.5) --------- --------- --------- 1.2 1.2 (0.4) --------- --------- --------- INTEREST CHARGES Interest on long-term debt 86.6 93.5 96.3 Other interest expense 11.8 11.0 12.1 --------- --------- --------- 98.4 104.5 108.4 Allowance for borrowed funds used during construction (2.9) (3.5) (4.8) --------- --------- --------- 95.5 101.0 103.6 --------- --------- --------- NET INCOME 238.4 227.0 200.8 DIVIDENDS ON PREFERRED STOCK 5.8 9.7 10.1 --------- --------- --------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $232.6 $217.3 $190.7 ========= ========= ========= The accompanying notes are an integral part of these financial statements. 38 FLORIDA POWER CORPORATION Balance Sheets For the years ended December 31, 1996 and 1995 (Dollars in millions) 1996 1995 ---------- ---------- ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and held $5,965.6 $5,867.5 for future use Less - Accumulated depreciation 2,335.8 2,179.7 Accumulated decommissioning for nuclear plant 193.3 165.2 Accumulated dismantlement for fossil plants 119.6 104.4 ---------- ---------- 3,316.9 3,418.2 Construction work in progress 140.3 131.8 Nuclear fuel, net of amortization of $356.7 in 1996 and $348.7 in 1995 59.9 59.1 ---------- ---------- 3,517.1 3,609.1 Other property, net 13.3 23.0 ---------- ---------- 3,530.4 3,632.1 ---------- ---------- CURRENT ASSETS: Cash and equivalents - 0.8 Accounts receivable, less reserve of $4.1 in 1996 and $5.2 in 1995 174.7 200.7 Inventories at average cost: Fuel 47.2 40.8 Materials and supplies 95.4 101.3 Underrecovery of fuel cost 82.6 0.3 Deferred income taxes 35.6 32.3 Other 6.2 3.9 ---------- ---------- 441.7 380.1 ---------- ---------- OTHER ASSETS: Nuclear plant decommissioning fund 207.8 161.1 Unamortized debt expense, being amortized over term of debt 25.0 27.5 Other 59.1 84.1 ---------- ---------- 291.9 272.7 ---------- ---------- $4,264.0 $4,284.9 ========== ========== The accompanying notes are an integral part of these financial statements. 39 FLORIDA POWER CORPORATION Balance Sheets For the years ended December 31, 1996 and 1995 (Dollars in millions) 1996 1995 ---------- ---------- CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stock $1,004.4 $992.9 Retained earnings 821.1 761.1 ---------- ---------- 1,825.5 1,754.0 CUMULATIVE PREFERRED STOCK: Without sinking funds 33.5 113.5 With sinking funds - 25.0 LONG-TERM DEBT 1,296.4 1,279.1 ---------- ---------- TOTAL CAPITAL 3,155.4 3,171.6 ---------- ---------- CURRENT LIABILITIES: Accounts payable 115.5 89.8 Accounts payable to associated companies 21.2 24.8 Customers' deposits 81.7 85.3 Income taxes payable 10.4 8.9 Accrued other taxes 10.0 12.3 Accrued interest 34.8 32.9 Other 47.3 65.1 ---------- ---------- 320.9 319.1 Notes payable 4.1 - Current portion of long-term debt 21.3 30.6 ---------- ---------- 346.3 349.7 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes 472.3 483.8 Unamortized investment tax credits 92.8 100.9 Other postretirement benefit costs 96.5 81.5 Other 100.7 97.4 ---------- ---------- 762.3 763.6 ---------- ---------- $4,264.0 $4,284.9 ========== ========== The accompanying notes are an integral part of these financial statements. 40
FLORIDA POWER CORPORATION Statements of Cash Flows For the years ended December 31, 1996, 1995 and 1994 (In millions) 1996 1995 1994 --------- --------- --------- OPERATING ACTIVITIES: Net income after dividends on preferred stock $232.6 $217.3 $190.7 Adjustments for noncash items: Depreciation and amortization 341.1 329.7 294.8 Deferred income taxes and investment tax credits, net (32.8) (29.3) (0.9) Increase in accrued other postretirement benefit costs 14.9 16.1 19.2 Allowance for equity funds used during construction (4.6) (3.8) (6.1) Changes in working capital: Accounts receivable 16.2 (33.4) 0.9 Inventories (0.5) 14.2 8.1 Overrecovery (underrecovery) of fuel cost (82.3) 1.5 5.3 Accounts payable 25.7 4.8 (21.2) Accounts payable to associated companies (3.5) 3.4 4.3 Taxes payable (0.8) 2.8 (14.6) Other (12.1) 39.5 6.9 Other operating activities 3.8 8.6 10.9 --------- --------- --------- 497.7 571.4 498.3 --------- --------- --------- INVESTING ACTIVITIES: Construction expenditures (217.3) (283.4) (319.5) Allowance for borrowed funds used during construction (2.9) (3.5) (4.8) Additions to nonutility property (2.7) (2.3) (2.9) Proceeds from sale of properties 5.5 10.8 7.7 Other investing activities (27.6) (11.0) (12.4) --------- --------- --------- (245.0) (289.4) (331.9) --------- --------- --------- FINANCING ACTIVITIES: Repayment of long-term debt (47.3) (35.4) (46.0) Increase (decrease) in commercial paper with long term support 54.8 (54.8) - Redemption of preferred stock (106.3) (5.0) (5.0) Dividends paid on common stock (171.3) (180.7) (175.7) Equity contributions from parent 12.5 50.0 130.0 Increase (decrease) in short-term debt 4.1 (55.3) (69.7) --------- --------- --------- (253.5) (281.2) (166.4) --------- --------- --------- NET INCREASE IN CASH AND EQUIVALENTS (0.8) 0.8 - Beginning cash and equivalents 0.8 - - --------- --------- --------- ENDING CASH AND EQUIVALENTS $ - $0.8 $ - ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $90.7 $97.9 $101.5 Income taxes (net of refunds) $166.9 $157.1 $129.8 The accompanying notes are an integral part of these financial statements.
41 FLORIDA POWER CORPORATION Statements of Shareholder's Equity For the years ended December 31, 1996, 1995 and 1994 (Dollars in millions, except share amounts) Cumulative Preferred Stock -------------------- Without With Common Retained Sinking Sinking Stock Earnings Funds Funds ---------------------------------------- Balance, December 31, 1993 $812.9 $709.5 $113.5 $35.0 Net income after dividends on preferred stock 190.7 Capital contribution by parent company 130.0 Cash dividends on common stock (175.7) Preferred stock redeemed - 50,000 shares (5.0) ---------------------------------------- Balance, December 31, 1994 942.9 724.5 113.5 30.0 Net income after dividends on preferred stock 217.3 Capital contribution by parent company 50.0 Cash dividends on common stock (180.7) Preferred stock redeemed - 50,000 shares (5.0) ---------------------------------------- Balance, December 31, 1995 992.9 761.1 113.5 25.0 Net income after dividends on preferred stock 232.6 Capital contribution by parent company 12.5 Cash dividends on common stock (171.3) Preferred stock redemption costs (1.3) Premium on preferred stock redemption (1.0) Preferred stock redeemed - 1,050,000 shares (80.0) (25.0) ---------------------------------------- Balance, December 31, 1996 $1,004.4 $821.1 $33.5 ($0.0) ======================================== The accompanying notes are an integral part of these financial statements. 42 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 1935 Act. Its largest subsidiary, representing 80% of total assets, is Florida Power, a public utility engaged in the generation, purchase, transmission, distribution and sale of electric energy primarily within Florida. The consolidated financial statements include the financial results of Florida Progress and its majority-owned operations. All significant intercompany balances and transactions have been eliminated. Investments in 20%- to 50%-owned joint ventures are accounted for using the equity method. 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 and 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. Actual results could differ from those estimates. Certain reclassifications have been made to prior year amounts to conform to the current year's presentation. 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" FAS 71 as amended. This standard allows utilities to capitalize or defer certain costs or revenues based on management's ongoing assessment that it is probable these items will be recovered through the ratemaking process. At December 31, 1996, Florida Power had $173.8 million of regulatory assets, including $82.6 million of underrecovery of fuel costs, and $51.8 million of regulatory liabilities. The utility expects to fully recover these assets and refund the liabilities through customer rates under current regulatory practice. If Florida Power no longer applied FAS No. 71 due to competition, regulatory changes or other reasons, the utility would make certain adjustments. These adjustments would 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. In April 1996, FERC issued new rules governing open transmission access, stranded cost issues and electronically offering information on transmission capacity. The new rules are designed to provide open access to the nation's interstate transmission network. In July 1996, FERC accepted Florida Power's nondiscriminatory open access transmission tariff that was filed to comply with the new rules. The new FERC rules did not have a material effect on the utility's revenues or earnings. 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%. 43 UTILITY REVENUES, FUEL AND PURCHASED POWER EXPENSES - Revenues include amounts resulting from fuel, purchased power and energy conservation adjustment clauses, which are designed to permit full recovery of these costs. The adjustment factors are based on projected costs for a six- or 12-month period. The cumulative difference between actual and billed costs is included on the balance sheet as a current regulatory asset or liability. Any difference is billed or refunded to customers during the subsequent period. As ordered by the FPSC, Florida Power is conducting a three-year test for residential revenue decoupling, which began in January 1995. Decoupling eliminates the direct link between kilowatt-hour sales and revenues. A nonfuel revenue target is determined by multiplying a revenue per customer amount by the total number of residential customers. The difference between target revenues and actual revenues is included as a current asset or liability on the balance sheet. The revenue per customer amount is adjusted annually for a growth factor. Florida Power accrues the nonfuel portion of base revenues for services rendered but unbilled. The cost of nuclear fuel is amortized to expense based on the quantity of heat produced for the generation of electric energy in relation to the quantity of heat expected to be produced over the life of the nuclear fuel core. INCOME TAXES - Deferred income taxes are provided on all significant temporary differences between the financial and tax basis of assets and liabilities using presently enacted tax rates in accordance with FAS No. 109, "Accounting for Income Taxes." Deferred investment tax credits, subject to regulatory accounting practices, are amortized to income over the lives of the related properties. DEPRECIATION AND MAINTENANCE - Florida Progress provides for depreciation of the cost of properties over their estimated useful lives primarily on a straight-line basis. Florida Power's annual provision for depreciation, including a provision for nuclear plant decommissioning costs and fossil plant dismantlement costs, expressed as a percentage of the average balances of depreciable utility plant, was 4.9% for 1996, 5% for 1995 and 4.8% for 1994. Florida Power charges maintenance expense with the cost of repairs and minor renewals of property. The plant accounts are charged with the cost of renewals and replacements of property units. Accumulated depreciation is charged with the cost, less the net salvage, of property units retired. Florida Power accrues a reserve for maintenance and refueling expenses anticipated to be incurred during scheduled nuclear plant outages. INSURANCE PREMIUMS, POLICY ACQUISITION COSTS AND BENEFIT RESERVES - Life insurance premiums are recognized as revenues over the premium-paying periods of the policies. Florida Progress defers recoverable costs in its insurance operations that directly relate to the production of new business. These costs are amortized over the expected premium-paying period. Benefit reserves are established out of each premium payment to provide for the present value of future insurance policy benefits. Florida Progress reviews the adequacy and recoverability of the deferred acquisition costs and the benefit reserves based on a gross premium reserve analysis of the in-force business. Significant assumptions used in this analysis include estimates of future premium increases, mortality rates, withdrawal rates, expense rates, and investment yield. The assumptions are based on Florida Progress' actual experience adjusted for the effect of future actions affecting the in-force 44 business. Although these assumptions are Florida Progress' best estimate of the future experience, actual results may vary in either direction and could significantly impact income in the period of change. Management believes deferred policy acquisition costs are recoverable at December 31, 1996. ACCOUNTING FOR CERTAIN INVESTMENTS - Florida Progress considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Florida Progress' investments in debt and equity securities are classified and accounted for as follows: Type of Security Accounting Treatment Debt securities held to maturity Amortized cost ------------------------------------------------------------------------------ Trading securities Fair market value with unrealized gains and losses included in earnings ------------------------------------------------------------------------------ Securities available for sale Fair market value with unrealized gains and losses, net of taxes, reported separately in shareholders' equity ------------------------------------------------------------------------------ See Note 2 for securities held to maturity or available for sale. Florida Progress had no investments in assets classified as trading securities at December 31, 1996 and 1995. A decline in the market value of any security available-for-sale or held-to-maturity that falls below cost results in a reduction in carrying amount to fair value if the decline is not considered temporary. The impairment is charged to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. ACCOUNTING FOR LONG-LIVED ASSETS - Florida Progress adopted the provisions of FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement in January 1996 did not have a material impact on Florida Progress' financial position, results of operations, or liquidity. The Financial Accounting Standards Board has a current project addressing the accounting for obligations related to the decommissioning of nuclear power plants. Florida Power records a provision for nuclear decommissioning costs over the expected life of its nuclear plant. Currently, the accumulated provisions for nuclear decommissioning costs are recorded as a reduction of Electric Plant in Service on the balance sheet. One alternative, if adopted, would require Florida Power's 90.4% share of estimated nuclear decommissioning costs totaling $385 million in 1996 dollars to be recorded as a liability, with a corresponding plant asset. There would be no impact on earnings or cash flows. STOCK-BASED COMPENSATION - Under its Long-Term Incentive Plan ("LTIP"), Florida Progress grants selected executives performance shares, which upon achievement of performance criteria for a three-year performance cycle, result in the award of shares of common stock of Florida Progress, two-thirds of which would be restricted for periods of time. Florida Progress accounts for its LTIP in 45 accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." On January 1, 1996, Florida Progress adopted FAS No. 123, "Accounting for Stock-Based Compensation," and Florida Progress elected to continue to apply the accounting provisions of APB No. 25. There was no material difference in earnings as a result of this election. BUSINESS ACQUISITIONS - Florida Progress and its subsidiaries acquired several businesses in 1996, 1995 and 1994. All acquisitions were accounted for as purchases except the acquisition of FM Industries, Inc., in December 1994, which was accounted for on a pooling of interests basis. The 1994 Statement of Cash Flows does not reflect the value of the 700,000 shares of common stock issued for the acquisition of FM Industries. The market value of these shares at the date of issuance was $21.1 million. COMMITMENTS AND CONTINGENCIES - In October 1996, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities." SOP 96-1 was adopted by Florida Progress on January 1, 1997 and requires, among other things, environmental remediation liabilities to be accrued when the criteria of FAS No. 5, "Accounting for Contingencies," have been met. The SOP also provides guidance with respect to the measurement of the remediation liabilities. Such accounting is consistent with Florida Progress' current method of accounting for environmental remediation costs and, therefore, adoption of this new statement did not have a material impact on Florida Progress' financial position, results of operations or liquidity. 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 currently has no derivative financial instruments, such as futures, forwards, swaps or options contracts. At December 31, 1996 and 1995, Florida Progress had the following financial instruments with estimated fair values and carrying amounts: 1996 1995 Carrying Fair Carrying Fair (In millions) Amount Value Amount Value ASSETS: Loans receivable: Echelon International $ 32.9 $ 32.9 $ - $ - Life insurance business: Loans secured by real estate 4.1 4.4 6.0 7.8 Policy loans 11.0 10.1 9.7 11.1 -------- -------- -------- -------- $ 48.0 $ 47.4 $ 15.7 $ 18.9 ======== ======== ======== ======== Marketable securities: Available for sale $ 352.4 $ 352.4 $ 296.3 $ 296.3 Held to maturity 73.3 76.8 53.0 58.6 CAPITAL AND LIABILITIES: Florida Power preferred stock with sinking funds $ - $ - $ 25.0 $ 26.1 Long-term debt: Florida Power Corporation 1,317.7 1,335.3 1,309.7 1,352.8 Progress Capital Holdings 494.1 497.1 526.2 532.8 46 NOTE 3 INCOME TAXES FLORIDA PROGRESS (In millions) 1996 1995 1994 ---------------------------------------------------------------------------- Components of income tax expense: Payable currently: Federal $179.7 $157.3 $109.7 State 23.0 18.8 12.8 ---------------------------------------------------------------------------- 202.7 176.1 122.5 ---------------------------------------------------------------------------- Deferred, net: Federal (41.9) (27.5) (1.9) State (6.9) (2.0) (.2) ---------------------------------------------------------------------------- (48.8) (29.5) (2.1) ---------------------------------------------------------------------------- Amortization of investment tax credits, net (8.0) (8.5) (9.6) ---------------------------------------------------------------------------- $145.9 $138.1 $110.8 ============================================================================ FLORIDA POWER (In millions) 1996 1995 1994 ---------------------------------------------------------------------------- Components of income tax expense: Payable currently: Federal $143.6 $136.8 $ 95.3 State 24.9 22.1 17.1 ---------------------------------------------------------------------------- 168.5 158.9 112.4 ---------------------------------------------------------------------------- Deferred, net: Federal (20.9) (18.9) 7.0 State (4.0) (1.9) .6 ---------------------------------------------------------------------------- (24.9) (20.8) 7.6 ---------------------------------------------------------------------------- Amortization of investment tax credits, net (7.9) (8.5) (8.5) ---------------------------------------------------------------------------- Total income tax expense 135.7 129.6 111.5 Less: Amounts charged or (credited) to non-operating income (.1) .1 (3.2) ---------------------------------------------------------------------------- Amounts charged to operating income $135.8 $129.5 $114.7 ============================================================================ 47 The primary differences between the statutory rates and the effective income tax rates are detailed below: FLORIDA PROGRESS 1996 1995 1994 ---------------------------------------------------------------------------- Federal statutory income tax rate 35.0% 35.0% 35.0% State income tax, net of federal income tax benefits 2.6 2.8 2.5 Amortization of investment tax credits (2.0) (2.2) (2.9) Other .6 .1 (1.3) ---------------------------------------------------------------------------- Effective income tax rates 36.2% 35.7% 33.3% ============================================================================ FLORIDA POWER 1996 1995 1994 ---------------------------------------------------------------------------- Federal statutory income tax rate 35.0% 35.0% 35.0% State income tax, net of federal income tax benefits 3.6 3.7 3.7 Amortization of investment tax credits (2.2) (2.4) (2.7) Other - - (.3) ---------------------------------------------------------------------------- Effective income tax rates 36.4% 36.3% 35.7% ============================================================================ The following summarizes the components of deferred tax liabilities and assets at December 31, 1996 and 1995: FLORIDA PROGRESS (In millions) 1996 1995 --------------------------------------------------------------------------- Difference in tax basis of property, plant and equipment $544.1 $550.8 Deferred acquisition costs 35.9 37.2 Investment in partnerships 20.1 20.9 Other 35.6 41.6 --------------------------------------------------------------------------- Total deferred tax liabilities $635.7 $650.5 =========================================================================== Deferred tax assets: Loss reserves not currently deductible $ 69.5 $ 41.2 Accrued book expenses 90.6 79.2 Unbilled revenues 17.6 20.8 Other 18.2 29.6 --------------------------------------------------------------------------- Total deferred tax assets $195.9 $170.8 =========================================================================== At December 31, 1996 and 1995, Florida Progress had net noncurrent deferred tax liabilities of $475.4 million and $512 million and net current deferred tax assets of $35.6 million and $32.3 million, respectively. Florida Progress expects the results of future operations will generate sufficient taxable income to allow for the utilization of deferred tax assets. 48 FLORIDA POWER (In millions) 1996 1995 -------------------------------------------------------------------------- Deferred tax liabilities: Difference in tax basis of property, plant and equipment $516.0 $526.0 Deferred book expenses 12.7 19.9 Under recovery of fuel 2.8 2.8 Carrying value of securities over cost 7.7 4.5 -------------------------------------------------------------------------- Total deferred tax liabilities $539.2 $553.2 ========================================================================== Deferred tax assets: Accrued book expenses $ 76.5 $ 64.4 Unbilled revenues 17.6 20.8 Regulatory liability for deferred income taxes 4.4 13.4 Other 4.0 3.1 -------------------------------------------------------------------------- Total deferred tax assets $102.5 $101.7 ========================================================================== At December 31, 1996 and 1995, Florida Power had net noncurrent deferred tax liabilities of $472.3 million and $483.8 million and net current deferred tax assets of $35.6 million and $32.3 million, respectively. Florida Power expects the results of future operations will generate sufficient taxable income to allow the utilization of deferred tax assets. NOTE 4 NUCLEAR OPERATIONS JOINTLY OWNED PLANT - The following information relates to Florida Power's 90.4% proportionate share of the Crystal River nuclear plant at December 31, 1996 and 1995: (In millions) 1996 1995 ------------------------------------------------------------ Utility plant in service $643.6 $656.6 Construction work in progress 14.8 18.3 Unamortized nuclear fuel 59.9 59.1 Accumulated depreciation 309.5 310.9 Accumulated decommissioning 193.3 165.2 ============================================================ Net capital additions/(retirements) for Florida Power were $(16.5) million in 1996 and $7.8 million in 1995, and depreciation expense, exclusive of nuclear decommissioning, was $28.3 million in 1996 and $28.4 million in 1995. Each co-owner provides for its own financing. Florida Power's share of the asset balances and operating costs is included in the appropriate consolidated financial statements. Amounts exclude any allocation of costs related to common facilities. DECOMMISSIONING COSTS - Florida Power's nuclear plant depreciation expenses include a provision for future decommissioning costs, which are recoverable through rates charged to customers. Florida Power is placing amounts collected in an externally managed trust fund. The recovery from customers, plus income earned on the trust fund, is intended to be sufficient to cover Florida Power's share of the future dismantlement, removal and land restoration costs. Florida Power has a license to operate the nuclear unit through December 3, 2016, and contemplates decommissioning beginning at that time. In November 1995, the FPSC approved a new site-specific study that estimated total future decommissioning costs at approximately $2.0 billion, which corresponds to $425.4 million in 1996 dollars. Florida Power increased its share of the retail portion of annual decommissioning expense to the FPSC-approved 49 level of $20.5 million, effective January 1995. Funding of the approved increase occurred during the first quarter of 1996, upon receipt in January 1996 of the FPSC's final order, effective retroactively to January 1995. Florida Power also has adjusted the wholesale portion of this expense in a comparable manner, increasing it to $1.2 million annually. Under the previous study, Florida Power's share of total annual decommissioning expense, as authorized by the FPSC and the FERC, was $11.9 million for 1994. FUEL DISPOSAL COSTS - Florida Power has entered into a contract with the DOE 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 KWH sold and are paid to the DOE quarterly. Florida Power currently is storing SNF on site and has sufficient storage capacity in place or under construction for fuel consumed through the year 2010. NOTE 5 RATES Florida Power's retail rates are set by the FPSC. Florida Power's last general rate case was approved in 1992 and allowed a 12% regulatory return on equity with an allowed range between 11% and 13%. The utility's retail regulatory return was 12.3% for 1996. Under Florida Power's revenue decoupling plan (See Note 1), Florida Power has recorded a regulatory liability of $3.6 million for the 1996 time period and $18.7 million for the 1995 time period. The extended maintenance outage at the Crystal River nuclear plant requires Florida Power to incur higher replacement power costs. The cost of this replacement power exceeds the amount currently being recovered in Florida Power's rates. As a result, Florida Power has an underrecovery of fuel and purchased power costs of approximately $82.6 million at December 31, 1996. In January 1997, Florida Power petitioned the FPSC for an increase in its rates to recover, over a 12-month period beginning April 1997, the current balance of deferred fuel together with an estimate of under-recoveries through March 1997. The FPSC is scheduled to have hearings in February 1997. Management believes that the FPSC will approve the increase in rates. [THIS SPACE INTENTIONALLY BLANK] 50 NOTE 6 DEBT Florida Progress' long-term debt at December 31, 1996 and 1995, is scheduled to mature as follows:
Interest Rate 1996 1995 -------------------------------------------------------------------------------------------------------------- Florida Power Corporation: (In millions) First mortgage bonds: Maturing in 1997 and 1999 6.50% $ 75.0 $ 91.7 Maturing 2002 and 2003 6.50%(a) 280.0 280.0 Maturing 2008 6.88% 80.0 80.0 Maturing 2021 through 2023 7.98%(a) 400.0 400.0 Pollution control revenue bonds: Maturing 2014 through 2027 6.59%(a) 240.9 240.9 Notes maturing: 1996-1997 8.44%(a) 21.3 51.9 1998-2008 6.67% 26.0 26.0 Commercial paper, supported by revolver maturing November 30, 2001 5.53%(a) 200.0 145.2 Discount, net of premium, being amortized over term of bonds (5.5) (6.0) -------------------------------------------------------------------------------------------------------------- 1,317.7 1,309.7 Progress Capital Holdings: Notes maturing: 1996-1997 9.35% 10.0 150.0 1998-2006 7.01%(a) 304.0 126.0 Commercial paper, supported by revolver maturing November 30, 2001 5.71%(a) 169.4 239.6 Other debt, maturing through 2006 6.81%(a) 10.7 10.7 -------------------------------------------------------------------------------------------------------------- 1,811.8 1,836.0 Less: Current portion of long-term debt 34.9 173.7 -------------------------------------------------------------------------------------------------------------- $1,776.9 $1,662.3 ============================================================================================================== (a) Weighted average interest rate at December 31, 1996.
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, 1996. Interest rate options under the line of credit arrangements vary from subprime or money market rates to the prime rate. Banks providing lines of credit are compensated through fees. Commitment fees on lines of credit vary between .06 and .10 of 1%. The lines of credit consist of four revolving bank credit facilities, two each for Florida Power and Progress Capital. The Florida Power facilities, $200 million each, are for terms of 364 days and five years. The Progress Capital facilities consist of $100 million with a 364-day term and $300 million with a five-year term. In 1996, both 364-day facilities were extended to November 1997. In addition, both five-year facilities were extended to November 2001. Based on the duration of the underlying backup credit facilities, $369.4 million of outstanding commercial paper at December 31, 1996, and $384.8 million of outstanding commercial paper at December 31, 1995, are classified as long-term debt. Florida Power had another $4.1 million of outstanding commercial paper at December 31, 1996, which was classified as short-term debt. Florida Power has a public $300-million, 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. All $300 million is available for issuance. 51 Florida Power has registered $370 million of first mortgage bonds which are unissued and available for issuance. Progress Capital has a private $300-million, 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 $122 million is available for issuance under this program at either fixed or floating rates. The combined aggregate maturities of long-term debt for 1997 through 2001 are $34.9 million, $15 million, $128.6 million, $2.7 million and $472.4 million, respectively. In addition, about 12% of Florida Power's outstanding first mortgage bonds have an annual 1% sinking fund requirement. These requirements, which total $1 million annually for 1997 through 2000, are expected to be satisfied with property additions. 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 as defined in the agreement. NOTE 7 PREFERRED AND PREFERENCE STOCK AND SHAREHOLDER RIGHTS A summary of outstanding Cumulative Preferred Stock of Florida Power follows:
Current Outstanding Dividend Redemption Shares December 31 Rate Price Authorized Outstanding 1996 1995 -------------------------------------------------------------------------------------------------------- (In millions) Without sinking funds, not subject to mandatory redemption: 4.00% $104.25 40,000 39,980 $ 4.0 $ 4.0 4.40% $102.00 75,000 75,000 7.5 7.5 4.58% $101.00 100,000 99,990 10.0 10.0 4.60% $103.25 40,000 39,997 4.0 4.0 4.75% $102.00 80,000 80,000 8.0 8.0 7.40% $102.48 300,000 - - 30.0 7.76% $102.21 500,000 - - 50.0 -------------------------------------------------------------------------------------------------------- 334,967 $ 33.5 $ 113.5 -------------------------------------------------------------------------------------------------------- With sinking funds, subject to mandatory redemption: 7.08% $102.36 500,000 - $ - $ 25.0 ========================================================================================================
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 Florida Progress on terms not approved by Florida Progress' Board of Directors. The rights have no voting or dividend rights and expire in December 2001, unless redeemed earlier by Florida Progress. 52 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, while a total of 334,967 shares of the Cumulative Preferred Stock, $100 par value, are issued and outstanding in various series as detailed in the table above. During 1996, Florida Power redeemed 1,050,000 shares of its Cumulative Preferred Stock. Florida Power also redeemed 50,000 shares in 1995 and 850,000 shares in 1994. NOTE 8 RETIREMENT BENEFIT PLANS STAFF REDUCTIONS - Florida Progress recognized pension and other postretirement benefit expenses of $15.5 million in 1994 related to an early retirement option. In addition, in late 1994, Florida Power eliminated approximately 300 positions. As a result, Florida Progress recognized severance costs of $5 million, which was partially offset by a reduction of $1.8 million in related accrued pension and postretirement benefit costs. PENSION BENEFITS - Florida Progress and certain of its subsidiaries have a noncontributory defined benefit pension plan covering most employees. The benefits are based on length of service, compensation and Social Security benefits. The participating companies make annual contributions to the plan based on an actuarial determination and consideration of tax regulations and funding requirements under federal law. Based on actuarial calculations and the funded status of the pension plan, Florida Progress was not required to contribute to the plan for 1996, 1995 or 1994. Shown below are the components of the net pension expense calculations for those years: (In millions) 1996 1995 1994 -------------------------------------------------------------------------- Service cost $ 16.2 $ 13.4 $ 17.2 Interest cost 31.3 30.1 29.3 Actual losses (earnings) on plan assets (88.0) (124.4) 6.6 Net amortization and deferral 29.5 77.7 (54.3) -------------------------------------------------------------------------- Net pension cost (benefit) (11.0) (3.2) (1.2) Staff reduction cost, net - - 10.0 -------------------------------------------------------------------------- Net pension cost (benefit) recognized $(11.0) $ (3.2) $ 8.8 ========================================================================== Florida Power's share of the plan's net pension costs (benefits) for 1996, 1995 and 1994 was $(10.3) million, $(3) million and $9 million, respectively. The following weighted average actuarial assumptions at January 1 were used in the calculation of pension expense: 1996 1995 1994 Discount rate 7.25% 8.25% 7.25% Expected long-term rate of return 9.00% 9.00% 9.00% Rate of compensation increase 4.50% 5.00% 5.00% 53 The following summarizes the funded status of the pension plan at December 31, 1996 and 1995: (In millions) 1996 1995 ------------------------------------------------------------------- Accumulated benefit obligation: Vested $326.1 $315.8 Nonvested 31.5 30.6 ------------------------------------------------------------------- 357.6 346.4 Effect of projected compensation increases 94.4 94.7 ------------------------------------------------------------------- Projected benefit obligation 452.0 441.1 Plan assets at market value, primarily listed stocks and bonds 655.0 585.0 ------------------------------------------------------------------- Plan assets in excess of projected benefit obligation $203.0 $143.9 =================================================================== Consisting of the following components: Unrecognized transition asset $ 30.4 $ 35.4 Unrecognized prior service cost (6.3) (6.9) Unrecognized net actuarial gains 176.4 123.9 (Accrued)/prepaid pension costs 2.5 (8.5) ------------------------------------------------------------------- $203.0 $143.9 =================================================================== Due to changes in interest rates, Florida Progress used a discount rate of 7.5% to calculate the pension plan's 1996 year-end funded status. The change in the discount rate from 7.25% at December 31, 1995, to 7.5% at December 31, 1996, decreased the projected benefit obligation by $16.5 million and is expected to decrease the annual pension costs by $2.1 million, beginning in 1997. OTHER POSTRETIREMENT BENEFITS - Florida Progress and some of its subsidiaries provide certain health care and life insurance benefits for retired employees. Employees become eligible for these benefits when they reach normal retirement age while working for Florida Progress. The net postretirement benefit costs for 1996, 1995 and 1994 are detailed below: (In millions) 1996 1995 1994 ------------------------------------------------------------------- Service cost $ 5.3 $ 5.1 $ 5.3 Interest cost 12.4 13.5 12.9 Amortization of unrecognized transition obligation 6.1 6.1 6.1 Actual earnings on plan assets (.3) (.3) - Staff reduction cost - - 3.7 ------------------------------------------------------------------- $23.5 $24.4 $28.0 =================================================================== 54 The following summarizes the plan's status, reconciled with amounts recognized in Florida Progress' balance sheet at December 31, 1996 and 1995: (In millions) 1996 1995 ------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $100.4 $ 96.6 Fully eligible active plan participants 3.1 2.6 Other active plan participants 81.2 91.4 Plan assets at fair value (4.7) (3.2) ------------------------------------------------------------------- 180.0 187.4 Unrecognized transition obligation (97.2) (103.6) Unrecognized net gains 17.2 1.0 ------------------------------------------------------------------- Accrued postretirement benefit cost $100.0 $ 84.8 =================================================================== Florida Power's share of the plan's net postretirement benefit cost for 1996, 1995 and 1994 was $22.7 million, $23.5 million and $27.1 million, respectively. The following weighted average actuarial assumptions were used in the calculation of the year-end status of other postretirement benefits: 1996 1995 ------------------------------------------------------------------ Discount rate 7.50% 7.25% Rate of compensation increase 4.50% 4.50% Health care cost trend rates: Pre-Medicare 9.50%-5.25% 11.50%-5.00% Post-Medicare 7.50%-5.00% 8.25%-4.75% ================================================================== The transition obligation is being accrued through 2012. A one-percentage point increase in the assumed health care cost trend rate for each future year would have increased the 1996 current service and interest cost by approximately $3 million and the accumulated postretirement benefit obligation as of December 31, 1996, by about $26.2 million. The change in the discount rate from 7.25% at December 31, 1995, to 7.5% at December 31, 1996, decreased the projected benefit obligation by $6 million and is expected to decrease annual postretirement benefit costs by $.5 million, beginning in 1997. Due to different retail and wholesale regulatory rate requirements, Florida Power began making quarterly contributions in 1995 to an irrevocable external trust fund for wholesale ratemaking, while continuing to accrue postretirement benefit costs to an unfunded reserve for retail ratemaking. Florida Power contributed approximately $1.3 million in 1996 and $1.4 million in 1995 to the trust fund. NOTE 9 BUSINESS SEGMENTS Florida Progress' principal business segments are utility and diversified operations. The utility is engaged in the generation, purchase, transmission, distribution and sale of electric energy. Electric Fuels' operations include bulk commodities transportation, rail products and services and the mining, procurement and transportation of coal to Florida Power and other unaffiliated customers. Other diversified operations include ownership of a life insurance subsidiary. 55 Florida Progress' business segment information for 1996, 1995 and 1994 is summarized below. No single customer accounted for 10% or more of unaffiliated revenues. (In millions) 1996 1995 1994 Revenues: Utility $2,393.6 $2,271.7 $2,080.5 Diversified: Electric Fuels, combined: Coal sales to electric utility 272.1 236.8 249.4 Sales to external customers 609.0 607.0 534.1 Other 155.3 129.1 110.7 ------------------------------------------------------------------------------ 3,430.0 3,244.6 2,974.7 Eliminations (272.1) (236.8) (249.4) ------------------------------------------------------------------------------ Revenues from external customers $3,157.9 $3,007.8 $2,725.3 ============================================================================== Income from operations: Utility $ 468.5 $ 456.3 $ 419.5 Diversified: Electric Fuels recurring, combined 61.4 52.1 41.6 Electric Fuels loss provision (40.9) - - Other (6.6) .5 - ------------------------------------------------------------------------------ 482.4 508.9 461.1 Interest and other expense 85.8 131.9 138.3 ------------------------------------------------------------------------------ Income from continuing operations before income taxes $ 396.6 $ 377.0 $ 322.8 ============================================================================== Identifiable assets: Utility $4,263.7 $4,284.7 $4,284.0 Diversified: Electric Fuels, combined 619.8 573.6 489.4 Other 464.9 692.1 679.7 ------------------------------------------------------------------------------ $5,348.4 $5,550.4 $5,453.1 ============================================================================== Depreciation and amortization: Utility $ 341.1 $ 329.7 $ 294.8 Diversified: Electric Fuels, combined 23.5 21.2 19.7 Other 2.1 1.8 1.9 ------------------------------------------------------------------------------ $ 366.7 $ 352.7 $ 316.4 ============================================================================== Capital additions: Utility $ 222.9 $ 289.2 $ 327.2 Diversified: Electric Fuels, combined 40.6 40.5 38.1 Other .5 1.7 1.5 ------------------------------------------------------------------------------ $ 264.0 $ 331.4 $ 366.8 ============================================================================== In December 1996, Electric Fuels revised its assessment that low-sulfur coal market prices were depressed temporarily. Electric Fuels decided to close and dispose of its unprofitable coal operations and recorded a provision for loss of $40.9 million, as shown above. 56 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 International Corporation, which comprised Florida Progress' lending, leasing and real estate operations. Common shares were distributed on the basis of one share of Echelon common stock for every 15 shares of Florida Progress' common stock. In connection with the spin-off, Florida Progress has presented Echelon as a discontinued operation in the accompanying Consolidated Statements of Income. As of the date of the spin-off, the net assets of Echelon were $194.5 million. This amount has been charged against Florida Progress' retained earnings in the accompanying December 31, 1996 Consolidated Balance Sheet to reflect the distribution of Echelon common shares on December 18, 1996. A summary of net assets distributed is as follows: (In millions) ------------------------------------------------------------------ Cash and equivalents $ 53.8 Assets held for sale 26.8 Leases and loans receivable, net 272.0 Property and equipment, net 126.0 Other assets 39.9 ------------------------------------------------------------------ Total assets 518.5 Total liabilities (324.0) ------------------------------------------------------------------ Net assets distributed $ 194.5 ================================================================== Summarized income statement information relating to Echelon's results of operations (as reported in discontinued operations) is as follows: Year ended December 31, (In millions) 1996 1995 1994 ------------------------------------------------------------------------------ Sales and revenues $63.2 $50.0 $48.8 ============================================================================== 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) $ - $ - ============================================================================== Fiscal year 1996 includes results of operations through December 18, 1996. Results of operations include allocated interest expense of $8.7 million, $11.7 million and $12.4 million for 1996, 1995 and 1994, respectively. NOTE 11 COMMITMENTS AND CONTINGENCIES FUEL, COAL AND PURCHASED POWER COMMITMENTS - Florida Power has entered into various long-term contracts to provide the fossil and nuclear fuel requirements of its generating plants and to reserve pipeline capacity for natural gas. In most cases, such contracts contain provisions for price escalation, minimum purchase levels and other financial commitments. Estimated annual payments, based on current market prices, for Florida Power's firm commitments for fuel 57 purchases and transportation costs, excluding delivered coal and purchased power, are $8 million, $28 million, $36 million, $33 million and $29 million for 1997 through 2001, respectively, and $324 million in total thereafter. Additional commitments will be required in the future to supply Florida Power's fuel needs. Electric Fuels has entered into several contracts with outside parties for the purchase of coal. Electric Fuels also has entered into several operating leases, and rental or royalty agreements, relating to transportation equipment and coal procurement and processing. The annual obligations under these contracts and leases, including transportation costs, are $278.6 million, $131.6 million, $108.5 million, $77.3 million and $75.4 million for 1997 through 2001, respectively, and $85.6 million in total thereafter. The total cost incurred for these commitments was $221.4 million in 1996, $235.2 million in 1995 and $199.2 million in 1994. Florida Power has long-term contracts for about 480 MW of purchased power with other utilities, including a contract with Southern for approximately 400 MW of purchased power annually through 2010. This represents 4.5% of Florida Power's total current installed system capacity. Florida Power has an option to lower these Southern purchases to approximately 200 MW annually, beginning in 2000, 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, 1996, Florida Power had entered into purchased power contracts with certain cogenerators for about 1,160 MW of capacity with expiration dates ranging from 2002 to 2025. The purchased power contracts provide for capacity and energy payments. Energy payments are based on the actual power taken under these contracts. Capacity payments are subject to the qualifying facilities meeting certain contract performance obligations. In most cases, these contracts account for 100% of the generating capacity of each of the facilities. Of the 1,160 MW under contract, 1,050 MW currently are available to Florida Power. All commitments have been approved by the FPSC. Florida Power does not plan to increase the level of purchased power currently under contract. The FPSC allows the capacity payments to be recovered through a capacity cost recovery clause, which is similar to, and works in conjunction with, energy payments recovered through the fuel adjustment clause. Florida Power incurred purchased power capacity costs totaling $284 million in 1996, $260.1 million in 1995 and $138.6 million in 1994. 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 ---------------------------------------------------------------- 1997 $ 64 $ 233 $ 297 1998 63 245 308 1999 64 256 320 2000 36 270 306 2001 36 281 317 2002-2025 324 9,293 9,617 ---------------------------------------------------------------- Total $587 $10,578 $11,165 ================================================================ Total net present value $ 3,350 ================================================================ 58 As part of Florida Power's strategy to mitigate its exposure to these expensive cogeneration contracts, Florida Power has agreed, subject to FPSC approval, to acquire a 220-MW cogeneration facility for $445 million. The cogeneration purchased power contracts employ separate pricing methodologies for capacity payments and energy payments. Four cogenerators filed suit against Florida Power over the contract payment terms. Florida Power entered into settlement agreements with three of the four cogenerators. One of those agreements already has been finalized and litigation terminated. The other two agreements are awaiting certain approvals from the FPSC and others before being finalized. 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 was threatened in late 1995 with litigation from another cogeneration developer, which claimed interference involving an effort to obtain a gas transportation contract with a third party. However, no legal action has been taken by the developer. UTILITY CONSTRUCTION PROGRAM - Substantial commitments have been made in connection with Florida Power's construction program. In 1997, total construction expenditures of $372 million are projected, primarily for electric plant and nuclear fuel. 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. Under the provisions of the Price Anderson Act, which limits liability for accidents at nuclear power plants, Florida Power, as an owner of a nuclear plant, can be assessed for a portion of any third-party liability claims arising from an accident at any commercial nuclear power plant in the United States. If total third-party claims relating to a single nuclear incident exceed $200 million (the amount of currently available commercial liability insurance), Florida Power could be assessed up to $79.3 million per incident, with a maximum assessment of $10 million per year. Florida Power is a member of NEIL, an industry mutual insurer, which provides business interruption and extra expense coverage in the event of a major accidental outage at a covered nuclear power plant. Florida Power is subject to a retroactive premium assessment under this policy in the event of adverse loss experience. Florida Power's present maximum share of any such retroactive assessment is $2.5 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 59 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 agreements, Florida Power could be assessed up to a maximum of $10.3 million in any policy year if losses in excess of NEIL's available surplus are incurred. Florida Power has never been assessed under these nuclear indemnities or insurance policies. CONTAMINATED SITE CLEANUP - Florida Progress is subject to regulation with respect to the environmental effects of its operations. Florida Progress' disposal of hazardous waste through third-party vendors can result in costs to clean up facilities found to be contaminated. Federal and state statutes authorize governmental agencies to compel responsible parties to pay for cleanup of these hazardous waste sites. Florida Power and former subsidiaries of Florida Progress, whose properties were sold in prior years, have been identified by the EPA as PRPs at certain sites. In addition to these designated sites, there are other sites where affiliates may be responsible for additional environmental cleanup, including a coal gasification plant site that Florida Power previously owned and operated. There are five parties that have been identified as potentially responsible for this gas site, including Florida Power. Liability for the cleanup costs of these sites is joint and several. Florida Progress believes that its subsidiaries will not be required to pay a disproportionate share of the costs for cleanup of these sites. Florida Progress' best estimates indicate that its proportionate share of liability for cleaning up all sites ranges from $3.7 million to $5.4 million. It has reserved $3.7 million against these potential costs. The EPA is expected to further study the coal gasification plant site, which could cause Florida Power to increase its reserve for its portion of liability for cleanup costs. Although estimates of any additional costs are not available, the results of the tests are not expected to have a material effect on Florida Progress' financial position, results of operations or liquidity. AGE DISCRIMINATION SUIT - Florida Power and Florida Progress have been served with an age discrimination lawsuit involving 56 former Florida Power employees. While no dollar amount was requested, each plaintiff seeks back pay, reinstatement or front pay through their projected dates of normal retirement, costs and attorneys' fees. In October 1996, the court approved an agreement between parties to provisionally certify this case as a class action suit under the Age Discrimination in Employment Act. A notice was sent to eligible former employees informing them of their right to become a party to this provisional class action within 90 days. Estimates of the potential liability associated with this lawsuit cannot be determined until the size of the potential class has been determined. 60 QUARTERLY FINANCIAL DATA
FLORIDA PROGRESS CORPORATION (Unaudited) Three Months Ended (In millions, except per share amounts) March 31 June 30 September 30 December 31 -------------------------------------------------------------------------------------------------------------- 1996 OPERATING RESULTS Revenues from continuing operations $ 730.4 $ 773.6 $ 879.0 $ 774.9 Income from continuing operations 48.3 58.7 98.1 45.6 Loss from discontinued operations - (25.0) - (1.3) Net income 48.3 33.7 98.1 44.3 DATA PER SHARE Earnings: Continuing operations .50 .61 1.01 .47 Discontinued operations - (.26) - (.01) Consolidated .50 .35 1.01 .46 Dividends per common share .515 .515 .515 .515 Common stock price per share: High 36 3/8 34 3/4 35 1/8 34 1/2 Low 33 32 1/2 33 1/2 31 5/8 -------------------------------------------------------------------------------------------------------------- 1995 OPERATING RESULTS Revenues from continuing operations $ 693.0 $ 731.3 $ 852.4 $ 731.1 Income from continuing operations 46.6 55.2 91.1 46.0 Income (loss) from discontinued operations - - - - Net income 46.6 55.2 91.1 46.0 DATA PER SHARE Earnings: Continuing operations .49 .58 .95 .48 Discontinued operations - - - - Consolidated .49 .58 .95 .48 Dividends per common share .505 .505 .505 .505 Common stock price per share: High 32 5/8 32 3/8 32 1/2 35 3/4 Low 29 3/8 29 1/2 29 3/4 32 3/8 --------------------------------------------------------------------------------------------------------------
FLORIDA POWER CORPORATION (Unaudited) ------------------------------------------------------------------------------------------------------------- Three Months Ended (In millions) March 31 June 30 September 30 December 31 ------------------------------------------------------------------------------------------------------------- 1996 Operating revenues $547.3 $588.7 $694.7 $562.9 Net income $45.2 $56.0 $93.9 $43.3 Earnings on common stock $42.9 $53.9 $93.1 $42.7 1995 Operating revenues $515.9 $550.5 $671.8 $533.5 Net income $43.3 $53.0 $87.1 $43.6 Earnings on common stock $40.8 $50.6 $84.7 $41.2
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 operations. The divestiture of Echelon is reflected in the loss from discontinued operations. 61 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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". With respect to 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, there were no reporting delinquencies. FLORIDA POWER DIRECTORS R. Mark Bostick, Age 42, Director since 1992. Member - Executive Committee, Compliance Committee. Since January 1989, Mr. Bostick's principal occupation has been President of COMCAR Industries, Inc., a privately held, diversified transportation company. Mr. Bostick is a director of NationsBank, N.A. South. Jack B. Critchfield, Age 63, Director 1975-1978 and since 1988. Member - Executive Committee. Information concerning Dr. Critchfield is set forth in Part I, Item 1 hereof under the heading "Executive Officers." Allen J. Keesler, Jr., Age 58, Director since 1988. In April of 1996, Mr. Keesler retired as Group Vice President, Utility Group of Florida Progress, and President and Chief Executive Officer of Florida Power, positions he held since 1988. He is currently President and Chief Executive Officer of E. R. Jahna Industries, Inc., a management consulting company. He serves as director of SouthTrust Corporation and Cameron-Ashley Building Products, Inc. Richard Korpan, Age 55, Director since 1989. Chairman - Executive Committee effective April 1, 1996. Information concerning Mr. Korpan is set forth in Part I, Item 1 hereof under the heading "Executive Officers". Frank C. Logan, Age 61, Director since 1994. Member - Executive Committee, Chairman - Compliance Committee. Mr. Logan has practiced law since 1962, primarily in the areas of estate planning, probate, corporate and business law. Since September 1994, Mr. Logan has been a partner in the law firm of Harris, Barrett, Mann & Dew, Clearwater, Florida. Previously, he was with the Clearwater firm of McMullen, Everett, Logan, Marquardt & Cline which became MacFarlane, Ausley, Ferguson & McMullen after a 1993 merger with a Tampa firm. 62 Clarence V. McKee, Esquire, Age 54, 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 Barnett Banks, Inc., American Heritage Life Insurance Company, and Checkers Drive In Restaurants, Inc. Joseph H. Richardson, Age 47, 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 57, Director since 1991. Ms. Ruffier's principal occupation for more than five years has been as 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. She also serves on the boards of directors of Cyprus Equity Fund and INVEST, Inc. Jean Giles Wittner, Age 62, Director since 1977. Mrs. Wittner's principal occupation is President of Wittner & Co., Wittner Securities, Inc., 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 board of Raymond James Bank, F.S.B. All of the directors except Mr. Bostick, Mr. Logan, Mr. Keesler and Mr. Richardson are directors of Florida Progress. 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 1996, or written representations that no forms were required, Florida Power believes that all persons who at any time during 1996 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 1996 and prior fiscal years, except that Florida Power's Vice Presidents, Janice B. Case and Michael B. Foley, Jr., failed to timely file a Form 3 within 10 days of becoming an executive officer. Both of these forms were filed 27 days after they became executive officers. 63 ITEM 11. EXECUTIVE COMPENSATION FLORIDA PROGRESS The information under the headings "Compensation of Directors", "Compensation Committee Interlocks and Insider Participation", "Executive Compensation", "Pension Plan Table" and "Employment Contracts" in Florida Progress' Proxy Statement is incorporated herein by reference. FLORIDA POWER COMPENSATION OF DIRECTORS For 1996, compensation for all directors of Florida Power (excluding employees of Florida Progress or subsidiaries) was $1,500 for attendance at each meeting of the Florida Power Board of Directors. Messrs. Bostick and Logan, and effective April 1, 1996, Mr. Keesler received $20,000 per year as a retainer fee and a meeting fee of $750 for attendance at each committee meeting. The foregoing retainer fees were paid in accordance with the terms of the Stock Plan for Non-Employee Directors of Florida Progress and Subsidiaries as approved by the shareholders of Florida Progress at the 1996 Annual Meeting of Shareholders. As approved, 75% of the directors' retainer fees was paid in Florida Progress common stock. Only the cash portion of directors' compensation is allowed to be deferred. [THIS SPACE INTENTIONALLY BLANK] 64 EXECUTIVE COMPENSATION The following table contains information with respect to compensation awarded, earned or paid during the years 1994-1996 to (i) each person who served as the Chief Executive Officer, and (ii) the other four most highly compensated executive officers of Florida Power (collectively the "Named Executive Officers") in 1996, whose total remuneration paid in 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE Long-Term Compensation Annual Compensation(1) ------------ Name and Principal ------------------------- LTIP All Other Position Year Salary Bonus Payouts(2) Compensation(3) -------------------------- ----- ------ ----- ------------ --------------- ALLEN J. KEESLER, JR. (4) 1996 $155,386 $ 81,500 $207,802(5) $245,304(6) Former President and 1995 397,848 240,000 260,419 16,785 Chief Executive Officer 1994 383,011 172,500 178,904 15,837 RICHARD KORPAN 1996 $535,610 $333,500 $339,107(5) $ 18,900 Chairman and Chief 1995 440,003 257,000 284,109 19,800 Executive Officer 1994 432,311 232,500 206,455 18,060 JOSEPH H. RICHARDSON 1996 $288,884 $214,000 $128,858(5) $ 16,585(7) President and Chief 1995 215,009 113,000 110,473 8,835 Operating Officer 1994 212,122 88,500 81,326 4,226 JEFFREY R. HEINICKA 1996 $258,456 $169,000 $113,139(5) $ 8,595 Senior Vice President and 1995 211,200 100,000 N/A 8,325 Chief Financial Officer 1994 174,723 76,000 N/A 7,943 KENNETH E. ARMSTRONG 1996 $212,785 $144,500 $101,748(5) $ 8,010 Vice President and 1995 197,995 77,000 N/A 8,910 General Counsel 1994 196,459 70,000 N/A 8,436 JOHN A. HANCOCK 1996 $217,385 $115,000 $130,787(5) $ 8,400 Senior Vice President, 1995 199,992 105,000 109,974 8,550 Energy Supply 1994 197,088 72,500 74,786 8,700 (1) All other annual compensation paid to the Named Executive Officers during 1996, other than salary and annual incentive compensation, does not exceed the minimum amounts required to be reported pursuant to SEC rules. (2) Unless otherwise noted, the number of shares of restricted Common Stock held by Named Executive Officers as of December 31, 1996 as a result of awards earned under the 1992-1994 and 1993-1995 performance cycles and the value of such shares as of that date, is as follows: Allen J. Keesler, Jr. 5,876 shares, $189,501; Richard Korpan 6,527 shares, $210,496; Joseph H. Richardson 2,548 shares, $82,173; Jeffrey R. Heinicka -0-; Kenneth E. Armstrong -0-; and John A. Hancock 2,473 shares, $79,754. (3) Represents contributions to the Savings Plan of Florida Progress and/or the Executive Optional Deferred Compensation Plan on behalf of the Chief Executive Officer and the Named Executive Officers. (4) Allen J. Keesler, Jr. retired as President and Chief Executive Officer of Florida Power on April 1, 1996. 65 (5) Represents the dollar value as of the date of award, of shares of Common Stock of Florida Progress earned under the 1994-1996 performance cycle ("Cycle IV") of the LTIP, two-thirds of which are restricted except that none of the shares awarded Allen J. Keesler, Jr. are restricted. The total number of shares earned are as follows: Allen J. Keesler, Jr. 6,898 shares; Richard Korpan 10,895 shares; Joseph H. Richardson 4,140 shares; Jeffrey R. Heinicka 3,635 shares; Kenneth E. Armstrong 3,269 shares; and John A. Hancock 4,202 shares. The vesting schedule for the restricted stock is 50% on January 1, 1998 and 50% on January 1, 1999. Dividends are payable on the restricted Common Stock to the extent and on the same date as dividends are paid on all other shares of Florida Progress Common Stock. In the event of a change in control of Florida Progress, all restrictions on all shares of restricted stock lapse. The payouts listed for Richard Korpan, Joseph H. Richardson, Jeffrey R. Heinicka and Kenneth E. Armstrong are the result of (i) the Florida Progress Compensation Committee's determination that the results exceeded the Cycle IV goals, after taking into account the exclusion of a provision for loss on coal properties for Electric Fuels' return-on- equity, (ii) the application of a mathematical formula converting the goal level achieved into the number of performance shares earned and (iii) adding dividend equivalents on shares earned for the period of the performance cycle. (6) Represents $4,712 in Company Contributions to the Savings Plan of Florida Progress and/or the Executive Optional Deferred Compensation Plan and $240,592 in Nondiscrimination Plan and Supplemental Executive Retirement Plan payments. (7) Represents $8,835 in Company Contributions to the Savings Plan of Florida Progress and/or the Executive Optional Deferred Compensation Plan and $7,750 of director fees for services as a director of Echelon, a former subsidiary of Florida Progress.
The following table contains information with respect to Performance Shares granted in 1996 to each of the Named Executive Officers of Florida Power for the 1996-1998 performance cycle of the LTIP:
LONG-TERM INCENTIVE PLAN(1) AWARDS IN 1996 Number of Performance Estimated Payout in Shares at End of Period(3) Performance Period --------------------------------------------- Name Shares(2) Covered Threshold Target Maximum ---------------------- ---------- --------- --------- ------ -------- Allen J. Keesler, Jr. 0 1996-1998 0 0 0 Richard Korpan 7,719 1996-1998 3,860 7,719 11,579 Joseph H. Richardson 4,211 1996-1998 2,106 4,211 6,317 Jeffrey R. Heinicka 2,975 1996-1998 1,488 2,975 4,463 Kenneth E. Armstrong 2,414 1996-1998 1,207 2,414 3,621 John A. Hancock 2,470 1996-1998 1,235 2,470 3,705 (1) The LTIP is a Common Stock based incentive plan to reward participants for long-term growth and performance of Florida Progress. It was approved by the Florida Progress shareholders in 1990. 66 (2) Performance shares granted under the LTIP which, upon achievement of performance criteria established by the Compensation Committee of the Board of Directors of Florida Progress, would result in the payout of shares of Florida Progress Common Stock, two-thirds of which would be restricted for periods of time. Payouts of shares of Florida Progress Common Stock are made for achieving financial goals equal to or exceeding the thresholds established by the Compensation Committee. In the event of a change in control of Florida Progress, 150% of all performance shares granted under the LTIP and then outstanding would automatically be considered earned and would be paid in shares of unrestricted Florida Progress Common Stock together with shares of unrestricted Florida Progress Common Stock payable for dividend equivalents accrued to the change in control on performance shares awarded for performance cycles starting after December 31, 1992. Also, all restrictions on shares of restricted Florida Progress Common Stock previously awarded and then held would lapse. (3) Grants of performance shares are earned upon achievement of Florida Progress and/or subsidiary financial goals for the three-year performance cycle.
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 and Nondiscrimination Plan for specified final average compensation and years of service levels. As explained below, the table also provides information about the estimated lifetime annual benefits payable under the Florida Progress Corporation Supplemental Executive Retirement Plan ("SERP").
Estimated Annual Retirement Benefits Payable Under the Retirement Plan and Nondiscrimination Plan -------------------------------------------------- Average Annual Compensation Service Years --------------------------------------------------------------------------------------------------------- 5 10 15 20 25 30 35 or more $ 200,000 $ 18,000 $ 36,000 $ 54,000 $ 72,000 $ 90,000 $108,000 $126,000 300,000 27,000 54,000 81,000 108,000 135,000 162,000 189,000 400,000 36,000 72,000 108,000 144,000 180,000 216,000 252,000 500,000 45,000 90,000 135,000 180,000 225,000 270,000 315,000 600,000 54,000 108,000 162,000 216,000 270,000 324,000 378,000 700,000 63,000 126,000 189,000 252,000 315,000 378,000 441,000 800,000 72,000 144,000 216,000 288,000 360,000 432,000 504,000 900,000 81,000 162,000 243,000 324,000 405,000 486,000 567,000 1,000,000 90,000 180,000 270,000 360,000 450,000 540,000 630,000 1,100,000 99,000 198,000 297,000 396,000 495,000 594,000 693,000
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 Retirement Plan and the Nondiscrimination Plan for the Named Executive Officers in the summary compensation table are as follows: Mr. Keesler, 33 years of service; Mr. Korpan, 8 years of service; Mr. Richardson, 21 years of service; Mr. Heinicka, 19 years of service; Mr. Armstrong, 10 years of service and Mr. Hancock, 30 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%). 67 The Named Executive Officers are also entitled to benefits under the SERP. These benefits are offset by the benefits payable under the Retirement Plan and the Nondiscrimination Plan, as well as 100% 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 table set forth above for the Retirement Plan and the Nondiscrimination Plan. For these purposes, the current compensation for each executive that would be used in calculating benefits under the SERP is substantially the same as that reported as salary and bonus 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 21 years of service; Mr. Heinicka, 19 years of service; Mr. Armstrong, 15 years of service; and Mr. Hancock, 30 years of service. Accrued benefits may also be paid under each of the Retirement Plan, Nondiscrimination Plan and the 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. The SERP also provides for a lump sum benefit payable in the event of a change in control. In most instances, this benefit is equal to the sum of (i) two times the executive's current annual salary and bonus, (ii) the value of the executive's prospective award under the SERP if he were to continue to work until age 65 (including amounts that later would have been payable to any surviving spouse) and (iii) 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 with respect to all compensation plans and arrangements of Florida Progress. Mr. Keesler retired effective April 1, 1996, pursuant to the "special early retirement" provisions of the SERP which are separate and in lieu of those mentioned above. Under this arrangement, Mr. Keesler receives until age 62, an annual retirement benefit of $368,753. After age 62, the annual benefit will be reduced by $11,856, the amount of his annual Social Security benefit. After his death, his spouse will receive an annual survivor benefit of $254,931. Approximately 62% of the benefits are payable pursuant to the SERP, with the balance payable under the Retirement and Nondiscrimination Plans. Florida Progress also pays 95% of his medical insurance premiums and 71% of his spouse's. 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. 68 The table below sets forth as of December 31, 1996, the number of shares of common stock of Florida Progress owned by Florida Power's directors, Chief Executive Officer and Named Executive Officers individually and the directors and executive officers of Florida Power as a group. Florida Power Number of Shares Percent of Officer or Director Name Beneficially Owned (1) Class (2) - ------------------------ ---------------------- ---------- R. M. Bostick 654 Jack B. Critchfield 38,377 Allen J. Keesler, Jr. 41,779 Richard Korpan 17,339 Frank C. Logan 1,754 Clarence V. McKee 2,436 Joan D. Ruffier 3,750 Jean Giles Wittner 9,444 Kenneth E. Armstrong 2,335 Joseph H. Richardson 10,062 Jeffrey R. Heinicka 2,339 John A. Hancock 19,184 All 15 directors, Named Executive Officers and executive officers as a group, including those named above 162,517 .17 (1) As used in this table, "beneficial ownership" means the direct or indirect, sole or shared power to vote, or to direct the voting of, a security and/or investment power with respect to a security. (2) Unless otherwise noted, less than 1% per individual. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS FLORIDA PROGRESS The information included under the heading "Certain Relationships and Related Transactions" in Florida Progress' Proxy Statement is incorporated herein by reference. FLORIDA POWER With respect to Florida Power, there are no relationships or related transactions required to be reported under this item. 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 Peat Marwick LLP are found in Item 8 "Financial Statements and Supplementary Data", herein. 2. The following Financial Statement Schedules and reports are included herein: Florida Progress II-Valuation and Qualifying Accounts for the years ended December 31, 1996, 1995 and 1994 69 Florida Power II-Valuation and Qualifying Accounts for the years ended December 31, 1996, 1995 and 1994 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 ------ ------- -------- ------- 4.(a) Amendment to Shareholder Rights Agreement dated February 20, 1997, between Florida Progress and The First National Bank of Boston. X 4.(b) Form of Certificate representing shares of Florida Progress Common Stock. X 10.(a) Management Incentive Compensation Plan X X of Florida Progress Corporation, as amended to date.* 10.(b) Florida Progress Supplemental Executive X X Retirement Plan.* 10.(c) Executive Optional Deferred Compensation Plan.* X X 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); Form S-8 (Nos. 33-53939 and 333-19037)(relating to the Savings Plan for Employees of Florida Progress and filed with the SEC on June 1, 1994 and December 31, 1996, respectively); Form S-3 (Nos. 33-45044 and 333-07853) (relating to the Progress Plus Plan and filed with the SEC on January 13, 1992 and July 10, 1996, respectively); 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-8 (No. 33-39153) (also relating to the Long-Term Incentive Plan and filed with the SEC on February 26, 1991); Form S-3 (No. 2-93111)(relating to the acquisition of Better Business Forms and filed with the SEC on September 5, 1984; Form S-3 (No. 33-56873) (relating to the resale of shares by the former shareholders of F.M. Industries, Inc. ("FMI") and filed with the SEC on December 15, 1994); and Form S-3 (No. 333-00547) (also relating to the resale of shares held by the FMI shareholders and filed with the SEC on January 30, 1996). 70 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 (No. 33-62210 and 33-55273)(relating to Florida Power's first mortgage bond shelf) and Form S-3 (Nos. 33-50908 and 333-02549) (relating to Florida Power's medium-term note shelf). 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.(a) Bylaws of Florida Progress, as amended to X date. (Filed as Exhibit 3(a) to the Florida Progress Form 10-K for the year ended December 31, 1995, as filed with the SEC on March 20, 1996.) 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 amended, X 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 amended, X X 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.(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). 71 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). 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.(d) 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.(e) 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). * 72 10.(f) 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. (b) Reports on Form 8-K: During the fourth quarter of the year ended December 31, 1996, Florida Progress and Florida Power filed the following reports on Form 8-K: Form 8-K dated October 17, 1996, reporting under Item 5 "Other Events" a press release and related Investor Information Report reporting Florida Progress' and Florida Power's third quarter 1996 earnings. Form 8-K dated October 22, 1996, reporting under Item 5 "Other Events" a news release regarding Florida Power's CR3 maintenance outage. Form 8-K dated November 21, 1996, reporting under Item 5 "Other Events" a press release announcing the approval of the spin-off of Echelon to shareholders. Florida Progress also issued an investor news release dated November 22, 1996 updating Florida Power's CR3 outage. Form 8-K dated December 5, 1996, reporting under Item 5 "Other Events" an investor news release to provide an update regarding Florida Power's CR3, and another investor news release dated December 12, 1996 announcing several strategic decisions regarding Florida Progress' diversified businesses. Form 8-K dated December 18, 1996, reporting under Item 5 "Other Events" a news release announcing the spin-off of Echelon. In addition, Florida Progress and Florida Power filed the following reports on Form 8-K subsequent to the fourth quarter of 1996: Form 8-K dated January 7, 1997, reporting under Item 5 "Other Events" a press release dated January 7, 1997 announcing the replacements in top nuclear positions at Florida Power, and an investor news release dated January 14, 1997 relating to CR3. Florida Power also issued another news release dated January 14, 1997 regarding its request to recover higher fuel costs. 73 Form 8-K dated January 23, 1997, reporting under Item 5 "Other Events" a news release and related Investor News report reporting the signing of an agreement to acquire the Tiger Bay Cogeneration facility. Florida Progress also issued a news release reporting 1996 earnings. Form 8-K dated January 29, 1997, reporting under Item 5 "Other Events" a news release reporting Florida Power's CR3 being added to NRC watch list. Florida Progress also issued an investor news release dated January 29, 1997 relating to CR3. Form 8-K dated February 20, 1997, reporting under Item 5 "Other Events" the approval by the board of a dividend increase and the approval by the FPSC of an increase in Florida Power's fuel costs. [THIS SPACE INTENTIONALLY BLANK] 74 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 27, 1997 By: /s/ Jack B. Critchfield ---------------------------- Jack B. Critchfield, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date --------- ----- ---- /s/ Jack B. Critchfield Chairman of the Board, March 27, 1997 ----------------------------- Chief Executive Officer Jack B. Critchfield and Director Principal Executive Officer /s/ Jeffrey R. Heinicka Senior Vice President and March 27, 1997 ----------------------------- Chief Financial Officer Jeffrey R. Heinicka Principal Financial Officer /s/ John Scardino, Jr. Vice President and March 27, 1997 ----------------------------- Controller John Scardino, Jr. Principal Accounting Officer /s/ Willard D. Frederick, Jr. Director March 27, 1997 ----------------------------- Willard D. Frederick, Jr. /s/ Michael P. Graney Director March 27, 1997 ----------------------------- Michael P. Graney /s/ Richard Korpan Director March 27, 1997 ----------------------------- Richard Korpan (Continued) 75 Signature Title Date --------- ----- ---- /s/ Clarence V. McKee Director March 27, 1997 ----------------------------- Clarence V. McKee /s/ Vincent J. Naimoli Director March 27, 1997 ----------------------------- Vincent J. Naimoli /s/ Richard A. Nunis Director March 27, 1997 ----------------------------- Richard A. Nunis /s/ Charles B. Reed Director March 27, 1997 ----------------------------- Charles B. Reed /s/ Joan D. Ruffier Director March 27, 1997 ----------------------------- Joan D. Ruffier /s/ Robert T. Stuart, Jr. Director March 27, 1997 ----------------------------- Robert T. Stuart, Jr. /s/ Jean Giles Wittner Director March 27, 1997 ----------------------------- Jean Giles Wittner 76 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FLORIDA POWER CORPORATION March 27, 1997 By: /s/ Joseph H. Richardson --------------------------------- Joseph H. Richardson, President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date --------- ----- ---- /s/ Richard Korpan Chairman of the Board, March 27, 1997 ------------------------- Chief Executive Officer Richard Korpan and Director /s/ Jeffrey R. Heinicka Senior Vice President March 27, 1997 ------------------------- and Jeffrey R. Heinicka Chief Financial Officer Principal Financial Officer /s/ John Scardino, Jr. Vice President March 27, 1997 ------------------------- and Controller John Scardino, Jr. Principal Accounting Officer /s/ R. Mark Bostick Director March 27, 1997 ------------------------- R. Mark Bostick /s/ Jack B. Critchfield Director March 27, 1997 -------------------------- Jack B. Critchfield /s/ Allen J. Keesler, Jr. Director March 27, 1997 ------------------------- Allen J. Keesler, Jr. (Continued) 77 /s/ Frank C. Logan Director March 27, 1997 ------------------------- Frank C. Logan /s/ Clarence V. McKee Director March 27, 1997 ------------------------- Clarence V. McKee /s/ Joseph H. Richardson Director March 27, 1997 -------------------------- Joseph H. Richardson /s/ Joan D. Ruffier Director March 27, 1997 ------------------------- Joan D. Ruffier /s/ Jean Giles Wittner Director March 27, 1997 ------------------------- Jean Giles Wittner 78
Schedule II FLORIDA PROGRESS CORPORATION Valuation and Qualifying Accounts For the Years Ended December 31, 1996, 1995, and 1994 (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, 1996 Nuclear Refueling Outage Reserve $14.7 $17.4 $23.4 $ - $8.7 ======= ======= ======= ======= ======= Insurance policy benefit reserves $265.0 $60.3 $ - $ - $325.3 ======= ======= ======= ======= ======= Reserve for mine closure/reclamation $0.0 $40.9 $ - $ - $40.9 ======= ======= ======= ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1995 Nuclear Refueling Outage Reserve $6.4 $12.7 $4.4 $ - $14.7 ======= ======= ======= ======= ======= Insurance policy benefit reserves $222.5 $42.5 $ - $ - $265.0 ======= ======= ======= ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1994 Nuclear Refueling Outage Reserve $11.5 $12.6 $17.7 $ - $6.4 ======= ======= ======= ======= ======= Insurance policy benefit reserves $186.5 $36.0 $ - $ - $222.5 ======= ======= ======= ======= =======
79
Schedule II FLORIDA POWER CORPORATION Valuation and Qualifying Accounts For the Years Ended December 31, 1996, 1995, and 1994 (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, 1996 1996 Nuclear Refueling Outage Reserve (#10) $14.7 $9.2 $23.4 $0.5 1998 Nuclear Refueling Outage Reserve (#11) $0.0 $8.2 $0.0 $8.2 ------- ------- ------- ------- $14.7 $17.4 $23.4 $8.7 ======= ======= ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1995 1996 Nuclear Refueling Outage Reserve (#10) $6.4 $12.7 $4.4 14.7 ------- ------- ------- ------- $6.4 $12.7 $4.4 $14.7 ======= ======= ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1994 1993 Nuclear Midcycle Outage Reserve (#9) ($0.7) $0.7 $0.0 $0.0 1994 Nuclear Refueling Outage Reserve (#9) 12.2 5.5 17.7 0.0 1996 Nuclear Refueling Outage Reserve (#10) 0.0 6.4 0.0 6.4 ------- ------- ------- ------- $11.5 $12.6 $17.7 $6.4 ======= ======= ======= ======= Note: Deductions are payments of actual expenditures related to the outage.
80 EX-4.(A) 2 EX-4.(A) TO PROGRESS/POWER 12/31/96 FORM 10-K EXHIBIT 4.(a) AMENDMENT TO SHAREHOLDER RIGHTS AGREEMENT THIS AMENDMENT TO SHAREHOLDER RIGHTS AGREEMENT (this "Amendment") is made and entered into this 20th day of February, 1997, effective for all purposes as of the 6th day of December, 1996 by and between FLORIDA PROGRESS CORPORATION, a Florida corporation (the "Company") and THE FIRST NATIONAL BANK OF BOSTON (the "Rights Agent"). W I T N E S S E T H: WHEREAS, Florida Progress Corporation (the "Company"), a Florida corporation, and Manufacturers Hanover Trust Company ("Manufacturers"), a New York Corporation, previously entered into that certain Shareholder Rights Agreement dated November 21, 1991 (the "Rights Agreement"), with Manufacturers serving as the original Rights Agent under and as defined in the Rights Agreement; and WHEREAS, under and in accordance with the Rights Agreement, ChaseMellon Shareholder Services, L.L.C. ("ChaseMellon") succeeded Manufacturers Hanover Trust Company as Rights Agent; and WHEREAS, under and in accordance with the Rights Agreement, and pursuant to a Rights Agency Agreement effective December 6, 1996, The First National Bank of Boston succeeded ChaseMellon as, and now is, the sole Rights Agent; and WHEREAS, in furtherance of the substitution of The First National Bank of Boston as Rights Agent, the parties desire to amend the terms and provisions of the Rights Agreement in certain respects; NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth in this Agreement, the parties hereby agree as follows: 1. REFERENCE TO RIGHTS AGREEMENT. Reference is hereby made to the Rights Agreement. The Company and the Rights Agent do hereby agree that the Rights Agreement and its terms and provisions shall be and are hereby amended by this Amendment. Except as amended hereby, all terms and provisions of the Rights Agreement as in effect immediately prior to the effectiveness hereof are hereby ratified and affirmed. Any reference in this Amendment to the Rights Agreement shall be deemed a reference to the Rights Agreement as amended hereby, unless the context herein indicates otherwise. Capitalized terms used herein shall have the meanings given such terms in the Rights Agreement, except as the manner in which such terms are used herein indicates otherwise. Amendment to Shareholder Rights Agreement Page 2 2. SUBSTITUTION OF RIGHTS AGENT. The appointment and substitution of The First National Bank of Boston as the sole Rights Agent under the Rights Agreement is confirmed and ratified. Any reference in the Rights Agreement to the "Rights Agent" shall be deemed to be a reference to The First National Bank of Boston unless and until The First National Bank of Boston shall cease to be the Rights Agent in accordance with the terms of the Rights Agreement. 3. AMENDMENT OF SECTION 2. The second sentence of Section 2 of the Rights Agreement is hereby deleted and in its place and stead is substituted the following: * * * The Company may from time to time appoint such co-Rights Agent or Agents as it may deem necessary or desirable, in its sole discretion, upon ten (10) days' prior written notice to the Rights Agent. No co-Rights Agent shall have any duty to supervise, nor shall any co-Rights Agent have any liability for or with respect to any act or omission of, any other co-Rights Agent. * * * 4. AMENDMENT OF SECTION 3. Section 3(e) of the Rights Agreement is hereby deleted and in its place and stead is substituted the following: * * * (e) Rights shall be issued in respect of all shares of Common Stock which are issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear a legend substantially to the following effect (provided, however, no legend shall be deemed not to comply with this provision by reason of any error in reference to the Rights Agent or to the date of this Agreement or any amendment or supplement hereto, or any other matter of similar importance; and, provided further, however, that any legend on any such certificate which substantially complied with this provision as in effect when such legend was placed on such certificate shall be deemed to comply with this Agreement as from time to time in effect): Amendment to Shareholder Rights Agreement Page 3 This certificate also evidences and entitles the holder of this certificate to certain Rights as set forth in the Shareholder Rights Agreement, as amended (the "Rights Agreement"), between Florida Progress Corporation (the "Corporation") and the rights agent named therein (the "Rights Agent"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal office of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Corporation will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge, promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Persons or by any subsequent holder, may become null and void. The Rights shall not be exercisable, and shall be void so long as held, by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been obtained or be obtainable. With respect to certificates containing such a legend, until the earlier of: (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. * * * IN WITNESS WHEREOF, the parties hereto have executed this Amendment on such date, and effective such date, as first above written. FLORIDA PROGRESS CORPORATION THE FIRST NATIONAL BANK OF BOSTON By: /s/ Jeffrey R. Heinicka By: /s/Colleen Shea ------------------------------ ----------------------- Jeffrey R. Heinicka Authorized Officer Senior Vice President and Chief Financial Officer EX-4.(B) 3 EX-4.(B) TO PROGRESS/POWER 12/31/96 FORM 10-K EXHIBIT 4.(b) COMMON STOCK COMMON STOCK INCORPORATED UNDER THE LAWS NUMBER OF THE SHARES K STATE OF FLORIDA THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR IN THE CITIES OF BOSTON OR NEW YORK CERTAIN DEFINITIONS CUSIP FLORIDA PROGRESS CORPORATION THIS IS TO CERTIFY THAT SPECIMEN IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK WITHOUT PAR VALUE OF Florida Progress Corporation transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Amended Articles of Incorporation, as amended, of the Corporation, to all of which the holder by acceptance hereof assents. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Corporation, and the facsimile signatures of its duly authorized officers. Dated:
COUNTERSIGNED AND REGISTERED: THE FIRST NATIONAL BANK OF BOSTON (MASSACHUSETTS) TRANSFER AGENT AND REGISTRAR /s/Jeffrey R. Heinicka /s/Jack B. Critchfield BY Vice President and Chairman and Chief Treasurer Executive Officer AUTHORIZED OFFICER
REVERSE SIDE FLORIDA PROGRESS CORPORATION ___________ THE PROVISIONS OF THE CORPORATION'S AMENDED ARTICLES OF INCORPORATION, AS AMENDED, SHOWING THE CLASSES OF SERIES OF STOCK AUTHORIZED TO BE ISSUED BY THE CORPORATION AND THE DISTINGUISHING CHARACTERISTICS THEREOF ARE HEREBY INCORPORATED BY REFERENCE TO THE SAME EXTENT AS IF HEREIN SET FORTH AT LENGTH; A COPY OF SAID PROVISIONS, CERTIFIED BY AN OFFICER OF THE CORPORATION, WILL BE FURNISHED BY THE CORPORATION OR BY ITS TRANSFER AGENT, WITHOUT COST, TO AND UPON THE REQUEST OF THE HOLDER OF THIS CERTIFICATE. REQUESTS MAY BE ADDRESSED TO THE SECRETARY OF FLORIDA PROGRESS CORPORATION, ST. PETERSBURG, FLORIDA, OR THE CORPORATION'S TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT--....Custodian.... TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act............ in common (State) Additional abbreviations may also be used though not in the above list. For value received, ______________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE) _______________________________________________________________________________ _______________________________________________________________________________ _________________________________________________________________________shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________, Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated_______________________ _____________________________ SIGNATURE(S) GUARANTEED:____________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. ON SIDE OF REVERSE The signature to assignment must correspond with the name Notice: as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever. This certificate also evidences and entitles the holder of this certificate to certain Rights as set forth in the Shareholder Rights Agreement, as amended (the "Rights Agreement") between Florida Progress Corporation (the "Corporation") and the rights agent named therein (the "Rights Agent"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal office of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Corporation will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge, promptly after receipt of a written request therefor. Under certain circumstances set forth in the Agreement, Rights issued to, or held by, any person who is, was or becomes an Acquired Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. The Rights shall not be exercisable, and shall be void so long as held, by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been obtained or be obtainable. EX-10.(A) 4 EX-10.(A) TO PROGRESS/POWER 12/31/96 FORM 10-K EXHIBIT 10.(a) FLORIDA PROGRESS CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN Amended and Restated November 21, 1996 FLORIDA PROGRESS CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN Article 1. General Provisions 1.1 Purpose The purpose of the Management Incentive Compensation Plan is to benefit the shareholders and customers of the Company by offering annual award opportunities to management for their achievement of financial and value added individual goals. 1.2 Term of the Plan The Plan, as amended and restated, shall be effective as of January 1, 1996 (the "Effective Date"). The Plan shall remain in effect until such time as the Company's Board of Directors elects to terminate the Plan. Article 2. Definitions The following definitions shall be established within the Plan text, and unless the Plan text indicates otherwise, shall have the meanings set forth below: 2.1 "Base Salary Rate" shall mean the Participant's annual base salary in effect as of December 31 of each Plan Year. 2.2 "Board" shall mean the Board of Directors of Florida Progress Corporation. 2.3 "Chairman" shall mean the Chairman and Chief Executive Officer of the Board of Directors of Florida Progress Corporation. 2.4 "Company" shall mean the Florida Progress Corporation and its subsidiaries. 2.5 "Compensation Committee" or "Committee" shall mean the Compensation Committee of the Board. 2.6 "Disability" shall have the meaning ascribed to such term in the Participant's Company sponsored tax-qualified retirement plan, or if no such plan exists, the following definition will apply. Shall mean any physical or mental disability arising out of natural or accidental causes, or both, which originate subsequent to the date of this Plan which prevents the Participant from engaging in and performing all of the duties assigned to him and such Disability shall have been in existence for a period of at least six months. 2.7 "Effective Date" means the date the Plan becomes effective, as set forth in Section 1.2 herein. Page 1 November 21, 1996 2.8 "Employee" shall mean a person who is a full-time, active employee of Florida Progress Corporation or a Subsidiary. 2.9 "Financial Goal(s)" shall mean the annual financial goal(s) established for the Company or Subsidiary. 2.10 "Individual Goals" shall mean the established annual performance goals and objectives for each Participant which will be used to determine the Participant's Performance Award pursuant to the Plan. 2.11 "Participant" shall mean an Employee who is actively participating in the Plan during any Plan Year. 2.12 "Performance Award" shall mean the amount of the cash award payable to a Participant based on achievement of certain preestablished performance goals during the applicable Plan Year. 2.13 "Plan" shall mean the Management Incentive Compensation Plan for the Company as described and set forth herein. 2.14 "Plan Year" shall mean a calendar year beginning on January 1 and ending on December 31. 2.15 "Pool" shall mean the total Performance Awards which are created and funded based on the achievement of Financial Goal(s) with respect to either the Company or a particular Subsidiary. 2.16 "Prorated Award" shall mean the amount of a Performance Award paid to a Participant for participating in the Plan less than the full Plan Year or change of Target Incentive, as provided in Article 9 hereof. 2.17 "Retirement" shall have the meaning ascribed to such term in the Participant's Company sponsored tax-qualified retirement plan, or if no such plan exists, under that company's retirement policy. 2.18 "Subsidiary" shall mean any operating company or other corporate entity which is affiliated with the Company and designated by the Board to be included in the Plan. 2.19 "Supervisor" shall mean the immediate supervisor of Participant to whom the latter reports on a day-to-day basis for operational and administrative direction. 2.20 "Target Incentive" shall mean the percentage of Base Salary Rate at risk by a Participant for 100% or full achievement of the applicable Financial Goal(s). Page 2 November 21, 1996 Article 3. Administration 3.1 Compensation Committee. The Compensation Committee shall have the final authority with respect to all matters pursuant to the Plan. Based upon recommendations submitted by the Chairman, and subject to the terms of the Plan, the Compensation Committee shall have the authority to: (a) Review, and either accept, reject, or modify any or all of the annual Financial Goals; (b) Review, and either approve, reject, or modify the recommended Performance Awards designated for the Chairman and Participants who are one, two and three levels removed from the Chairman; (c) Subject to Article 14 hereof, revise, amend, or otherwise change in any manner, the terms, provisions, or other features of the Plan as the Compensation Committee sees fit from time to time; (d) Review, and either approve, reject or modify the total amount of each Pool, and achievement of Financial Goals; and 3.2 Chairman and Chief Executive Officer. As permitted by applicable law, and subject to the terms of the Plan, the Chairman or designee of his choice, is vested with authority to manage the day-to-day activities of the Plan. The Chairman shall make recommendations to the Compensation Committee as to the establishment of Financial and Individual Goals for the Plan Year, and other administrative matters which may evolve pursuant to the Plan from time to time. Specific authorities of the Chairman shall be to: (a) Determine the eligible Employees who are designated Participants; (b) Prepare, review and recommend to the Compensation Committee the Performance Awards for Participants who are one, two and three management levels removed from him; (c) Review and recommend to the Compensation Committee the total expenditures for all Performance Awards according to each Subsidiary, and achievement of Financial Goals; and (d) Designate, at his discretion, an executive to administer the Plan within the Company or any of its Subsidiaries. (e) Select Participants who shall be eligible to defer a Performance Award with respect to any Plan Year, pursuant to the criteria set forth in Section 10.1 hereof. Page 3 November 21, 1996 Article 4. Eligibility and Participation 4.1 Eligibility. Eligibility for participation in the Plan will be limited to those Employees who as members of management have responsibility for decision-making and actions which significantly influence the Company's annual performance. The nomination of Participants will be left to the discretion of the President of each Subsidiary with the approval of the Chairman. 4.2 No Right of Employment. Nothing in the Plan shall imply any right of an Employee to continue in the employ of the Company, or shall interfere with the right of the Company to terminate such Employee's employment at any time. Article 5. Performance Measurement Period The Plan measures and rewards performance achieved by the Company over the course of the Plan Year. Article 6. Performance Criteria 6.1 Financial Goals. The Plan's performance criteria for funding Performance Awards shall be established each Plan Year consistent with the Company's annual Financial Goal(s) and objectives. 6.2 Weighting of Financial Goals. Each Financial Goal established with respect to Florida Progress Corporation and each Subsidiary shall be weighted to reflect its relative importance in determining the size of the Pool. The weighting of the Financial Goals by organizational entity shall be as set forth below: Organizational Entity Weighting of Financial Goals Florida Progress Corporation 85% Florida Power 15% Diversified Consolidated Subsidiary Companies 100% Subsidiary Company Article 7. Determination of Individual Performance Awards 7.1 Size of Individual Performance Awards. The size of individual Performance Awards shall be based upon the achievement of financial goals the assessment of the Participant's achievement of Individual Goals during the Plan Year. All Performance Awards are distributed from available funds in the applicable Pool(s). 7.2 Target Award Opportunities. Each Participant will be assigned a Target Incentive as determined by management to be commensurate with the responsibility and impact of their position on the Strategic, Annual Profit Plan, and Operations Goals of the Company. Page 4 November 21, 1996 The range of Participant Target Incentives, as determined by the Committee, shall be from 10% up to 60% of the Participant's Base Salary Rate. 7.3 Performance Award Pool. A Pool shall be established separately with respect to the Company and each Subsidiary, and funds are not transferrable between Pools. The amount of each Pool shall be determined based on the level of achievement of the applicable Financial Goal. As set forth below, at 100% achievement, the amount of the Pool shall equal the TOTAL of the Participant Target Incentives; at the Threshold achievement level, the amount of the Pool shall be 50% of the TOTAL; and at the Maximum achievement level, the amount of the Pool shall be equal to 150% of the TOTAL. Results between achievement levels shall produce interpolated funding levels. Financial Goal Achievement --------------------------------------------------------------- Threshold Target Maximum --------------------------------------------------------------- % of Target Incentive 50% 100% 150% 7.4 Development of Individual Goals. During the first quarter of each Plan Year, all Participants will develop Individual Goals which set forth annual goals and objectives of the Participant. The Individual Goals are to be developed as the result of discussions between the Participant and Supervisor. These Individual Goals may be either quantitative or qualitative and should be consistent with the Company or Subsidiary, Strategic, Annual Profit Plan or Operations Goals for the Plan Year. 7.5 Measurement Against the Individual Performance Plan. Following the last quarter of the Plan Year, management will assess the performance and recommend a Performance Award based upon the achievement of each Participant. 7.6 Funds Not Allocated As Performance Awards. Any funds which are not allocated to Participants shall be returned to the Company's operating profits for the applicable Plan Year. Article 8. Timing and Payment of Awards 8.1 Timing of Award Payments. Subject to deferrals made pursuant to Articles 10 and 11 hereof, Participants in the Plan will receive their Performance Awards, if any, as soon as practical after the completion of the Plan Year. Page 5 November 21, 1996 8.2 Awards Payable in Cash. All Performance Awards payable under the Plan shall be paid in cash. All Performance Awards shall be subject to the Company's obligation to withhold the required amount of any Social Security, federal, state, or local taxes attributed to any amounts payable pursuant to the Plan. Article 9. Limited Participation and Change in Target Incentive during Plan Year 9.1 Partial Plan Year Eligibility. Subject to Section 9.2 hereof, a Participant must be an Employee of the Company or a Subsidiary as of the last day of the Plan Year in order to be eligible to receive any Performance Award pursuant to the Plan. In the event that an Employee is a Participant in the Plan for less than a full Plan Year, the following provisions shall apply: (a) An Employee who becomes eligible for participation in the Plan due to initial employment, transfer, or promotion during the Plan Year will be eligible to receive a Prorated Award based upon the Participant's Target Incentive at the time of induction. In no event, however, will Prorated Awards be made for any employment period of time less than three months participation during the Plan Year by the Participant. (b) The size of the Prorated Award payable pursuant to Section 9.1(a) hereof shall be determined by multiplying the Performance Award which would have been earned by the Participant for a full Plan Year's participation by the fraction that reflects the number of months of active service during the Plan Year, as follows: Prorated = Annual x Number of Months of Active Award Performance Service During Plan Year Award -------------------------- 12 9.2 Termination of Employment Due to Retirement, Disability or Death. A Plan Participant who is not an Employee on the last day of the Plan Year as a direct result of Retirement, Disability, or death (in which case the rights would pass to the Participant's beneficiary), will be eligible to receive a Prorated Award. The Prorated Award will be determined by multiplying the Performance Award which would have been earned by the Participant for a full year's participation by the fraction that reflects the number of months of active service during the Plan Year, as set forth below: Prorated = Annual x Number of Months of Active Award Performance Service During Plan Year Award -------------------------- 12 Page 6 November 21, 1996
9.3 Proration of Target Incentives. In the event a Participant's Target Incentive changes during the Plan Year, the Performance Award shall be determined as follows: 12/31 x Former x # of + 12/31 x New Target x # of Base Target Months Base Incentive Months Salary Incentive ------- Salary ------ Rate 12 Rate 12
Article 10. Deferral Opportunity 10.1 Eligibility. The Chairman may permit any eligible Participant to defer all or a portion of his or her Performance Award which may become payable under the terms of the Plan for any Plan Year. It is the intent of the Company to extend eligibility to defer receipt of Performance Awards only to those individuals who are deemed to comprise a select group of management or highly compensated employees such that the Plan will qualify for treatment as a "top hat" plan under the Employee Retirement Income Security Act of 1974, as amended from time to time or any successor act thereto. In the event a Participant no longer meets the eligibility requirements for making deferrals of a Performance Award under the Plan, as determined by the Chairman, such Participant shall become ineligible to make further deferrals, retaining all the rights described in Articles 10 and 11 hereof, except the right to make any further deferrals, until such time that the Participant again becomes eligible to make deferrals. 10.2 Participation. The Chairman shall, determine the Participants who are eligible to make deferrals for any Plan Year pursuant to this Article 10 based on the criteria set forth in this Section 10.1. Participants who are deemed eligible to defer a Performance Award for any Plan Year shall be so notified in writing. 10.3 Mandatory Deferral of Awards. The Company shall defer paying any Performance Award, including a Performance Award previously deferred by a Participant, to the extent it would otherwise be disallowable as a deduction under Section 162(m) of the Internal Revenue Code, as may be amended from time to time, until such time as the payment will be allowed as a deduction. Such deferral shall be subject to all of the terms and provisions set forth in Articles 10 and 11 hereof, except to the extent that any such terms or provisions are inconsistent with this Section 10.3, as determined by the Chairman. In determining the extent that such payment would be disallowable, all other remuneration to a Participant shall first be taken into account for purposes of the limit imposed by Section 162(m). 10.4 No Right to Defer. No Participant shall have the right to be selected to defer a Performance Award under this Article 10 nor, having been so selected for any given Plan Year, to be selected for any other Plan Year. Page 7 November 21, 1996 10.5 Amount Which May Be Deferred. An eligible Participant may elect to defer up to one hundred percent (100%) of his or her Performance Award payable for any Plan Year. An election to defer a Performance Award for any Plan Year shall be expressed by each Participant in increments of ten percent (10%) of the Performance Award which may become payable under the Plan. 10.6 Deferral Election. Eligible Participants shall make their elections to defer the Performance Awards which may become payable under the Plan for a given Plan Year prior to the beginning of that Plan Year, or such earlier date as may be specified by the Chairman. All deferral elections shall be irrevocable, and shall be made on a "Performance Award Deferral Election Form," as described herein. Eligible Participants shall make the following irrevocable elections on each "Performance Award Deferral Election Form": (a) The percentage amount of the Performance Award to be deferred for the Plan Year; (b) The length of the deferral period, pursuant to the terms of Section 10.7 herein; and (c) The form of payment to be made to the Participant upon Retirement, pursuant to the terms of Section 10.8 herein. 10.7 Length of Deferral. The deferral period elected by each Participant for any Plan Year shall be either (a) until the Participant's Retirement; or (b) for a period at least equal to one (1) year following the end of the Plan Year in which the Performance Award is earned and no greater than ten (10) years following such date; provided, however, that each Participant may have only one (1) deferral period under this Section 10.7(b) outstanding at any one time. Notwithstanding the foregoing, no deferral period selected pursuant to Section 10.7(b) may extend beyond a Participant's Retirement. Notwithstanding the deferral periods elected by a Participant, payment of deferred amounts and accumulated interest thereon shall be made to the Participant in a single lump sum in the event the Participant's employment with the Company terminates for any reason other than Retirement at a time prior to full payment of deferred amounts and interest thereon. Such payment following employment termination shall be made in cash as soon as practicable following the termination of the Participant's employment. 10.8 Payment of Deferred Amounts. Amounts, together with interest earned thereon, which are deferred to a date which occurs prior to a Participant's Retirement shall be paid, in cash, in one lump sum as soon as practicable following such date. With respect to amounts deferred until Retirement, Participants shall be entitled to elect to receive payment of such deferred amounts, together with earnings thereon, in cash, Page 8 November 21, 1996 commencing upon the effective date of their Retirement, in a single lump-sum or in installments. (a) Lump-Sum Payment. Such payment shall be made in cash as soon as practicable following the Participant's Retirement. (b) Installment Payments. Participants may elect payment of deferred amounts in installments, with a minimum of two (2) installments and a maximum of ten (10) installments. The initial payment shall be made, in cash, as soon as practicable following the effective date of the Participant's Retirement. The remaining installment payments shall be made, in cash, during the first quarter of each Plan Year thereafter, until the Participant's entire deferred compensation account has been paid. The amount of each installment payment shall be equal to the balance remaining in the Participant's deferred compensation account immediately prior to each such payment, multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the number of installment payments remaining. 10.9 Financial Hardship. The Committee shall have the authority to alter the timing or manner of payment of deferred amounts in the event that the Participant establishes, to the satisfaction of the Committee, "severe financial hardship." In such event, the Committee may, in its sole discretion: (a) Authorize the cessation of deferrals by such Participant under the Plan; or (b) Provide that all, or a portion, of the amount previously deferred by the Participant shall immediately be paid in a lump-sum cash payment; or (c) Provide that all, or a portion, of the installments payable over a period of time shall immediately be paid in a lump-sum cash payment; or (d) Provide for such other installment payment schedule as deemed appropriate by the Committee under the circumstances. For purposes of this Section 10.9, "severe financial hardship" shall mean any financial hardship resulting from extraordinary and unforeseeable circumstances arising as a result of one or more recent events beyond the control of the Participant. In any event, payment may not be made to the extent such emergency is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; and (iii) by cessation of deferrals under the Plan. Withdrawals of amounts because of a severe financial hardship may only be permitted to the extent reasonably necessary to satisfy the hardship. Examples of what are not Page 9 November 21, 1996 considered to be severe financial hardships include the need to send a Participant's child to college or the desire to purchase a home. The Participant's account will be credited with interest in accordance with the Plan up to the date of distribution. The severity of the financial hardship shall be judged by the Committee. The Committee's decision with respect to the severity of financial hardship and the manner in which, if at all, the Participant's future deferral opportunities shall be ceased, and/or the manner in which, if at all the payment of deferred amounts to the Participant shall be altered or modified, shall be final, conclusive, and not subject to appeal. Article 11. Participant's Accounts 11.1 Participants' Accounts. The Company shall establish and maintain an individual bookkeeping account for deferrals made by each Participant under Article 10 herein. Each account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Participant. 11.2 Interest on Deferred Amounts. Amounts deferred under Article 10 shall accrue interest as established by the Corporation based on the investment return of the Stable Value Fund of the Savings Plan for Employees of Florida Progress Corporation. Each Participant's deferred compensation account shall be credited on the last day of each calendar quarter, with interest computed on the beginning quarterly balance in the account. Interest on deferred amounts shall be paid out to Participants at the same time and in the same manner as the underlying deferred amounts. 11.3 Charges Against Accounts. There shall be charged against each Participant's deferred compensation account any payments made to the Participant or to his or her beneficiary. Article 12. Designation of Beneficiary. Each Participant shall designate a beneficiary or beneficiaries who, upon the Participant's death, will receive the amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee. Each designation shall be effective as of the date delivered to the Vice President-Human Resources of the Company by the Participant. Participants may change their designations of beneficiary on such form as prescribed by the Vice President - Human Resources of Florida Power Corporation. The payment of amounts deferred under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the Vice President - Human Resources of Florida Power Corporation prior to the Participant's death. In the event that all the beneficiaries named by a Participant pursuant to this Article 12 predecease the Participant, the amounts that would have been paid to the Participant or the Participant's beneficiaries shall be paid to the Participant's estate. In the event a Participant Page 10 November 21, 1996 does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participant's beneficiaries under the Plan shall be paid to the Participant's estate. Article 13. Forfeiture 13.1 Forfeiture of Participation. Participants in the Plan are expected to provide vision and leadership in the strategic management of the Company, exhibit the corporate philosophies and maintain trusteeship of corporate culture. Significant activity which, by its nature, impedes the achievement of Company goals or damages the reputation of the Company, shall result in the immediate forfeiture of participation, as determined by the Committee in its sole discretion. 13.2 Forfeiture of Payment. As a condition of receiving benefits under this Plan, a Participant shall not, directly or indirectly, after the termination of his or her employment with the Company: (a) use or disclose any financial or business information of the Company obtained by the Participant during the course of his or her employment, other than information that has been previously made available to the public through normal, authorized business channels, in a manner that would be prejudicial to the interests of the Company. Notwithstanding the preceding requirements of this subsection (a), a Participant may disclose information if required by legal process or if the disclosure is protected by the Florida Whistle-blower's Act of 1986, or any similar applicable federal or state statute; or (b) render any services of an advisory nature or become employed by or participate or engage in any business in competition with the Company, without the prior written consent of his or her employer. A Participant shall be considered as engaging in a business if he or she is a shareholder or other owner, or partner, director, officer, or employee of, or consultant to, the business; provided, that a Participant shall not be prohibited from owning securities of a competitor if (1) the securities owned constitute less than 2% of the competitor's total outstanding securities of the same class and (2) the Participant does not have the power to control, direct or substantially influence the competitor's management or policies. Article 14. Amendment and Termination The Committee, in its sole discretion, without notice, at any time and from time to time, may modify or amend, in whole or in part, any or all of the provisions of the Plan, or suspend or terminate the Plan entirely; provided, however, that no such modification, amendment, suspension or termination may, without the consent of a Participant (or beneficiary, as applicable), materially and adversely affect the right of a Participant (or beneficiary, as applicable) to a payment or distribution hereunder with respect to an outstanding Performance Award or previously deferred amounts. Page 11 November 21, 1996 Article 15. Miscellaneous 15.1 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 15.2 Costs of the Plan. All costs of administering the Plan shall be borne by the Company out of the Company's general assets. Although not prohibited from doing so, the Company is not required, in any way, to segregate assets in any manner or to specifically fund any benefits provided under this Plan. 15.3 Contractual Obligation. The Plan shall create a contractual obligation on the part of the Company to make payments from the Participants accounts when due. Payment of account balances shall be made out of the general funds of the Company. 15.4 Unsecured Interest. No Participant or party claiming an interest in deferred amounts under a Participant shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company. The Company may establish one or more trusts, with such trustee as the Committee may approve, for the purpose of providing for the payment of deferred amounts. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's general creditors. To the extent any deferred amounts or contributions under the Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such deferred amounts shall remain the obligation of, and shall be paid by, the Company. 15.5 Nontransferability: In no event shall the Company or any Employer make any payment under this plan to any assignee or creditor of a Participant or of a beneficiary. Prior to the time of a payment hereunder, a participant or a beneficiary shall have no right by way of anticipation or otherwise to assign (including without limitation in connection with a divorce) or otherwise dispose of any interest under this Plan nor shall rights be assigned or transferred by operation of law. Article 16. Choice of Law The validity, interpretation, and administration of the Plan and the rights of any and all persons having or claiming to have an interest therein, shall be determined exclusively in accordance with the laws of the State of Florida. micpdoc.96 Page 12 November 21, 1996 EX-10.(B) 5 EX-10.(B) TO PROGRESS/POWER 12/31/96 FORM 10-K EXHIBIT 10.(b) FLORIDA PROGRESS CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As Amended and Restated, effective February 20, 1997 FLORIDA PROGRESS CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE OF CONTENTS ARTICLE 1. ESTABLISHMENT AND PURPOSE . . . . . . . . . . . . . . . . . 1 1.1 Restatement. . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Gender and Number. . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 3. PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . 8 3.1 Eligibility for Participation. . . . . . . . . . . . . . . . . 8 3.2 Date of Participation. . . . . . . . . . . . . . . . . . . . . 8 3.3 Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.4 Limitation on Participation. . . . . . . . . . . . . . . . . . 8 ARTICLE 4. REGULAR BENEFITS. . . . . . . . . . . . . . . . . . . . . . 9 4.1 Normal Retirement Benefit. . . . . . . . . . . . . . . . . . . 9 4.2 Early Retirement Benefit . . . . . . . . . . . . . . . . . . . 9 4.3 Disability Retirement Benefit. . . . . . . . . . . . . . . . . 10 4.4 Vested Termination Benefit . . . . . . . . . . . . . . . . . . 12 4.5 Change in Control. . . . . . . . . . . . . . . . . . . . . . . 13 4.6 Surviving Spouse Benefit . . . . . . . . . . . . . . . . . . . 15 ARTICLE 5. SPECIAL EARLY RETIREMENT BENEFITS . . . . . . . . . . . . . 17 5.1 Special Early Retirement Benefit . . . . . . . . . . . . . . . 17 5.2 Surviving Spouse Benefit . . . . . . . . . . . . . . . . . . . 17 ARTICLE 6. SPECIAL BENEFIT PROVISIONS. . . . . . . . . . . . . . . . . 19 6.1 General Principles . . . . . . . . . . . . . . . . . . . . . . 19 6.2 Optional Lump Sum Payment. . . . . . . . . . . . . . . . . . . 19 ARTICLE 7. FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.1 Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.2 No Trust Created . . . . . . . . . . . . . . . . . . . . . . . 21 7.3 Unsecured Interest . . . . . . . . . . . . . . . . . . . . . . 21 7.4 "Rabbi" Trust. . . . . . . . . . . . . . . . . . . . . . . . . 21 7.5 Divested Subsidiary Employee Participants. . . . . . . . . . 21 ARTICLE 8. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . 22 8.1 Administration . . . . . . . . . . . . . . . . . . . . . . . . 22 8.2 Liability of Committee and Board; Indemnification. . . . . . . 22 8.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.4 Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 23 9.1 Nontransferability . . . . . . . . . . . . . . . . . . . . . . 23 9.2 Amendment or Termination . . . . . . . . . . . . . . . . . . . 23 9.3 Impact of 1994 Amendments. . . . . . . . . . . . . . . . . . . 23 9.4 Forfeiture of Benefits . . . . . . . . . . . . . . . . . . . . 24 9.5 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . 25 FLORIDA PROGRESS CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Amended and Restated, effective February 20, 1997) ARTICLE 1. ESTABLISHMENT AND PURPOSE 1.1 Restatement. Florida Progress Corporation hereby amends and restates, effective as of February 20, 1997, an unfunded plan of deferred compensation for certain officers and other management personnel of the Company and its subsidiaries and their beneficiaries as described herein, which plan shall be known as the "Florida Progress Corporation Supplemental Executive Retirement Plan" (the "Plan"). 1.2 Purpose. The purpose of this Plan is to provide additional retirement benefits to a select group of officers and other management personnel with the goal of helping to attract and retain superior officers and other management personnel. ARTICLE 2. DEFINITIONS 2.1 Definitions. Whenever used hereinafter, the following terms shall have the meaning set forth below. (a) "Accrued Benefit" means, at any particular date, a Participant's Target Amount, but calculated on the basis of the number of years and months of Deemed Credited Service of the Participant and the Final Average Earnings of the Participant as of such date rather than as of his or her Normal Retirement Date. (b) "Actuarial Equivalent" means, with respect to determining the amount of a lump sum payment, a benefit of equivalent value to the benefit that would otherwise have been provided to the Participant, determined on the basis of the actuarial assumptions in effect under the Retirement Plan as of the date such value is computed (except that the current monthly PBGC rate shall be used). (c) "Board" means the Board of Directors of the Company. (d) "Calculated under this Plan" means a calculation made as otherwise indicated but without regard to any cost of living adjustments occurring after retirement or other termination of employment, and calculated as a straight life annuity without regard to the actual form of payment under the Retirement Plan or the Nondiscrimination Plan. (e) A "Change in Control" means: (1) a change in control of the Company of a nature that is required, pursuant to the Securities Exchange Act of 1934 (the "1934 Act"), to be reported in response to (i) Item 1(a) of a Current Report on Form 8-K or (ii) Item 6(e) of Schedule 14A, in each case as such requirements are in effect on October 1, 1994; (2) the adoption by the Company of a plan of dissolution or liquidation; (3) the closing of a sale of all or substantially all of the assets of the Company; (4) the closing of a merger, reorganization or similar transaction (a "Transaction") involving the Company in which the Company is not the surviving corporation or, if the Company is the surviving corporation, immediately following the closing of the Transaction, persons who were shareholders of the Company immediately prior to the Transaction own less than 75% of the combined voting power of the surviving corporation's voting securities; 2 (5) the acquisition of "Beneficial Ownership" (as defined in Rule 13d-3 under the 1934 Act) of the Company's securities comprising 25% or more of the combined voting power of the Company's outstanding securities by any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the 1934 Act and the rules and regulations promulgated thereunder, but not including any trustee or fiduciary acting in that capacity for an employee benefit plan sponsored by the Company) and such person's "affiliates" and "associates" (as those terms are defined under the 1934 Act); (6) the failure of the "Incumbent Directors" (as defined below) to constitute at least a majority of all directors of the Company (for these purposes, "Incumbent Directors" means individuals who were the directors of the Company on January 1, 1992, and, after his or her election, any individual becoming a director subsequent to January 1, 1992, whose election, or nomination for election by the Company's shareholders, is approved by a vote of at least two-thirds of the directors then comprising the Incumbent Directors, except that no individual shall be considered an Incumbent Director whose initial assumption of office as a director is in connection with an actual or threatened "election contest" relating to the "election of directors" of the Company, as such terms are used in Rule 14a-11 of Regulation 14A under the 1934 Act); or (7) the occurrence of a "Triggering Event," as such term is defined in Section 1(n) of that certain Shareholder Rights Agreement by and between the Company and Manufacturers Hanover Trust Company dated November 21, 1991, as it may be amended from time to time. Notwithstanding any provision above to the contrary, no Change in Control shall be deemed to have occurred with respect to any particular Participant by virtue of a transaction, or series of transactions, that results in the Participant, or a group of persons that includes the Participant, acquiring the Beneficial Ownership of more than 25% of the combined voting power of the Company's outstanding securities. (f) "Code" means the Internal Revenue Code of 1986, as it may be amended from time to time, or any successor statute. Reference to a specific section of the Code shall include a reference to any successor provision. (g) "Committee" means the Compensation Committee of the Board. (h) "Company" means Florida Progress Corporation, or any successor entity. (i) "Control Date" means the date on which a Change in Control occurs. 3 (j) "Credited Service" shall have the same meaning in this Plan as is found in the Retirement Plan; provided, that if a Participant incurs a Disability, such Disability terminates, the Participant returns to work with an Employer and the Committee determines that such person shall continue as an active Participant in this Plan upon such return to work, such Participant's Credited Service shall be increased by the time he or she had a Disability (but only to the extent such time is not otherwise included in his or her Credited Service); and provided further, that if a Participant is employed by an Employer that is not a participating employer in the Retirement Plan, "Credited Service" for such Participant means the number of years and months equal to the number of years and months of Credited Service the Participant would have had if his or her Employer had been a participating employer in the Retirement Plan during the entire time of the Employer's affiliation with the Company. (k) "Current Earnings" means, at any particular time, the sum of the Participant's then current monthly Earnings plus 1/12th of the Participant's last MICP Award or MICP target incentive amount (as defined in MICP), whichever is greater. (l) "Deemed Credited Service" means, with respect to a Participant, the sum of the following (but not in excess of 35 years): (1) such Participant's Credited Service; plus (2) with respect to a person who becomes eligible to participate under Article 4 or Article 5, the additional years and months of credited service, if any, awarded to the Participant by the Committee at such time. In awarding Deemed Credited Service under the standards set forth in this subsection (l), the Committee may establish conditions on when the additional years shall be considered to be earned and thus become effective (e.g., only upon the Participant reaching a specified age or completing a specified number of years of actual service, only on a graduated basis pursuant to a schedule approved by the Committee, etc.); and in any such event, for all purposes of this Plan, a Participant shall be considered at any time only to have those years of additional service previously awarded that then have been earned under the conditions established by the Committee. (m) "Disability" means the total and permanent disability of a Participant by reason of sickness or injury to perform all of the duties assigned to the Participant by his or her Employer, with the existence of a Disability to be determined by the Committee in its sole discretion. (n) "Early Retirement Date" means the first day of the calendar month next following the day on which the Participant has attained age 55 and has five years of Credited Service. 4 (o) "Earnings" means a Participant's regular basic compensation (base salary) from his or her Employer, prior to any reduction in compensation pursuant to a plan established under the authority of Section 125 or Section 401(k) of the Code and prior to any reduction for amounts deferred under a deferred compensation plan or arrangement. Any amounts deferred under a deferred compensation plan or arrangement and thus included in Earnings when earned shall not be included in Earnings when actually received. (p) "Employer" means the Company or any subsidiary thereof. (q) "Final Average Earnings" means, on any particular date, the sum of (1) the amount determined by dividing the sum of a Participant's Earnings in the highest 36 consecutive months out of the last 60 months prior to the Participant's termination of employment or other applicable date by 36, plus (2) the amount determined by dividing the sum of the Participant's three highest MICP Awards paid during the last 60 months prior to the Participant's termination of employment or other applicable date by 36; provided, however, that in no event shall the Final Average Earnings of a Participant decrease after such Participant's Normal Retirement Date. Appropriate adjustments will be made in determining Final Average Earnings for any Participant who was not in active service for the 60 months preceding his or her most recent termination of employment or other applicable date, including any Participant who has less than 36 months of service. Final Average Earnings shall then be calculated based on Earnings and MICP Awards for all the months during which the Participant was in active service; Final Average Earnings shall equal the average determined by dividing the sum of Earnings attributed to the 36 consecutive such months that will produce the highest such average by 36, and for a Participant with fewer than 36 months of service, such average shall be taken over those months in which he or she was in service. (r) "Incentive Plan" means the Florida Progress Corporation Management Incentive Compensation Plan and, if applicable, the former Florida Power Corporation Management Incentive Plan, in each case as it may be amended from time to time. (s) "MICP Award" means an award paid to a Participant under the Incentive Plan. For all purposes of this Plan, a MICP Award shall be deemed to be paid at the time and in the amount as initially provided, without regard to any deferral of payment in whole or in part, whether the deferral is a voluntary deferral by the Participant or is mandatory under the terms of the applicable plan. Any portion of an award that is deferred and thus included as part of a MICP Award as initially provided shall not be taken into account when actually received. (t) "Nondiscrimination Plan" means the Florida Progress Corporation Retirement Benefit Nondiscrimination Plan for Excess Benefits, as it may be amended from time to time. 5 (u) "Normal Retirement Date" means the first day of the calendar month next following the day on which the Participant attains age 65. (v) "Participant" means any officer or other management employee of an Employer who meets the eligibility requirements of the Plan, as set forth in Article 3, to be and become a Participant, and who continues to meet such requirements. (w) "Plan" means the Florida Progress Corporation Supplemental Executive Retirement Plan, as it is set forth herein and as it may be amended from time to time. (x) "Prospective Target Amount" means, at any particular date, a Participant's Target Amount calculated using the Participant's Final Average Earnings as of that date and the years and months of Deemed Credited Service that the Participant would have at his or her Normal Retirement Date if he or she continued to work until such Normal Retirement Date. (y) "Reorganization" means any change in personnel that is initiated voluntarily by an Employer to accommodate or facilitate enhancement of the operations or organization of the Employer. (z) "Retirement Plan" means the Employees' Retirement Plan of Florida Progress Corporation, as it may be amended from time to time. (aa) "Social Security" means estimated Social Security benefits; if the Participant's termination of employment occurs before the Participant attains age 55, the Participant's future earnings are assumed to continue until his or her Normal Retirement Date at the same rate as they were immediately prior to the termination, and if the Participant's termination of employment occurs at or after the time the Participant attains age 55, the Participant's future earnings are assumed to be zero. (bb) "Special Early Retirement" means, for purposes of Article 5, the retirement of a Participant from service with his or her Employer in connection with a Reorganization and pursuant to an opportunity provided by the Committee, at any time after the Participant has at least 15 years of Credited Service, but before the Participant has attained age 65. (cc) "Spouse" means a person to whom a Participant was married both at the time of the termination of his or her employment and at the time of his or her death. (dd) "Target Amount" means the monthly normal retirement income payable to a Participant under Section 4.01(a) of the Retirement Plan and Article IV of the Nondiscrimination Plan, but Calculated under this Plan, and further calculated on the basis of the number of years and months of Deemed Credited 6 Service (without regard to the actual number of years and months of Credited Service) of the Participant and the Final Average Earnings (as defined in this Plan and not as defined in the Retirement Plan) of the Participant as of his or her Normal Retirement Date. 2.2 Gender and Number. Except when otherwise indicated by the context, any masculine terminology when used in the Plan shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. 7 ARTICLE 3. PARTICIPATION 3.1 Eligibility for Participation. The Committee shall have the exclusive right to designate which officers or other management employees of an Employer shall be eligible to participate in this Plan. Participation shall be limited to a select group of management or highly compensated employees and is subject to change by the Committee from time to time. 3.2 Date of Participation. Each retired or active officer or other management employee who was a Participant in this Plan on October 1, 1994 shall remain as a Participant. Thereafter, each officer or other management employee who becomes eligible to participate in this Plan under Section 3.1 shall become a Participant on such date as may be designated by the Committee. 3.3 Duration. An officer or other management employee who becomes a Participant shall continue to be a Participant until the earlier of (a) the date he or she is no longer employed by an Employer or (b) the effective date of a determination by the Committee that he or she shall not accrue additional benefits under this Plan; provided, in either case, that if a Participant is then vested in benefits under the Plan, he or she shall continue as a Participant (even though not accruing additional benefits) for the purpose of receiving his or her then accrued vested benefits pursuant to the provisions of this Plan. In addition, a person eligible to receive a benefit under Section 4.5 shall cease to be a Participant as of the applicable Control Date (subject to the right to receive benefits under such Section 4.5). 3.4 Limitation on Participation. A Participant shall be entitled to receive benefits either under Article 4 or under Article 5, but not both. To implement this provision, the Committee shall provide, with respect to each Participant, whether such person shall be eligible to receive the regular benefits under Article 4 or the Special Early Retirement benefits under Article 5. Accordingly, the term "Participant" as used in Article 4 shall only refer to a Participant who has been designated to receive benefits under such Article 4, and the term "Participant" as used in Article 5 shall only refer to a Participant who has been designated to receive benefits under such Article 5. Notwithstanding the foregoing, a Participant under Article 4 may become eligible for the Special Early Retirement Benefits under Article 5 provided that such person first waives to the satisfaction of the Committee any and all rights to benefits under Article 4. 8 ARTICLE 4. REGULAR BENEFITS 4.1 Normal Retirement Benefit. (a) Eligibility. A Participant whose employment with his or her Employer terminates at or after (1) attaining age 65 and (2) completing five years of participation in this Plan shall be eligible for a normal retirement benefit under this Section 4.1. (b) Amount. A Participant who is eligible for a benefit under subsection (a) above shall be entitled to receive a monthly normal retirement benefit for his or her life equal to the amount by which (1) below exceeds (2) below: (1) This amount equals the Participant's Accrued Benefit as of the date of his or her retirement, with no increase for payment beginning after the Participant's Normal Retirement Date. (2) This amount equals the sum of (i) the monthly normal retirement income payable to the Participant under the Retirement Plan and the Nondiscrimination Plan (adjusted as provided for in Section 6.1(c)), without regard to any post-retirement increases in such benefit, plus (ii) the monthly amount payable to the Participant as his or her full primary Social Security benefit, without regard to any subsequent increases in such benefit. (c) Commencement and Form of Payment. Monthly normal retirement benefit payments shall commence at the same time as the Participant's normal retirement benefits under the Retirement Plan and shall continue to be paid for the life of the Participant. 4.2 Early Retirement Benefit. (a) Eligibility. A Participant whose employment with his or her Employer terminates (for reasons other than normal retirement, death or Disability) at or after (1) attaining his or her Early Retirement Date and (2) completing five years of participation in this Plan shall be eligible for an early retirement benefit under this Section 4.2; provided, however, that a Participant shall not be entitled to an early retirement benefit unless (1) if the Participant has fewer than 15 years of Credited Service, the Participant first obtains the express, written consent of the Committee or (2) if the Participant has 15 or more years of Credited Service, the Participant provides the Committee with at least six months prior written notice of such proposed retirement. (b) Amount. A Participant who is eligible for a benefit under subsection (a) above shall be entitled to receive a monthly early retirement benefit for his or her life equal to the amount by which (1) below exceeds (2) below: 9 (1) This amount equals the Participant's Accrued Benefit as of the date of his or her early retirement, reduced for early payment as provided in Section 4.2(c). (2) This amount equals the sum of (i) the monthly early retirement income payable to the Participant under the Retirement Plan and the Nondiscrimination Plan (adjusted as provided for in Section 6.1(c)), without regard to any post-retirement increases in such benefit, plus (ii) the monthly amount payable to the Participant as his or her full primary Social Security benefit, assuming such payments begin at age 62 or, if later, the date of the Participant's early retirement (without regard to any subsequent increases in such benefit); provided, however, that the Social Security offset under this subsection (b)(2)(ii) shall not be applied until the Participant attains age 62. (c) Reduction for Early Payment. The amount of the Participant's Accrued Benefit determined under Section 4.2(b)(1) shall be reduced to the extent payment of the Participant's early retirement benefit begins before the Participant's Normal Retirement Date. Such reduced amount shall be computed by multiplying the Participant's Accrued Benefit as so determined by the factor set forth below based on the Participant's age at the time payment begins: Age When Payment Begins Factor 64 1.00 63 1.00 62 1.00 61 .95 60 .90 59 .85 58 .80 57 .75 56 .70 55 .65 (d) Commencement and Form of Payment. Monthly early retirement benefit payments shall commence on the first day of the calendar month following the date of the Participant's early retirement under this Plan. 4.3 Disability Retirement Benefit. (a) Eligibility. A Participant whose employment with his or her Employer terminates due to a Disability prior to his or her Normal Retirement Date shall be eligible for a disability retirement benefit under this Section 4.3; provided, however, that a Participant shall not be entitled to receive and/or to continue receiving any Disability benefits under this Plan unless the Committee has 10 determined in its sole discretion that a Disability exists and continues. To this end, the Committee may require the Participant to submit to a medical examination or a series of medical examinations at any time and from time to time to determine his or her eligibility and/or continued eligibility for a disability benefit. The failure of the Participant to submit to any such examination shall be sufficient grounds for the denial of a disability benefit and/or the continuation thereof. (b) Amount. A Participant who is eligible for a benefit under subsection (a) above shall be entitled to receive a monthly disability retirement benefit for his or her life (or if his or her Disability terminates prior to the Participant's Normal Retirement Date, until his or her Disability terminates) equal to the amount by which (1) below exceeds (2) below: (1) This amount equals the Participant's Accrued Benefit as of the date of the termination of his or her employment by reason of Disability, with no reduction for early payment. (2) This amount equals the sum of (i) the monthly income payable to the Participant under the Retirement Plan and the Nondiscrimination Plan (adjusted as provided for in Section 6.1(c)), without regard to any post-termination increases in such benefit, plus (ii) the monthly amount that would be payable to the Participant under any long-term disability plan sponsored by his or her Employer if the Participant had elected the maximum benefit option thereunder available to the Participant, without regard to the actual election, if any, made by the Participant, plus (iii) the monthly amount payable to the Participant as his or her Social Security disability benefit if he or she is then eligible for such a benefit, or if he or she is not then eligible for a Social Security disability benefit, his or her full primary Social Security benefit, assuming such payments begin at age 62 or, if later, the date of the Participant's termination of employment by reason of Disability (without regard to any subsequent increases in such benefit); provided, however, that if the Participant is not eligible for a Social Security disability benefit, any Social Security offset under this subsection (b)(2)(iii) shall not be applied until the Participant attains age 62. For purposes of (ii) above, the maximum benefit option available to a Participant is the maximum benefit option that may be elected by a Participant (as of October 1, 1994, the 70% option) in the absence of an adverse determination by the insurance carrier; or, in the case of such an adverse determination, is the maximum benefit allowed by the insurance carrier. (c) Commencement and Form of Payment. Monthly disability retirement benefit payments shall commence on the first day of the calendar month following the date of the termination of the Participant's employment by reason of Disability and shall continue to be paid for the life of the Participant 11 or, if his or her Disability terminates prior to his or her Normal Retirement Date, until the Participant's Disability terminates. (d) Termination of Disability. If the Participant's Disability terminates before his or her Normal Retirement Date and either the Participant does not return to work for an Employer, or the Participant returns to work for an Employer but the Committee does not determine that such person shall continue as an active Participant in the Plan upon such return to work, the Participant shall be entitled to receive an early retirement benefit under Section 4.2 (if he or she was eligible for such a benefit on the date his or her employment terminated by reason of Disability) or a vested termination benefit under Section 4.4; and in any such case, the benefit shall be calculated as of the date the Participant's employment terminated by reason of Disability. Any early retirement benefit referred to in the first sentence of this subsection (d) shall begin on the first day of the calendar month immediately following the termination of the Disability, and any vested termination benefit referred to in the first sentence of this subsection (d) shall begin on the first day of the calendar month next following the day the Participant attains age 62 or, if the termination of the Disability occurs thereafter, on the first day of the calendar month next following the date of such termination. 4.4 Vested Termination Benefit. (a) Eligibility. A Participant whose employment with his or her Employer terminates at or after the time he or she has a vested Accrued Benefit under this Article 4, but who is not otherwise entitled to a benefit under this Article 4, shall be eligible for a vested termination benefit under this Section 4.4. Except as provided in Section 9.3 with respect to Participants in the Plan on October 1, 1994, a Participant shall not have a vested Accrued Benefit under this Article 4 unless and until he or she satisfies the provisions of Section 4.4(d). (b) Amount. A Participant who is eligible for a benefit under subsection (a) above shall be entitled to receive a monthly vested termination benefit for his or her life equal to the amount by which (1) below exceeds (2) below: (1) This amount equals the Participant's Accrued Benefit as of the date of the termination of his or her employment, with no reduction for early payment. (2) This amount equals the sum of (i) the monthly income payable to the Participant under the Retirement Plan and the Nondiscrimination Plan (adjusted as provided for in Section 6.1(c)), without regard to any post-termination increases in such benefit, plus (ii) the monthly amount payable to the Participant as his or her full primary Social Security benefit, assuming such payments begin at age 62 or, if later, the date 12 of the Participant's termination of employment (without regard to any subsequent increases in such benefit). (c) Commencement and Form of Payment. Monthly vested termination benefit payments shall commence on the first day of the calendar month next following the day the Participant attains age 62 or, if the termination of employment occurs thereafter, on the first day of the calendar month next following the date of such termination of employment, and shall continue to be paid for the life of the Participant. (d) Vesting. A Participant shall become 100% vested in his or her Accrued Benefit when he or she has satisfied both of the following conditions: (1) the Participant has been a Participant for at least five years; and (2) one of the following has occurred: (i) the Participant has attained age 55 and has at least five years of Credited Service; or (ii) the sum of the Participant's age and Credited Service (in each case counting full months thereof) equals or exceeds 65. A Participant shall also become 100% vested in his or her Accrued Benefit, even if the foregoing tests have not been satisfied, at the time of the Participant's termination of employment by reason of Disability or death; the occurrence of a Change in Control; or the termination of this Plan. 4.5 Change in Control. (a) Eligibility. Upon the occurrence of a Change in Control, any Participant employed by an Employer on the day immediately prior to a Control Date shall be entitled to receive a benefit calculated and paid as provided in this Section 4.5. Notwithstanding any other provision of this Plan to the contrary, upon the occurrence of a Change in Control, the benefit provided by this Section 4.5 shall be the exclusive benefit provided under this Plan to the Participants who are eligible to receive such benefit (and to their spouses) and accordingly each such person shall not be entitled to any other benefits under this Plan without regard to the age of the Participant, the vested status of the Participant or any other factor; and upon receipt of his or her benefit under this Section 4.5, a person shall cease being a Participant in this Plan. (b) Amount and Form of Payment. A Participant who is eligible for a benefit under subsection (a) above shall receive his or her benefit in a lump sum, paid on or as soon as practicable after the Control Date, but no more than five days after such date, equal to the sum of the following: 13 (1) This amount equals the product of the Participant's Current Earnings on the day immediately prior to the Control Date and the number of months by which the Control Date precedes the Participant's Normal Retirement Date (up to a maximum of 24 months). (2) This amount equals the "adjusted present value" (as defined below) of a monthly benefit for the Participant's life in an amount equal to the amount by which (i) below exceeds (ii) below, plus (but only if the Participant is married as of the Control Date) the "adjusted present value" (as defined below) of a 50% surviving spouse's benefit for the life of the surviving spouse: (i) This amount equals the Participant's Prospective Target Amount determined as of the Control Date, with no reduction for early payment. (ii) This amount equals the monthly deferred retirement income that would be payable to the Participant under the Retirement Plan and the Nondiscrimination Plan beginning as of the Participant's Normal Retirement Date (adjusted as provided for in Section 6.1(c)) if the Participant's employment terminated as of the Control Date. For these purposes, no pre-retirement survivorship charges or early retirement reductions shall be applied. For purposes of this Section 4.5(b)(2), the "adjusted present value" shall be calculated by determining the Actuarial Equivalent of the stated benefit as if it were to be paid in a lump sum on the Participant's Normal Retirement Date and as if the equivalent monthly benefit for the Participant's and (if applicable) the surviving spouse's lives were to begin at the Participant's Normal Retirement Date; no reduction shall be made for payment of the lump sum prior to the Participant's Normal Retirement Date. (c) Additional Payment. A Participant who is eligible for a benefit under subsection (a) above also shall be entitled to receive the amount described below to the extent applicable: In the event any payment under this Section 4.5 or under another plan or agreement (collectively, the "Payments") are subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), the Participant's Employer shall pay the Participant an amount (the "Gross Up") such that the net amount retained by the Participant after deduction of any Excise Tax on the Payments and the federal income tax on any payments under this Section 4.5(c) shall be equal to the Payments. For purposes of determining the Gross Up, the Participant shall be deemed to pay the federal income tax at the highest marginal rate of taxation (currently 39.5%) in the calendar year in which the payment under Section 4.5 is to be made. The determination of whether such Excise Tax is payable and the 14 amount thereof shall be made upon the opinion of tax counsel selected by the Employer and reasonably acceptable to the Participant. The Gross Up, if any, that is due as a result of such determination shall be paid to the Participant in cash in a lump sum within thirty (30) days of such computation. If such opinion is not finally accepted by the Internal Revenue Service upon audit or otherwise, then appropriate adjustments shall be computed (without interest but with Gross Up, if applicable) by such tax counsel based upon the final amount of the Excise Tax so determined; any additional amount due the Participant as a result of such adjustment shall be paid to the Participant by his or her Employer in cash in a lump sum within thirty (30) days of such computation, or any amount due the Participant's Employer as a result of such adjustment shall be paid to the Employer by the Participant in cash in a lump sum within thirty (30) days of such computation. 4.6 Surviving Spouse Benefit. (a) Eligibility. If at the time of the death of a Participant, (1) (i) the employment of a Participant with his or her Employer had previously terminated and the Participant was receiving or was entitled to receive benefits under this Article 4 or (ii) the Participant was still employed by his or her Employer and had unpaid Accrued Benefits under this Article 4 (whether or not vested at the time of death) and (2) the Participant is survived by a Spouse, such Spouse shall be eligible for a surviving spouse benefit under this Section 4.6. In no other circumstances shall the Spouse of a Participant or any other beneficiary of a Participant under the Retirement Plan or otherwise be entitled to any benefit under this Article 4 in the event of the death of a Participant hereunder, even if survivor benefits are otherwise payable under the Retirement Plan. Also, without limitation on the foregoing, and notwithstanding anything to the contrary contained in this Section 4.6, no benefit shall be payable to a Spouse of a deceased Participant or former Participant who received during his or her lifetime or who was entitled to receive at the time of death a benefit under Section 4.5, or who received during his or her lifetime or who was entitled to receive at the time of death a benefit under any provision of this Article 4 in the optional lump sum form in accordance with Section 6.2. (b) Amount. A Spouse who is eligible for a benefit under subsection (a) above shall be entitled to receive a monthly surviving spouse benefit for his or her life in an amount equal to the amount by which (1) below exceeds (2) below: (1) In the case of a Participant whose employment with his or her Employer terminated prior to death, this amount equals fifty percent (50%) of the monthly amount the Participant was eligible to receive (even if only on a deferred basis) or was receiving at the time of death under Section 4.1(b)(1), 4.2(b)(1), 4.3(b)(1) or 4.4(b)(1), as the case may be, prior to the application of any applicable set-off, with no reduction for early payment. In the case of a Participant who was still 15 in the employment of his or her Employer at the time of death, this amount equals fifty percent (50%) of the Participant's Accrued Benefit as of the date of death, with no reduction for early payment. (2) This amount equals the aggregate monthly income, if any, payable to the Spouse and to any other beneficiary of the Participant under the Retirement Plan and the Nondiscrimination Plan as a result of the death of the Participant (adjusted as provided for in Section 6.1(c)). (c) Commencement and Form of Payment. Monthly surviving spouse benefit payments shall be payable to the Spouse for the life of the Spouse and shall commence as soon as practicable following the Participant's death. 16 ARTICLE 5. SPECIAL EARLY RETIREMENT BENEFITS 5.1 Special Early Retirement Benefit. (a) Eligibility. A Participant whose employment with his or her Employer terminates by reason of Special Early Retirement shall be entitled to a retirement benefit under this Section 5.1. (b) Amount. A Participant who is eligible for a benefit under subsection (a) above shall be entitled to receive a monthly retirement benefit for his or her life equal to the amount by which (1) below exceeds (2) below: (1) This amount equals the amount determined by the Committee, but not in excess of the Participant's Prospective Target Amount determined as of the date of the termination of the Participant's employment by reason of Special Early Retirement, with no reduction for early payment. (2) This amount equals the sum of (i) the monthly income payable to the Participant under the Retirement Plan and the Nondiscrimination Plan (adjusted as provided for in Section 6.1(c)), without regard to any post-retirement increases in such benefit, plus (ii) the monthly amount payable to the Participant as his or her full primary Social Security benefit, assuming such payments begin at age 62 or, if later, the date of the Participant's early retirement (without regard to any subsequent increases in such benefit); provided, however, that the Social Security offset under this subsection (b)(2)(ii) shall not be applied until the Participant attains age 62. (c) Commencement and Form of Payment. Monthly Special Early Retirement benefit payments under this Section 5.1 shall commence on the first day of the calendar month next following the day of the Participant's termination of employment with his or her Employer by reason of Special Early Retirement and shall continue to be paid for the life of the Participant, or shall be paid in such other form as may be determined in the sole discretion of the Committee. Any such alternative benefit shall be in an amount that is the Actuarial Equivalent of such monthly benefit for life. 5.2 Surviving Spouse Benefit. (a) Eligibility. If a Participant dies while eligible for a benefit under Section 5.1 (i.e., his or her employment has terminated by reason of Special Early Retirement) and is survived by a Spouse, such Spouse shall be eligible for a surviving spouse benefit under this Section 5.2. In no other circumstances shall the Spouse of a Participant or any other beneficiary of a Participant under the Retirement Plan or otherwise be entitled to any benefit under this Article 5 in the event of the death of a Participant hereunder, even if survivor 17 benefits are otherwise payable under the Retirement Plan. Also, without limitation on the foregoing, and notwithstanding anything to the contrary contained in this Section 5.2, no benefit shall be payable to a Spouse of a deceased Participant who received during his or her lifetime or who was entitled to receive at the time of his or her death a benefit under Section 5.1 in the optional lump sum form in accordance with Section 6.2. (b) Amount. A Spouse who is eligible for a benefit under subsection (a) above shall be entitled to receive a monthly surviving spouse benefit for his or her life equal to the amount by which (1) below exceeds (2) below: (1) This amount equals fifty percent (50%) of the monthly amount the Participant was eligible to receive or was receiving at the time of death under Section 5.1(b)(1), prior to the application of any applicable set-off, with no reduction for early payment. (2) This amount equals the aggregate monthly income, if any, payable to the Spouse and to any other beneficiary of the Participant under the Retirement Plan and the Nondiscrimination Plan as a result of the death of the Participant (adjusted as provided for in Section 6.1(c)). (c) Commencement and Form of Payment. Monthly surviving spouse benefit payments shall be payable to the Spouse for the life of the Spouse and shall commence as soon as practicable following the Participant's death. 18 ARTICLE 6. SPECIAL BENEFIT PROVISIONS 6.1 General Principles. (a) General Rule for Offset. The amount of any offset under Section 4.1(b)(2), 4.2(b)(2), 4.3(b)(2), 4.4(b)(2), 4.6(b)(2), 5.1(b)(2), or 5.2(b)(2), as the case may be, shall be determined by using the amount payable to a Participant or other named person during the month in question under the Retirement Plan, the Nondiscrimination Plan and (if applicable) any long-term disability plan, taking into account in general applicable adjustments, if any, including without limitation those for deferred payment or early payment, and pre-retirement survivorship charges, but any such determination shall be subject to the provisions of Section 6.1(c); provided, that no adjustments shall be made for any cost-of-living or similar changes in a Participant's benefits after the date that benefits begin to be paid to the Participant. Furthermore, as provided under Sections 4.2(b)(2), 4.3(b)(2) and 5.1(b)(2), a Social Security offset may not be applicable prior to the time the Participant attains age 62; and a benefit may not be payable under the Retirement Plan, the Nondiscrimination Plan, and/or any long-term disability plan for all months a benefit is to be payable under this Plan. Thus, the amount of the offset may vary from month to month. (b) Qualified Domestic Relations Order. If a Participant's spouse or former spouse has received or is entitled to receive a benefit under the Retirement Plan or the Nondiscrimination Plan as a result of a Qualified Domestic Relations Order, the amount of the offset applicable to the Participant shall include the amount that is so paid or is payable to the spouse. (c) Special Adjustment. In determining the amount payable during the month in question under the Retirement Plan and the Nondiscrimination Plan, the benefit, in the case of a Participant who is not married for purposes of the Retirement Plan, shall be calculated as a straight life annuity and the benefit, in the case of a Participant who is married for purposes of the Retirement Plan, shall be calculated as a 50% joint and survivor annuity, without regard in each case to the actual form of payment under the Retirement Plan or the Nondiscrimination Plan. 6.2 Optional Lump Sum Payment. (a) Right To Receive. The benefit of a Participant under Section 4.1 (Normal Retirement), Section 4.2 (Early Retirement) and Section 4.4 (Vested Termination) shall be paid in a lump sum if payment in such form is elected by the Participant; provided, however, that to be effective, such election must be made in accordance with such rules and procedures as may be established by the Committee from time to time and must be approved by the Committee. Any lump sum benefit shall be in an amount that is the Actuarial Equivalent of such monthly benefit for life. 19 (b) Limitation. Notwithstanding the foregoing provisions of this Section 6.2, a Participant's election of a lump sum payment shall be effective only if an irrevocable election is made by the Participant and submitted to the Committee no later than the last day of the calendar year that is at least two calendar years prior to the calendar year of retirement or other termination of employment or unless the benefit is reduced by five percent (5%). (c) Payment. A validly elected lump sum shall be paid to a Participant as soon as practicable following the date monthly benefits would have begun to be paid to the Participant; provided, however, that in the event, if payment were made at such time, the Company would not be able to deduct for federal income tax purposes the entire amount to be paid to the Participant under this Plan because of the limits under Section 162(m) of the Code, full payment shall be delayed, with payment to be made as soon as possible in one or more installments to the extent and at such time or times as a deduction may be obtained without limit under Section 162(m). 20 ARTICLE 7. FINANCING 7.1 Financing. The benefits under this Plan shall be paid out of the general assets of the Company or other Employer. 7.2 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 trust of any kind or a fiduciary relationship between any Employer and any Participant, his or her spouse or any other person. 7.3 Unsecured Interest. No Participant hereunder shall have any interest whatsoever in any specific asset of the Company or any other Employer. 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 or other Employer. 7.4 "Rabbi" Trust. Notwithstanding the foregoing provisions of this Article 7, the Company and the other Employers reserve the right to create and contribute funds to a "Rabbi" trust for the purpose of paying some or all of the benefits provided under this Plan, but the existence of any such trust shall not in any way alter the relationship among the Company, any other Employer and a Participant as described in this Article 7. 7.5 Divested Subsidiary Employee Participants. The liability for benefits under this Plan for any Participant, who is an employee of an Employer that is divested ("Divested Subsidiary Employee Participant") is and shall remain solely the obligation of that divested Employer. Any Divested Subsidiary Employee Participant will have no future claim to benefits under this Plan, or against assets of any related trust, if assets sufficient to fund that Divested Subsidiary Employee Participant's benefits are transferred to a plan or trust to be sponsored by the divested Employer, or if the Divested Subsidiary Employee Participant is compensated for any benefits accrued under this Plan. 21 ARTICLE 8. ADMINISTRATION 8.1 Administration. The Committee shall have complete control over the administration of the Plan, with all powers necessary to enable it to carry out its duties in that respect. In connection with its administration of the Plan, the Committee shall be empowered to exercise discretion, including with respect to the interpretation of the terms of the Plan and in the determination of eligibility for benefits and the amounts thereof; such discretionary determinations and interpretations shall be binding upon all Participants and others hereunder. Without limitation on the foregoing, the Committee shall be authorized to construe and interpret all of the provisions of the Plan, to adopt rules and practices concerning the administration of the same, and to make any determination necessary hereunder, all of which shall be binding and conclusive on all parties. 8.2 Liability of Committee and Board; Indemnification. To the extent permitted by law, no member of the Committee or of the Board shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his or her own gross negligence, fraud or bad faith. The Company shall indemnify the members of the Committee and of the Board against any and all claims, losses, damages and expenses, including counsel fees, incurred by them, and any liability, including any amounts paid in settlement with their approval, arising from their action or failure to act, except when the same is determined to be attributable to their gross negligence, fraud or bad faith. The provisions of this Section 8.2 are not intended to be exclusive, and nothing contained in this Section 8.2 shall in any way limit indemnification provided members of the Committee and/or members of the Board under the by-laws of the Company, by contract, by statute or otherwise. 8.3 Expenses. The cost of payment from this Plan and the expenses of administering the Plan shall be borne by the Company and the other Employers. 8.4 Tax Withholding. An Employer may withhold, or require the withholding of, from any payment which it is required to make, any federal, state or local taxes required by law to be withheld with respect to such payment and such sum as the Employer may reasonably estimate as necessary to cover any taxes for which the Employer may be liable and which may be assessed with regard to such payment. Upon discharge or settlement of such tax liability, the Employer shall distribute the balance of such sum, if any, to the Participant from whose payment it was withheld, or if such Participant is then deceased, to the beneficiary of such Participant. Prior to making any payment hereunder, the Employer may require such documents from any taxing authority, or may require such indemnities or surety bond, as the Employer shall reasonably deem necessary for its protection. 22 ARTICLE 9. MISCELLANEOUS 9.1 Nontransferability. In no event shall the Company or any Employer make any payment under this Plan to any assignee or creditor of a Participant or of a beneficiary. Prior to the time of a payment hereunder, a Participant or a beneficiary shall have no rights by way of anticipation or otherwise to assign (including without limitation in connection with a divorce) or otherwise dispose of any interest under this Plan nor shall rights be assigned or transferred by operation of law. 9.2 Amendment or Termination. (a) Amendments; Termination. The Plan may be amended or terminated at any time by the Committee, and, except as provided to the contrary in subsection (b) below, no Participant or beneficiary of a deceased Participant shall have a right to receive benefits under the Plan at any time. Notice of any such amendment or termination shall be given in writing to each Participant and beneficiary of a deceased Participant having an interest in the Plan. (b) Effect on Benefits. No amendment or termination of the Plan may adversely affect the benefits then payable or that may be payable in the future with respect to any Participant (without giving effect to such Plan amendment or termination) to the extent described below: (1) for a Participant whose employment with his or her Employer has terminated prior to such Plan amendment or termination, the benefits then payable or to be payable to the Participant and his or her spouse shall not be altered; (2) for a Participant under Article 4 whose employment with his or her Employer has not terminated prior to such Plan amendment or termination, the amount of the benefits accrued as of the date of the Plan amendment or termination shall not be decreased; (3) for a Participant under Article 5 whose employment with his or her Employer has not terminated prior to such Plan amendment or termination, the benefits that would be payable to the Participant and his or her spouse (without giving effect to such Plan amendment or termination) upon the termination of his or her employment by reason of Special Early Retirement shall not be altered; and (4) once there has been a Change in Control, any benefits payable or that could be payable under Section 4.5 as a result of such Change in Control shall not be altered. 9.3 Impact of 1994 Amendments. Notwithstanding the provisions of Section 9.2, the following provisions shall govern the impact of the amendment and restatement of this Plan as of October 1, 1994 on persons who were Participants on October 1, 1994: 23 (a) a Participant in this Plan on October 1, 1994 who was then receiving benefits shall not be affected by the amendment and restatement and shall be governed in all respects by the provisions of the Plan as in effect immediately prior to such Participant's termination of employment; and (b) a Participant in this Plan on October 1, 1994 who was not then receiving benefits shall be entitled to receive as a benefit under Section 4.1, 4.2, 4.3, 4.4, 4.5 or 5.1, as the case may be, and assuming the Participant is otherwise eligible for such benefit at some time (either then or in the future), an amount equal to the greater of the benefit calculated under the provisions of the Plan as in effect immediately prior to such amendment and restatement or the benefit calculated under the provisions of the Plan as so amended and restated. The benefits payable to a Participant's surviving spouse under Section 4.6 or 5.2, as the case may be (taking into account, in calculating the benefit payable to a Participant's surviving spouse, the benefit available to the Participant under the preceding sentence) and all other provisions relating to the payment of benefits under the Plan (including, without limitation, the ability to receive a lump sum payment) shall be governed by the provisions of the Plan as so amended and restated. Notwithstanding any provisions of Sections 4.1(a) or 4.2(a) to the contrary, the requirement that a Participant have at least five years of participation in this Plan in order to receive a benefit under such provisions shall be deemed to be satisfied (without regard to the actual number of years of such participation) with respect to each Participant in this Plan on October 1, 1994. Moreover, each Participant in this Plan on October 1, 1994 shall be deemed to be 100% vested in his or her Accrued Benefit (as it may be from time to time), without regard to his or her number of years of participation in the Plan, number of years of Credited Service, age or any other requirement of Section 4.4(d). 9.4 Forfeiture of Benefits. As a condition of receiving benefits under this Plan, a Participant shall not, directly or indirectly, after the termination of his or her employment with an Employer: (a) use or disclose any financial or business information of the Company and/or its subsidiaries obtained by the Participant during the course of his or her employment, other than information that has been previously made available to the public through normal, authorized business channels, in a manner that would be prejudicial to the interests of the Company and its subsidiaries. Notwithstanding the preceding requirements of this subsection (a), a Participant may disclose information if required by legal process or if the disclosure is protected by the Florida Whistle-blower's Act of 1986, or any similar applicable federal or state statute; or (b) render any services of an advisory nature or become employed by or participate or engage in any business in competition with the Company or any of its subsidiaries, without the prior written consent of his or her Employer. A Participant shall be considered as engaging in a business if he or she is a shareholder or other owner, or partner, director, officer, or employee of, or 24 consultant to, the business; provided, that a Participant shall not be prohibited from owning securities of a competitor if (1) the securities owned constitute less that 2% of the competitor's total outstanding securities of the same class and (2) the Participant does not have the power to control, direct or substantially influence the competitor's management or policies. Any breach of any of the foregoing conditions will result in complete forfeiture of any further benefits under the Plan for both the Participant and any surviving spouse of the Participant. The immediately preceding sentence shall not require the forfeiture or the return of any benefit received or due prior to the breach of any of the specific conditions. 9.5 Applicable Law. This instrument shall be construed in accordance with and governed by the laws of the State of Florida, to the extent not superseded by the laws of the United States. 25 EX-10.(C) 6 EX-10.(C) TO PROGRESS/POWER 12/31/96 FORM 10-K EXHIBIT 10.(c) FLORIDA PROGRESS CORPORATION EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN Effective September 1, 1994 As Amended, effective January 1, 1995 As Amended and Restated, effective January 1, 1997 FLORIDA PROGRESS CORPORATION EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN I. Purpose 1. The Plan is intended to be an unfunded plan under the Employee Retirement Income Security Act of 1974, as amended, that is maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees under Sections 201(2), 301(a)(2), 401(a)(1), and 402(b)(6) of the Employee Retirement Income Security Act of 1974, as amended. The purpose of this plan is to provide a select management group with the ability to save a percentage of their total base salary rate on a pre-tax basis, with associated company match, in a way which mirrors the Savings Plan for Employees of Florida Progress Corporation to effectively eliminate all Internal Revenue Service Code Section and regulatory limitations imposed on qualified defined contribution plans. 2. The effective date of the Plan is September 1, 1994. The Plan has been amended and restated as of January 1, 1997, except that certain provisions are effective as of an earlier or later date as indicated in the Plan. The Plan shall remain in effect until such time as the Compensation Committee of the Company's Board of Directors elects to terminate the Plan. II. Definitions The following definitions shall be established within the Plan text, and unless the Plan text indicates otherwise, shall have the meanings set forth below: 1. "Base Salary Rate" shall mean the Participant's annual base salary on the first day of the month prior to the beginning of each Plan Year (i.e. August 1, 1994 for initial Plan Year 1994; December 1, 1994 for Plan Year 1995; etc.). Increases or decreases in Base Salary Rate which occur during the Plan Year will not change the Pre-tax Deferral Election amount determined prior to the beginning of each Plan Year. 2. "Beneficiary" shall mean any person or persons designated by the Participant to receive amounts payable in accordance with this Plan in the event of the Participant's death. If no such designation is in effect at the time of death of the Participant, or if no person so designated shall survive the Participant, the beneficiary shall be the estate of the Participant. Page 1 3. "Company" shall mean Florida Progress Corporation and its subsidiaries, who participate in the Savings Plan. 4. "Company Matching Deferred Contributions" shall mean the amount of Company Matching Deferred Contributions, as defined herein in Paragraph 2 of the Contributions section, due a Participant based upon the Participant's elected Employee Deferred Contributions. 5. "Company Matching Deferred Contributions Account" shall mean the accounts that will be established by the Company as a book reserve to which shall be credited the sum of the Participant's Company Matching Deferred Contributions for that Plan Year plus any earnings credited thereafter in accordance with Section X of this Plan. This account will also be credited with Regular Company Contributions and/or Special Company Contributions that cannot be allocated to the Savings Plan because they exceed the limitations prescribed by Section 415(c) of the Internal Revenue Code of 1986. 6. "Compensation Committee" shall mean the Compensation Committee of the Florida Progress Corporation Board of Directors which is responsible for the administration of this Plan in accordance with the provisions of the Plan as set forth in this document. 7. "Death" shall mean death from any cause. 8. "Disability" shall mean the total and permanent disability of a Participant by reason of sickness or injury to perform all of the duties assigned to the Participant by his or her Company, with the existence of a Disability to be determined by the Committee in its sole discretion. 9. "Eligible Participant" shall mean an Employee selected by Senior Management who is eligible to receive a Performance Award pursuant to the Management Incentive Compensation Plan, and whose annual base salary exceeds the compensation limits outlined in Code Section 401(a)(17) of the Internal Revenue Code of 1986. 10. "Employee" shall mean a person who is a full-time, active employee of the Company. 11. "Employee Deferred Contributions" shall mean the amount of the Pre-tax Deferral Election from 1% to 16% of a Participant's Base Salary Rate, as defined herein in Section V. Page 2 12. "Employee Deferred Contributions Account" shall mean the accounts that will be established by the Company as a book reserve to which shall be credited the sum of the Participant's Employee Deferred Contributions for that Plan Year plus any earnings credited thereafter in accordance with Section X of this Plan. 13. "Management Incentive Compensation Plan" shall mean the Company's annual management incentive bonus program. 14. "Participant" shall mean an Eligible Participant who has an account balance in the Plan. 15. "Plan" shall mean the Executive Optional Deferred Compensation Plan of Florida Progress Corporation effective September 1, 1994, as amended and restated effective January 1, 1997, and as may be amended hereafter. 16. "Plan Administrator" shall mean the Plan Administrator for the Savings Plan. 17. "Plan Year" shall mean the calendar year beginning January 1 and ending December 31, except in the initial year when it will mean the period of time from September 1, 1994 to December 31, 1994. 18. "Pre-tax Deferral Election Form" shall mean the form made available annually by the Compensation Committee to an Eligible Participant which, when properly executed by the Participant, effects his participation in the Plan for the next following Plan Year. 19. "Retirement" shall mean the date upon which the Participant retires from the Company as defined in the Participant's Company sponsored tax-qualified retirement plan. 20. "Savings Plan" shall mean the Savings Plan for Employees of Florida Progress Corporation, as amended. 21. "Short Plan Year" shall mean the period of the calendar year remaining for which an Eligible Participant, as described in Section III, may participate in the Plan. Such Eligible Participant must duly complete, execute, and file with the Compensation Committee a Pre-Tax Deferral Election Form no later than 30 days following the date such an individual first became an Eligible Participant. Such Pre-Tax Deferral Election Form shall be first effective with respect to base salary earned by the Participant during the first practicable payroll period following the Compensation Committee's receipt of the Pre-Tax Deferral Election Form. Page 3 22. "Termination" shall mean the termination of a Participant's employment as a regular employee of the companies within the Florida Progress Corporation controlled group for reasons other than Death, Disability or Retirement. 23. "Valuation Date" shall mean the last day of each calendar month. III. Eligibility and Participation 1. Participants. Participant as defined by the Plan. 2. New Hires. Effective January 1, 1995, the provisions of the Plan are amended to allow newly-hired Eligible Participants to make an irrevocable pre-tax deferral election for the Short Plan Year in their initial year of hire. Thereafter, the Plan Year for the newly-hired employee will be the calendar year beginning January 1. 3. Transfers. Effective January 1, 1995, Eligible Participants who are transferring from non-participating companies within the Florida Progress Corporation controlled group into a Company which participates and whose annual base salary at the time of transfer exceeds the compensation limits outlined in Code Section 401(a) (17), can make an irrevocable pre-tax deferral election for the Short Plan Year remaining in the year of transfer. Thereafter, the Plan Year for the transferred Employee will be the calendar year beginning January 1. 4. Salary Increases. Effective January 1, 1995, Eligible Participants, whose Base Salary Rate is increased during a year in excess of the compensation limits outlined in Code Section 401(a) (17), can make an irrevocable pre-tax deferral election for the Short Plan Year remaining in the year of the salary increase. Thereafter, the Plan Year for the employee with such a salary increase will be the calendar year beginning January 1. 5. No Right of Employment. Nothing in the Plan shall imply any right of an Employee to continue in the employ of the Company, or shall interfere with the right of the Company to terminate such Employee's employment at any time. IV. Elections 1. Pre-Tax Deferral Election. Any Eligible Participant or Participant in the Plan may voluntarily make an irrevocable election to defer an amount from 1% to 16% of their Base Salary Rate as Employee Deferred Contributions in a manner that is consistent with and in agreement with the terms and provisions of the Plan. Such election must be irrevocable and in writing, on a Pre-tax Deferral Election Form provided by the Compensation Committee, and completed and delivered prior to the beginning of each Plan Year or Short Plan Year. Page 4 V. Contributions 1. Employee Deferred Contributions. (a) Eligible Participants or Participants who choose to participate in the Plan will make an irrevocable Pre-Tax Deferral Election to defer an amount from 1% to 16% of their Base Salary Rate. Employee Deferred Contributions made to the Plan will be the difference between the total Pre-tax Deferral Election amount and the lesser of (a) the annual 401(k) maximum limit or (b) the maximum 401(k) deferral election amount permitted by 401(k)/401(m) non-discrimination testing for the previous year as determined by the Plan Administrator for highly-compensated employees within the Savings Plan. (b) The Employee Deferred Contributions Account will be established by the Company as a book reserve to which shall be credited the sum of the Participant's Employee Deferred Contributions for that year (on a monthly basis) plus any earnings credited thereafter in accordance with Section X of the Plan. (c) The Employee Deferred Contributions made to this Plan will be capped to prevent a Participant's Base Salary Rate from dropping below the compensation limits outlined in Code Section 401(a)(17). 2. Company Matching Deferred Contributions. (a) The Company shall make Company Matching Deferred Contributions on behalf of each Participant who chooses to participate in the Plan in the amounts and at the times Regular Company Contributions and Special Company Contributions, as defined in the Savings Plan, are allocated within the Savings Plan. Prior to the reduction provided for in Paragraph (b) below, the Company Matching Deferred Contributions will equal sixty-five percent of Employee Deferred Contributions, up to six percent of a Participant's Base Salary Rate, allocated monthly, and an additional annual match of five percent or ten percent based on the attainment of pre-determined Savings Plan Goals, as defined within the Savings Plan, allocated in December of each year goals are attained. However, no Special Company Contributions shall be made for a Plan Year unless the Participant is an Employee on the last day of the final pay period of the Plan Year or the Participant's Retirement or Death occurred during the Plan Year. Page 5 Effective January 1, 1997, the Company Matching Deferred Contributions made to the Plan will mirror the changes being made to the Regular Company Contributions in the Savings Plan so that the Company Matching Deferred Contributions in the Plan will be increased to seventy-five percent (75%) of Employee Deferred Contributions, up to six percent (6%) of a Participant's Base Salary Rate. The increase from 65% to 75% for Regular Company Contributions is in lieu of the opportunity to receive an additional annual match of five percent (5%) for each predetermined Savings Plan Goal achieved. (b) The Company Matching Deferred Contributions will be the difference between the Company Matching Deferred Contributions on the total Pre-tax Deferral Election amount, up to 6% of the Base Salary Rate, and the sum of Regular Company Contributions and Special Company Contributions in the Savings Plan on the lesser of (a) the annual 401(k) maximum limit or (b) the maximum 401(k) deferral election amounts permitted by 401(k)/401(m) non-discrimination testing for the previous year as determined by the Plan Administrator for highly-compensated employees within the Savings Plan plus any Regular Company Contributions and Special Company Contributions associated with Regular Contributions made to the Savings Plan on an after-tax basis. (c) The Company Matching Deferred Contributions Account will be established by the Company as a book reserve to which shall be credited the sum of the Participant's Company Matching Deferred Contributions for that year (on a monthly basis) plus any earnings credited thereafter in accordance with Section X of the Plan. This account will also be credited with Regular Company Contributions and/or Special Company Contributions that cannot be allocated to the Savings Plan because they exceed the limitations prescribed by Section 415(c) of the Internal Revenue Code of 1986. VI. Vested Portion of Accounts 1. At any point in time, a Participant shall be vested in the following portions of his Accounts: (a) 100% of the Participant's Employee Deferred Contributions Account, plus (b) A percentage of his Company Matching Deferred Contributions Account determined in accordance with the vesting schedule applicable to the Savings Plan, as shown below: Page 6 Completed Year of Continuous Service on Valuation Date Vested Percentage ------------------------------ ----------------- Under 2 0% 2 25 3 50 4 75 5 or more 100 (c) A Participant who is not 100% vested in his Company Matching Deferred Contributions Account pursuant to paragraph (b) above shall nevertheless be 100% vested in this account upon the later of his attainment of age 65 or completion of 5 years of Continuous Service, as defined in the Savings Plan, while in the employ of the Company or upon his Death while in the employ of the Company or upon his Retirement. (d) In the event a Participant incurs a Termination before the Participant has obtained a vested interest in the total amount of his or her Company Matching Deferred Contributions Account, then the portion of the Participant's Company Matching Deferred Contributions Account in which such Participant does not have a vested interest at the time of such Termination shall be permanently forfeited and debited from the Participant's Company Matching Deferred Contributions Account by the Company as of the last day of the payroll period during which such Participant incurred such Termination. If an individual returns to Company employment, any amounts previously forfeited and debited from a Participant's Company Matching Deferred Contributions Account upon a prior Termination shall, in no event and in no manner, be credited to the individual under this Plan. VII. Timing and Payment of Account Balances 1. Form of Payment - Distribution of a Participant's Employee Deferred Contributions Account and the vested portion of the Company Matching Deferred Contributions Account shall be made in a cash lump sum to the Participant or to his Beneficiary if the Participant is not living. 2. Commencement of Payment - A Participant or his Beneficiary, if the Participant is not living, shall receive a distribution of a Participant's Employee Deferred Contributions Account and the vested portion of the Company Matching Deferred Contributions Account as soon as administratively practicable following the Participant's Retirement, Termination, Disability or Death. Page 7 VIII. Valuation and Reporting of Accounts 1. Valuation. The Employee Deferred Contributions Account and the Company Matching Deferred Contributions Account will be valued at the end of each month on the Valuation Date. Any applicable earnings will be allocated to these accounts monthly on the Valuation Date. 2. Statement of Account. At least once a year, but no more frequently than quarterly, each Participant shall be furnished with a statement setting forth the value and the vested portion of the Participant's accounts. IX. Termination of Participation in the Plan Any Participant having previously elected to participate in the Plan shall automatically cease to participate in the Plan if he or she fails (in a subsequent year) to properly execute a Pre-Tax Deferral Election Form as provided for within the Plan, in which event the accumulated credits in his Employee Deferred Contributions Account and Company Matching Deferred Contributions Account, as applicable, prior to his termination of participation, will continue to be subject to the applicable provisions of the Plan. X. Crediting of Earnings There shall be credited to the Employee Deferred Contributions Account and Company Matching Deferred Contributions Account an additional amount of earnings (i.e. in addition to the principal amounts credited to such accounts), as established by the Company based on the investment return of the Stable Value Fund in the Savings Plan. XI. Administration, Amendment and Termination 1. The Compensation Committee shall have the final authority with respect to all matters pursuant to the Plan and shall have the authority to specify rules and administrative practices to be applied uniformly to all Participants in this Plan. The Compensation Committee may, at any time, revise, amend, terminate, or otherwise change in any manner the terms, provisions, features, or administrative practices as they see fit from time to time. However, no modification, amendment or termination of the Plan shall adversely affect the right of any Participant to receive the benefits granted under the Plan by the Compensation Committee in respect to such Participant as of the date of modification, amendment, or termination. 2. Tax Withholding. The Company shall have the right to deduct from all payments any taxes required by law to be withheld with respect to any Page 8 payments made under this Plan. XII. Financing 1. Financing. The benefits under this Plan shall be paid out of the general assets of the Company. 2. 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 trust of any kind or a fiduciary relationship between the Company and any Participant, his or her spouse or any other person. 3. Unsecured Interest. No Participant hereunder shall 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. 4. "Rabbi" Trust. Notwithstanding the foregoing provisions of this Financing section, the Company reserves the right to create and contribute funds to a "Rabbi" trust for the purpose of paying some or all of the benefits provided under this Plan, but the existence of any such trust shall not in any way alter the relationship among the Company and a Participant as described in this Financing section. The creation of said trust shall not cause the Plan to be other than "unfunded" for purposes of the Sections of ERISA cited in Section I.1. XIII. Miscellaneous. 1. Nontransferability. Except to the extent required by the law, in no event shall the Company make any payment under this Plan to any assignee or creditor of a Par-ticipant or of a Beneficiary. Prior to the time of a payment hereunder, a Participant or a beneficiary shall have no rights by way of anticipation or otherwise to assign (including without limitation in connection with a divorce) or otherwise dispose of any interest under this Plan nor shall rights be assigned or transferred by operation of law. 2. Laws Applicable and Construction. The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees, and all rights hereunder shall be governed by and construed in accordance with the laws of the State of Florida to the extent not governed by the Sections of ERISA referenced in Section I.1. Page 9 3. Grammar. Masculine pronouns used herein shall refer to men or women or both, and nouns when stated in the singular shall include the plural and when stated in the plural shall include the singular wherever appropriate. 4. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan and the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 5. Payment Due an Incompetent. If the Compensation Committee determines that any person to whom a payment is due hereunder is unable to care for his affairs because of physical or mental disability, it shall have the authority to cause the payments becoming due to such person to be made to the spouse, brother, sister or other such person deemed by the Compensation Committee to have incurred expense for such person otherwise entitled to payment (unless prior claim shall have been made by a duly qualified guardian or other legal representative) without responsibility of the Compensation Committee to see to the application of such payments. Payments made pursuant to such power shall operate as a complete discharge of the obligations of the Compensation Committee and the Company. 6. Inalienability of Benefits. No benefits payable under the Plan shall be subject to alienation, sale, transfer, assignment, pledge, attachment, garnishment, lien, levy, or like encumbrance. No benefit under the Plan shall in any manner be liable for or subject to the debts or liabilities of any person entitled to benefits under the Plan. 7. Discretionary Decisions. All decisions, determinations, or interpretations the Compensation Committee, the Company, or any member, officer or employee thereof are authorized to make under the Plan (including the delegation of any authority hereunder to another party) shall be made in that party's sole discretion and shall be final, binding, and conclusive on all interested persons. Page 10 EX-12 7 EX-12 TO PROGRESS/POWER 12/31/96 FORM 10-K Exhibit 12 FLORIDA POWER CORPORATION Statement of Computation of Ratios (Dollars In Millions) Ratio of Earnings to Fixed Charges: 1996 1995 1994 1993 1992 ------ ------ ------ ------ ------ Net Income $238.4 $227.0 $200.8 $194.9 $186.9 Add: Operating Income Taxes 135.8 129.5 114.7 104.5 97.7 Other Income Taxes (0.1) .1 (0.8) (0.1) (0.2) ------- ------- ------- ------- ------- Income Before Taxes 374.1 356.6 314.7 299.3 284.4 Total Interest Charges 98.4 104.5 108.4 105.8 100.2 ------- ------- ------- ------- ------- Total Earnings (A) $472.5 $461.1 $423.1 $405.1 $384.6 ------- ------- ------- ------- ------- Fixed Charges (B) $ 98.4 $104.5 $108.4 $105.8 $100.2 ------- ------- ------- ------- ------- Ratio of Earnings to Fixed Charges (A/B) 4.80 4.41 3.90 3.83 3.84 ======= ======= ======= ======= ======= EX-21 8 EX-21 TO PROGRESS/POWER 12/31/96 FORM 10-K EXHIBIT 21 Subsidiaries of Florida Progress Corporation December 31, 1996 Name of Subsidiary * State of Incorporation ------------------- ---------------------- Utility segment: Florida Power Corporation Florida Diversified segment: Progress Capital Holdings, Inc. Florida Electric Fuels Corporation Florida Marine Equipment Management Corporation Delaware Progress Rail Services Corporation Alabama Mid-Continent Life Insurance Company Oklahoma ---------- * Each subsidiary does business under its own name. EX-23.(A) 9 EX-23.(A) TO PROGRESS/POWER 12/31/96 FORM 10-K 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. 33-53939 on Form S-8, No. 33-45044 on Form S-3, No. 33-47623 on Form S-8, No. 33-39153 on Form S-8, No. 2-93111 on Form S-3, No. 33- 56873 on Form S-3, No. 333-00547 on Form S-3, No. 333-19037 on Form S-8 and No. 333-07853 on Form S-3 of Florida Progress Corporation of our report dated January 27, 1997, relating to the consolidated balance sheets of Florida Progress Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, and all related schedules, which report appears in the December 31, 1996 annual report on Form 10-K of Florida Progress Corporation. /s/KPMG PEAT MARWICK LLP - ------------------------ KPMG PEAT MARWICK LLP St. Petersburg, Florida March 27, 1997 EX-23.(B) 10 EX-23.(B) TO PROGRESS/POWER 12/31/96 FORM 10-K 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, No. 33-50908 on Form S-3, and No. 333-02549 on Form S-3 of Florida Power Corporation of our report dated January 27, 1997, relating to the balance sheets of Florida Power Corporation as of December 31, 1996 and 1995, and the related statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, and all related schedules which report appears in the December 31, 1996 annual report on Form 10-K of Florida Power Corporation. /s/KPMG PEAT MARWICK LLP - ------------------------- KPMG PEAT MARWICK LLP St. Petersburg, Florida March 27, 1997 EX-27.(A) 11 EX-27.(A) TO PROGRESS/POWER 12/31/96 FORM 10-K
UT 1,000,000 0000357261 FLORIDA PROGRESS CORPORATION DEC-31-1996 DEC-31-1996 YEAR PER-BOOK 3,517 845 689 121 176 5,348 1,208 0 716 1,924 0 34 1,777 0 0 4 35 0 0 0 1,574 5,348 3,158 146 2,675 2,821 337 21 352 128 230 6 224 200 0 562 2.32 2.32
EX-27.(B) 12 EX-27.(B) TO PROGRESS/POWER 12/31/96 FORM 10-K
UT 1,000,000 0000037637 FLORIDA POWER CORPORATION DEC-31-1996 DEC-31-1996 YEAR PER-BOOK 3,517 221 442 0 84 4,264 1,004 0 821 1,825 0 34 1,296 0 0 4 21 0 0 0 1,084 4,264 2,394 136 1,925 2,061 333 1 334 95 239 6 233 171 0 498 0.00 0.00
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