10-K405 1 FLORIDA PROGRESS/FLORIDA POWER FORM 10-K 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 [FEE REQUIRED] For the fiscal year ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Exact name of 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. [X] The aggregate market value of the voting stock held by non-affiliates of Florida Progress Corporation as of February 28, 1995(based on the closing market price on the New York Stock Exchange Composite Transactions on February 28, 1995 was $2,937,117,946 (determined by subtracting from the number of shares outstanding on that date the number of shares held by directors and executive officers of Florida Progress Corporation). The aggregate market value of the voting stock held by non-affiliates of Florida Power Corporation as of February 28, 1995 was $-0-. As of February 28, 1995, 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 February 10, 1995 was 95,240,004. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for Florida Progress Corporation dated March 1, 1995, relating to the 1995 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. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Florida Power Corporation makes no representations as to the information relating to Florida Progress Corporation's diversified operations. 2 TABLE OF CONTENTS ----------------- -Page- ------ PART I. Item 1. - Business. . . . . . . . . . . . . . . . . . . . . . . . 5 Item 2. - Properties. . . . . . . . . . . . . . . . . . . . . . . 18 Item 3. - Legal Proceedings . . . . . . . . . . . . . . . . . . . 22 Item 4. - Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 30 PART II. Item 5. - Market for the Registrants' Common Equity and Related Stockholder Matters . . . . . . . . . . . 30 Item 6. - Selected Financial Data . . . . . . . . . . . . . . . . 32 Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 33 Item 8. - Financial Statements and Supplementary Data . . . . . . 43 Combined Report of Independent Certified Public Accountants. . . . . . . . . . . . . . . . . . . . . 43 Consolidated Financial Statements of Florida Progress . 44 Financial Statements of Florida Power . . . . . . . . . 49 Combined Notes to the Financial Statements. . . . . . . 54 Quarterly Financial Data (unaudited). . . . . . . . . . 77 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . 79 PART III. Item 10. Directors and Executive Officers of the Registrants . . 79 Item 11. Executive Compensation. . . . . . . . . . . . . . . . . 81 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . 85 Item 13. Certain Relationships and Related Transactions. . . . . 87 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 87 Signatures - Florida Progress Corporation . . . . . . . . . . . . 93 Signatures - Florida Power Corporation. . . . . . . . . . . . . . 95 Financial Statement Schedules . . . . . . . . . . . . . . . . . . 97 3 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 unit CAAA. . . . . . . . . . . . . . .Clean Air Act Amendments of 1990 CERCLA or Superfund . . . . . . .Comprehensive Environmental Response Compensation and Liability Act DOE . . . . . . . . . . . . . . .United States Department of Energy Electric Fuels. . . . . . . . . .Electric Fuels Corporation EMF . . . . . . . . . . . . . . .electromagnetic fields, or electric and magnetic fields Energy Policy Act . . . . . . . .National Energy Policy Act of 1992 EPA . . . . . . . . . . . . . . .United States Environmental Protection Agency FAS 115 . . . . . . . . . . . . .Financial Accounting Standard No. 115 FASB. . . . . . . . . . . . . . .Financial Accounting Standards Board FDEP. . . . . . . . . . . . . . .Florida Department of Environmental Protection (formerly the Florida Department of Environmental Regulation) FERC. . . . . . . . . . . . . . .Federal Energy Regulatory Commission Financial Statements. . . . . . .Florida Progress' Consolidated Financial Statements and Florida Power's Financial Statements, for the year ended December 31, 1994 contained under Item 8 herein Florida Power . . . . . . . . . .Florida Power Corporation Florida Progress. . . . . . . . .Florida Progress Corporation FM Industries . . . . . . . . . .FM Industries, Inc. FP&L. . . . . . . . . . . . . . .Florida Power & Light Company FPSC. . . . . . . . . . . . . . .Florida Public Service Commission Georgia Power . . . . . . . . . .Georgia Power Company HLW . . . . . . . . . . . . . . .high level radioactive waste INPO. . . . . . . . . . . . . . .Institute of Nuclear Power Operations KV. . . . . . . . . . . . . . . .kilovolts KVA . . . . . . . . . . . . . . .kilovolt amperes KWH . . . . . . . . . . . . . . .kilowatt hours Lake. . . . . . . . . . . . . . .NCP Lake Power, Inc. LTK line. . . . . . . . . . . . .Lake Tarpon to Kathleen Transmission Line MW. . . . . . . . . . . . . . . .megawatts Mid-Continent . . . . . . . . . .Mid-Continent Life Insurance Company NEIL. . . . . . . . . . . . . . .Nuclear Electric Insurance, Ltd. NRC . . . . . . . . . . . . . . .United States Nuclear Regulatory Commission NWPA. . . . . . . . . . . . . . .Nuclear Waste Policy Act Pasco . . . . . . . . . . . . . .Pasco Cogen, Ltd Panda . . . . . . . . . . . . . .Panda - Kathleen L.P. PCBs. . . . . . . . . . . . . . .polychlorinated biphenyls Power Energy. . . . . . . . . . .Power Energy Services Corporation 4 GLOSSARY - CONTINUED Power Interstate. . . . . . . . .Power Interstate Energy Services Corporation ppm . . . . . . . . . . . . . . .parts per million Praxair . . . . . . . . . . . . .Praxair, Inc. Progress Capital. . . . . . . . .Progress Capital Holdings, Inc. PRP . . . . . . . . . . . . . . .potentially responsible party Progress Credit . . . . . . . . .Progress Credit Corporation Proxy Statement . . . . . . . . .The definitive proxy statement dated March 1, 1995, relating to Florida Progress' 1995 Annual Meeting of Shareholders Reedy Creek . . . . . . . . . . .Reedy Creek Improvement District SEC . . . . . . . . . . . . . . .Securities and Exchange Commission SNF . . . . . . . . . . . . . . .spent nuclear fuel Talquin . . . . . . . . . . . . .Talquin Corporation Talquin Development . . . . . . .Talquin Development Company 5 PART I ITEM 1. BUSINESS FLORIDA PROGRESS Florida Progress Corporation ("Florida Progress"), a diversified electric utility holding company, has its principal executive offices at One Progress Plaza, St. Petersburg, Florida 33701, telephone number (813) 824-6400. Florida Progress was incorporated in Florida on January 21, 1982. In March 1982, Florida Progress became the parent company of Florida Power Corporation ("Florida Power") and its former subsidiaries, including Electric Fuels Corporation, an energy and transportation company ("Electric Fuels"). The corporate restructuring was done to accommodate diversification into certain non-utility businesses. In August 1988, Progress Capital Holdings, Inc. ("Progress Capital") was formed to become the downstream holding company for Florida Progress' diversified subsidiaries and to consolidate the financing of non-utility operations. Florida Progress defines its principal business segments as utility and diversified operations. The utility segment is composed of Florida Power, Florida Progress' largest subsidiary, and encompasses all regulated public utility operations. See Item 1 "Business - Utility Operations - Florida Power". The diversified operations segment includes Electric Fuels, Progress Credit Corporation ("Progress Credit"), which is comprised of commercial lending, leasing and real estate operations, and Mid-Continent Life Insurance Company ("Mid-Continent"), a life insurance company that was acquired in 1986. See Item 1 "Business - Diversified Operations". For further information concerning the operating profit and assets attributable to each of Florida Progress' business segments, see Note 8 to Florida Progress' consolidated financial statements and Florida Power's financial statements for the year ended December 31, 1994 contained herein under Item 8 ("Financial Statements"). 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. The SEC has the power, however, to revoke Florida Progress' exemption upon a finding that the exemption is "detrimental to the public interest or the interest of investors or consumers". UTILITY OPERATIONS - FLORIDA POWER Florida Progress' utility segment is composed of its largest subsidiary, Florida Power, and encompasses all regulated public utility operations. Florida Power was incorporated 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 capability of 7,337 megawatts ("MW"), and in 1994, accounted for 75% of Florida Progress' consolidated revenues, 90% of its earnings from continuing operations and 75% of its assets. 6 Florida Power provided electric service during 1994 to an average of approximately 1,240,000 customers in a service area covering about 20,000 square miles in central and north Florida and along the west coast of the state. The service area includes St. Petersburg and Clearwater as well as the areas surrounding Walt Disney World, Orlando, Ocala and Tallahassee. Of Florida Power's 1994 electric revenues billed, approximately 56% were derived from residential sales, 24% from commercial sales, 9% from industrial sales, 5% from other retail sales and 6% from wholesale sales. Important industries in the territory include phosphate and rock mining and processing, electronics design and manufacturing, health-care related manufacturing, and citrus and other food processing. Other important commercial activities are tourism, health care, construction and agriculture. FUEL AND PURCHASED POWER GENERAL: Florida Power's consumption of various types of 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. In 1994, Florida Power's energy mix was 45% coal, 16% oil, 17% nuclear, 21% purchased power and 1% gas, as compared to 45% coal, 21% oil, 18% nuclear, 16% purchased power and 0% gas for 1993. 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 determined with complete certainty. However, Florida Power believes that its fuel supply contracts, as described below, will be adequate to meet its fuel supply needs. Florida Power's average fuel costs per million British thermal units ("Btu") for each year of the five-year period ended December 31, 1994, were as follows: 1994 1993 1992 1991 1990 Coal $1.96 $1.96 $1.97 $2.01 $2.05 Oil 2.39 2.49 2.53 2.56 3.10 Nuclear .55 .54 .57 .65 .67 Gas 2.46 4.27 2.54 1.90 2.15 Average 1.75 1.79 1.86 1.89 2.11 OIL AND GAS: Oil is purchased under contracts with several suppliers. The cost of Florida Power's oil is tied by contract to certain posted or published market prices. These prices are largely influenced by the world market for fuel. At present, management believes that Florida Power has contracts for an adequate supply of oil for the reasonably foreseeable future. Florida Power's natural gas is purchased on the spot market and delivered under firm and interruptible transportation contracts. Existing contracts for oil are sufficient to cover the requirements when natural gas is not available under the interruptible contracts. 7 NUCLEAR: Florida Power has one nuclear generating plant: Crystal River Unit No. 3. In order to fuel this nuclear generating station, four distinct stages are involved, and each is contracted separately. Stage I and Stage II involve the mining and milling of the natural uranium ore to produce a concentrate and the conversion of 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 for the supply of uranium concentrates (Stage I) and the conversion of uranium concentrates (Stage II) through 1997, and the enrichment of uranium (Stage III) and the fabrication of uranium into fuel assemblies (Stage IV) through 2004. Under anticipated operating conditions, Florida Power has all stages of the nuclear fuel supply cycle under contract for unit operations through the refueling planned in 1996. It will be necessary for Florida Power to enter into future contracts to cover the differences between the total unit lifetime requirements of Crystal River Unit No. 3 and the requirements covered by existing contracts. Although no assurances can be given as to that future availability or costs of such contracts, Florida Power expects that future contract commitments will be obtained at the appropriate time. Spent nuclear fuel is stored at Florida Power's Crystal River Unit No. 3 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 13.) At the present time, Florida Power has facilities on site for the storage of spent fuel through the year 2010. COAL: Florida Power anticipates a requirement of approximately 5,300,000 tons of coal in 1995. 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. Electric Fuels has long-term contracts with various sources for 75% of the coal requirements of Florida Power's coal units. Electric Fuels acquires the remainder in the spot market and under short-term contracts. The long-term contracts have price adjustment provisions. 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 with The Southern Company for up to 407 MW of purchased power capacity annually through 2010, representing 4.6% of Florida Power's total current system capacity. Florida Power has an option to lower these purchases to approximately 200 MW annually, beginning in 2000, with a three-year notice. The power is supplied by coal-fired generating units that have a combined capacity of approximately 3,500 MW. The entire commitment is guaranteed by The Southern Company's total system, which is approximately 30,000 MW. 8 As of December 31, 1994, Florida Power had entered into long-term contracts with cogenerators for 1,110 MW of capacity. These contracts have terms ranging from nine to 35 years. In most cases, these contracts account for 100% of the generating capacity of each of the facilities. Of the 1,110 MW under contract, 961 MW are currently available and the remaining future capacity is a part of the utility's plans for meeting future electricity demand growth. All commitments have been approved by the FPSC. (See Note 11 to the Financial Statements.) REGULATION AND FRANCHISES Florida Power is subject to the jurisdiction of the FPSC with respect to retail rates, customer service, planning, construction of facilities, accounting, issuance of securities and other matters. In addition, Florida Power is subject to regulation by the Federal Energy Regulatory Commission ("FERC") with respect to accounting, transmission and sales of wholesale power and certain other matters. Florida Power's nuclear generating unit 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 impacts. Florida Power has a 90.4% ownership interest in the nuclear unit it operates. (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 all municipalities in which it distributes electric energy. The general effect of these franchises is to grant Florida Power the right to enter upon and use streets, alleys and other public places for erecting and maintaining poles, wires and other apparatus for the sale and distribution of electric energy. All but one of the existing franchises were for a 30-year period when granted, the maximum allowed by Florida law. The one exception is a franchise that was for a 10- year period when granted. There are a total of 110 franchises, of which 2 expire before December 31, 1999, 57 expire between January 1, 2000 and December 31, 2004, 3 expire between January 1, 2005 and December 31, 2009, 19 expire between January 1, 2010 and December 31, 2014, 13 expire between January 1, 2015 and December 31, 2019, and 16 expire between January 1, 2020 and December 31, 2024. For further information concerning these franchise agreements, see Item 1 "Business-Utility Operations-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"). 9 The 1990 Amendments to the Clean Air Act ("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 apply in 1995 and Phase II limitations are effective by 2000. Florida Power is not 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 at a total cost of approximately $11 million. These monitors are required on all affected units under Title IV of the CAAA. To meet Phase II limitations, Florida Power is implementing a strategy based primarily on burning cleaner fuels. Compliance with nitrogen oxide limitations will require the installation of low nitrogen oxide burners on some coal fired units. These costs will be approximately $8 million and will be incurred between 1995-2000. 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 1995, these fees will total $750,000 and are expected to increase to $1 million per year for 1996 and thereafter. Florida Power's construction program includes approximately $14 million of planned environmental expenditures for air quality projects for the two-year period ending December 31, 1996. WATER: Work began in 1994 on construction of the Polk County generating units and related facilities. (See Item 2, "Properties - Utility Operations - Planned Generation".) Approximately $8.5 million was expended in 1994 on environmental commitments related to site development. Over the next 2 to 3 years of construction, approximately $9.3 million will be expended on environmental commitments related to site development. In addition, Florida Power's construction program includes approximately $8 million of additional planned environmental expenditures for water quality projects for the two-year period ended December 31, 1996. WASTE MATERIALS: Florida Power is nearing completion of its program to reduce electrical equipment utilizing polychlorinated biphenyls ("PCBs"). All regulatory compliance dates have been met. All PCBs transformers (i.e. those having greater than 500 ppm PCBs) now 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 continues to expand, and by 1995 is expected 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 10 require the replacement or upgrading of tanks that are not protected from corrosion, and the installation of release detection and containment 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 are expected to be used to reimburse Florida Power for the majority of past storage tank contamination cleanup expenditures. 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 effects 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. Pursuant to 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, as revised in October 1992, 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 on December 15, 1994; based on its review of the scientific research, the staff recommended that "no revision of the current EMF standards be made at this time." The Environmental Regulation Commission 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. There has been substantial discussion in professional publications regarding the potential for extensive litigation alleging adverse health effects of EMF from transmission and distribution lines, but to date Florida Power is not aware of any case arising out of such a claim that has resulted in a verdict against an electric utility. 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" under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA" or "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, Florida Power has been named as a 11 defendant in one suit brought against four prior owners of a coal gasification plant site, seeking contributions pursuant to CERCLA and Florida law toward the cost of cleaning up that site and nearby property that may have become contaminated. For further information see paragraphs 14 and 15 under Item 3 "Legal Proceedings" and "Contaminated Site Cleanup" in Note 11 to the Financial Statements. RATE 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. To accomplish this, the FPSC and FERC use various ratemaking mechanisms. The FPSC oversees the intrastate operations of the state's investor-owned utilities. The FPSC authorizes retail "base rates" that are designed to provide a utility 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. This charge is adjusted every six or 12 months and remains level throughout the period. The adjustment charge includes projected costs for a six- or 12-month period plus an adjustment to compensate for differences between estimated and actual costs for the prior period, including interest. At the request of state regulators, Florida Power submitted a revenue decoupling plan for residential customers. Revenue decoupling is a ratemaking concept that eliminates the direct link between and unit sales, measured in kilowatt hours ("KWH") and revenues. The FPSC ordered a three-year test for residential revenue decoupling, beginning in January 1995. (See the text under the heading "Utility Regulatory Matters" in Item 7, and Note 1 to the Financial Statements.) Under the plan, abnormal weather variances will no longer impact earnings with respect to residential revenues. Historically, Florida Power's revenues and KWH sales varied with the weather. This weather sensitivity resulted primarily from customers using electricity to heat or cool their residences or places of business, and revenues and KWH sales tended to be higher in summer and winter. (See the financial information under the heading "Quarterly Financial Data" which follows the notes to the Financial Statements.) FERC regulates wholesale and interstate transmission rates, acquisition and disposition of certain property, and other matters. FERC is responsible for accounting and reporting functions under the Federal Power Act to ensure that reliable and consistent financial information is available for regulatory and public purposes. 12 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 1994, about 6% of Florida Power's electric revenues were from its wholesale business. For further information with respect to rate matters, see paragraphs 1 and 2 under Item 3 "Legal Proceedings" and Note 10 to the Financial Statements. COMPETITION The nation's electric utility industry expects increasing competition in markets historically served by regulated utilities. Passage of the National Energy Policy Act of 1992 ("Energy Policy Act"), new guidelines at the FERC and increasing competition from nonregulated energy suppliers are expected to result in some utility customers having alternative sources for their energy needs. Regulators in California, Michigan and New Mexico are considering landmark measures that would establish new policies for setting electric rates and allow large customers to choose among electricity suppliers. In the years ahead, many other states are likely to consider regulatory reform and institute pricing structures that are more market-driven. Not all electric utilities will be affected in the same way by increased competition - some will struggle while others will thrive. Management believes that as the industry undergoes further change, Florida Power will be able to maintain its favorable competitive position. More than 90 percent of Florida Power's total KWH sales comes from retail business, which is regulated by the FPSC. Most of the utility's retail KWH sales are to residential and commercial customers. Florida Power agrees with many industry experts that changes in the way electricity is distributed to homes and businesses are probably still years away. However, management believes it is important to anticipate change. Today, steps are being taken that will put the utility in position to adjust to change and take advantage of new opportunities. A threat for some utilities is the risk of losing industrial customers. Florida Power is well positioned with competitive electric rates to its industrial customers, which account for about 12 percent of the utility's total KWH sales. The average in the electric utility industry for industrial KWH sales is about 35 percent. In Florida, electric utilities have certain retail service territorial rights granted by the FPSC. In providing electric service, utilities have negotiated franchise agreements with local municipalities outlining the terms associated with the use of public rights-of-way. Traditionally, municipalities have signed 30-year franchise agreements with electric utilities. Increasing competition may affect new franchise agreements between utilities and municipalities. Also, some municipalities may consider operating their own electric utility systems. However, over the years, municipalities have seldom decided to purchase and operate their own systems because the economics generally have been unfavorable for the local residents. The last time a municipality purchased a system in Florida was in 1947. Florida Power currently has 110 franchise agreements, only two of which will expire before the year 2000. These two franchises represent slightly less than 5 percent of the utility's total 13 revenues. One of the two franchises expires in 1996 and accounts for the majority of these revenues. Management expects to renew these two franchises. In the wholesale market, the Energy Policy Act of 1992 will result in increased competition for utilities serving cities, rural electric cooperatives and other customers that resell electricity. Florida Power is committed to serving and retaining its wholesale customers, which represent about 6 percent of the utility's total KWH sales. For further information concerning wholesale business, see paragraph 2 under Item 3 "Legal Proceedings". Another challenge for electric utilities is to construct and operate new baseload generation at prices competitive with nonutility generators. Florida Power has received regulatory approval to construct two baseload units in Polk County, Florida. The first unit is scheduled to be in service by 1998 and the second a year later. The utility believes the generation from these units will be competitively priced with other new power plants in Florida. Electric utilities are beginning to face changes in the way transmission services are priced. The FERC is encouraging the formation of regional transmission groups to set pricing policies and work closely with state regulators in the siting of new transmission lines. The FERC is also pursuing policies that would deny a utility that owns transmission lines a competitive advantage in the area of power generation over other utilities as well as non- utility generators. Because it owns the second-largest transmission system in the state, Florida Power believes it is important to establish fair policies for pricing and access, particularly as the industry evolves into a more competitive business. In 1994, Florida Power took steps to streamline operations and reduce costs to improve its competitiveness. These actions should help the utility offset rising costs, such as environmental expenses, insurance costs, and nuclear decommissioning and depreciation expenses. Florida Power expects to earn its authorized return on equity while maintaining competitive prices and offering high-quality, reliable service. Management believes that Florida Power's operational and financial strength, manageable construction program, strong growth potential and reasonable regulatory environment are reasons why the utility is well positioned for the future. EMPLOYEES Florida Power employed 5,529 employees at December 31, 1994, of which 4,972 were full-time employees. The International Brotherhood of Electrical Workers represents approximately 2,200 full-time employees. The current union contract was ratified in January 1995 and expires in December 1996. DIVERSIFIED OPERATIONS Florida Progress' diversified operations are owned directly or indirectly through Progress Capital, a Florida corporation and wholly owned subsidiary of Florida Progress that was incorporated in 1988. Progress Capital holds the 14 capital stock of, and provides funding for, Florida Progress' non-utility subsidiaries, which include the following: ELECTRIC FUELS - Formed in 1976, Electric Fuels is an energy and transportation company serving utility and industrial companies, including Florida Power. Its major businesses include coal mining, procurement and transportation; bulk commodities transportation; railcar repair and railcar parts manufacturing and reconditioning, and rail and trackworks components. In 1993, Electric Fuels completed a major expansion in the rail services segment of its business. The 1993 acquisition of the assets of an Alabama-based company increased the unit's market share in the nation's rail services business. In 1994, Electric Fuels' operations were further expanded by the acquisition of FM Industries, Inc. ("FM Industries"), a railcar parts manufacturer and reconditioner located in Fort Worth, Texas. In 1994, Electric Fuels also acquired a rail-to-barge coal transloading facility near Huntington, West Virginia. MID-CONTINENT - Acquired in 1986, Mid-Continent is a life insurance company, headquartered in Oklahoma City, Oklahoma, which has been in business since 1909. Its principal product is a low-premium death benefit policy which is sold through independent agents. PROGRESS CREDIT - Formed in 1983, Progress Credit is a financial services and real estate company with lending and leasing activities (primarily involving commercial aircraft, real estate, locomotives and medical equipment)and real estate projects. Progress Credit is not entering into new transactions, unless they facilitate Florida Progress' business withdrawal strategies, and plans to sell, over time, most of these assets. As of December 31, 1994, Progress Capital and its subsidiaries employed approximately 2,400 persons. COMPETITION Florida Progress' non-utility 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 in the eastern United States utility and industrial coal markets; its marine transportation and barge operations in the coal, grain and bulk products transportation markets on the Ohio and Mississippi rivers; and its rail operations in the railcar repair, parts and associated services markets in the eastern U.S. and, to a more limited extent, in the midwest and west. Positive 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 the industry. The business of Electric Fuels and its subsidiaries, taken as a whole, is not subject to significant seasonal fluctuation. Mid-Continent actively competes with other insurance companies in all jurisdictions in which it is located. Mid-Continent's strengths have included low administrative costs, competitive premiums and commissions, and a 15 conservative investment portfolio. However, many of Mid-Continent's competitors have more diversified lines of insurance coverage, substantially greater financial resources and direct sales forces. 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 and the Clean Air Act. 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 1996. For further information concerning certain environmental matters relating to Florida Progress' diversified operations, see paragraph 16 under Item 3 "Legal Proceedings" and Note 11 to the Financial Statements. EXECUTIVE OFFICERS Kenneth E. Armstrong, Vice President, General Counsel and Secretary of Florida Progress, and Secretary of Florida Power, and effective April 3, 1995, also Vice President and General Counsel of Florida Power, Age 47 In April 1993, Mr. Armstrong was appointed to his position of Vice President, General Counsel and Secretary of Florida Progress. In March 1995, he was also appointed Vice President and General Counsel of Florida Power effective April 3, 1995. From April 1992 to April 1993, Mr. Armstrong served as Vice President, General Counsel and Assistant Secretary of Florida Progress. He joined Florida Progress in August 1986 as Assistant General Counsel, was appointed Assistant Secretary in April 1987, General Counsel in July 1990, and Vice President in April 1992. He also served as Assistant Secretary of Florida Power Corporation from April 1987 until his appointment as Secretary in April 1993. Dr. Percy M. Beard, Jr., Senior Vice President, Nuclear Operations of Florida Power, Age 58 Since November 1989, Dr. Beard's principal occupation has been as shown above. 16 Jack B. Critchfield, Chairman of the Board and Chief Executive Officer of Florida Progress, Age 61 Since December 1, 1991, Dr. Critchfield's principal occupation has been as shown above. From January 1991 to December 1991, Dr. Critchfield was Chairman, President and Chief Executive Officer, from February 1990 to January 1991 he was President and Chief Executive Officer, and from February 1988 to February 1990, he was President and Chief Operating Officer of Florida Progress. From January 1987 to February 1988, Dr. Critchfield was Group Vice President, Energy and Technology Group of Florida Progress and President and Chief Executive Officer of Electric Fuels. From November 1983 to January 1987, he served as Vice President of the Eastern and Ridge Divisions of Florida Power. Dr. Critchfield is a director of Barnett Banks, Inc., Jacksonville, Florida. John A. Hancock, Senior Vice President, Power Supply of Florida Power, Age 54 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 both Florida Progress and Florida Power, Age 41 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. From March 1988 until December 1990, he was Vice President, Treasurer and Controller of Electric Fuels. Allen J. Keesler, Jr., Group Vice President, Utility Group of Florida Progress, and President and Chief Executive Officer of Florida Power, Age 56 Since February 1988, Mr. Keesler's principal occupation has been as shown above. From January 1983 to February 1988, he served as President and Chief Executive Officer of Talquin Corporation ("Talquin"), a former subsidiary of Florida Progress. Mr. Keesler served as Group Vice President, Development Group, of Florida Progress, from January 1986 to February 1988. Mr. Keesler is a director of SouthTrust Corporation, Birmingham, Alabama. Richard D. Keller, Group Vice President, Energy and Transportation of Florida Progress, and President and Chief Executive Officer of Electric Fuels Corporation, Age 41 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. 17 Richard Korpan, President and Chief Operating Officer of Florida Progress, Age 53 Since December 1, 1991, Mr. Korpan's principal occupation has been as shown above. From August 1989 to December 1991, he was Executive Vice President and Chief Financial Officer of Florida Progress. He joined Florida Progress in June 1989 to assume the position of Executive Vice President and Chief Financial Officer. From 1986 to June 1989, Mr. Korpan was President and Chief Executive Officer of Pacific Diversified Capital Company, a subsidiary that comprises the non-utility operations of San Diego Gas & Electric Company. Mr. Korpan is a director of SunBank of Tampa Bay and Acordia Central Florida, Inc. David L. Miller, Senior Vice President, Corporate Services of Florida Power, Age 50 Since January 1993, Mr. Miller's principal occupation has been as shown above. From October 1990 to January 1993, Mr. Miller was Senior Vice President, Administrative Services, of Florida Power. Prior to that time he served Florida Power as Vice President, Suncoast Division, from April 1988 to October 1990, South Suncoast Division Manager from October 1987 to April 1988, and as Director of Conservation and Marketing during 1986. Maurice H. Phillips, Executive Vice President of Florida Power, Age 56 Mr. Phillips is retiring from Florida Power effective April 1, 1995. Since September 1989, Mr. Phillips' principal occupation has been as shown above. Joseph H. Richardson, Senior Vice President, Corporate Development of Florida Progress, and effective April 3, 1995, also Senior Vice President, Energy Distribution of Florida Power, Age 45 In August 1991, Mr. Richardson was appointed to his position as Senior Vice President of Florida Progress. In March 1995, he was also appointed to the position of Senior Vice President, Energy Distribution of Florida Power effective April 3, 1995. From October 1993 to April 3, 1995, he served as Senior Vice President, Legal and Administrative Services, and General Counsel of Florida Power, positions he held concurrently with his position at Florida Progress. He was President and Chief Executive Officer of Talquin from May 1990 until September 1993. From May 1990 to August 1991, Mr. Richardson was Group Vice President, Development Group. From July 1986 to May 1990, he served as Vice President of Talquin. There are no family relationships between any director and/or any executive officer of Florida Progress or Florida Power. The executive officers serve at the pleasure of the Boards of Directors. Each executive officer is appointed annually. 18 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 tug/barge units owned or operated by Electric Fuels are subject to the lien of mortgages in favor of certain lenders, as are certain real estate properties held by Progress Credit. Equipment owned by Progress Credit and leased under finance leases is subject to liens in favor of the secured lenders. UTILITY OPERATIONS GENERATION: As of December 31, 1994, the total net winter generating capability of Florida Power's generating facilities was 7,337 MW. This capability was generated by 13 steam units with a capability of 4,661 MW and 44 combustion turbine peaking units with a capability of 2,676 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 "Regulation and Franchises" and "Environmental Matters" under Item 1 "Business-Utility Operations.") Operation of the units may also be substantially curtailed by unanticipated equipment failures or interruption of fuel supplies. In January 1994, a 40 MW cogeneration unit located at the University of Florida in Gainesville was put into service. This unit provides steam to the University campus and hospital while generating electricity for Florida Power's system. Also in January 1994, Florida Power put two of its older power plants, the Higgins and Turner steam units, on extended cold shutdown status. The net maximum hourly demand served during 1994 was 6,955 MW on February 3, 1994. On February 9, 1995, Florida Power reached a new peak of 7,722 MW. Florida Power met this demand through system generating capability, economy power purchases from neighboring utilities and demand-side management programs. [THIS SPACE INTENTIONALLY BLANK] 19 Florida Power's existing generating plants (all located in Florida) and their capabilities are as follows: Winter Net Maximum Dependable Primary Location Steam Peaking Capability 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 - 750 750 DeBary Oil Volusia - 786 786 Higgins Oil Pinellas - 148 148 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 2,676 7,337 ===== ===== ===== * Represents 90.4% of total plant capability. The remaining 9.6% of capability was owned by other parties at December 31, 1994. PLANNED GENERATION AND ENERGY SALES: Florida Power and Georgia Power Company ("Georgia Power")will become co-owners of a 165 MW advanced combustion turbine to be located at Florida Power's Intercession City Peaker site. Upon expected completion of the turbine in 1996, Florida Power will operate and maintain the unit for both owners. During the months of June through September, Georgia Power will have the exclusive right to the output of this unit. Florida Power will have that right for the balance of the year. In a separate agreement, Florida Power has agreed to sell between 200 and 500 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 presents unique advantages to both parties. The agreement was accepted for filing by the FERC on March 11, 1994 and is pending approval by the Georgia Public Service Commission. Florida Power's generation strategy includes continuing efforts to sign similar energy agreements with other utilities. The revenues from these energy sales will 20 help Florida Power to offset some of its annual production costs and better utilize its facilities year-round. In 1992, the FPSC granted Florida Power a certificate of need to build two gas-fired combined cycle generating units, each with a winter rating of 235 MW. In September 1994, Florida Power completed the purchase of 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. Commencement of construction of these units is planned for 1996. The first unit is planned to come on line in 1998, with the second unit to follow in 1999. Florida Power plans to use natural gas to fuel the first phase of the new energy complex in Polk County. (See Part II, Item 7, under the heading "Liquidity and Capital Resources - Florida Power Corporation".) In September 1994, Florida Power announced that its subsidiaries were withdrawing as equity partners in the proposed SunShine Pipeline. In February 1995, Florida Power announced that it was exercising its options to terminate, effective March 2, 1995, two agreements related to the transportation of natural gas through the proposed SunShine Pipeline. Florida Power is currently evaluating a number of options for transporting natural gas to the new energy complex in Polk County. (See Item 3 "Legal Proceedings", paragraphs 9 and 10.) Florida Power's expansion plan for generation is summarized in the table below:
Maximum Dependable Winter Capability Planned --------------------------------- Location In Service Steam Peaking Total Plants (County) Date MW MW MW ------------ -------- ---------- ------- -------- ---------- Intercession City(1) Osceola 1/96 - 165 165 Combined Cycle 1 Polk 11/98 235 - 235 Combined Cycle 2 Polk 11/99 235 - 235 ----- 635 Existing system generation 7,337 ----- Total planned system generation by the year 2000 is 7,972 ===== (1) Florida Power will co-own this unit with Georgia Power.
The FPSC has a rule regarding the construction of new power plants in Florida. In general, the rule 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 the adoption of this rule could eventually affect Florida Power's ability to construct its own power plants, the rule will not affect the construction of two gas-fired combined cycle generating units 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 these units. 21 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, 1994, Florida Power distributed electricity through 344 substations with an installed transformer capacity of 38,877,600 kilovolt amperes ("KVA"). Of this capacity, 26,708,925 KVA is located in transmission substations and 12,168,675 KVA in distribution substations. Florida Power has 4,497 circuit miles of transmission lines of which 2,580 circuit miles are operated at 500, 230, or 115 kilovolts ("KV") and the balance at 69 KV. Florida Power has 22,917 circuit miles of distribution lines which operate at various voltages ranging from 2.4 to 25 KV. Florida Power has indefinitely deferred construction of a 500 KV transmission line that would have connected its Lake Tarpon substation in Pinellas County to its Kathleen substation in Polk County (the "LTK line"). Florida Power has proposed alternatives to the LTK line in a petition filed with the FPSC. (See Part II, Item 7, under the heading "Liquidity and Capital Resources - Florida Power Corporation"). DIVERSIFIED OPERATIONS ELECTRIC FUELS Electric Fuels operates approximately 1500 railcars, 23 locomotives, 550 river barges and 21 river towboats that are either owned or leased, and are used for the transportation and shipping of coal, steel and other bulk products. Through joint ventures, it has five oceangoing tug/barge units. An Electric Fuels subsidiary, through another joint venture, owns and operates a large bulk products terminal, located on the Mississippi River south of New Orleans, for handling coal and other products. Electric Fuels provides drydocking and repair services to towboats, offshore supply vessels and barges through an operation it owns near New Orleans. 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 180 million tons and controls, through mineral leases, additional estimated proven and probable coal reserves of approximately 85 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. The total production of coal mined from these reserves during 1994 was approximately 4.2 million tons. In connection with its coal operations, an Electric Fuels subsidiary, through a joint venture, has an 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 22 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 eleven states, including a railcar hydraulic cushioning unit manufacturing and reconditioning facility in Fort Worth, Texas. 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 building blocks. Electric Fuels also operates an environmental testing laboratory in Tampa, Florida. PROGRESS CREDIT Progress Credit, through its leasing operations, owns 21 aircraft, 3 spare aircraft engines, 25 locomotives and other property. The aircraft and engines are mainly leased to seven U.S. commercial airlines. Information concerning Progress Credit's net investment in these assets is included in Note 6 to the Financial Statements. Through its real estate development subsidiary, Talquin Development Company ("Talquin Development"), Progress Credit owns real estate throughout Florida. Barnett Tower, which is Florida Progress' headquarters building, and the Carillon office park, account for about two thirds of the real estate assets. Both properties are located in St. Petersburg, Florida. Other holdings include 2,000 acres near Lakeland, Florida, a marina in St. Petersburg, Florida with 235 wet slips and 400 high and dry slips, and 20 acres of property adjacent to the marina. Through partnerships, Talquin Development also has interests in two office buildings located in St. Petersburg and Tallahassee, Florida. MID-CONTINENT Mid-Continent owns an office building in Oklahoma City, Oklahoma. ITEM 3. LEGAL PROCEEDINGS 1. FERC Docket No. ER94-961-000. In April 1994, the FERC approved Florida Power's 1994 settlement agreement, which provides for rates designed to increase annual revenues by approximately $9.8 million. The rate increases were effective in March and May 1994 and allow Florida Power to recover costs for new generating facilities and higher purchased power costs. 23 2. FERC Docket Nos. ER95-469-000 and ER95-457-000. On January 23, 1995, Florida Power filed a wholesale rate increase with the FERC for its municipal and cooperative customers, that was proposed to become effective January 1, 1995. This increase was negotiated and filed under a pre-filing settlement agreement with all wholesale customers, except Reedy Creek Improvement District ("Reedy Creek"), which elected not to participate. The settlement for all classes of service (except rates for certain transmission service, which remained unchanged) is designed to increase annual revenues from the municipal customers by $3.5 million and from one cooperative customer by $5.1 million. Concurrently, Florida Power filed in a separate docket a $920,000 rate increase for Reedy Creek, which is based on the same rates proposed in the settlement agreement. On March 21, 1995, the FERC issued an order accepting for filing the full requirements and partial requirements generation rates proposed for the municipal and cooperative customers, allowing these rates to become effective as of January 1, 1995, without hearing or suspension. FERC also accepted for filing the partial requirements generation rates proposed for Reedy Creek, allowing them to go into effect after a one day suspension as of January 2, 1995, subject to refund pending a hearing on their lawfulness under the Federal Power Act. FERC also accepted for filing the transmission rates proposed for all transmission customers, allowing them to go into effect after a five-month suspension as of June 1, 1995, subject to refund pending a hearing on their lawfulness under the Federal Power Act. In a related matter, on February 14, 1995, Reedy Creek notified Florida Power that Reedy Creek is exercising certain contract demand termination rights under its contract with Florida Power, based on Reedy Creek's allegation that the total base rate increase filed with FERC is an increase of 15 percent or more. Reedy Creek states that it will decrease its contract demand from the current level of 60 MW to 30 MW in 1996, 10 MW in 1997, 10 MW in 1998, and 15 MW in 1999. Florida Power does not believe that it has filed a total base rate increase in an amount of 15 percent or more, and will dispute Reedy Creek's notice of termination. FERC also set this issue for hearing in its order of March 21, 1995. 3. 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. Petition for Resolution of a Cogeneration Contract Dispute with Orlando CoGen Limited, L.P. by Florida Power Corporation, Florida Public Service Commission, Docket No. 940357-EQ. In 1993, Florida Power notified Orlando CoGen Limited, L.P. ("OCL"), a limited partnership selling electricity to Florida Power, that OCL was in default of its purchased power contract with Florida Power by failing to install and maintain backup fuel at its cogeneration facility. On March 10, 1994, the general partners of OCL - Orlando CoGen (1), Inc., a subsidiary of Air Products and Chemicals, Inc. ("Air Products"), and 24 Orlando Power Generation I Inc., a subsidiary of UtilCo Group ("UtilCo") - filed suit against Florida Power as general partners of and on behalf of OCL. As amended, the suit now seeks unspecified damages under federal and state antitrust laws and an order directing Florida Power to pay the capacity payment under the contract. The suit also includes a breach of contract count based on Florida Power's reliance on the pricing mechanism specified in the contract, which allows Florida Power to pay an as-available energy price rather than a higher firm energy price when the avoided unit upon which the contract price is based would not have been operated. Florida Power filed an answer to the complaint and antitrust claims, and a counterclaim against the partnership, Air Products, and UtilCo, alleging that OCL never intended to maintain an uninterrupted fuel supply, and therefore fraudulently induced Florida Power to execute a purchased power contract. On April 7, 1994, Florida Power filed a complaint with the FPSC requesting the FPSC to enter an order stipulating that the contract between OCL and Florida Power requires OCL to provide a backup fuel supply for its cogeneration facility. OCL filed a motion to dismiss the FPSC case on the grounds that the FPSC lacks jurisdiction to interpret this cogeneration contract. On February 15, 1995, the FPSC issued an order granting OCL's motion. For additional discussion of this matter, see Note 11 to the Financial Statements. 4. Pasco Cogen, Ltd. v. Florida Power Corporation, Florida Circuit Court, Sixth Judicial Circuit for Pasco County, Case No. 94-5331-CA-DIV-Y. On October 14, 1994, Florida Power was served with a complaint brought by Pasco Cogen, Ltd. ("Pasco"), a Florida limited partnership. Under a purchase power contract, Pasco sells electricity to Florida Power from Pasco's natural-gas-fired cogeneration facility located in Pasco County, Florida. The dispute involves Florida Power's reliance on the pricing mechanism specified in Pasco's contract, which allows Florida Power to pay an as-available energy price rather than a higher firm energy price when the avoided unit upon which the contract price is based would not have been operated. Pasco seeks a declaratory judgment that it is entitled to higher payments for energy delivered to Florida Power and a mandatory injunction requiring Florida Power to pay higher energy payments, based on Pasco's allegation that the avoided unit would have operated more often than Florida Power's model indicates. Pasco also seeks unspecified damages for Florida Power's alleged breach of the Pasco contract and violations of Florida antitrust law. On November 2, 1994, Florida Power moved for the court to dismiss the Pasco complaint. On December 8, 1994, the court denied Florida Power's motion. On February 27, 1995, the court issued an order dismissing an appeal Florida Power had voluntarily sought to have dismissed. For additional discussion of this matter, see Note 11 to the Financial Statements. 25 5. NCP Lake Power, Inc. v. Florida Power Corporation, Florida Circuit Court, Fifth Judicial Circuit for Lake County, Case No. 94-2354 CA-01. On October 21, 1994, Florida Power was served a complaint brought by NCP Lake Power, Inc. ("Lake"), a general partner of Lake Cogen Ltd, a Florida limited partnership. Under a purchase power contract, Lake sells electricity to Florida Power from Lake's natural-gas-fired cogeneration facility located in Lake County, Florida. The dispute involves Florida Power's reliance on the pricing mechanism specified in Lake's contract price which allows Florida Power to pay an as-available price rather than a higher firm energy price when the avoided unit upon which the contract price is based would not have been operated. Lake seeks unspecified damages for Florida Power's alleged breach of the Lake contract, and a declaratory judgment that Lake is entitled to higher payments for energy delivered to Florida Power. On November 10, 1994, Florida Power moved for the court to dismiss the Lake complaint. On February 7, 1995, the court issued an order denying Florida Power's motion. For additional discussion of this matter, see Note 11 to the Financial Statements. 6. In re: Petition of Florida Power Corporation for a Declaratory Statement regarding the application of Rule 25-17-22.020, F.A.C., to certain negotiated contracts for the purchase of firm capacity and energy, Florida Public Service Commission, Docket No. 940771-EQ. On July 21, 1994, Florida Power filed the above-referenced petition seeking a FPSC declaration that Florida Power's reliance on the pricing mechanism specified in 11 of its purchased power contracts is consistent with FPSC regulations. The mechanism in question allows Florida Power to pay an as-available energy price rather than a higher firm energy price when the avoided unit upon which the contract prices are based would not have been operated. Various non-utility generators have intervened for the purpose of moving to dismiss this petition, arguing that this is a contract dispute over which the FPSC lacks jurisdiction. On January 31, 1995, the FPSC granted the motion to dismiss. For additional discussion of this matter, see Note 11 to the Financial Statements. 7. In re: Petition of Florida Power Corporation for determination that its plan for curtailing purchases from Qualifying Facilities in minimum load conditions is consistent with Rule 25-17.086, F.A.C., Florida Public Service Commission, Docket No. 941101-EQ. As a result of various factors, Florida Power has begun to experience a condition where the total energy on its system may exceed the demand of its customers during minimum load periods on certain days, usually during the mild-weather period from mid-October through May. On October 14, 1994, Florida Power placed into effect a generation curtailment plan, and filed the above-referenced petition with the FPSC to seek a determination that the curtailment plan is consistent with FPSC rules. A hearing in this matter has been set for May 8-9, 1995. For additional discussion of this matter, see Note 11 to the Financial Statements. 26 8. In re: Petition for declaratory statement regarding eligibility for Standard Offer contract by Florida Power Corporation, Florida Public Service Commission Docket No. 950110EI. The FPSC's rules limit "standard offer" cogeneration projects to 75 MW. Standard offers are pre-approved contracts which utilities are required to offer, and which in turn are amenable to being accepted by a qualifying facility of 75 MW or less. Panda-Kathleen L.P. ("Panda") entered into a standard offer cogeneration contract with Florida Power on November 25, 1991. Recently Florida Power learned that Panda is planning to build a 115 MW facility. On January 23, 1995, Florida Power filed the above-reference petition seeking a FPSC ruling that Florida Power's standard offer contract is not available to Panda if it constructs a 115 MW facility. Panda has also attempted to extend the term of the standard offer contract from 20 years to 30 years. Florida Power's petition also seeks a declaration that the contract term is 20 years. 9. In re: Petition of Florida Power Corporation for approval to increase accrual for nuclear decommissioning costs. In December 1994, Florida Power filed a new site-specific study with the FPSC that estimated total future decommissioning costs to be approximately $1.7 billion, which corresponds to $391 million in 1994 dollars. Florida Power filed a petition with the FPSC requesting that the retail portion of annual decommissioning expense be increased to $17.7 million, beginning in January 1995. Florida Power is not seeking an increase in rates to recover the higher costs. The FPSC is expected to rule on this petition in 1995. 10. The Coastal Corporation, et al. v. Florida Power Corporation et al., District Court, Harris County, Texas, 125th Judicial Circuit, Docket No. 95-003374. Florida Power and two subsidiaries, Power Energy Services Corporation ("Power Energy") and Power Interstate Energy Services Corporation ("Power Interstate"), are parties to a June 30, 1993 letter agreement with the Coastal Corporation and TransCanada Pipeline, and their subsidiaries, which concerns the rights and obligations of the partners in the two partnerships formed to develop the SunShine Pipeline project. Pursuant to this letter agreement, on December 30, 1994, Florida Power demanded return of Power Energy's and Power Interstate's capital accounts in the partnerships which total approximately $6 million. Without refusing or otherwise responding to this demand, on January 24, 1995, the Coastal Corporation and TransCanada Pipeline, and their subsidiaries, sought declaratory relief in the above-referenced action. The plaintiffs seek a court order that as withdrawn partners, Power Energy and Power Interstate have forfeited their right to return of their partnership capital accounts or, in the alternative, that the capital accounts should not be returned because the defendants have violated their fiduciary duties to the partnerships by allegedly attempting to arrange alternative sources of fuel supply for Florida Power generating plants. 27 On February 27, 1995, Florida Power entered a special appearance in this case to present a motion objecting to the court's jurisdiction on the grounds that no basis exists for maintaining this action in Texas and that it should be dismissed for want of personal jurisdiction. On March 8, 1995, Power Energy and Power Interstate withdrew their demand letters dated December 30, 1994 and waived their right to be paid their capital accounts. On March 16, 1995, the plaintiffs filed a notice of voluntary dismissal, with prejudice, of all claims and causes of action which they asserted in this action. 11. Florida Power Corporation v. ANR Southern Pipeline et al., Circuit Court, Sixth Judicial Circuit for Pinellas County, Florida, Case No. 95-761-CI-11. On February 2, 1995, Florida Power filed a complaint for declaratory judgment declaring Florida Power's right to terminate, effective March 2, 1995, two agreements related to the transportation of natural gas through the proposed SunShine Pipeline. Florida Power entered into these agreements in April 1993, upon the condition that the proposed SunShine Pipeline project would have all of its regulatory approvals on or before March 1, 1995. In 1994, when it became evident to all parties that this deadline would not be met, the SunShine development partnership took the position that Florida Power had waived its right to terminate the precedent agreements on March 1, 1995. Given Florida Power's right to terminate for SunShine's failure to meet the regulatory approval condition, and given SunShine's contention that Florida Power had waived its termination right, Florida Power concurrently gave notice to the SunShine development partnership of termination of the precedent agreements and filed the above-referenced action to resolve this controversy. The defendants' response to this complaint is due to be filed in April 1995. 12. Praxair, Inc. v. Florida Power & Light Company ("FP&L") and Florida Power Corporation, U.S. District Court for the Middle District of Florida, Tampa Division, Civil Action No. 88-1672-CIV-T-13C. On October 14, 1988, Praxair, Inc. ("Praxair"), formerly a part of Union Carbide Corporation, filed this suit seeking both injunctive relief and damages. Praxair claims Florida Power violated provisions of the Sherman and Clayton Antitrust Acts, primarily by refusing to provide retail electric service to Praxair's plant at Mims, Florida. Florida Power's records indicate that a territorial agreement has been in effect between it and FP&L for approximately 30 years, pursuant to which it was understood and agreed that FP&L, not Florida Power, would provide retail service in the area in question. Florida Power's records also indicate that this territorial agreement was approved by the FPSC pursuant to a state policy encouraging retail service territorial agreements, and that at least one amendment to the territorial agreement was approved by the FPSC as part of its supervision of Florida Power's and FP&L's territorial arrangements. 28 On November 22, 1988, Florida Power and FP&L jointly filed a motion for summary judgment contending that there is no dispute as to any material issue of fact, and that the case should be decided in their favor as a matter of law because the approved territorial agreement qualifies for the state action exemption to the antitrust laws. The FPSC entered an appearance in this case in support of the joint motion for summary judgment. On May 2, 1989, the plaintiff filed a motion for partial summary judgment as to the issue of liability. On December 8, 1993, the court denied both motions. Praxair, FP&L and Florida Power all filed motions for reconsideration of the December 8, 1993 order. On January 26, 1994, the court denied all motions for reconsideration on the basis that a material issue of fact exists. The court has delayed additional discovery and the setting of the case for trial in order to allow appeals of the court's January 26th order. Florida Power and FP&L filed notices of appeal with the U.S. Court of Appeals for the 11th Circuit on February 8, 1994, and Praxair filed a notice of cross appeal on February 22, 1994. Briefs have been filed by all parties, as well as by the FPSC and the Attorney General of Florida as amici curiae in support of the positions of Florida Power and FP&L. On February 27, 1995, the U.S. Court of Appeals set Florida Power's appeal for oral argument on April 11, 1995. 13. Northern States Power Company, et al., v. United States Department of Energy, Case Number 94-1457, U.S. Court of Appeals, D.C. Circuit. On June 20, 1994, Florida Power joined with 13 other nuclear utilities in an action brought against the United States Department of Energy ("DOE") under the terms of the Nuclear Waste Policy Act ("NWPA"). The NWPA requires DOE to accept responsibility for spent nuclear fuel ("SNF") and high level radioactive waste ("HLW") by January 31, 1998. DOE has announced that it will not meet that deadline. The utilities seek a declaration that the NWPA imposes on DOE an unconditional obligation to accept SNF and HLW by January 31, 1998, and an order directing DOE to develop a program with milestones and appropriate reporting requirements, to ensure DOE's compliance with the statutorily mandated date. Failure of DOE to accept SNF and HLW will not immediately affect Florida Power, which has sufficient on-site storage capacity for spent fuel through about the year 2010. If, however, DOE does not begin accepting spent fuel and high-level waste, eventually Florida Power will be forced to seek other temporary storage options. 14. Florida Public Utilities Company v. Florida Power Corporation, Florida Power & Light Company, Atlanta Gas Light 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. On February 7, 1992, Florida Power was served with a copy of a complaint alleging damages caused by violations of CERCLA and Sections 376.302 and 376.313(3) Florida Statutes, by former owners of a coal gasification plant previously operated at Sanford, Florida. The plaintiff, Florida Public Utilities Company, currently owns the land which includes the former plant site. The complaint states that the FDEP has completed its initial investigation and has determined that hazardous substances have 29 been discharged and/or released at the site of the former gasification plant. The plaintiff alleges that Florida Power owned and operated the plant from 1944 until 1946 and that Florida Power is a successor in interest through the merger of Florida Power with a previous owner of the plant, Sanford Gas Company. On February 3, 1994, the parties to this action submitted a completed contamination assessment report to the FDEP. As of this date, Florida Power has not received any further communication from the FDEP. Florida Power anticipates an extended period of negotiation with the FDEP. The lawsuit continues to be stayed pending the results of the FDEP's review. On February 14, 1995, the parties filed a joint stipulation for dismissal of this action without prejudice to the plaintiff. The dismissal will permit the parties to continue discovery necessary for preservation of testimony of elderly witnesses, although the time period for limitation on actions of this type will begin to run again from the date of the order approving the joint stipulation. Florida Power anticipates an extended period of negotiation with the FDEP, which will continue even after the dismissal of the plaintiff's action. At the present time, Florida Power does not believe that its share of the costs of cleaning up this site will be material, or that it will have to bear a significantly disproportionate share of those costs. 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. (See Note 11 to the Financial Statements for further information regarding the potential costs.) 15. Peak Oil Company, Missouri Electric Works, 62nd Street, AKO Bayside, Bluff Electric and Sydney Mine Superfund Sites. Florida Power has been notified by the EPA that it is or could be a "potentially responsible party" ("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. (See Note 11 to the Financial Statements for further information regarding the potential costs.) 16. Peak Oil Company and Zellwood Groundwater Superfund Sites. Florida Progress has been notified by the EPA that one or more former non- utility operations whose assets have been divested are or could be PRPs with respect to the Zellwood Groundwater or Peak Oil Company Superfund cleanup sites. Based upon the information presently available, Florida Progress has no reason to believe that its total liability for the cleanup 30 of these sites will be material or that it will be required to pay a significantly disproportionate share of those costs. With respect to the Peak Oil Superfund site, one of the subsidiaries of Florida Progress agreed to settle with and pay the EPA $2,607.25, which the subsidiary expects will bring the matter to a final conclusion. In June 1994, a subsidiary of Florida Progress responded to the EPA's supplemental information request with respect to the Zellwood Groundwater Superfund site. The EPA is currently reviewing the more than 750 responses from the various PRPs named for this site. These matters are being reported because liability for cleanup of certain sites is technically joint and several, and because the extent to which Florida Progress may ultimately have to participate in those cleanup costs is not presently determinable. (See Note 11 to the Financial Statements for further information regarding the potential costs.) 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 appears on the "Quarterly Financial Data" table at the end of the Notes to the Financial Statements, and is incorporated herein by reference. In November 1994, Florida Progress' Board announced an increase of 2% in the annual dividend rate from $1.98 to $2.02 per share. Florida Progress' current dividend payout ratio is about 88 percent. Information concerning the Florida Progress dividend payout ratio and dividend policy is set forth in Part II, Item 7 hereof under the heading "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, 1994, Florida Power's ability to pay dividends was not limited by these restrictions. 31 Florida Progress and Progress Capital have entered into an Amended and Restated Support Agreement dated as of February 1, 1991, pursuant to which Florida Progress has agreed to cause Progress Capital to have at the last day of each month a net worth (defined generally as the sum of capital stock and retained earnings minus the sum of treasury stock and intangible assets) equal to $150 million, plus 50% of Progress Capital's consolidated net income since January 1, 1990 (and not minus any consolidated net loss), plus the net proceeds to Progress Capital of any capital stock or equity contribution issued to or made by Florida Progress or any of its subsidiaries since January 1, 1990, other than an equity contribution consisting of capital stock or assets of a subsidiary of Florida Progress. As of December 31, 1994, Progress Capital's net worth was $99.3 million higher than the amount required under this agreement. The approximate number of equity security holders of Florida Progress is as follows: Number of Record Holders Title of Class as of February 10, 1995 ------------------------------ ------------------------ Common Stock without par value 58,265 FLORIDA POWER All of Florida Power's common stock is owned by Florida Progress, its corporate parent, and hence 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, 1994, Florida Power's ability to pay dividends was not limited by these restrictions. [THIS SPACE INTENTIONALLY BLANK] 32 ITEM 6. SELECTED FINANCIAL DATA
Annual Growth Rates (in percent) 1989-1994 1994 1993 1992 1991 1990 1989 ------------------------------------------------------------------------------------------------------------------- FLORIDA PROGRESS CORPORATION Summary of operations (in millions) Utility revenues 5.0 $2,080.5 $1,957.6 $1,774.1 $1,718.8 $1,709.1 $1,627.0 Diversified revenues (continuing) 20.3 691.0 491.4 321.2 355.9 301.7 274.3 Income from continuing operations 2.6 212.0 195.8 175.7 174.5 179.8 186.1 Income (loss) from discontinued operations and change in accounting 0.8 - (2.4) (15.0) 1.0 Net income 2.5 212.0 196.6 175.7 172.1 164.8 187.1 ------------------------------------------------------------------------------------------------------------------- Balance sheet data (in millions): Total assets 4.4 $5,718.7 $5,638.8 $5,333.0 $5,024.9 $5,045.9 $4,610.4 Capitalization: Short-term capital (26.3) $108.2 $201.6 $201.9 $68.2 $681.0 $498.6 Long-term debt 10.6 1,859.6 1,866.6 1,656.4 1,659.1 1,326.2 1,125.8 Preferred stock (9.3) 143.5 148.5 216.0 231.0 233.5 233.5 Common stock equity 7.7 1,984.4 1,820.5 1,737.6 1,587.7 1,424.3 1,372.3 ------------------------------------------------------------------------------------------------------------------- Total capitalization 4.9 $4,095.7 $4,037.2 $3,811.9 $3,546.0 $3,665.0 $3,230.2 ------------------------------------------------------------------------------------------------------------------- Common stock data: Average shares outstanding (in millions) 4.0 93.0 88.3 85.4 80.8 77.0 76.6 Earnings per share: Utility (1.3) $2.05 $2.06 $1.99 $2.03 $2.15 $2.19 Diversified (continuing) (0.8) 0.23 0.16 0.07 0.13 0.18 0.24 Discontinued operations and change in accounting - 0.01 - (0.03) (0.19) 0.01 Consolidated (1.3) 2.28 2.23 2.06 2.13 2.14 2.44 Dividends per common share 3.0 1.99 1.95 1.905 1.843 1.777 1.72 Dividend payout 87.7% 87.6% 93.0% 87.0% 82.9% 70.4% Dividend yield 6.7% 5.9% 5.9% 6.0% 7.2% 6.6% Book value per share of common stock 3.1 $20.85 $20.40 $19.85 $19.14 $18.37 $17.92 Return on common equity 11.1% 11.1% 10.6% 11.4% 11.8% 13.9% ------------------------------------------------------------------------------------------------------------------- Common stock price per share: High 33 5/8 36 3/8 33 1/4 31 1/2 27 26 3/4 Low 24 3/4 31 1/4 27 7/8 24 3/8 22 1/4 22 1/8 Close 2.4 30 33 5/8 32 5/8 31 1/4 25 1/2 26 5/8 Price earnings ratio (year-end) 13.2 15.1 15.8 14.7 11.9 10.9 ------------------------------------------------------------------------------------------------------------------- Other year-end data: Number of employees (0.3) 7,394 7,825 7,301 7,350 7,879 7,490 Number of common shareholders 0.5 44,148 44,371 44,870 42,176 41,970 43,005 ------------------------------------------------------------------------------------------------------------------- FLORIDA POWER CORPORATION Electric sales (million of KWH) Residential 3.3 13,863.4 13,372.6 12,825.8 12,623.9 12,415.5 11,786.9 Commercial 3.4 8,252.1 7,884.8 7,544.1 7,489.2 7,328.7 6,989.8 Industrial (1.0) 3,579.6 3,380.8 3,254.5 3,303.0 3,455.7 3,766.1 Total retail sales 2.8 27,675.2 26,528.3 25,414.0 25,179.1 24,878.3 24,123.3 Total electric sales 2.5 30,014.6 28,647.8 27,375.5 27,350.2 27,143.7 26,510.5 ------------------------------------------------------------------------------------------------------------------- Residential service (average annual): KWH sales per customer 0.9 12,597 12,420 12,214 12,257 12,319 12,059 Revenue per customer 4.2 $1,038 $983 $884 $899 $896 $845 Revenue per KWH $0.0824 $0.0792 $0.0724 $0.0733 $0.0727 $0.0701 ------------------------------------------------------------------------------------------------------------------- 33 Financial Data: Operating revenues $2,080.5 $1,957.6 $1,774.1 $1,718.8 $1,709.1 $1,627.0 Net income after dividends on preferred stock $190.7 $181.5 $170.2 $164.1 $165.5 $ 167.2 Total assets $4,284.5 $4,259.5 $3,980.6 $3,643.2 $3,528.1 $3,422.6 Long-term debt and preferred stock subject to mandatory redemption $1,393.8 $1,433.6 $1,318.3 $1,213.1 $1,119.8 $1,095.2 Total capitalization including short-term debt (in millions) $3,265.4 $3,240.4 $3,029.2 $2,692.2 $2,633.4 $2,473.9 Capitalization ratios: Short-term capital 2.8% 5.3% 4.4% 1.4% 7.4% 4.7% Long-term debt 41.7 43.1 40.8 41.4 38.7 40.2 Preferred stock 4.4 4.6 7.1 8.6 8.9 9.4 Common stock equity 51.1 47.0 47.7 48.6 45.0 45.7 Ratio of earnings to fixed charges (SEC method) 3.90 3.83 3.84 3.87 3.89 3.79 Embedded cost of long-term debt (2.6) 7.1% 6.8% 7.5% 7.7% 7.9% 8.1% Embedded cost of preferred stock (1.1) 6.8% 6.8% 7.3% 7.3% 7.2% 7.2% ------------------------------------------------------------------------------------------------------------------- Operating Data: Net system capability (MW) 2.9 7,295 7,563 7,002 6,623 6,571 6,309 Net system peak load (MW) 0.4 6,955 6,729 6,982 6,056 5,026 6,817 Net system summer peak load (MW) 6,681 6,729 6,357 5,925 5,946 5,832 BTU per KWH of net output 9,986 10,027 9,981 10,007 10,005 10,076 Capital expenditures 5.1 $319.5 $426.4 $472.9 $345.9 $265.3 $249.6 Net cash flow to capital expenditures 1.8 103% 63% 52% 66% 70% 94% Fuel cost per million BTU $1.75 $1.79 $1.86 $1.89 $2.11 $2.10 Average number of customers 2.5 1,243,891 1,214,653 1,182,170 1,159,237 1,135,499 1,101,817 Number of full-time employees (2.2) 4,972 5,807 5,806 5,677 5,570 5,553 -------------------------------------------------------------------------------------------------------------------
In the preceding table, certain reclassifications have been made to amounts in prior years to conform to the current year's presentation. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPETITION The nation's electric utility industry expects increasing competition in markets historically served by regulated utilities. See the text under Item 1 "Business - Utility Operations - Florida Power - Competition". EARNINGS PER SHARE 1994 1993 1992 ------------------------------------------------------------ Florida Power Corporation $2.05 $2.06 $1.99 ------------------------------------------------------------ Electric Fuels Corporation .25 .17 .14 Mid-Continent Life Insurance Co. .08 .10 .09 Progress Credit Corporation: Lending and leasing .02 .02 .05 Real estate (.07) (.08) (.19) Corporate and other (.05) (.05) (.02) ------------------------------------------------------------ Diversified .23 .16 .07 ------------------------------------------------------------ Income before accounting change 2.28 2.22 2.06 Change in accounting - .01 - ------------------------------------------------------------ Consolidated $2.28 $2.23 $2.06 ------------------------------------------------------------ 34 OPERATING RESULTS Florida Progress' 1994 consolidated earnings were $212 million, compared with $196.6 million for 1993 and $175.7 million for 1992. Florida Power earned $190.7 million in 1994, compared with $181.5 million in 1993 and $170.2 million in 1992. Earnings from diversified operations were $21.3 million in 1994, compared with $14.3 million in 1993 and $5.5 million in 1992. In 1994 and 1993, Florida Power's retail KWH sales increased, compared with the prior year. Customer growth and higher average usage were the main reasons. Florida Power also benefited from higher retail electric rates, which state regulators granted in Florida Power's 1992 retail rate case. Florida Power continued to streamline its operations and improve efficiencies in 1994. As a result, some positions were combined while other job functions were eliminated. During 1994, Florida Power's work force was reduced by about 800, including 178 employees who elected to take early retirement under a company program, effective February 1, 1994. Costs for restructuring and the voluntary early retirement option reduced earnings by $11.5 million, or $.12 a share, in 1994 and by $3.4 million, or $.04 a share, in 1993. In September 1994, subsidiaries of Florida Power withdrew as equity partners from a proposed natural gas pipeline project. Changing regulatory conditions and competitive pressures in the electric power industry prompted Florida Power to reassess its strategic priorities and decide to focus on its core electric business. The write-off of the investments lowered Florida Power's 1994 net earnings by $3.9 million, or $.04 per share. Significantly higher revenues and earnings from Electric Fuels were the primary reasons for the increase in diversified earnings during 1994. Electric Fuels' earnings per share were higher in 1994 as a result of improved results from marine and rail operations, including recent acquisitions. Mid-Continent's earnings per share were lower in 1994 due to a change in life reserve provisions to recognize unexpected persistency in certain insurance policies. In 1993, Florida Progress' results were reduced by the negative impact of the new federal income tax law. The tax law lowered Florida Progress' 1993 consolidated earnings by $6.4 million, or $.07 per share, compared with 1992. Florida Power's 1993 earnings were reduced by $2.8 million and the diversified operations' results, including a deferred income tax adjustment, were lowered during the year by $3.6 million. Diversified results were lower in 1992 primarily because the real estate unit provided for expected losses on the sale of real estate, which reduced earnings by $7.4 million. The financial return on Florida Power's common equity was 11.9 percent in 1994, 12.1 percent in 1993 and 12.3 percent in 1992. Although the 1994 and 1993 Florida Power returns were bolstered by an increase in retail electric rates and higher energy sales, these increases were offset primarily by higher income taxes, increased insurance and depreciation expenses, costs for work-force reductions and the early retirement program, and the investment write-off from the gas pipeline project. 35 Excluding results from real estate, and lending and leasing operations - businesses from which Florida Progress is withdrawing - diversified returns were 11.5 percent in 1994, 10.1 percent in 1993 and 11 percent in 1992. UTILITY REGULATORY MATTERS In September 1992, the FPSC granted Florida Power an annual revenue increase of $85.8 million. The FPSC approved increases in retail base rates of approximately $58 million to be effective in November 1992, $9.7 million in April 1993 and $18.1 million in November 1993. The retail rates are based on a 12-percent regulatory return on equity, with an allowed range between 11 and 13 percent. The FPSC ruled that Florida Power's retail regulatory return on equity would be restricted to 12.5 percent for 1994. This temporary earnings restriction did not affect Florida Power's current retail rates or its authorized range for return on equity. Florida Power's retail regulatory return on equity was 12 percent for 1994. In 1991, the FPSC approved Florida Power's request to construct two natural- gas-fired, combined-cycle generating units in Polk County. Florida Power already has completed the permitting process and purchased 8,100 acres for the energy site. Florida Power now is performing site development work and expects the units to be completed in 1998 and 1999. At the request of the FPSC, Florida Power submitted a revenue decoupling plan for residential customers. Revenue decoupling is a ratemaking concept that eliminates the direct link between KWH sales and revenues. This concept removes the disincentive for utilities to urge customers to conserve electricity. The FPSC ordered a three-year test for residential revenue decoupling, beginning in January 1995. Under the plan, abnormal weather variances will no longer impact earnings with respect to residential revenues. Florida Power does not expect revenue decoupling to have a material effect on annual earnings. (See Note 1 to the Financial Statements.) In late 1994, Florida Power and the Orlando Utilities Commission, a municipal utility, negotiated a new 10-year territorial agreement that specifically defines electric service boundaries within Orange County, including areas around Orlando. The agreement replaces the previous 20-year contract that expired in July 1994. In February 1995, the Orlando City Council approved a 10-year franchise agreement allowing Florida Power to operate in the City of Orlando. This will allow Florida Power to continue to serve those areas and customers that are annexed into the City of Orlando in the future. The FPSC is expected to approve the new territorial agreement in 1995. On March 7, 1995, the FPSC voted to approve Florida Power's request to change Florida Power's energy management program beginning in April 1995. While these changes will lower energy costs to customers on average, there will be no significant impact on earnings. The energy management program was originally designed as a means to defer building additional generation by lowering peak demand. Recent improvements in technology have allowed electric utilities to build generation less expensively. These changes caused Florida Power to reevaluate and redesign its energy management program. Florida Power is seeking to reduce customer credits to reflect more accurately the value of each participant's contribution to the program. 36 In January 1995, Florida Power filed with the FERC two requests to increase rates for wholesale service totaling approximately $9.5 million annually. One request of $8.6 million represents a settlement agreement with all but one wholesale customer. The second request seeks an increase of $.9 million for the remaining customer. The increases are needed primarily to recover additional purchased power capacity costs. On March 21, 1995, the FERC approved the increases. The new generation and transportation rates will be effective January 1995 and June 1995, respectively. The generation rate increase for the one customer which protested the increase and the transportation rate increase are subject to appeal. (See Item 3 "Legal Proceedings", paragraph 2.) As a result of rate increases approved from previous settlement agreements, Florida Power increased wholesale revenues by $8.2 million in 1994 and by $4.8 million in 1993. (See Note 10 to the Financial Statements.) UTILITY REVENUES AND SALES Operating revenues were $2.1 billion in 1994, compared with $2 billion in 1993 and $1.8 billion in 1992. Florida Power revenues rose in 1994 primarily because of increased retail KWH sales, resulting from higher average usage and customer growth during the year. During the year, average residential sales were up by 1.4 percent, average commercial sales increased by 2 percent and average industrial sales rose by 3.3 percent. Phased-in increases in retail base rates from Florida Power's 1992 retail rate case also boosted revenues. The new base rates increased operating revenues by $18.3 million in 1994 and $43.4 million in 1993 compared with each preceding year. In 1994, Florida Power's retail KWH sales increased by 3.1 percent over 1993, mainly due to customer growth and a stronger economy. Customer growth was 2.4 percent in 1994. In 1993, the average number of customers in Florida Power's system increased 2 percent, after adjusting for the acquisition of the city of Sebring's electrical distribution system. Florida Power's annual customer growth rate continues to be about twice the national average in the electric utility industry. FUEL AND PURCHASED POWER Florida Power recovers substantially all fuel and purchased power costs through fuel and capacity adjustment clauses established by the FPSC. Therefore, fluctuations in these costs have little impact year to year on net income. Fuel and purchased power costs increased by $66.5 million in 1994 and by $49.9 million in 1993, compared with each preceding year. The growth was primarily due to higher system requirements and increased purchased power costs. Florida Power has long-term contracts to purchase 1,110 MW of firm power and "as-available" energy from cogenerators. Of this amount, 961 MW were available to Florida Power at the end of 1994. Because credit-rating agencies treat a portion of purchased power capacity payments as a debt equivalent, these commitments may weaken Florida Power's credit ratings. (See Note 11 to the Financial Statements.) 37 The cost to Florida Power for many of its purchased power contracts is based on what the utility would have paid to build and operate a new pulverized coal-fired plant. In August 1994, Florida Power began paying cogenerators at an as-available price rather than at the higher firm energy price during those periods the utility's system requirements would not have required the use of the avoided coal unit. Using the as-available pricing during off-peak hours reduces payments to cogenerators by about $15 million annually. Florida Power also established a generation curtailment plan for these purchased power contracts to avoid having to cycle off lower-cost generating units during periods of low-system demand. Under this plan, energy purchases from cogenerators would be less during low-load periods. In 1994, Florida Power filed petitions with the FPSC seeking approval for these changes. On January 31, 1995, the FPSC dismissed the petition related to the as-available energy price issue after ruling it to be a contract dispute over which the FPSC had no jurisdiction. (See Part I, Item 3 "Legal Proceedings", paragraph 6.) Three cogenerators are disputing the changes in separate lawsuits. (See Note 11 to the Financial Statements.) OTHER UTILITY EXPENSES Other Florida Power operation and maintenance expenses decreased by $3.1 million in 1994, compared with 1993. Operation and Maintenance expenses increased by $64.2 million in 1993, compared with 1992. Recoverable energy conservation program costs increased by $3.7 million in 1994 and by $32.3 million in 1993. Florida Power recovers substantially all of its energy conservation program costs through a clause in electric rates similar to the fuel adjustment clause. The lower 1994 expenses resulted from Florida Power's company wide, cost-reduction efforts during the year. The increase in 1993 expenses was primarily due to higher energy conservation costs, postretirement benefit costs and the early retirement program. Depreciation expense increased by $21.3 million in 1994, compared with 1993, due to the addition of four combustion turbine units in late 1993 and other plant additions. Depreciation expense increased by $30.7 million in 1993 over 1992 primarily because of higher fossil plant dismantlement costs that were approved in Florida Power's 1992 retail rate case. In addition, a one-time retroactive adjustment was made in 1992 that reduced depreciation expense. Interest expense was impacted positively by lower interest rates in both 1992 and 1993. In 1994, interest expense was higher than in 1993 due to higher rates and higher debt levels. Interest expense increased in 1993, compared with 1992, due to higher average debt levels in 1993. Florida Power completed several major construction projects that caused the allowance for funds used during construction to decrease by $4.7 million in 1994 and by $3.1 million in 1993, compared with the preceding years. 38 ELECTRIC FUELS CORPORATION Florida Progress continues to expand the operations of Electric Fuels Corporation, Florida Progress' energy and transportation unit. Electric Fuels is building its rail services operations to better serve the needs of its rail industry customers and accelerate expansion into new markets. In late 1994, Florida Progress acquired FM Industries, a Fort Worth, Texas-based manufacturer and reconditioner of cushioning units for rail cars. FM Industries had annual revenues of about $42 million. The acquisition was accounted for as a pooling of interests and increased Electric Fuels' 1994 earnings by $2.4 million, or $.03 per share. The 1993 and 1992 financial statements were not restated for this acquisition. (See Note 1 to the Financial Statements.) In June 1993, Electric Fuels acquired the assets of Steel Processing Services, Inc., an Alabama-based rail-car repair and parts-reconditioning company. The acquisition increased 1993 revenues for Electric Fuels by approximately $80 million, compared with 1992. Earnings for Electric Fuels in 1994, including results from FM Industries, were $22.6 million, compared with $14.9 million in 1993 and $12.1 million in 1992. Electric Fuels' return on equity for 1994 was 14.5 percent and has averaged 12.4 percent during the last three years. MID-CONTINENT LIFE INSURANCE COMPANY Florida Progress also is maintaining a growth strategy for its life insurance unit, Mid-Continent Life Insurance Company, through the development of a regional office network. Mid-Continent's earnings for 1994 were $7.3 million, down from $8.5 million in 1993 and $8 million in 1992. The lower 1994 earnings were due mainly to a change in life reserve provisions to recognize unexpected persistency, i.e. renewal rates, in certain insurance policies. This offset the impact of growth in premiums, net of related expenses, in 1994. At the end of 1994, Mid-Continent had insurance-in-force totaling $13.9 billion, an increase of $1.1 billion from 1993 and an increase of $2.5 billion from 1992. Mid-Continent's insurance-in-force has grown an average of 16 percent per year since Florida Progress acquired Mid-Continent in 1986. PROGRESS CREDIT CORPORATION Progress Credit is continuing an orderly withdrawal from the lending and leasing business and is selling its real estate properties as market conditions allow. The lending and leasing portfolio, which totaled $512 million at the end of 1994, primarily contains commercial aircraft loans and leases and first mortgage real estate loans. At the end of 1994, Progress Credit had reserves of $33.7 million for the lending and leasing portfolio. Although the airline industry continues to face financial pressures, management believes the reserves are adequate to implement Progress Credit's withdrawal strategy as long as there is no significant further deterioration in the airline industry. 39 Progress Credit's investments in its real estate portfolio totaled approximately $133 million as of December 31, 1994. The majority of this capital was invested in Florida Progress' headquarters building and in a corporate office park. In 1994, Progress Credit's losses from its combined lending and leasing business and real estate operations totaled $4.9 million, compared with losses of $5.2 million in 1993 and losses of $12.7 million in 1992. In 1994, Progress Credit increased its provisions for loan and lease losses, compared with 1993, which lowered earnings by $2.5 million. In 1993, the effect of the new tax law reduced Progress Credit's net earnings by $2.5 million. This reduction included a deferred tax adjustment related to the leveraged leasing business. Progress Credit is currently negotiating to restructure a $32.5 million aircraft lease with Continental Airlines. The loss, if any, from this restructuring would be charged against reserves. Management believes that at most the loss from the restructuring could reach $5 million. During 1994 and 1993, Progress Credit had lower operating and interest costs, compared with 1992, due to lower debt levels in 1994, lower interest rates in 1993 and the sale of some properties in the real estate portfolio. In 1992, the real estate unit provided for expected losses on real estate sales, which reduced earnings by $7.4 million, or $.09 per share. This was the major reason for the higher losses in 1992 at Progress Credit. Any sale of real estate assets or the finance unit's holdings is expected to result in lower revenues and interest expense for Progress Credit. The impact on net income depends on the timing of these sales, the gains or losses on the assets sold, the operating income earned or carrying costs incurred and the interest rates on the associated debt repaid. Because most of Progress Credit's remaining real estate properties are located in growth areas, management believes the market for its holdings should improve. Current weak commercial real estate markets will require Florida Progress to hold these properties, and absorb the related carrying costs, until the properties can be sold. INCOME TAXES In August 1993, the Omnibus Budget Reconciliation Act of 1993 was signed into law. The major provision of the tax law affecting Florida Progress was the increase in the maximum corporate income tax rate from 34 percent to 35 percent, effective retroactively to January 1, 1993. This 1-percent increase in the tax rate, and the related impact on accounting for long-term leveraged leases, lowered Florida Progress' 1993 net earnings by $6.4 million, or $.07 per share. (See Note 9 to the Financial Statements.) OTHER Even though the inflation rate has been relatively low in recent 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. 40 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. Florida Progress adopted several new accounting standards in 1993 and 1994. (See Note 1 to the Financial Statements.) Several Florida Progress subsidiaries, including Florida Power, have been notified by the EPA that each is or may be a potentially responsible party for the cleanup costs of several contaminated sites. (See Note 11 to the Financial Statements.) Florida Progress has off-balance sheet risk related to debt of unconsolidated partnerships. (See Note 11 to the Financial Statements.) LIQUIDITY AND CAPITAL RESOURCES Cash from operations has been the primary source of capital for Florida Progress over the last five years. Other sources of capital have included proceeds from the sales of properties and businesses, and the orderly liquidation of the lending and leasing portfolio. Florida Progress wants to continue to strengthen over time its capital structure by increasing its common equity percentage and reducing its debt and preferred stock levels. Florida Progress has been issuing new equity in recent years primarily to fund Florida Power's construction program. Florida Progress' goal is to maintain capital structures for its utility and diversified operations that will enable its subsidiaries to preserve their current credit ratings, which are listed below: 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 In May 1992, Florida Progress sold 2.6 million shares of common stock through an underwritten public offering. The net proceeds of the offering were $76.5 million. In a May 1994 public offering, Florida Progress sold an additional 3.6 million common shares. The net proceeds of this offering were $92.2 million. During the last three years, Florida Progress also raised $162.3 million of equity capital through its stock purchase and dividend reinvestment plan, called the Progress Plus Stock Plan. In December 1994, Florida Progress issued 700,000 shares to acquire FM Industries. Florida Progress forecasts that its equity needs will be minimal over the next few years. 41 Florida Progress contributed $130 million in 1994, $60 million in 1993 and $121.6 million in 1992 to Florida Power from the proceeds of Florida Progress' public stock offerings and the Progress Plus Stock Plan. These funds were used to reduce outstanding commercial paper and to further strengthen Florida Power's financial position. Florida Progress' common equity, as a percent of total capital, was 48.5 percent as of December 31, 1994, and 45.1 percent at the end of 1993. Short-term debt, as a percent of total capital, was 2.6 percent in 1994 and 5 percent in 1993. Long-term debt was 45.4 percent in 1994, compared with 46.2 percent in 1993. Management has recognized that Florida Progress' dividend payout ratio is above industry averages. For the last two years, the board of directors has increased the dividend at a significantly lower rate than in prior years. Management recognizes that changes in the electric utility industry, or in Florida Progress' operations, could make it necessary to retain more capital and, therefore, change the policy from the last few years of moderately increasing Florida Progress' annual dividend. When the board of directors reexamines dividend policy in February 1996, it will again consider a range of options in light of company and industry conditions. FLORIDA POWER CORPORATION Florida Power's construction expenditures for 1994 totaled about $320 million, consisting primarily of distribution and production expenses. Florida Power's five-year construction program includes planned expenditures of $330 million, $365 million, $409 million, $344 million and $320 million for 1995 through 1999, respectively. Florida Power forecasts that 95 percent of these construction expenditures will be financed with internally generated funds. Florida Power's construction program includes two combined-cycle generating units to be built in Polk County. Construction expenditures of $318 million are planned for this new energy complex in the 1995-1999 forecast, with most of the expenditures in the later years. Florida Power plans to use natural gas to fuel the first two units at the Polk County complex. Florida Power is currently evaluating a number of alternatives for transporting natural gas to the new energy complex in Polk County. (See Part I, Item 2, under the heading "Utility Operations - Planned Generation And Energy Sales".) Florida Power's financial forecast also includes $58 million for construction of the LTK line. Florida Power has indefinitely deferred construction of the LTK line. On March 10, 1995, Florida Power filed a petition seeking approval of the prudence of actions with regard to the LTK line and the amortization of accumulated costs of about $23 million, and explaining proposed alternatives. Due to numerous legal and regulatory delays, the total projected costs for the line have increased to more than $85 million, up from the initial estimate of $30 million. The FPSC is expected to issue a decision in 1995. The CAAA requires electric utility companies to reduce sulfur dioxide emissions in two phases. Florida Power is in compliance with Phase I and expects to meet Phase II requirements in the year 2000 with minimal capital expenditures. 42 In 1994, Florida Power's net cash flow to capital expenditures was 103 percent. 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. Florida Power has a public 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. Florida Power has 364-day and five-year revolving bank credit facilities, $200 million each, which are used to back up commercial paper. (See Note 2 to the Financial Statements.) During 1993, Florida Power redeemed 800,000 shares of its Cumulative Preferred Stock, totaling a par value of $80 million. In late 1994, Florida Power redeemed an additional 50,000 shares, with a par value of $5 million. Mandatory preferred stock redemption requirements for 1996 through 1999 are $2.5 million annually. (See Note 3 to the Financial Statements.) Florida Power's embedded cost of long-term debt was 7.1 percent as of December 31, 1994, compared with 6.8 percent at year-end 1993. DIVERSIFIED OPERATIONS Progress Capital is a downstream holding company of Florida Progress that finances the activities of the diversified operations and consolidates the collective financial strength of these operations. Progress Capital has the benefit of a support agreement with Florida Progress, which helps to lower the cost of capital to each of Florida Progress' diversified businesses. Progress Capital funds diversified operations primarily through the issuance of commercial paper and medium-term notes. Progress Capital has a private $400-million, medium-term note program for the issuance of notes with maturities that may range from nine months to 30 years. 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 Progress Capital's commercial paper program. (See Note 2 to the Financial Statements.) In 1994, total diversified capital expenditures were $40.9 million, primarily for the non-regulated operations at Electric Fuels. Net proceeds from leases, loans and securities were $28.1 million, $21.5 million and $70.1 million in 1994, 1993 and 1992, respectively, mainly due to the planned liquidation of the finance unit's assets. In 1995, diversified capital expenditures are expected to be about $40 million, with most of these planned expenditures designated for Progress Credit and Electric Fuels. These expenditures are expected to be financed through cash generated internally and medium-term notes. 43 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AUDITORS' REPORT To the Shareholders of Florida Progress Corporation and Florida Power Corporation: We have audited the consolidated balance sheets of Florida Progress Corporation and subsidiaries, and of Florida Power Corporation, as of December 31, 1994 and 1993 and the related statements of income, cash flows and shareholders' equity for each of the years in the three-year period ended December 31, 1994. In connection with our audits of the financial statements, we also have audited the financial statement schedules listed in Item 14 herein. 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 and financial statement schedules 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, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, 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. As discussed in Notes 1 and 7 to the financial statements, in 1993, Florida Progress Corporation and subsidiaries, and Florida Power Corporation, changed their methods of accounting for income taxes and postretirement benefits other than pensions. /s/KPMG PEAT MARWICK LLP ------------------------ KPMG PEAT MARWICK LLP St. Petersburg, Florida January 23, 1995 44 FLORIDA PROGRESS Financial Statements FLORIDA PROGRESS CORPORATION Consolidated Statements of Income For the years ended December 31, 1994, 1993 and 1992 (In millions, except per share amounts) 1994 1993 1992 -------- -------- -------- REVENUES: Electric utility $2,080.5 $1,957.6 $1,774.1 Diversified 691.0 491.4 321.2 -------- -------- -------- 2,771.5 2,449.0 2,095.3 EXPENSES: -------- -------- -------- Electric utility: Fuel used in generation 431.9 460.8 471.9 Purchased power 294.6 209.5 140.4 Deferred fuel (1.5) (11.8) (3.7) Other operation 388.8 378.0 310.9 -------- -------- -------- Operation 1,113.8 1,036.5 919.5 Maintenance 122.9 136.8 139.7 Depreciation 261.5 240.2 209.5 Taxes other than income taxes 162.8 152.6 138.3 -------- -------- -------- 1,661.0 1,566.1 1,407.0 -------- -------- -------- Diversified: Cost of sales 571.2 390.1 238.4 Other 63.3 50.2 45.1 -------- -------- -------- 634.5 440.3 283.5 -------- -------- -------- INCOME FROM OPERATIONS 476.0 442.6 404.8 -------- -------- -------- INTEREST EXPENSE AND OTHER: Interest expense 144.8 141.1 134.2 Allowance for funds used during construction (10.9) (15.6) (18.7) Preferred dividend requirements of Florida Power 10.1 13.4 16.7 Other expense (income), net 10.3 (2.5) 8.4 -------- -------- -------- 154.3 136.4 140.6 -------- -------- -------- INCOME BEFORE INCOME TAXES 321.7 306.2 264.2 Income taxes 109.7 110.4 88.5 -------- -------- -------- INCOME BEFORE ACCOUNTING CHANGE 212.0 195.8 175.7 CUMULATIVE EFFECT OF INCOME TAX ACCOUNTING CHANGE - 0.8 - -------- -------- -------- NET INCOME $212.0 $196.6 $175.7 ======== ======== ======== AVERAGE SHARES OF COMMON STOCK OUTSTANDING 93.0 88.3 85.4 ======== ======== ======== EARNINGS PER AVERAGE COMMON SHARE: Income before accounting change $2.28 $2.22 $2.06 Change in accounting for income taxes - 0.01 - -------- -------- -------- $2.28 $2.23 $2.06 ======== ======== ======== The accompanying notes are an integral part of these financial statements. 45 FLORIDA PROGRESS CORPORATION Consolidated Balance Sheets December 31, 1994 and 1993 (Dollars in millions) 1994 1993 -------- -------- ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and held for future use $5,603.4 $5,320.3 Less: Accumulated depreciation 1,981.6 1,846.2 Accumulated decommissioning for nuclear plant 135.2 118.3 Accumulated dismantlement for fossil plants 92.4 68.5 ---------- ---------- 3,394.2 3,287.3 Construction work in progress 222.1 285.7 Nuclear fuel, net of amortization of $322.8 in 1994 and $299.9 in 1993 52.9 68.4 ---------- ---------- Net electric utility plant 3,669.2 3,641.4 Other property, net of depreciation of $163.5 in 1994 and $141.0 in 1993 420.9 391.6 ---------- ---------- 4,090.1 4,033.0 ---------- ---------- CURRENT ASSETS: Cash and equivalents 14.4 9.1 Accounts receivable, net 262.2 242.7 Current portion of leases and loans receivable 15.3 31.3 Inventories, primarily at average cost: Fuel 75.2 79.5 Utility materials and supplies 110.4 112.2 Diversified materials 68.1 35.8 Underrecovery of fuel cost 1.8 7.1 Other 41.0 41.8 ---------- ---------- 588.4 559.5 ---------- ---------- OTHER ASSETS: Investments: Leases and loans receivable, net 438.0 485.4 Marketable securities 148.3 129.3 Nuclear plant decommissioning fund 123.6 107.7 Joint ventures and partnerships 74.5 88.4 Deferred insurance policy acquisition costs 91.9 81.5 Other 163.9 154.0 ---------- ---------- 1,040.2 1,046.3 ---------- ---------- $5,718.7 $5,638.8 ========== ========== The accompanying notes are an integral part of these financial statements. 46 FLORIDA PROGRESS CORPORATION Consolidated Balance Sheets December 31, 1994 and 1993 (Dollars in millions) 1994 1993 -------- -------- CAPITAL AND LIABILITIES COMMON STOCK EQUITY: Common stock without par value, 250,000,000 shares authorized, 95,175,360 shares outstanding in 1994 and 89,259,572 in 1993 $1,148.1 $1,008.3 Retained earnings 842.9 812.2 Unrealized loss on securities available for sale (6.6) - ---------- ---------- 1,984.4 1,820.5 CUMULATIVE PREFERRED STOCK OF FLORIDA POWER: Without sinking funds 113.5 113.5 With sinking funds 30.0 35.0 LONG-TERM DEBT 1,859.6 1,866.6 ---------- ---------- TOTAL CAPITAL 3,987.5 3,835.6 ---------- ---------- CURRENT LIABILITIES: Accounts payable 147.1 149.4 Customers' deposits 76.9 71.5 Income taxes payable 12.7 42.3 Accrued interest 47.3 45.2 Other 84.1 77.4 ---------- ---------- 368.1 385.8 Notes payable 55.3 125.0 Current portion of long-term debt 52.9 76.6 ---------- ---------- 476.3 587.4 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes 744.1 756.3 Unamortized investment tax credits 110.0 119.6 Insurance policy benefit reserves 222.5 186.5 Other postretirement benefit costs 67.8 47.4 Other 110.5 106.0 ---------- ---------- 1,254.9 1,215.8 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 11) ---------- ---------- $5,718.7 $5,638.8 ========== ========== The accompanying notes are an integral part of these financial statements. 47 FLORIDA PROGRESS CORPORATION Consolidated Statements of Cash Flows For the years ended December 31, 1994, 1993 and 1992 (In millions) 1994 1993 1992 ------ ------ ------ OPERATING ACTIVITIES: Income before accounting change $212.0 $195.8 $175.7 Adjustments for noncash items: Depreciation and amortization 321.7 299.9 268.7 Deferred income taxes and investment tax credits, net (32.3) (49.1) (17.4) Increase in accrued other postretirement benefit costs 20.4 23.6 - Net change in deferred insurance policy acquisition costs (10.4) (12.9) (12.9) Net change in deferred insurance policy benefit reserves 36.0 25.8 24.4 Changes in working capital, net of effects from acquisition or sale of businesses: Accounts receivable (17.4) (26.1) (18.6) Inventories (10.1) 12.2 (36.8) Overrecovery (underrecovery) of fuel cost 5.3 (2.7) (43.8) Accounts payable (4.2) 17.7 14.2 Other (11.5) 23.4 23.1 Other operating activities 23.0 (4.7) (2.9) ------- ------- ------- 532.5 502.9 373.7 ------- ------- ------- INVESTING ACTIVITIES: Property additions (including allowance for borrowed funds used during construction) (368.1) (462.4) (519.6) Proceeds from sale of properties and businesses 16.3 35.8 31.5 Purchase of leases, loans and securities (74.1) (128.6) (65.7) Proceeds from sale or collection of leases, loans, and securities 102.2 150.1 135.8 Acquisition of businesses (17.1) (80.5) (23.0) Investments in joint ventures and partnerships (5.2) (24.1) (5.3) Distributions from joint ventures and partnerships 3.9 26.0 5.0 Other investing activities (10.8) (13.5) (15.1) ------- ------- ------- (352.9) (497.2) (456.4) ------- ------- ------- FINANCING ACTIVITIES: Issuance of long-term debt 103.7 385.7 450.3 Repayment of long-term debt (86.7) (473.2) (315.3) Increase (decrease) in commercial paper with long-term support (61.2) 154.0 (34.1) Redemption of preferred stock (5.0) (80.5) (5.0) Sale of common stock 138.0 59.1 137.6 Dividends paid on common stock (185.9) (172.3) (163.4) Increase (decrease) in short-term debt (75.6) 124.2 0.2 Other financing activities (1.6) (1.7) (2.7) ------- ------- ------- (174.3) (4.7) 67.6 ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 5.3 1.0 (15.1) Beginning cash and equivalents 9.1 8.1 23.2 ------- ------- ------- ENDING CASH AND EQUIVALENTS $14.4 $9.1 $8.1 ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $135.2 $138.1 $129.9 Income taxes (net of refunds) $171.5 $155.1 $91.5 The accompanying notes are an integral part of these financial statements. 48 FLORIDA PROGRESS CORPORATION Consolidated Statements of Shareholders' Equity For the years ended December 31, 1994, 1993 and 1992 (Dollars in millions, except per share amounts) Cumulative Preferred Stock Unrealized of Florida Power Loss on ---------------- Securities Without With Common Retained Available Sinking Sinking Stock Earnings for Sale Funds Funds --------------------------------------------- Balance, December 31, 1991 $811.6 $776.1 $ - $133.5 $97.5 Net income 175.7 Common Stock issued - 4,596,938 shares 137.6 Cash dividends on common stock ($1.905 per share) (163.4) Preferred stock redeemed or reclassified to current - 150,000 shares (15.0) ---------------------------------------------- Balance, December 31, 1992 949.2 788.4 - 133.5 82.5 Net income 196.6 Common Stock issued - 1,729,716 shares 59.1 Cash dividends on common stock ($1.95 per share) (172.3) Preferred stock redeemed - 675,000 shares (0.5) (20.0) (47.5) ---------------------------------------------- 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 0.9 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 ============================================== The accompanying notes are an integral part of these financial statements. 49 FLORIDA POWER Financial Statements FLORIDA POWER CORPORATION Statements of Income For the years ended December 31, 1994, 1993 and 1992 (In millions) 1994 1993 1992 -------- -------- -------- OPERATING REVENUES $2,080.5 $1,957.6 $1,774.1 --------- --------- --------- OPERATING EXPENSES: Operation: Fuel used in generation 431.9 460.8 471.9 Purchased power 294.6 209.5 140.4 Deferred fuel (1.5) (11.8) (3.7) Other 388.8 378.0 310.9 --------- --------- --------- 1,113.8 1,036.5 919.5 Maintenance 122.9 136.8 139.7 Depreciation 261.5 240.2 209.5 Taxes other than income taxes 162.8 152.6 138.3 Income taxes 114.7 104.5 97.7 --------- --------- --------- 1,775.7 1,670.6 1,504.7 --------- --------- --------- OPERATING INCOME 304.8 287.0 269.4 --------- --------- --------- OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 6.1 8.9 10.4 Miscellaneous other income, net (6.5) (1.9) (1.0) --------- --------- --------- (0.4) 7.0 9.4 --------- --------- --------- INTEREST CHARGES Interest on long-term debt 96.3 91.7 84.2 Other interest expense 12.1 14.1 16.0 --------- --------- --------- 108.4 105.8 100.2 Allowance for borrowed funds used during construction (4.8) (6.7) (8.3) --------- --------- --------- 103.6 99.1 91.9 --------- --------- --------- NET INCOME 200.8 194.9 186.9 DIVIDENDS ON PREFERRED STOCK 10.1 13.4 16.7 --------- --------- --------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $190.7 $181.5 $170.2 ========= ========= ========= The accompanying notes are an integral part of these financial statements. 50 FLORIDA POWER CORPORATION Balance Sheets December 31, 1994 and 1993 (Dollars in millions) 1994 1993 -------- -------- ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and held for future use $5,603.4 $5,320.3 Less: Accumulated depreciation 1,981.6 1,846.2 Accumulated decommissioning for nuclear plant 135.2 118.3 Accumulated dismantlement for fossil plants 92.4 68.5 ---------- ---------- 3,394.2 3,287.3 Construction work in progress 222.1 285.7 Nuclear fuel, net of amortization of $322.8 in 1994 and $299.9 in 1993 52.9 68.4 ---------- ---------- 3,669.2 3,641.4 Other property, net 24.2 27.7 ---------- ---------- 3,693.4 3,669.1 ---------- ---------- CURRENT ASSETS: Accounts receivable, less reserve of $2.3 in 1994 and $2.4 in 1993 167.3 168.2 Inventories at average cost: Fuel 52.6 58.9 Materials and supplies 110.4 112.2 Underrecovery of fuel cost 1.8 7.1 Deferred income taxes 28.8 29.2 Other 5.8 5.8 ---------- ---------- 366.7 381.4 ---------- ---------- OTHER ASSETS: Nuclear plant decommissioning fund 123.6 107.7 Unamortized debt expense, being amortized over term of debt 29.6 31.6 Other 71.2 69.7 ---------- ---------- 224.4 209.0 ---------- ---------- $4,284.5 $4,259.5 ========== ========== The accompanying notes are an integral part of these financial statements. 51 FLORIDA POWER CORPORATION Balance Sheets December 31, 1994 and 1993 (Dollars in millions) 1994 1993 -------- -------- CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stock without par value - 60,000,000 shares authorized, 100 shares outstanding $942.9 $812.9 Retained earnings 724.5 709.5 ---------- ---------- 1,667.4 1,522.4 CUMULATIVE PREFERRED STOCK: Without sinking funds 113.5 113.5 With sinking funds 30.0 35.0 LONG-TERM DEBT 1,363.8 1,398.6 ---------- ---------- TOTAL CAPITAL 3,174.7 3,069.5 ---------- ---------- CURRENT LIABILITIES: Accounts payable 85.0 106.2 Accounts payable to associated companies 21.4 17.1 Customers' deposits 76.9 71.5 Income taxes payable 7.1 24.6 Accrued other taxes 11.3 8.4 Accrued interest 32.6 33.2 Other 36.2 34.2 ---------- ---------- 270.5 295.2 Notes payable 55.3 125.0 Current portion of long-term debt 35.4 45.9 ---------- ---------- 361.2 466.1 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes 488.0 472.7 Unamortized investment tax credits 109.3 117.8 Other postretirement benefit costs 65.4 46.2 Other 85.9 87.2 ---------- ---------- 748.6 723.9 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 11) ---------- ---------- $4,284.5 $4,259.5 ========== ========== The accompanying notes are an integral part of these financial statements. 52 FLORIDA POWER CORPORATION Statements of Cash Flows For the years ended December 31, 1994, 1993 and 1992 (In millions) 1994 1993 1992 ------ ------ ------ OPERATING ACTIVITIES: Net income after dividends on preferred stock $190.7 $181.5 $170.2 Adjustments for noncash items: Depreciation and amortization 294.8 276.5 243.4 Deferred income taxes and investment tax credits, net (0.9) (25.0) 8.6 Increase in accrued other postretirement benefit costs 19.2 22.2 - Allowance for equity funds used during construction (6.1) (8.9) (10.4) Changes in working capital: Accounts receivable 0.9 (18.4) (12.5) Inventories 8.1 10.1 (21.7) Overrecovery (underrecovery) of fuel cost 5.3 (2.7) (43.8) Accounts payable (21.2) 35.2 9.6 Accounts payable to associated companies 4.3 (7.9) 4.4 Other (7.7) 25.1 (5.3) Other operating activities 10.9 (8.0) (4.0) ------ ------ ------ 498.3 479.7 338.5 ------ ------ ------ INVESTING ACTIVITIES: Construction expenditures (319.5) (426.4) (472.9) Allowance for borrowed funds used during construction (4.8) (6.7) (8.3) Additions to nonutility property (2.9) (7.6) (12.3) Acquisition of electric distribution system - (53.9) - Proceeds from sale of properties 7.7 6.0 3.8 Other investing activities (12.4) (18.4) (14.9) ------ ------ ------ (331.9) (507.0) (504.6) ------ ------ ------ FINANCING ACTIVITIES: Issuance of long-term debt - 385.0 430.1 Repayment of long-term debt (46.0) (402.7) (243.2) Increase in commercial paper with long term support - 104.0 18.0 Redemption of preferred stock (5.0) (80.5) (5.0) Dividends paid on common stock (175.7) (163.5) (155.4) Equity contributions from parent 130.0 60.0 121.6 Increase (decrease) in short-term debt (69.7) 125.0 - ------ ------ ------ (166.4) 27.3 166.1 ------ ------ ------ NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS - - - Beginning cash and equivalents - - - ------ ------ ------ ENDING CASH AND EQUIVALENTS $ - $ - $ - ====== ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $101.5 $93.8 $89.7 Income taxes (net of refunds) $129.8 $120.3 $92.7 The accompanying notes are an integral part of these financial statements. 53 FLORIDA POWER CORPORATION Statements of Shareholders' Equity For the years ended December 31, 1994, 1993 and 1992 (Dollars in millions, except share amounts) Cumulative Preferred Stock --------------- Without With Common Retained Sinking Sinking Stock Earnings Funds Funds ---------------------------------------- Balance, December 31, 1991 $631.3 $677.2 $133.5 $97.5 Net income after dividends on preferred stock 170.2 Capital contribution by parent company 121.6 Cash dividends on common stock (155.4) Preferred stock redeemed or reclassified to current - 150,000 shares (15.0) ---------------------------------------- Balance, December 31, 1992 752.9 692.0 133.5 82.5 Net income after dividends on preferred stock 181.5 Capital contribution by parent company 60.0 Cash dividends on common stock (163.5) Preferred stock redeemed - 675,000 shares (0.5) (20.0) (47.5) ---------------------------------------- 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 ======================================== The accompanying notes are an integral part of these financial statements. 54 FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION NOTES TO FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL - Florida Progress is an exempt holding company under the Public Utility Holding Company Act of 1935. Its largest subsidiary, representing 75% 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. ACCOUNTING FOR REGULATORY ASSETS AND LIABILITIES - Florida Power is regulated by the FPSC and the FERC. Florida Power's records comply with the accounting and reporting requirements of these regulatory authorities and generally accepted accounting principles. The utility follows the accounting practices set forth in Financial Accounting Standard No. 71, Accounting for the Effects of Certain Types of Regulation. This standard requires utilities to capitalize or defer certain costs if it is probable that these costs will be recovered through the ratemaking process. Florida Power has regulatory assets and liabilities that are being amortized over the periods prescribed. Current regulatory practice allows or requires these items to be recovered or paid through customer rates. 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% for 1994, 7.9% for 1993 and 8% for 1992. 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 fuel cost difference is shown on the balance sheet as overrecovery or underrecovery of fuel costs. Any difference is refunded or billed to customers during the subsequent period. 55 The FPSC ordered Florida Power to conduct a three-year test for revenue decoupling for its residential customers. Decoupling eliminates the direct link between KWH sales and revenues. Beginning in 1995, nonfuel revenues will be determined by multiplying a revenue per customer amount by the total number of residential customers. Monthly residential customer bills will be calculated just as they were before decoupling. Differences between target revenues and actual revenues will be collected or refunded over a 12-month period through the conservation clause. The revenue per customer amount will be adjusted annually for a growth factor. Florida Power accrues the nonfuel portion of base revenues for services rendered but unbilled. The cost of fossil fuel for electric generation is charged to expense as consumed. 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. EARNED INCOME ON FINANCE LEASES - Earned income, including any residual values expected to be recognized, and the related deferred investment tax credits are amortized as revenues over the term of the lease to provide an approximate level return on the net investment. Residual values are determined principally on the basis of independent appraisals. INCOME TAXES - The financial statements for 1993 and 1994 reflect the accounting for income taxes in accordance with Financial Accounting Standard No. 109, Accounting for Income Taxes. This standard requires that deferred taxes be provided on all significant temporary differences between the financial and tax basis of assets and liabilities using presently enacted tax rates. When Florida Progress adopted the new standard in 1993, net income was increased by $.8 million due to Florida Progress' nonregulated activities. 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 4.8% for 1994, 4.8% for 1993 and 4.6% for 1992. In October 1994, the FPSC approved Florida Power's updated depreciation study. The study included results of a site-specific dismantlement analysis of Florida Power's fossil generating facilities. Changes in depreciation rates became effective in January 1995 and will not have a significant impact on annual depreciation expense. 56 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. INSURANCE PREMIUMS, POLICY ACQUISITION COSTS AND BENEFIT RESERVES - Life insurance premiums are recognized as revenue 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. Reserves are established out of each premium payment to provide for the present value of future insurance policy benefits, using reasonable assumptions for future investment yield, mortality, withdrawals and the risk of adverse deviation. PROFIT FROM REAL ESTATE SALES - Profit from the sale of real estate is recognized only upon the closing of a sale, the transfer of ownership rights to the purchaser and receipt of an adequate cash down payment. 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. Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities ("FAS 115"), was adopted by Florida Progress as of January 1, 1994. Under FAS 115, 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 5 for held to maturity and available for sale securities at 1994 year-end. At December 31, 1994, Florida Progress had no investments in assets classified as trading securities. Prior to the adoption of FAS 115, these assets were measured at amortized cost for debt instruments, and the lower of amortized cost or market for equity instruments. In accordance with the new rules, the prior-year financial statements have not been restated to reflect the change in accounting principle. The adoption of this standard had no effect on net income or cash flows. 57 ACCOUNTING FOR NUCLEAR OPERATIONS - The Financial Accounting Standards Board ("FASB") 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 contra asset on the balance sheet. One alternative, if adopted, would require Florida Power's 90.4% share of total estimated nuclear decommissioning costs of $391 million in 1994 dollars to be recorded as a liability, with a corresponding plant or regulatory asset. There would be no impact on earnings or cash flows. The FASB is expected to reach a decision in 1995. Florida Power accrues a reserve for maintenance and refueling expenses anticipated to be incurred during scheduled nuclear plant outages. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - Florida Progress implemented Financial Accounting Standard No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions ("FAS 106"), in 1993. This standard requires that an employer's obligation for postretirement benefits be fully accrued by the date employees attain full eligibility to receive such benefits. Florida Progress' costs for 1993 increased from $5 million to $23.9 million under FAS 106. A substantial portion of the additional costs is recovered from Florida Power customers through retail base rates. IMPAIRED LOANS - Florida Progress will be required to prospectively adopt Financial Accounting Standard No. 114, Accounting by Creditors for Impairment of a Loan, as amended by Financial Accounting Standard No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure, in 1995. These standards require Florida Progress to compute present values for impaired loans when determining the allowance for credit losses. At December 31, 1994, approximately $72 million of loans receivable were impaired, and Florida Progress anticipates assigning approximately $18 million of the allowance for loan losses to these loans. Because Florida Progress' existing allowance is adequate for any such impairment, no impact on earnings is expected due to the adoption of these standards. BUSINESS ACQUISITIONS - Florida Progress and its subsidiaries acquired several businesses in 1994, 1993 and 1992. 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. Because the effect of restating data related to this acquisition is not material, prior-year results are not restated. 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 the shares at the date of issuance was $21.1 million. 58 (2) DEBT Florida Progress' long-term debt at December 31, 1994 and 1993, is scheduled to mature as follows: Interest (In millions) Rate 1994 1993 ------------------------------------------------------------------------------- Florida Power Corporation: First mortgage bonds: Maturing through 1999: 1995 4.74%(a) $ 34.4 $ 34.4 1997 6.13% 16.7 16.7 1999 6.50% 75.0 75.0 Maturing 2002 and 2003 6.50%(a) 280.0 280.0 Maturing 2008 6.88% 80.0 80.0 Maturing 2021 through 2023 7.98%(a) 400.0 400.0 Discount, net of premium being amortized over term of bonds (6.7) (7.3) -------- -------- 879.4 878.8 Pollution control financing obligations: Maturing 2014 through 2027 6.59%(a) 240.9 240.9 Notes maturing: 1994-1995 6.67% 1.0 46.9 1996-2008 7.81%(a) 77.9 77.9 Commercial paper, supported by revolver maturing November 30, 1999 5.98%(a) 200.0 200.0 Progress Capital Holdings: Notes maturing: 1994-1995 9.20% 6.0 26.3 1996-2004 7.63%(a) 276.0 176.0 Commercial paper, supported by revolver maturing November 30, 1999 6.01%(a) 183.8 245.0 Other debt, maturing through 2006 8.92%(a) 47.5 51.4 -------- -------- $1,912.5 $1,943.2 Less: Current portion of long-term debt 52.9 76.6 -------- -------- $1,859.6 $1,866.6 =============================================================================== (a) Weighted average interest rate at December 31, 1994. 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, 1994. Interest rate options under line of credit arrangements vary from subprime or money market rates to the prime rate. Banks providing lines of credit are compensated through fees. Florida Power's commitment fees on lines of credit vary between .08 and .10 of 1%, while Progress Capital's commitment fees vary between .10 and .15 of 1%. 59 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 1994, both 364-day facilities were extended to November 1995. In addition, both five-year facilities were extended to November 1999. Based on the duration of the underlying backup credit facilities, $383.8 million of outstanding commercial paper at December 31, 1994, and $445 million of outstanding commercial paper at December 31, 1993, are classified as long-term debt. In 1994, Florida Progress and Florida Power had short-term borrowings in the form of commercial paper, each with a weighted average interest rate of 4.2% for the year. Florida Power has a public $200-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. During 1994, Florida Power repaid $45.9 million of the medium-term notes. The program has approximately $170 million available for future issuance. Progress Capital has a private $400-million, medium-term note program providing for the issuance of notes with maturities ranging from nine months to 30 years. In 1994, Progress Capital issued $100 million of 5-, 7- and 10-year medium-term notes with a weighted average interest rate of 6.03%. A balance of $126 million is available for issuance under this program at either fixed or floating rates. The combined aggregate maturities of long-term debt for Florida Progress for 1995 through 1999 are $52.9 million, $176.4 million, $52.8 million, $16.1 million and $513.6 million, respectively, of which Florida Power's share is $35.4 million, $30.6 million, $38.0 million, $1.5 million and $276.6 million, respectively. In addition, about 17% of Florida Power's outstanding first mortgage bonds have an annual 1% sinking fund requirement. These requirements, which total $1.8 million for 1995, $1.3 million annually for 1996 and 1997, and $1 million annually for 1998 and 1999, are expected to be satisfied with property additions. Florida Progress has a support agreement with Progress Capital that requires the parent company to maintain a minimum net worth at Progress Capital. At December 31, 1994, Progress Capital's net worth was $99.3 million higher than the amount required under this agreement. [THIS SPACE INTENTIONALLY BLANK] 60 (3) 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 1994 1993 ------------------------------------------------------------------------------------------------------------------- (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% $102.48 300,000 300,000 30.0 30.0 7.76% $102.21 500,000 500,000 50.0 50.0 -------------------------------------------------------------------------------------------------------------------- $113.5 $ 113.5 -------------------------------------------------------------------------------------------------------------------- With sinking funds, subject to mandatory redemptions: 7.08% $104.72(a) 500,000 300,000 $ 30.0 $ 35.0 -------------------------------------------------------------------------------------------------------------------
(a) $102.36 after November 15, 1996; $100.00 after November 15, 2001. 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, but the holders of Florida Progress' common stock have the right to purchase shares of the Series A Junior Participating Preferred Stock in certain circumstances according to Florida Progress' Shareholder Rights Agreement. Under the Shareholder Rights Agreement, each share of Florida Progress' common stock has associated with it approximately two-thirds of one right, subject to adjustment, which is exercisable in the event of certain attempted business combinations. If exercised, the rights would cause substantial dilution of ownership, thus adversely affecting any attempt to acquire Florida Progress on terms not approved by Florida Progress' Board of Directors. The rights have no voting or dividend rights and expire in December 2001, unless redeemed earlier by Florida Progress. The authorized capital stock of Florida Power includes three classes of preferred stock: 4 million shares of Cumulative Preferred Stock, $100 par value; 5 million shares of Cumulative Preferred Stock, without par value; and 1 million shares of Preference Stock, $100 par value. No shares of Florida Power's Cumulative Preferred Stock, without par value, or Preference Stock are issued and outstanding, while a total of 1.4 million shares of the Cumulative Preferred Stock, $100 par value, are issued and outstanding in various series as detailed in the chart above. Preferred stock redemption requirements for 1996 to 1999 are $2.5 million per year. 61 (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, 1994 and 1993: (In millions) 1994 1993 ------------------------------------------------------------------------- Utility plant in service $654.1 $622.7 Construction work in progress 13.1 22.8 Unamortized nuclear fuel 52.9 68.4 Accumulated depreciation 285.2 266.3 Accumulated decommissioning 135.2 118.3 ------------------------------------------------------------------------- Net capital additions for Florida Power were $21.7 million in 1994 and $20.1 million in 1993, and depreciation expense, exclusive of nuclear decommissioning, was $27.3 million in 1994 and $26.2 million in 1993. 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 the last site-specific study approved by regulatory authorities, total future decommissioning costs were estimated to be approximately $1.2 billion, which corresponds to $227 million in 1994 dollars. Under this study, Florida Power's share of decommissioning expense, as authorized by the FPSC and the FERC, was $11.9 million annually for 1994, 1993 and 1992. In December 1994, Florida Power filed a new site-specific study with the FPSC that estimated total future decommissioning costs to be approximately $1.7 billion, which corresponds to $391 million in 1994 dollars. Florida Power filed a petition with the FPSC requesting that the retail portion of annual decommissioning expense be increased to $17.7 million, beginning in January 1995. Florida Power is not seeking an increase in rates to recover the higher costs. The FPSC is expected to rule on this petition in 1995. FUEL DISPOSAL COSTS - Florida Power has entered into a contract with the U.S. Department of Energy ("DOE") for the transportation and disposal of spent nuclear fuel. Disposal costs for nuclear fuel consumed are being collected from customers through the fuel adjustment clause at a rate of $.001 per net nuclear KWH sold and are paid to the DOE quarterly. Florida Power currently is storing spent nuclear fuel on site and has sufficient storage capacity in place or under construction for fuel consumed through the year 2010. 62 (5) 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 determined may be materially different than the amounts that Florida Progress could realize in a current market exchange. Estimating fair values for loans associated with the airline industry is difficult due to a limited number of transactions in a troubled industry. Management, therefore, has estimated a range of values for these loans. Florida Progress currently has no derivative financial instruments, such as futures, forwards, swaps or options contracts. At December 31, 1994 and 1993, Florida Progress had the following financial instruments with estimated fair values that differ from the carrying amounts: 1994 1993 Carrying Fair Carrying Fair (In millions) Amount Value Amount Value ------------------------------------------------------------------------------- ASSETS: Loans receivable: Commercial finance business: Real estate $118.4 $117.1 $148.2 $147.2 Airline 58.4 14 to 43 62.7 27 to 48 Life insurance business: Loans secured by real estate 7.8 8.6 9.1 10.5 Policy loans 10.4 8.5 10.0 8.9 ------------------------------------------------------------------------------- 148.2 193.6 195.0 to 177.2 230.0 to 214.6 Allowance for loan losses (32.6) - (23.8) - ------------------------------------------------------------------------------- $148.2 $193.6 Total loans receivable $162.4 to 177.2 $206.2 to 214.6 ------------------------------------------------------------------------------- Marketable securities: (a) Available for sale $ 93.3 $ 93.3 Held to maturity 55.0 51.8 ------------------------------------------------------------------------------- Total marketable securities $148.3 $145.1 $129.3 $133.9 Nuclear plant decommissioning fund 123.6 123.6 107.7 112.9 ------------------------------------------------------------------------------- CAPITAL AND LIABILITIES: Preferred stock with sinking funds $ 30.0 $ 29.6 $ 35.0 $ 37.1 Long-term debt: Florida Power Corporation 1,399.2 1,298.5 1,444.5 1,525.4 Progress Capital Holdings 513.3 504.0 498.7 517.2 ------------------------------------------------------------------------------- (a) The 1993 securities have not been segregated per FAS 115. (See Note 1.) 63 (6) LEASES AND LOANS RECEIVABLE AND CONCENTRATION OF CREDIT RISK At December 31, 1994 and 1993, investments in leases and loans receivable were as follows: (In millions) 1994 1993 ------------------------------------------------------------------------------ Finance leases: Rentals receivable $238.1 $244.3 Unguaranteed residual values 153.5 171.3 Unearned income (78.7) (82.1) Deferred investment tax credits (20.5) (22.0) ------------------------------------------------------------------------------- Total finance leases 292.4 311.5 ------------------------------------------------------------------------------- Loans receivable: Commercial finance business 176.8 210.9 Life insurance business 18.2 19.1 ------------------------------------------------------------------------------- Total loans receivable 195.0 230.0 ------------------------------------------------------------------------------- Allowance for losses (34.1) (24.8) ------------------------------------------------------------------------------- 453.3 516.7 Less: Current portion 15.3 31.3 ------------------------------------------------------------------------------- $438.0 $485.4 =============================================================================== Rentals receivable from finance leases represent unpaid rentals less principal and interest on nonrecourse third-party debt. Progress Credit's share of rentals receivable is subordinate to the debt holders who have security interests in the leased properties. Finance leases consist primarily of leveraged investments in aircraft as described below. The majority of the aircraft leases have terms of 15 to 20 years, with a maximum of 28 years. Net contractual maturities of rentals receivable under these contracts are $13.9 million, $13.1 million, $11.2 million, $10.1 million and $13.2 million for 1995 through 1999, respectively, and $176.6 million in total thereafter. Progress Credit's commercial finance loans are secured by first mortgage liens on the related commercial real estate or by security interests in aircraft, aircraft engines or spare parts. These loans are further collateralized, where applicable, by an assignment to Progress Credit of the borrowers' lease agreements, and, in some cases, third-party guaranties. 64 At December 31, 1994 and 1993, Progress Credit's portfolio included investments in the airline and commercial real estate industries as follows: (In millions) 1994 1993 ---------------------------------------------------------------------- Airline industry: Finance leases $254.2 $263.9 Loans receivable 58.4 62.7 Joint ventures 37.6 41.1 Equipment on operating leases 7.4 8.4 ---------------------------------------------------------------------- $357.6 $376.1 ---------------------------------------------------------------------- Commercial real estate industry: Finance leases $ 16.2 $ 15.9 Loans receivable 118.4 148.2 ---------------------------------------------------------------------- $134.6 $164.1 ====================================================================== New transactions are not being initiated unless they facilitate Progress Credit's orderly withdrawal strategy. Due to conditions in the airline industry and a weak real estate market, Progress Credit has experienced delinquencies in ongoing lease and loan payments as well as loan principal maturities. Progress Credit has negotiated the restructuring of certain transactions. Although most of the outstanding real estate and aircraft loans mature during the next five years, Progress Credit expects that some of the borrowers may not be able to retire the loans at maturity. Progress Credit will pursue its options for any nonperforming assets, including restructuring, remedial actions and remarketing. Progress Credit's portfolio at December 31, 1994, included a $16-million aircraft lease, which was restructured in 1993. No aircraft leases were restructured in 1994. Progress Credit's portfolio also includes $36.5 million of aircraft loans restructured in 1994 to Pegasus Capital Corporation, a company in which Progress Credit has a minority interest. Progress Credit restructured an $11.2-million aircraft loan to Pegasus Capital Corporation in January 1995. Progress Credit also restructured a $24.5-million real estate loan in 1994. All restructured assets are performing in accordance with their new terms and the restructurings will not materially reduce Progress Credit's future annual revenue. During 1994, 1993 and 1992, Progress Credit provided $9.9 million, $5.9 million and $6.4 million, respectively, for possible loan and lease losses and had write-offs totaling $.8 million, $4.2 million and $3.7 million, respectively. Florida Progress believes Progress Credit's existing reserve of $33.7 million is adequate to cover its planned orderly liquidation, assuming no significant further deterioration in the airline and real estate industries. Leases and loans generally are placed on nonaccrual status when management believes the collectibility of interest or principal is unlikely. There were no assets on nonaccrual status at December 31, 1994 and 1993. 65 (7) RETIREMENT BENEFIT PLANS STAFF REDUCTIONS - In late 1993, Florida Progress offered an early retirement option to certain employees age 55 or over with at least 20 years of service with Florida Progress. The effective retirement date for those employees accepting the package was February 1, 1994. Florida Progress recognized pension and other postretirement benefits expenses related to this offer of $5.6 million in 1993 and $15.5 million in 1994. 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 substantially all 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 1994, 1993 or 1992. Shown below are the components of the net pension expense calculations for those years: (In millions) 1994 1993 1992 ------------------------------------------------------------------------- Service cost $17.2 $16.3 $18.1 Interest cost 29.3 27.5 25.4 Actual losses (earnings) on plan assets 6.6 (60.7) (37.3) Net amortization and deferral (54.3) 17.9 (3.1) ------------------------------------------------------------------------- Net pension cost (benefit) (1.2) 1.0 3.1 Regulatory adjustment - - (.9) Staff reduction cost, net 10.0 .1 - ------------------------------------------------------------------------- Net pension cost recognized $ 8.8 $ 1.1 $ 2.2 ========================================================================= Florida Power's share of the plan's net pension costs for 1994, 1993 and 1992 was $9 million, $1 million and $2.1 million, respectively. The following weighted average actuarial assumptions at January 1 were used in the calculation of pension expense: 1994 1993 1992 ------------------------------------------------------------------------ Discount rate 7.25% 7.75% 7.25% Expected long-term rate of return 9.00% 9.00% 9.00% Rate of compensation increase 5.00% 5.50% 6.00% ======================================================================== 66 The following summarizes the funded status of the pension plan at December 31, 1994 and 1993: (In millions) 1994 1993 ----------------------------------------------------------------------- Accumulated benefit obligation: Vested $267.8 $276.0 Nonvested 34.7 37.9 ----------------------------------------------------------------------- 302.5 313.9 Effect of projected compensation increases 82.6 91.8 ----------------------------------------------------------------------- Projected benefit obligation 385.1 405.7 Plan assets at market value, primarily listed stocks and bonds 480.0 505.0 ----------------------------------------------------------------------- Plan assets in excess of projected benefit obligation $ 94.9 $ 99.3 ----------------------------------------------------------------------- Consisting of the following components: Unrecognized transition asset $ 40.3 $ 45.3 Unrecognized prior service cost (7.5) (10.3) Effect of changes in assumptions and difference between actual and estimated experience 73.8 67.2 Accrued pension costs (11.7) (2.9) ------------------------------------------------------------------------ $ 94.9 $ 99.3 ======================================================================== Due to changes in interest rates, Florida Progress used a discount rate of 8.25% to calculate the pension plan's 1994 year-end funded status and a discount rate of 7.25% to calculate the 1993 year-end funded status. The change in the discount rate from 7.25% at December 31, 1993, to 8.25% at December 31, 1994, decreased the projected benefit obligation by $51 million and is expected to decrease annual pension costs by $5 million, beginning in 1995. 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. Prior to 1993, Florida Progress' policy had been to accrue benefits currently payable along with amortization of past service costs of current retirees. Florida Progress had accrued $23.9 million at December 31, 1992, using this method. Florida Progress implemented FAS 106 effective January 1, 1993. (See Note 1 to the Financial Statements.) [THIS SPACE INTENTIONALLY BLANK] 67 The net postretirement benefit cost for 1994 and 1993 was: (In millions) 1994 1993 ------------------------------------------------------------------------ Service cost $ 5.3 $ 5.6 Interest cost 12.9 11.8 Amortization of unrecognized transition obligation 6.1 6.5 Staff reduction cost 3.7 5.5 ------------------------------------------------------------------------ $ 28.0 $ 29.4 ======================================================================== Florida Power's share of the plan's net postretirement benefit cost for 1994 and 1993 was $27.1 million and $28.2 million, respectively. The following summarizes the plan's status, reconciled with amounts recognized in Florida Progress' balance sheet at December 31: (In millions) 1994 1993 ----------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 92.7 $ 94.3 Fully eligible active plan participants 1.5 2.0 Other active plan participants 74.2 76.2 Plan assets at fair value (1.5) - ----------------------------------------------------------------------- 166.9 172.5 Unrecognized transition obligation (107.8) (120.7) Unrealized gains (losses) 8.7 (4.4) ----------------------------------------------------------------------- Accrued postretirement benefit cost $ 67.8 $ 47.4 ======================================================================= The following weighted average actuarial assumptions were used in the calculation of the year-end status of other postretirement benefits: 1994 1993 ---------------------------------------------------------------------- Discount rate 8.5% 7.5% Rate of compensation increase 5.0% 5.0% Health care cost trend rates: Pre-Medicare 12.25-5.75% 13.00-5.25% Post-Medicare 9.00-5.50% 9.75-5.00% ====================================================================== The transition obligation is being accrued through 2012. A one-percentage point increase in the assumed health care cost trend rate for each future year would have increased the 1994 current service and interest cost by approximately $3 million and the accumulated postretirement benefit obligation as of December 31, 1994, by about $24 million. The change in the discount rate from 7.5% at December 31, 1993, to 8.5% at December 31, 1994, decreased the projected benefit obligation by $23 million and is expected to decrease annual postretirement benefit costs by $1 million, beginning in 1995. 68 Due to different retail and wholesale regulatory requirements, Florida Power began making quarterly contributions in 1994 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 $1.6 million to the trust fund in 1994. (8) BUSINESS SEGMENTS Florida Progress' principal business segments are utility and diversified operations. The utility is engaged in the generation, purchase, transmission, distribution and sale of electric energy. Electric Fuels' operations include bulk commodities transportation, rail services and the mining, procurement and transportation of coal to Florida Power and other external customers. Other diversified operations include activities in leveraged leasing, commercial finance, life insurance, real estate and technology development. Florida Progress' business segment information for 1994, 1993 and 1992 is summarized below. No single customer accounted for 10% or more of unaffiliated revenues. (In millions) 1994 1993 1992 ---------------------------------------------------------------- Revenues: Utility $2,080.5 $1,957.6 $1,774.1 Diversified: Electric Fuels: Coal sales to electric utility 249.4 244.9 264.6 Sales to external customers 534.1 335.8 200.7 Other diversified 159.4 157.7 122.8 ---------------------------------------------------------------- 3,023.4 2,696.0 2,362.2 Eliminations (251.9) (247.0) (266.9) ---------------------------------------------------------------- Revenues from external customers $2,771.5 $2,449.0 $2,095.3 ---------------------------------------------------------------- Income from operations: Utility $ 419.5 $ 391.5 $ 367.1 Diversified: Electric Fuels 41.6 30.3 21.1 Other diversified 14.9 20.8 16.6 ---------------------------------------------------------------- 476.0 442.6 404.8 Interest and other expense 154.3 136.4 140.6 ---------------------------------------------------------------- Income before income taxes $ 321.7 $ 306.2 $ 264.2 ---------------------------------------------------------------- 69 Identifiable assets: Utility $4,284.0 $4,254.2 $3,980.3 Diversified: Electric Fuels 489.4 397.2 328.7 Other diversified 945.3 987.4 1,024.0 ---------------------------------------------------------------- $5,718.7 $5,638.8 $5,333.0 ---------------------------------------------------------------- Depreciation and amortization: Utility $ 294.8 $ 276.5 $ 243.4 Diversified: Electric Fuels 19.7 16.4 18.9 Other diversified 7.2 7.0 6.4 ---------------------------------------------------------------- $ 321.7 $ 299.9 $ 268.7 ---------------------------------------------------------------- Capital additions: Utility $ 327.2 $ 440.7 $ 493.5 Diversified: Electric Fuels 38.1 19.5 23.1 Other diversified 2.8 2.2 3.0 ---------------------------------------------------------------- $ 368.1 $ 462.4 $ 519.6 ================================================================ In June 1993, Electric Fuels acquired the assets of a rail-services company that contributed approximately $80 million to 1993 revenues. In December 1994, Florida Progress acquired FM Industries, which contributed approximately $42 million to Electric Fuels' 1994 revenues in a pooling of interests transaction. (See Note 1 to the Financial Statements.) (9) INCOME TAXES FLORIDA PROGRESS (In millions) 1994 1993 1992 ------------------------------------------------------------------- Components of income tax expense: Payable currently: Federal $127.7 $140.7 $ 98.1 State 14.3 18.8 7.8 ------------------------------------------------------------------- 142.0 159.5 105.9 ------------------------------------------------------------------- Deferred, net: Federal (20.6) (39.2) (9.3) State (2.1) (5.1) 1.0 Effect of change in tax rate on deferred assets/liabilities - 4.7 - ------------------------------------------------------------------- (22.7) (39.6) (8.3) ------------------------------------------------------------------- 70 Amortization of investment tax credits, net (9.6) (9.5) (9.1) ------------------------------------------------------------------- $109.7 $110.4 $ 88.5 =================================================================== The principal components of deferred income tax expense for 1992 were the difference between the financial and tax accounting for leases, the underrecovery or overrecovery of fuel costs and the difference between accelerated and straight-line depreciation. FLORIDA POWER (In millions) 1994 1993 1992 ------------------------------------------------------------------- Components of income tax expense: Payable currently: Federal $ 95.3 $110.2 $ 75.4 State 17.1 19.1 13.6 ------------------------------------------------------------------- 112.4 129.3 89.0 ------------------------------------------------------------------- Deferred, net: Federal 7.0 (13.9) 14.3 State .6 (2.6) 2.2 ------------------------------------------------------------------- 7.6 (16.5) 16.5 ------------------------------------------------------------------- Amortization of investment tax credits, net (8.5) (8.5) (8.0) ------------------------------------------------------------------- $111.5 $104.3 $ 97.5 =================================================================== The principal components of deferred income tax expense for 1992 were the underrecovery or overrecovery of fuel costs and the difference between accelerated and straight-line depreciation. The primary differences between the statutory rates and the effective income tax rates are detailed below: FLORIDA PROGRESS 1994 1993 1992 -------------------------------------------------------------------------- Federal statutory income tax rate 35.0% 35.0% 34.0% State income tax, net of federal income tax benefits 2.4 2.8 3.0 Amortization of investment tax credits (3.1) (3.0) (3.2) Effect of change in tax rate on deferred assets/liabilities - 1.5 - Other (1.2) (1.8) (2.3) -------------------------------------------------------------------------- Effective income tax rates 33.1% 34.5% 31.5% ========================================================================== 71 FLORIDA POWER 1994 1993 1992 -------------------------------------------------------------------------- Federal statutory income tax rate 35.0% 35.0% 34.0% State income tax, net of federal income tax benefits 3.7 3.6 3.6 Amortization of investment tax credits (2.7) (2.8) (2.8) Other (.3) (.7) (.5) -------------------------------------------------------------------------- Effective income tax rates 35.7% 35.1% 34.3% ========================================================================== The Omnibus Budget Reconciliation Act of 1993 included various rule changes and increased the maximum federal corporate income tax rate from 34% to 35%. The impact of the tax law increased Florida Progress' 1993 income tax expense by $7.9 million. This included $3.2 million attributable to the new tax rate on current income and $4.7 million resulting from an adjustment of nonregulated deferred tax balances. The tax rate change increased Florida Power's deferred tax balances by $18.3 million with a corresponding net increase to a regulatory asset. The following summarizes the components of deferred tax liabilities and assets at December 31, 1994 and 1993: FLORIDA PROGRESS (In millions) 1994 1993 --------------------------------------------------------------------------- Deferred tax liabilities: Difference in tax basis of property, plant and equipment $564.8 $532.4 Difference in accounting for leveraged leases 226.6 242.8 Other 88.0 90.1 --------------------------------------------------------------------------- Total deferred tax liabilities $879.4 $865.3 --------------------------------------------------------------------------- Deferred tax assets: Accrued book expenses $114.1 $ 89.1 Unbilled revenues 17.7 17.3 Other 32.4 31.8 --------------------------------------------------------------------------- Total deferred tax assets $164.2 $138.2 =========================================================================== At December 31, 1994 and 1993, Florida Progress had net noncurrent deferred tax liabilities of $744.1 million and $756.3 million and net current deferred tax assets of $28.9 million and $29.2 million, respectively. Florida Progress expects the results of future operations will generate sufficient taxable income to allow the utilization of deferred tax assets. 72 FLORIDA POWER (In millions) 1994 1993 --------------------------------------------------------------------------- Deferred tax liabilities: Difference in tax basis of property, plant and equipment $527.9 $500.4 Deferred book expenses 10.4 13.8 Under recovery of fuel .7 2.8 --------------------------------------------------------------------------- Total deferred tax liabilities $539.0 $517.0 --------------------------------------------------------------------------- Deferred tax assets: Accrued book expenses $ 50.5 $ 40.5 Unbilled revenues 17.7 17.3 Regulatory liability for deferred income taxes 8.3 11.9 Other 3.3 3.8 --------------------------------------------------------------------------- Total deferred tax assets $ 79.8 $ 73.5 =========================================================================== At December 31, 1994 and 1993, Florida Power had net non-current deferred tax liabilities of $488.0 million and $472.7 million and net current deferred tax assets of $28.9 million and $29.2 million. Florida Power expects the results of future operations will generate sufficient taxable income to allow the utilization of deferred tax assets. (10) RATES AND REGULATION RETAIL RATES - In September 1992, the FPSC granted Florida Power an annual revenue increase of $85.8 million, based on a 1992 rate filing. The rates provide Florida Power the opportunity to earn a regulatory return on equity of 12%, with an allowed range between 11% and 13%. The FPSC granted increases in retail base rates of approximately $58 million to be effective in November 1992, $9.7 million in April 1993 and $18.1 million in November 1993. The FPSC ruled that Florida Power's retail regulatory return on equity would be restricted to 12.5% for 1994. This temporary earnings restriction did not affect Florida Power's current retail rates or its authorized range for return on equity. Florida Power's retail regulatory return on equity was 12% for 1994. WHOLESALE RATES - In January 1995, Florida Power filed with the FERC two requests to increase rates for wholesale service totaling approximately $9.5 million annually. One request of $8.6 million represents a settlement agreement with all but one wholesale customer. The second request seeks an increase of $.9 million for the remaining customer. The increases are needed primarily to recover additional purchased power capacity costs. Florida Power requested that both increases become effective January 1, 1995. The FERC is expected to approve the requests in early 1995. 73 In April 1994, the FERC approved Florida Power's 1994 settlement agreement, which provides for rates designed to increase annual revenues by approximately $9.8 million. The rate increases were effective in March and May 1994 and allow Florida Power to recover costs for new generating facilities and higher purchased power costs. In March 1994, the FERC approved Florida Power's settlement agreement with its wholesale customers in its 1993 base rate proceeding. The agreement provides for rate increases designed to produce additional annual revenues of $5.7 million, effective February 1993. In December 1992, Florida Power reached a settlement agreement with its wholesale customers, which resulted in no significant change in revenues. The 1992 settlement was approved by the FERC and provided for a retroactive change in Florida Power's depreciation rates, which increased 1992 net income by $3.1 million. (11) COMMITMENTS AND CONTINGENCIES FUEL, COAL AND PURCHASED POWER COMMITMENTS - Florida Power has entered into various long-term contracts to provide the fossil and nuclear fuel requirements of its generating plants and to reserve pipeline capacity for natural gas. In most cases, such contracts contain provisions for price escalation, minimum purchase levels and other financial commitments. Estimated annual payments, based on current market prices, for Florida Power's firm commitments for fuel purchases and transportation costs, excluding delivered coal and purchased power, are $5.7 million, $4.3 million, $5.7 million, $46.9 million and $57.9 million for 1995 through 1999, respectively, and $1,211.9 million in total thereafter. Additional commitments will be required in the future to supply Florida Power's fuel needs. In connection with the supply of coal to Florida Power and other customers, Electric Fuels has entered into several contracts with outside parties for the purchase of coal and also several operating leases related to coal procurement, processing and transportation. Minimum coal purchases are approximately 4 million tons per year. The annual obligations under these contracts and leases, including transportation costs, are $159.5 million, $94.8 million, $93.7 million, $79.4 million and $73.7 million for 1995 through 1999, respectively, and $203 million in total thereafter. The total cost incurred for these commitments was $199.2 million in 1994, $213.2 million in 1993 and $249.3 million in 1992. Florida Power has long-term contracts for about 450 MW of purchased power with other utilities, including a contract with The Southern Company for approximately 400 MW of purchased power annually through 2010. This represents 4.6% of Florida Power's total current system capacity. Florida Power has an option to lower these purchases to 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. 74 As of December 31, 1994, Florida Power had entered into long-term contracts with cogenerators for 1,110 MW of capacity. These contracts have terms ranging from nine to 35 years. In most cases, these contracts account for 100% of the generating capacity of each of the facilities. Of the 1,110 MW under contract, 961 MW are currently available and the remaining future capacity is a part of Florida Power's plans for meeting future electricity demand growth. All commitments have been approved by the FPSC. The following table shows actual payments for 1992-1994 and minimum expected future payments for purchased power commitments. Because the purchased power commitments have relatively long durations, the 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 ------------------------------------------- Present (In millions) Utilities Cogenerators Value ------------------------------------------------------------------------- 1992 $22 $10 $ - 1993 41 33 - 1994 53 85 - 1995 66 180 224 1996 66 216 233 1997 66 232 224 1998 65 244 211 1999 66 256 200 2000-2025 396 9,766 2,142 ======================================================================== Florida Power does not plan to increase the level of purchased power currently under contract. Because credit-rating agencies treat a portion of purchased power capacity payments as a debt equivalent, these contracts may weaken Florida Power's credit ratings. However, the utility believes that its current contracts help meet overall system demand and help reduce construction expenditures. The FPSC allows these capacity payments to be recovered through a capacity cost recovery clause, which is similar to, and works in conjunction with, the fuel adjustment clause. During 1994, a dispute occurred over the price paid for purchased power to cogenerators. Under certain contract pricing provisions, Florida Power began paying "as available" prices for purchased power, which are lower than the firm energy prices previously paid. The revised pricing reduces payments to cogenerators by about $15 million annually. Two cogenerators filed suit against Florida Power in state court challenging this pricing methodology. A third cogenerator amended its complaint in a pending lawsuit regarding a backup fuel dispute with Florida Power to include the pricing issue. Two of these three lawsuits involve antitrust claims. 75 Florida Power also established a generation curtailment plan in 1994 for its purchased power contracts with cogenerators to avoid having to cycle off certain lower-cost units during periods of low-system demand. Under this plan, energy purchases from cogenerators would be less during low-load periods. Florida Power filed petitions with the FPSC to resolve these issues. It is uncertain at this time whether the FPSC or the state court will ultimately have jurisdiction in these matters. UTILITY CONSTRUCTION PROGRAM - Substantial commitments have been made in connection with Florida Power's construction program, which are presently estimated to result in construction expenditures in 1995 of $330 million for electric plant and nuclear fuel. THERMO-LAG FIRE BARRIER - Florida Power's nuclear plant uses a fire-retardant material, called Thermo-Lag, as a fire barrier around electrical conduit and cables. The U.S. Nuclear Regulatory Commission wants this material replaced or upgraded because it does not provide the full fire protection originally claimed by the manufacturer. Although the most costly option of removing and replacing all of the Thermo-Lag would total about $40 million, management believes there are more effective and less expensive options available. Until there is a permanent solution, Florida Power has implemented surveillance procedures to continuously inspect the Thermo-Lag. Florida Power does not expect to have to replace all of the Thermo-Lag. 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. The totals of the debt support agreements were $31.9 million and $33.9 million at December 31, 1994 and 1993, respectively, of which $24.9 million and $26.4 million were guaranties, and $7 million and $7.5 million were stand-by letters of credit, respectively. If the other partners fail to perform their obligations and if the partnership assets, consisting primarily of land and buildings, were worthless, those subsidiaries could be liable for an additional $40.2 million as of December 31, 1994, which represents partnership liabilities exceeding amounts mentioned above. 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. Effective November 1993, the FPSC authorized Florida Power to self-insure the utility's transmission and distribution lines against loss due to storm damage and other natural disasters. Florida Power is accruing $6 million annually to a storm damage reserve and may defer any losses in excess of the reserve. 76 Under the provisions of the Price Anderson Act, 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 an industry mutual insurer ("NEIL"), which provides replacement power cost 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 $2.6 million per policy year. Florida Power also maintains nuclear property damage and decontamination/decommissioning liability insurance totaling $2.1 billion. The first layer of $500 million is purchased in the commercial insurance market with the remaining excess coverage purchased from NEIL. Florida Power is self-insured for any losses that are in excess of this coverage. Under the terms of the NEIL policy agreements, Florida Power could be assessed up to $8.4 million in any policy year if a loss in excess of NEIL's available surplus is incurred. In the event of multiple losses in any policy year, Florida Power's retroactive premium could total up to $15.8 million. Florida Power has never been retroactively assessed under any of these nuclear indemnities or insurance policies. CONTAMINATED SITE CLEANUP - Florida Progress is subject to regulation with respect to the environmental effects of its operations. The disposal of company-generated hazardous waste can result in costs to clean up facilities found to be contaminated due to past disposal practices. Federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or uncontrolled hazardous waste sites. Florida Power and other subsidiaries of Florida Progress are currently potentially responsible parties at certain sites. Florida Power has been named in one suit brought against four prior owners of a coal gasification plant site. Liability for such cleanup costs is joint and several. Florida Progress has no reason to believe that it will have to pay a significantly disproportionate share of these cleanup costs. The best estimate currently available to Florida Progress indicates that its proportionate share of liability for cleaning up the sites ranges from $1.3 million to $2 million, and it has reserved $1.8 million against these potential costs. It is possible that additional claims could be asserted relating to the coal gasification plant site that could increase Florida Power's cleanup costs. Currently, no estimates of these additional costs, if any, are available. 77 PRAXAIR LAWSUIT - Florida Power and FP&L are co-defendants in an antitrust action. Praxair (formerly a part of Union Carbide Corporation) is a customer of FP&L and is seeking injunctive relief and damages. The suit challenges a long-standing territorial agreement between the two unaffiliated, neighboring utilities, notwithstanding the defendants' contention that the agreement was clearly authorized by state law and approved by the FPSC. Florida Power believes that the state action exemption from the antitrust laws is applicable to the agreement and its consequent refusal to provide electricity to the customer. Management believes it has a strong defense and intends to vigorously defend against this action. (12) TRANSACTIONS WITH RELATED PARTIES Florida Power has entered into two coal supply contracts with Electric Fuels to meet substantially all of its coal requirements through 2004. The cost of coal purchased for 1994, 1993, and 1992 was $249.4 million, $244.6 million, and $261.1 million, respectively. The amount payable to Electric Fuels for coal purchases at December 31, 1994 and 1993, was $21.1 million and $16.6 million, respectively. 77
QUARTERLY FINANCIAL DATA FLORIDA PROGRESS CORPORATION (Unaudited) Three Months Ended (In millions, except per share amounts) March 31 June 30 September 30 December 31 --------------------------------------------------------------------------------------------------------------- 1994 Revenues $639.2 $693.2 $756.2 $682.9 Income from operations 91.3 121.7 155.3 107.7 Net income 36.5 53.7 75.8 46.0 Earnings per average common share .41 .58 .80 .49 Dividends per common share .495 .495 .495 .505 Common stock price per share: High 33 5/8 30 1/2 29 1/4 30 7/8 Low 29 1/8 24 3/4 25 3/4 27 5/8 --------------------------------------------------------------------------------------------------------------- 1993 Revenues $493.3 $553.3 $768.9 $633.5 Income from operations 84.8 99.5 172.2 86.1 Net income 34.4 43.0 82.0 37.2 Earnings per average common share .39 .49 .93 .42 Dividends per common share .485 .485 .485 .495 Common stock price per share: High 35 3/4 36 36 3/8 35 3/4 Low 31 1/4 32 3/8 34 1/4 32 1/4 --------------------------------------------------------------------------------------------------------------
78
FLORIDA POWER CORPORATION (Unaudited) -------------------------------------------------------------------------------------------------------- (In millions) Three Months Ended March 31 June 30 September 30 December 31 -------------------------------------------------------------------------------------------------------- 1994 Operating revenues $483.5 $517.0 $586.5 $493.5 Net income $34.3 $50.1 $72.0 $44.4 Earnings on common stock $31.8 $47.6 $69.4 $41.9 1993 Operating revenues $407.0 $461.9 $609.0 $479.7 Net income $35.4 $42.3 $84.7 $32.5 Earnings on common stock $31.5 $39.1 $81.5 $29.4
79 The business of Florida Progress' largest subsidiary, Florida Power, is seasonal in nature and it is management's opinion that comparisons of earnings for the quarters do not give a true indication of the overall trends and changes in operations. Florida Progress' quarterly financial data for the first three quarters of 1994 has been restated, compared to previously issued interim financial statements, for the acquisition of FM Industries in December 1994 in a pooling of interests transaction. (See Note 1 to the Financial Statements.) 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". Information concerning compliance by Florida Progress' directors and officers, and persons who own more than ten percent of Florida Progress' common stock, with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 is set forth under the heading "Compliance with Section 16(a) of the Exchange Act" in Florida Progress' Proxy Statement and is incorporated herein by reference. FLORIDA POWER DIRECTORS R. Mark Bostick, Age 40, Director since 1992 Member - Executive Committee Since January, 1989, Mr. Bostick's principal occupation has been President of COMCAR Industries, Inc., a privately-held, diversified transportation company. For more than five years before 1989, Mr. Bostick was Executive Vice President of COMCAR Industries, Inc. Mr. Bostick is a director of NationsBank of Florida, N.A. Jack B. Critchfield, Age 61, Director 1975 - 1978 and since 1988 Chairman - Executive Committee Information concerning Dr. Critchfield is set forth in Part I, Item 1 hereof under the heading "Executive Officers". Allen J. Keesler, Age 56, Director since 1988 Member - Executive Committee Information concerning Mr. Keesler is set forth in Part I, Item 1 hereof under the heading "Executive Officers". 80 Richard Korpan, Age 53, Director since 1989 Member - Executive Committee Information concerning Mr. Korpan is set forth in Part I, Item 1 hereof under the heading "Executive Officers". Frank C. Logan, Age 60, Director since August 1994 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. He serves on the Federal Judicial Nominating Commission for Florida. Clarence V. McKee, Esquire, Age 52, Director since 1988 Mr. McKee's principal occupation is Chairman and Chief Executive Officer of McKee Communications, Inc., Tampa, Florida. From 1987 to 1992, he served as Chairman and Chief Executive Officer of WTVT Holdings, Inc. 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., licensee of WTVT-TV, Tampa, Florida. Mr. McKee is a director of Barnett Bank of Tampa, Barnett Banks, Inc., and American Heritage Life Insurance Company, Jacksonville. Joan D. Ruffier, Age 55, Director since 1991 Member - Executive Committee, Compliance Committee Ms. Ruffier's principal occupation is a general partner of Sunshine Cafes, Orlando, Florida, a food and beverage concession business at major Florida airports. From 1978 to 1982, she served as a management consultant to the National Association of Bank Women. From 1982 to 1986, she practiced public accounting with the firm of Colley, Trumbower & Howell. In 1986, she assumed her present position. Ms. Ruffier is a member of the Administrative Board of Sun Bank, N.A. in Orlando, and the board of the Jacksonville Branch of the Federal Reserve Bank of Atlanta. She also serves on the boards of directors of SunHealth Corporation and Sun Health Enterprises, Inc. of Charlotte, North Carolina. Jean Giles Wittner, Age 60, Director since 1977 Member - Compliance Committee Ms. Wittner is President of Wittner & Company, a St. Petersburg, Florida firm involved in real estate management and insurance brokerage and consulting. She previously served as President and Chief Executive Officer of a savings association from 1975 until it was sold on December 31, 1986. She then became President of Wittner Securities, Inc. In November 1989, she became President of Wittner & Company. All of the directors except Mr. Bostick and Mr. Logan 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. 81 EXECUTIVE OFFICERS Information concerning the executive officers of Florida Power is set forth in Part I, Item 1 hereof under the heading "Executive Officers". 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 1994, or written representations that no forms were required, Florida Power believes that all persons who at any time during 1994 were officers, directors or greater than ten-percent beneficial owners of Florida Power's preferred stock, filed their applicable Section 16(a) reports on a timely basis during 1994 and prior fiscal years. ITEM 11. EXECUTIVE COMPENSATION FLORIDA PROGRESS The information under the heading "Compensation of Directors", "Compensation Committee Interlocks and Insider Participation", "Executive Compensation" and "Pension Plan Table" in Florida Progress' Proxy Statement is incorporated herein by reference. FLORIDA POWER COMPENSATION OF DIRECTORS With the exception of Messrs. Bostick and Logan, the compensation for all outside directors of Florida Power (excluding employees of Florida Progress) is a daily meeting fee of $1,500 for Board and committee meetings attended on any one day. Messrs. Bostick and Logan receive these daily meeting fees and $7,500 per year as a retainer fee. Outside directors who also serve on the Board of Directors of Florida Progress are paid an annual retainer in the amount of $22,500, plus a fee of $1,500 for attendance at each meeting of Florida Progress' Board of Directors and a per day meeting fee of $1,500 for subsidiary and committee meetings attended on any one day. All or a portion of these fees may be deferred at the discretion of a director. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Florida Power has no compensation committee of its Board of Directors or other board committee performing equivalent functions. The compensation of Florida Power's executive officers is established by the compensation committee of the Board of Directors of Florida Progress, which is comprised solely of outside directors of Florida Progress and includes two individuals who also are outside directors of Florida Power: Clarence V. McKee and Jean Giles Wittner. None of these individuals was during 1994, or formerly, an officer or employee of Florida Power or any of its subsidiaries. 82 EXECUTIVE COMPENSATION The following table contains information with respect to compensation awarded, earned or paid during the years 1992-1994 to (i) the Chief Executive Officer, and (ii) the other four most highly compensated executive officers of Florida Power (the "Named Executive Officers") in 1994, whose total renumeration paid in 1994 exceeded $100,000.
SUMMARY COMPENSATION TABLE Long-Term Annual Compensation (1) Compensation Name and Principal LTIP All other Position Year Salary Bonus Payouts (2) Compensation(3) ------------------ ---- ------ ----- --------- --------------- ALLEN J. KEESLER, JR. 1994 $383,011 $172,500 $178,904(4) $15,837 President and Chief Executive Officer 1993 379,548 208,000 217,250 9,888 1992 374,163 36,000 9,603 MAURICE H. PHILLIPS 1994 $243,630 $ 96,000 $ 99,553(4) $10,402 Executive Vice President 1993 241,418 104,000 121,031 9,869 1992 237,365 23,000 9,514 JOSEPH H. RICHARDSON 1994 $212,122 $ 88,500 $ 81,326(4) $4,226 Senior Vice President and General Counsel 1993 198,071 100,000 78,875 119 1992 192,554 38,000 1,908 PERCY M. BEARD 1994 $206,345 $ 83,000 $ 76,826(4) $9,090 Senior Vice President 1993 188,728 100,000 N/A 7,925 1992 182,706 18,000 7,400 JOHN A. HANCOCK 1994 $197,088 $ 72,500 $ 74,786(4) $8,700 Senior Vice President 1993 182,870 87,000 N/A 7,684 1992 178,136 17,500 7,213 83 (1) All other annual compensation paid to the Chief Executive Officer and the Named Executive Officers during 1994, other than salary and annual incentive compensation, does not exceed the minimum amounts required to be reported pursuant to SEC rules. (2) The following number and value of restricted Shares of Common Stock of Florida Progress as of December 31, 1994 was held by the Chief Executive Officer of Florida Progress and the Named Executive Officers as a result of awards earned under the 1991-1993 performance cycle: Allen J. Keesler, Jr. 4,634 shares $139,020; Maurice H. Phillips 2,582 shares $77,460; Joseph H. Richardson 1,682 shares $50,460. (3) Contributions to its Savings Plan of Florida Progress and/or its Executive Optional Deferred Compensation Plan on behalf of the Chief Executive Officer and the Named Executive Officers. (4) Represents the dollar value as of February 9, 1995, the date of grant, of shares of Common Stock of Florida Progress earned under the 1992-1994 performance cycle of the Florida Progress Corporation Long-Term Incentive Plan ("LTIP"), two-thirds of which are restricted. The total number of shares earned are as follows: Allen J. Keesler, Jr., 5,526 shares; Maurice H. Phillips 3,075 shares; Joseph H. Richardson 2,512 shares, Percy M. Beard, Jr. 2,373 shares and John A. Hancock 2,310 shares. The vesting schedule for the restricted stock is 50% on January 1, 1996 and 50% on January 1, 1997. 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 shall lapse upon such change in control.
The following table contains information with respect to Performance Shares awarded in 1994 to the Chief Executive Officer and each of the Named Executive Officers of Florida Power for the 1994-1996 performance cycle of the LTIP:
LONG-TERM INCENTIVE PLAN(1) AWARDS IN 1994 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. 4,902 1994-1996 2,451 4,902 7,353 Maurice H. Phillips 2,729 1994-1996 1,365 2,729 4,094 Joseph H. Richardson 2,408 1994-1996 1,204 2,408 3,612 Percy M. Beard 2,352 1994-1996 1,176 2,352 3,528 John A. Hancock 2,240 1994-1996 1,120 2,240 3,360 (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. (2) Performance shares awarded 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 returns on equity 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 awarded 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 84 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 granted and then held would terminate. (3) Awards are earned upon achievement of Florida Progress and/or subsidiary return on equity 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 annual benefits (also computed as a straight life annuity beginning at retirement at age 65) 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
Under the Retirement Plan and the Nondiscrimination Plan, the compensation taken into account 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 executives named in the summary compensation table are as follows: Mr. Keesler, 32 years of service; Mr Phillips, 34 years of service; Mr. Richardson, 19 years of service; Mr. Beard, 5 years of service; and Mr. Hancock, 27 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% of primary Social Security). The executives named in the summary compensation table 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 executives (prior to any offsets) may be determined using 85 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. Keesler 35 years of service; Mr. Phillips 35 years of service; Mr. Richardson 19 years of service; Mr. Beard 35 years of service; and Mr. Hancock 27 years of service. Accrued benefits may also be paid under each of the Retirement Plan, Nondiscrimination Plan and SERP if a participant terminates employment before age 65 and meets the requirements for early retirement, disability, death or other termination of employment benefits after becoming vested under the rules of the particular plan. 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 (1) two times the executive's current annual salary and bonus, (2) the value of the executive's prospective award under the SERP if he had continued to work until age 65 (including amounts that later would have been payable to any surviving spouse) and (3) 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. Phillips is taking early retirement effective April 1, 1995, pursuant to the "special early retirement" provisions of the SERP which are separate and in lieu of those mentioned above. Under his arrangement, Mr. Phillips will receive, until age 62, an annual retirement benefit of $201,468. After age 62, the annual benefit will be reduced by $11,436, the amount of his annual social security benefit. After his death, his spouse will receive an annual survivor benefit of $140,966. Approximately 60% of those benefits are payable pursuant to the SERP, with the balance payable under the Retirement and Nondiscrimination Plans. Florida Power will also pay 97% of his company medical insurance premiums and 73% of his spouse's. Mr. Phillips will also be eligible to be paid a pro rata 1995 annual bonus and two-thirds and one-third of his 1993-1995 and 1994-1996 LTIP performance cycle awards, respectively, if any are determined to be earned. 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. 86 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 first table under the heading "Security Ownership of Certain Beneficial Owners" in the Florida Progress Proxy Statement and is incorporated herein by reference. The table below sets forth as of December 31, 1994, 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 200 Jack B. Critchfield 18,842 Allen J. Keesler, Jr. 45,358(3) Richard Korpan 6,840 Frank C. Logan 900 Clarence V. McKee 1,750 Joan D. Ruffier 2,545 Jean Giles Wittner 8,521 Percy M. Beard, Jr. 183 John A. Hancock 12,470 Maurice H. Phillips 11,472 Joseph H. Richardson 6,026 All 15 directors and executive officers as a group, including those named above 128,333 .13% (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. (3) Includes 16,581 shares owned by Mr. Keesler's father, as to which Mr. Keesler disclaims beneficial ownership. 87 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS FLORIDA PROGRESS The information included under the heading "Certain Business 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, 1994, 1993 and 1992 Florida Power II-Valuation and Qualifying Accounts for the years ended December 31, 1994, 1993 and 1992 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. 88 3. Exhibits filed herewith: Florida Florida Number Exhibit Progress Power ------ ------- -------- ------- 4 Form of Certificate representing shares of X Florida Progress Common Stock. 10.(a) Florida Progress Supplemental Executive X X Retirement Plan.* 10.(b) Management Incentive Compensation Plan X X of Florida Progress Corporation, as amended.* 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 (No. 33-53939) (relating to the Savings Plan for Employees of Florida Progress and filed with the SEC on June 1, 1994); Form S-3 (No. 33-45044) (relating to the Progress Plus Plan and filed with the SEC on January 13, 1992); 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); and Form S-3 (No. 2-93111)(relating to the acquisition of Better Business Forms and filed with the SEC on September 5, 1984). 23.(b) Consent of Independent Certified Public X Accountants to the incorporation by reference of their report on the financial statements into Florida Power's registration statements on Form S-3 (No. 33-62210 and 33-55273)(relating to Florida Power's first mortgage bond shelf) and Form S-3 (No. 33-50908) (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 89 4. Exhibits incorporated herein by reference: 3.(a) Bylaws of Florida Progress, as amended to date. X (Filed as Exhibit 3(a) to Florida Progress' Form 10-K for the year ended December 31, 1992, as filed with the SEC on March 31, 1993). 3.(b) Restated Articles of Incorporation, as X amended, of Florida Progress. (Filed as Exhibit 3(a) to Florida Progress' Form 10-K for the year ended December 31, 1991, as filed with the SEC on March 30, 1992.) 4.(a) 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.(b) Amended Articles of Incorporation, as X X amended, of Florida Power. (Filed as Exhibit 3(a) to the Florida Power Form 10-K for the year ended December 31, 1991, as filed with the SEC (File No. 1-3274) on March 30, 1992). 4.(c) Indenture, dated as of January 1, 1944 (the X X "Indenture"), between Florida Power and Guaranty Trust Company of New York and The Florida National Bank of Jacksonville, as Trustees. (Filed as Exhibit B-18 to Florida Power's Registration Statement on Form A-2 (No. 2-5293) filed with the SEC on January 24, 1944). 4.(d) 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.(e) 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). 90 4.(f) 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.(g) 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.(h) 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 Form S-3 Registration Statement No. 33-55273 as filed with the SEC on August 29, 1994.) 10.(d) Amended and Restated Support Agreement, X dated as of February 1, 1991, between Florida Progress and Progress Capital (Filed as Exhibit 10(d) to Florida Progress' Form 10-K for the year ended December 31, 1990, as filed with the SEC on March 28, 1991). 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). * 10.(f) Amended and Restated General Partnership X X Agreement of the SunShine Pipeline Partners dated May 5, 1993. (Filed as Exhibit 10(a) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). 91 10.(g) Amended and Restated General Partnership X X Agreement of the SunShine Interstate Pipeline Partners dated May 5, 1993. (Filed as Exhibit 10(b) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). 10.(h) Precedent Agreement dated April 8, 1993 X X between Florida Power and the SunShine Pipeline Partners covering terms and conditions of service to be provided to Florida Power by the intrastate component of the SunShine Pipeline. (Filed as Exhibit 10(c) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). 10.(i) Precedent Agreement dated April 8, 1993 X X between Florida Power and the SunShine Pipeline Partners covering terms and conditions of service to be provided to Florida Power by the interstate component of the Sunshine Pipeline. (Filed as Exhibit 10(d) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). 10.(j) Letter Agreement dated June 30, 1993 X X relating to the SunShine Pipeline. (Filed as Exhibit 10(e) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). (Confidential treatment has been granted with respect to a portion of this document - omitted portion filed separately with the SEC). 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. 92 (b) Reports on Form 8-K: During the fourth quarter of the year ended December 31, 1994, Florida Progress and Florida Power filed the following reports on Form 8-K: Form 8-K dated October 20, 1994, reporting under Item 5 "Other Events" a press release and related Investor Information Report reporting Florida Progress and Florida Power's third quarter 1994 earnings. Form 8-K dated November 17, 1994, reporting under Item 5 "Other Events" the election of W.D. "Bill" Frederick, Jr. to the Florida Progress Board of Directors and the increase in Florida Progress' annual common stock dividend rate. In addition, Florida Progress and Florida Power filed the following report on Form 8-K subsequent to the fourth quarter of 1994: Form 8-K dated January 23, 1995, reporting under Item 5 "Other Events" a press release and related Investor Information Report reporting Florida Progress' and Florida Power's 1994 earnings. Form 8-K dated February 9, 1995, reporting under Item 5 "Other Events" a press release and related Investor Information report reporting that Florida Power has filed suit to terminate two agreements to transport natural gas through the proposed SunShine Pipeline. 93 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 30, 1995 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 30, 1995 ----------------------------- Chief Executive Officer Jack B. Critchfield and Director Principal Executive Officer /s/ Jeffrey R. Heinicka Senior Vice President and March 30, 1995 ----------------------------- Chief Financial Officer Jeffrey R. Heinicka Principal Financial Officer /s/ John Scardino, Jr. Vice President and March 30, 1995 ----------------------------- Controller John Scardino, Jr. Principal Accounting Officer /s/ Willard D. Frederick, Jr. Director March 30, 1995 ----------------------------- Williard D. Frederick, Jr. /s/ Michael P. Graney Director March 30, 1995 ----------------------------- Michael P. Graney /s/ Allen J. Keesler, Jr. Director March 30, 1995 ----------------------------- Allen J. Keesler, Jr. (Continued) 94 Signature Title Date --------- ----- ---- /s/ Richard Korpan Director March 30, 1995 ----------------------------- Richard Korpan /s/ Clarence V. McKee Director March 30, 1995 ----------------------------- Clarence V. McKee /s/ Vincent J. Naimoli Director March 30, 1995 ----------------------------- Vincent J. Naimoli /s/ Richard A. Nunis Director March 30, 1995 ----------------------------- Richard A. Nunis /s/ Charles B. Reed Director March 30, 1995 ----------------------------- Charles B. Reed /s/ Joan D. Ruffier Director March 30, 1995 ----------------------------- Joan D. Ruffier /s/ Robert T. Stuart, Jr. Director March 30, 1995 ----------------------------- Robert T. Stuart, Jr. /s/ Jean Giles Wittner Director March 30, 1995 ----------------------------- Jean Giles Wittner 95 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 30, 1995 By: /s/ Allen J. Keesler, Jr. ------------------------- Allen J. Keesler, Jr., President 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 March 30, 1995 ------------------------- Board and Director Jack B. Critchfield /s/ Allen J. Keesler, Jr. President, Chief March 30, 1995 ------------------------- Executive Officer Allen J. Keesler, Jr. and Director Principal Executive Officer /s/ Jeffrey R. Heinicka Senior Vice President March 30, 1995 ------------------------- and Jeffrey R. Heinicka Chief Financial Officer Principal Financial Officer /s/ John Scardino, Jr. Vice President March 30, 1995 ------------------------- and Controller John Scardino, Jr. Principal Accounting Officer /s/ R. Mark Bostick Director March 30, 1995 ------------------------- R. Mark Bostick /s/ Richard Korpan Director March 30, 1995 ------------------------- Richard Korpan /s/ Frank C. Logan Director March 30, 1995 ------------------------- Frank C. Logan (Continued) 96 /s/ Clarence V. McKee Director March 30, 1995 ------------------------- Clarence V. McKee /s/ Joan D. Ruffier Director March 30, 1995 ------------------------- Joan D. Ruffier /s/ Jean Giles Wittner Director March 30, 1995 ------------------------- Jean Giles Wittner 97
Schedule II FLORIDA PROGRESS CORPORATION Valuation and Qualifying Accounts For the Years Ended December 31, 1994, 1993, and 1992 (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, 1994 Nuclear Refueling Outage Reserve $11.5 $12.6 $17.7 $-- $6.4 ======= ======= ======= ======= ======= Insurance policy benefit reserves $186.5 $36.0 $ -- $-- $222.5 ======= ======= ======= ======= ======= Reserve for loan & lease losses $24.8 $10.1 $0.8 $-- $34.1 ======= ======= ======= ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1993 Nuclear Refueling Outage Reserve $8.7 $15.1 $12.3 $-- $11.5 ======= ======= ======= ======= ======= Insurance policy benefit reserves $140.3 $26.8 $ -- $19.4 (A) $186.5 ======= ======= ======= ======= ======= Reserve for loan & lease losses $23.3 $5.9 $4.4 $-- $24.8 ======= ======= ======= ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1992 Nuclear Refueling Outage Reserve $13.8 $25.2 $30.3 $ -- $8.7 ======= ======= ======= ======= ======= Insurance policy benefit reserves $115.9 $24.4 $ -- $ -- $140.3 ======= ======= ======= ======= ======= Reserve for loan & lease losses $20.5 $6.5 $3.7 $ -- $23.3 ======= ======= ======= ======= ======= (A) Increase due to adoption of Financial Accounting Standard No. 113.
98
Schedule II FLORIDA POWER CORPORATION Valuation and Qualifying Accounts For the Years Ended December 31, 1994, 1993, and 1992 (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, 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 ======= ======= ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1993 1993 Nuclear Midcycle Outage Reserve (#9) $4.2 $4.6 $9.5 ($0.7) 1994 Nuclear Refueling Outage Reserve (#9) 4.5 10.5 2.8 12.2 ------- ------- ------- ------- $8.7 $15.1 $12.3 $11.5 ======= ======= ======= ======= FOR THE YEAR ENDED DECEMBER 31, 1992 1991 Nuclear Midcycle Outage Reserve (#8) ($2.4) $2.6 $0.2 $0.0 1992 Nuclear Refueling Outage Reserve (#8) 16.2 13.7 29.9 0.0 1993 Nuclear Midcycle Outage Reserve (#9) 0.0 4.4 0.2 4.2 1994 Nuclear Refueling Outage Reserve (#9) 0.0 4.5 0.0 4.5 ------- ------- ------- ------- $13.8 $25.2 $30.3 $8.7 ======= ======= ======= ======= Note: Deductions are payments of actual expenditures related to the outage. /TABLE 99 EXHIBIT INDEX Florida Florida Number Exhibit Progress Power -------- ----- 4 Form of Certificate representing shares of X Florida Progress Common Stock. 10.(a) Florida Progress Supplemental Executive X X Retirement Plan.* 10.(b) Management Incentive Compensation Plan X X of Florida Progress Corporation, as amended.* 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 (No. 33-53939) (relating to the Savings Plan for Employees of Florida Progress and filed with the SEC on June 1, 1994); Form S-3 (No. 33-45044) (relating to the Progress Plus Plan and filed with the SEC on January 13, 1992); 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); and Form S-3 (No. 2-93111)(relating to the acquisition of Better Business Forms and filed with the SEC on September 5, 1984). 23.(b) Consent of Independent Certified Public X Accountants to the incorporation by reference of their report on the financial statements into Florida Power's registration statements on Form S-3 (No. 33-62210 and 33-55273)(relating to Florida Power's first mortgage bond shelf) and Form S-3 (No. 33-50908) (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 100 4. Exhibits incorporated herein by reference: 3.(a) Bylaws of Florida Progress, as amended to date. X (Filed as Exhibit 3(a) to Florida Progress' Form 10-K for the year ended December 31, 1992, as filed with the SEC on March 31, 1993). 3.(b) Restated Articles of Incorporation, as X amended, of Florida Progress. (Filed as Exhibit 3(a) to Florida Progress' Form 10-K for the year ended December 31, 1991, as filed with the SEC on March 30, 1992.) 4.(a) 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.(b) Amended Articles of Incorporation, as X X amended, of Florida Power. (Filed as Exhibit 3(a) to the Florida Power Form 10-K for the year ended December 31, 1991, as filed with the SEC (File No. 1-3274) on March 30, 1992). 4.(c) Indenture, dated as of January 1, 1944 (the X X "Indenture"), between Florida Power and Guaranty Trust Company of New York and The Florida National Bank of Jacksonville, as Trustees. (Filed as Exhibit B-18 to Florida Power's Registration Statement on Form A-2 (No. 2-5293) filed with the SEC on January 24, 1944). 4.(d) 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.(e) 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). 101 4.(f) 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.(g) 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.(h) 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 Form S-3 Registration Statement No. 33-55273 as filed with the SEC on August 29, 1994.) 10.(d) Amended and Restated Support Agreement, X dated as of February 1, 1991, between Florida Progress and Progress Capital (Filed as Exhibit 10(d) to Florida Progress' Form 10-K for the year ended December 31, 1990, as filed with the SEC on March 28, 1991). 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). * 102 10.(f) Amended and Restated General Partnership X X Agreement of the SunShine Pipeline Partners dated May 5, 1993. (Filed as Exhibit 10(a) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). 10.(g) Amended and Restated General Partnership X X Agreement of the SunShine Interstate Pipeline Partners dated May 5, 1993. (Filed as Exhibit 10(b) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). 10.(h) Precedent Agreement dated April 8, 1993 X X between Florida Power and the SunShine Pipeline Partners covering terms and conditions of service to be provided to Florida Power by the intrastate component of the SunShine Pipeline. (Filed as Exhibit 10(c) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). 10.(i) Precedent Agreement dated April 8, 1993 X X between Florida Power and the SunShine Pipeline Partners covering terms and conditions of service to be provided to Florida Power by the interstate component of the Sunshine Pipeline. (Filed as Exhibit 10(d) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). 10.(j) Letter Agreement dated June 30, 1993 X X relating to the SunShine Pipeline. (Filed as Exhibit 10(e) to Florida Power's Form 10-Q for the quarter ended June 30, 1993, as filed with the SEC (File No. 1-3274) on August 3, 1993). (Confidential treatment has been granted with respect to a portion of this document - omitted portion filed separately with the SEC). X = exhibit is filed for that respective company. * Exhibit constitutes an executive compensation plan or arrangement. EX-4 2 EXHIBIT 4 TO FLORIDA PROGRESS/POWER FORM 10-K EXHIBIT 4 COMMON STOCK COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA SHARES NUMBER SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 341109 10 6 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: CHEMICAL BANK (NEW YORK) TRANSFER AGENT AND REGISTRAR Vice President and Chairman and Treasurer Chief 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_______________________ _____________________________ ON SIDE OF REVERSE The signature to this 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 (the "Rights Agreement") between Florida Progress Corporation (the "Company") and Chemical Bank, as successor to Manufacturers Hanover Trust Company, (the "Rights Agent") dated as of November 21, 1991 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal office of the Company. 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 Company 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) 3 EXHIBIT 10.(A) TO FLORIDA PROGRESS/POWER FORM 10-K EXHIBIT 10.(A) FLORIDA PROGRESS CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Amended and Restated as of October 1, 1994) FLORIDA PROGRESS CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE OF CONTENTS
PAGE 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 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 as of October 1, 1994) ARTICLE 1. ESTABLISHMENT AND PURPOSE 1.1 RESTATEMENT. Florida Progress Corporation hereby amends and restates, effective as of October 1, 1994, 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 in lieu of the PBGC rate used by the Retirement Plan). (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; (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. (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 most recent MICP Award (if received no more than 15 months prior to such time). (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 at the time he or she first becomes employed by an Employer, the additional years of credited service, if any, awarded to the Participant by the Committee at such time; plus (3) with respect to a person who becomes eligible to participate under Article 4 at a time he or she is not a participant in the Retirement Plan (other than a person covered by the provisions of subsection (l)(2) above), the additional years of credited service, if any, awarded to the Participant by the Committee at such time; plus (4) with respect to a person who becomes eligible to participate under Article 5, the additional years of credited service, if any, awarded to the Participant by the Committee at such time; plus (5) solely for a person becoming a Participant on or before October 24, 1994, the additional years of credited service, if any, awarded to the Participant by the Committee at the time of the adoption of the 1994 amendment and restatement. 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. (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. (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 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. 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. 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: (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 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 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 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: (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 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 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. 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 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. 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. (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). 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. 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. 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: (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 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. EX-10.(B) 4 EXHIBIT 10.(B) TO FLORIDA PROGRESS/POWER FORM 10-K EXHIBIT 10.(B) FLORIDA PROGRESS CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN January 1, 1985 As Amended October 24, 1994 FLORIDA PROGRESS CORPORATION MANAGEMENT INCENTIVE COMPENSATION PLAN I. GENERAL PROVISIONS 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. 2. TERM OF THE PLAN The Plan shall be effective as of January 1, 1985. The Plan shall remain in effect until such time as 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 April 1 of each Plan Year. 2. "Board" shall mean the Board of Directors of Florida Progress Corporation. 3. "Chairman" shall mean the Chairman and Chief Executive Officer of the Board of Directors of Florida Progress Corporation. 4. "Company" shall mean the Florida Progress Corporation and its subsidiaries. 5. "Compensation Committee" shall mean the Compensation Committee of the Board. 6. "Employee" shall mean a person who is a full-time, active employee of the Company. 7. "Executive Optional Deferred Compensation Plan" shall mean the Company's deferred compensation plan under which a Participant may irrevocably elect to defer awards emanating from this Plan for payment at a specified future date. 8. "Financial Goal(s)" shall mean the annual financial goal established for the company or subsidiary. 9. "Individual Goals" shall mean the established annual performance goals and objectives for each Plan Participant which will be used to determine the Participant's Performance Award pursuant to the Plan. 10. "Participant" shall mean an Employee selected by Senior Management who is eligible to receive a Performance Award pursuant to the Plan. 11. "Performance Award" shall mean the amount of the annual cash award paid to the Plan Participant as soon as it is practical after completion of the Plan Year. 12. "Plan" shall mean the Management Incentive Compensation Plan for the company as described and set forth herein. 13. "Pool(s)" shall mean the total of annual Performance Awards which are created and funded annually by achievement under Financial Goals for the company and each subsidiary. 14. "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. 15. "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. 16. "Supervisor" shall mean the immediate supervisor of a Plan Participant to whom the latter reports on a day-to-day basis for operational and administrative direction. 17. "Target Incentive" shall mean the percentage of annualized base salary at risk by a participant for the 100% or full achievement of the financial goal. III. CHAIRMAN AND CHIEF EXECUTIVE OFFICER 1. 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 and two 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. (d) Designate at his discretion an executive to administer the plan within the company or any of its subsidiaries. 2. 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, the Compensation Committee shall have the authority to: (a) Review, and either accept, reject, or modify 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 him. (c) 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 expenditures for all performance awards according to each subsidiary and achievement of financial goals. IV. ELIGIBILITY AND PARTICIPATION 1. ELIGIBLE EMPLOYEES. 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 top officers of each subsidiary for the approval of the Chairman. 2. NO RIGHT OF EMPLOYMENT. Nothing in the Plan shall infer 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. V. PERFORMANCE MEASUREMENT PERIOD The Plan measures and rewards performance achieved by the Company over the course of the calendar year, which shall be designated as the Plan Year. VI. PERFORMANCE CRITERIA 1. FINANCIAL GOALS. The Plan's performance criteria for funding awards is established each year consistent with the Company's annual financial goals and objectives. 2. WEIGHTING OF FINANCIAL GOALS. Florida Progress Corporation and each Subsidiary will have its financial goals weighted to reflect their relative importance in determining the size of the award 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 75% Florida Power 25% Diversified Consolidated Subsidiary Companies 100% Subsidiary Company VII. DETERMINATION OF INDIVIDUAL PERFORMANCE AWARDS 1. THE SIZE OF INDIVIDUAL PERFORMANCE AWARDS. Shall be based upon the assessment of the participant's achievement under Individual Goals during the Plan Year. All Awards are distributed from available funds in the Incentive Award Pools. 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. The range of participant Target Incentives shall be from 10% up to 50% of annualized base salary. 3. THE SIZE OF AN INCENTIVE AWARD POOL. Shall be determined by the achievement under the Financial Goal. At 100% Achievement the size of the Incentive Award Pool shall equal the TOTAL of the Participant Target Incentives. At the Threshold achievement level the size of the pool shall be 50% of the TOTAL, and at the Maximum achievement level equal to 150% of the TOTAL. Incentive Award Pools are established separately under each Financial Goal and funds are not transferrable between Pools. FINANCIAL GOAL ACHIEVEMENT -------------------------- Threshold Goal Maximum % of TOTAL of Target 50% 100% 150% Incentives 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 annual goals are to be developed as the result of discussions between the Participant and Supervisor. These 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 year. 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. 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. VIII. TIMING AND PAYMENT OF AWARDS 1. TIMING OF AWARD PAYMENTS. Subject to deferrals pursuant to Sections 3 and 4, Participants in the Plan will receive their Performance Awards as soon as practical after the completion of the Plan Year in accordance with Section 2. 2. AWARDS PAYABLE IN CASH. All awards under the Plan shall be paid in cash. All awards shall be subject to the Company withholding the amount of any Social Security, federal, state, or local taxes attributed to any amounts paid pursuant to the Plan. 3. DEFERRAL OF AWARDS UNDER THE EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN. Any Participant in the Plan may elect to defer a portion or all of an award pursuant to the Plan in accordance with the Executive Optional Deferred Compensation Plan. The deferral of awards, an election which a Participant may voluntarily make, shall be in accordance with the terms and provisions of the Executive Optional Deferred Compensation Plan. A Participant desiring to exercise the deferral election pursuant to the Executive Optional Deferred Compensation Plan shall notify the Company each year of his deferral election. Such notice must be in writing, on a deferral election form provided by the Company, and be delivered to the Company prior to the beginning of each Plan Year. The Participant shall also irrevocably specify on the deferral election the date upon which the deferred award applicable to that year's deferral shall be paid. 4. MANDATORY DEFERRAL OF AWARDS TO PRESERVE THE COMPANY'S TAX DEDUCTION. The Company shall defer paying any award, including an award previously deferred by a Participant, to the extent that it would otherwise be disallowable as a deduction under Section 162(m) of the Internal Revenue Code, until such time as the payment will be allowed as a deduction. Such deferral shall accrue interest in accordance with the terms and provisions of the Executive Optional Deferred Compensation Plan. 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). IX. LIMITED PARTICIPATION DURING PLAN YEAR An Employee who is a Participant in the Plan must be in the Company's employ on the last day of the Plan Year in order to receive any awards pursuant to the Plan. In the event that an Employee becomes a Participant in the Plan for less than a full Plan Year, the following provisions shall apply: 1. ELIGIBILITY DURING PLAN YEAR. 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. In order to be eligible for a Prorated Award, the Participant must be an Employee on the last day of the Plan Year. The size of the Prorated Award is determined by multiplying the Performance Award which would have been earned by the Participant for a full year's participation by the fraction of 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 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, extended 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 of 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 3. PRORATION OF TARGET INCENTIVES. In the event a participant's Target Incentive changes during the year, the performance award shall be determined as follows: Former x Former x # of + New x New x # of Base Target Months Base Target Months Salary Incentive 12 Salary Incentive 12 X. AMENDMENT TO PLAN The Plan may be amended in whole or part by the Compensation Committee. XI. 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. XII. FORFEITURE 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. EX-10.(C) 5 EXHIBIT 10.(C) TO FLORIDA PROGRESS/POWER FORM 10-K EXHIBIT 10.(C) FLORIDA PROGRESS CORPORATION EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN November 1985 FLORIDA PROGRESS CORPORATION EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN I. PURPOSE This Plan is an unfunded Deferred Compensation arrangement for a select group of management who are rendering service to the Company. 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. "Beneficiary" shall mean any person or persons designated by the Executive to receive amounts payable in accordance with this Plan in the event of the Executive's beneficiary shall be deemed to be his estate. 2. "Compensation Committee" shall mean the Compensation Committee of the Company 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. 3. "Company" shall mean the Florida Progress Corporation and its subsidiaries, other than Florida Power Corporation. 4. "Compensation" shall mean annual awards which may be paid to an Executive under the Company's Management Incentive Compensation Plan. 5. "Death" shall mean death from any cause. 6. "Deferred Compensation" shall mean the portion of a Participant's Compensation for any Plan Year, or part thereof, that has been deferred pursuant to the Plan. 7. "Deferred Compensation Account(s)," or "Account(s)" shall mean the accounts that may be established each year by the Company as a book reserve to which shall be credited the sum of the Participant's Deferred Compensation for that year plus any earnings credited thereafter in accordance with Section VI of this Plan. 8. "Deferral Election Form" shall mean the form made available annually by the Compensation Committee to an Executive which, when properly executed by the Executive, effects his participation in the Plan for the next following Plan Year. 9. "Disability" 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 Executive from engaging in and performing all of the duties assigned him and such Disability shall have been in existence for a period of at least six months. The Compensation Committee shall determine the date on which such Disability commenced for the purpose of establishing any amount payable under this Plan and when such amount becomes payable. 10. "Effective Date" shall mean January 1, 1986. 11. "Executive" shall mean any employee of the Company who is a participant in the Company's Management Incentive Compensation Plan. 12. "Management Incentive Compensation Plan" shall mean the Company's annual management incentive bonus program. 13. "Participant" means any employee designated as an Executive who elects to participate in the Plan according to Sections III and IV or a person who was such at the time of his Retirement, Death, Disability or Termination of Service and who retains, or whose Beneficiary obtains, a benefit under the Plan which has not been forfeited or distributed. 14. "Plan" shall mean the Executive Optional Deferred Compensation Plan of Florida Progress Corporation as described in this instrument, effective January 1, 1986 and, as may be amended, thereafter. 15. "Plan Year" shall mean the calendar year. 16. "Retirement" shall mean the date upon which the Executive retires from the Company. 17. "Termination of Service" shall mean the termination of a participant's employment as a regular employee of the Company for reasons other than Death, Disability or Retirement. III. ELIGIBILITY 1. PARTICIPANTS IN THE MANAGEMENT INCENTIVE COMPENSATION PLAN. Those employees who are participants in the Company's "Management Incentive Compensation Plan" are designated Executives for purposes of this Plan and, as such, shall be entitled to participate in this Plan. 2. ELECTION TO DEFER. Any Executive may elect to defer receipt of his Compensation under the Plan in accordance with Section IV and thereby shall become a Participant under the Plan. IV. ELECTION TO PARTICIPATE IN THE PLAN 1. EXECUTIVE ELECTION. Any Executive may elect to have a portion or all of his Compensation to be received by him during each Plan Year deferred and credited with earnings in accordance with the terms and conditions of the Plan. The Compensation that may be so deferred shall be the Executive's awards, if any, under the Company's Management Incentive Compensation Plan, and may include as much as 100 percent of such awards. 2. NOTICE OF ELECTION. A Participant desiring to exercise such election under Paragraph IV-1 above shall notify the Compensation Committee each year of his deferral election. Such notice must be in writing, on a Deferral Election Form provided by the Compensation Committee, and delivered to the Committee at least 30 days prior to the beginning of each Plan Year. The Participant shall also irrevocably specify on the Deferral Election Form the date upon which his Deferred Compensation Account applicable to that year's deferral shall be distributed to him. In subsequent years the Participant may irrevocably specify either the same distribution date or different distribution dates with respect to Compensation deferrals, if any, in such subsequent years. 3. CREDIT TO DEFERRED COMPENSATION ACCOUNT. The amount of a Participant's Deferred Compensation shall be credited to his Deferred Compensation Account. 4. NO RIGHTS TO DEFERRAL COMPENSATION ACCOUNT. No Executive or his designated Beneficiary shall acquire any property interest in his Deferred Compensation Account or any other assets of the Company, their rights being limited to receiving from the Company deferred payments as set forth in this Plan and these rights are conditioned upon continued compliance with the terms and conditions of this Plan. To the extent, that any Participant or Beneficiary acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. V. TERMINATION OF PARTICIPATION IN THE PLAN Any Executive having previously elected to participate in the plan shall automatically cease to participate in the Plan if he fails (in a subsequent year) to properly execute a Deferral Election Form as provided for in paragraph IV-2 herein, in which event the accumulated credits in his Deferred Compensation Account, prior to his termination of participation, will continue to be subject to the provisions of the Plan. VI. CREDITING OF EARNINGS There shall be credited to the Deferred Compensation Account an additional amount of earnings (i.e., in addition to the principal amounts credited to such account), as established by the Corporation for each Participant or for each group of Participants as it shall determine. VII. DISTRIBUTION OF AMOUNTS DEFERRED UNDER THE PLAN 1. PAYMENT IN CASH. The amount payable to a Participant in accordance with the provisions of the Plan (including earnings credited under Section VI) shall be paid in cash. 2. PAYMENT AT TERMINATION OF SERVICE. Notwithstanding the above, in the event of Termination of Service by the Executive, payment will be made in a lump sum as soon as practical after his Termination. 3. AUTHORITY OF THE COMPENSATION COMMITTEE. Notwithstanding anything herein contained to the contrary, the Compensation Committee shall have the right in its sole discretion to vary the manner and time of making distributions under the Plan. VIII. DEATH 1. DESIGNATION OF BENEFICIARY. At the time that an Executive becomes a Participant, he shall designate in writing a Beneficiary to receive any payments to which he would have been entitled under the terms of this Plan. The Beneficiary referred to in this paragraph may be designated or changed by the Executive (without the consent of any prior Beneficiary) on a form provided by the Compensation Committee and delivered to the Compensation Committee before his Death. If no such Beneficiary shall have been designated, or if no designated Beneficiary shall survive the Executive, payments shall be payable to the Executive's estate. 2. DEATH BEFORE RETIREMENT. If the Executive's employment is terminated because of Death before Retirement and while he is in the employ of the Company, then the Company shall make payments to his designated Beneficiary in the same manner and to the extent as provide in Section VII. 3. DEATH WHILE RECEIVING PAYMENTS. If the Executive should die while receiving payments from this Plan but before receiving all payments to which the Executive is entitled, the unpaid balance will continue to be paid to his designated Beneficiary in the same manner as would have been paid to the Executive. At the discretion of the Compensation Committee, the unpaid balance may be paid in a lump sum. 4. DEATH OF BOTH EXECUTIVE AND BENEFICIARY. If both the Executive and his designated beneficiary should die before all payments are made by the Company, then the value of the remaining payments shall be determined as of the date of death of the designated Beneficiary and shall be paid as promptly as possible in one lump sum to the estate of such designated Beneficiary. IX. DISABILITY If the Executive's employment is terminated because of Disability and while he is in the employ of the Company, then the Company shall make payments to the Executive in the same manner and to the same extent as provided in Section VIII. X. NON-ASSIGNMENT/NON-ATTACHMENT Except as required by law, no right of the Executive or designated Beneficiary to receive payments under this Plan shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law and any attempt, voluntary or involuntary, to effect any such action shall be null and void and of no effect. XI. CONDITIONS AS TO PAYMENT Notwithstanding anything herein contained to the contrary, no payment of any then unpaid installments of deferred compensation shall be made and all rights of the Executive or his designated Beneficiary to receive payments under this Plan shall be forfeited, if, after the Executive's Retirement from the Company, he shall fail or refuse to provide advice or counsel to the Company when reasonably requested to do so. XII. INCAPACITY If the Compensation Committee shall find that any person to whom any payment is payable under this Plan is unable to care for his affairs because of illness or accident or is a minor, any payment due (unless a prior claim therefore shall have been made by a duly appointed guardian, committee or legal representative) may be paid to the spouse, a child, a parent, a brother or sister or to any person deemed by the Compensation Committee in such manner as the Compensation Committee shall determine. Any such payment shall be a complete discharge of the liabilities of the Company under this agreement. XIII. CONSTRUCTION This Agreement shall be construed under the laws of the State of Florida. Section headings and paragraph headings are for convenience only and shall not be considered as part of the terms and provisions of the Plan. XIV. CONSOLIDATION OR MERGER In the event that the Company or any entity (resulting from any merger or consolidation or which shall be a purchaser or transferee so referred to), shall at anytime be merged or consolidated into or with any other entity or entities, or in the event that substantially all of the assets of the Company or any such entity shall be sold or otherwise transferred to another entity, the provisions of this Plan shall be binding upon and shall enure to the benefit of the continuing entity or the entity resulting from such merger or consolidation or the entity to which such assets shall be sold or transferred. Except as provided in the preceding sentence, the Plan shall not be assignable by the Company or by any entity referred to in such preceding sentence. XV. AMENDMENT OF PLAN The Plan may be amended in whole or in part from time to time by the Company. Notice of every such amendment shall be given in writing to each Participant and designated Beneficiary of a deceased Participant. XVI. MISCELLANEOUS 1. NO LEGAL RIGHT TO CONTINUED EMPLOYMENT. Neither this Agreement, nor any action of the Company or Compensation Committee, nor any election to defer Compensation hereunder shall be held or construed to confer on any person any legal right to be continued as an employee of the Company, or any division, subsidiary or affiliate of the Company. 2. WITHHOLDING FOR TAXES. The Company shall have the right to deduct from all payments any taxes required by law to be withheld with respect to any payments made under this Plan. 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. * * * * IN WITNESS THEREOF, the Company has caused this Plan to be executed and its Seal to be affixed by its officers thereunto duly authorized, and Mr. Andrew H. Hines, Jr., Chairman and Chief Executive Officer of the Company, has signed this Agreement, as of the 30th day of November, 1985. Florida Progress Corporation By: /s/ Andrew H. Hines, Jr. ----------------------------- Chairman and Chief Executive Officer (Seal) ATTEST: s/ Cathleen P. Kortright ------------------------- Assistant Secretary FLORIDA PROGRESS CORPORATION EXECUTIVE OPTIONAL DEFERRED COMPENSATION PLAN RESOLUTIONS ADOPTED BY THE COMPENSATION COMMITTEE AT MEETING HELD 08/18/94 WHEREAS, pursuant to Section 15 of the Florida Progress Corporation Executive Optional Deferred Compensation Plan (the "Executive Deferred Plan"), the right is reserved to Florida Progress Corporation and its subsidiaries (the "Company") through the Compensation Committee of the Board of Directors of Florida Progress Corporation to amend the Executive Deferred Plan; and WHEREAS, the Company deems it is advisable to amend the Executive Deferred Plan in principle at this time to effect certain changes to the plan. NOW, THEREFORE, BE IT RESOLVED, that, effective September 1, 1994, the provisions of the Executive Deferred Plan are amended to provide for a new Pre-Tax Deferral portion that allows pre-tax employee base pay deferrals with associated company matching contributions. These resolutions will function as an addendum to the Executive Deferred Plan document dated November, 1985 and effective January 1, 1986: GENERAL PROVISIONS 1. PURPOSE The purpose of the Pre-tax Deferral portion 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 benefit plans. 2. EFFECTIVE DATE The effective date of the Pre-tax Deferral portion of the Plan is September 1, 1994. DEFINITIONS 1. Base Salary Rate, for the Pre-tax Deferral portion of the Plan only, 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.). In Plan Years 1994 and 1995, 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. Company shall mean Florida Progress Corporation and its subsidiaries. 3. 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. 4. 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 VI 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. 5. Employee shall mean a person who is a full-time, active employee of the Company. 6. 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 Paragraph 1 of the Contributions section. 7. 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 VI of this Plan. 8. Participant, for the Pre-tax Deferral portion of the Plan, shall mean an Employee selected by Senior Management who is eligible to receive a Performance Award pursuant to the Management Incentive Compensation Plan and who is eligible to participate in the Savings Plan, and whose annual base salary exceeds the compensation limits outlined in Code Section 401(a)(17) of the Internal Revenue Code of 1986. 9. Plan shall mean the Executive Optional Deferred Compensation Plan of Florida Progress Corporation dated November, 1985 and effective January 1, 1986, as amended herein and as may be amended hereafter. 10. Plan Year, for the Pre-tax Deferral portion of the Plan, shall mean the calendar year beginning January 1, except in the initial year when it will mean the period of time from September 1, 1994 to December 31, 1994. 11 Pre-tax Deferral Election Form shall mean the form made available annually by the Compensation Committee to a Participant which, when properly executed by the Participant, effects his participation in the Pre-tax Deferral portion of the Plan for the next following Plan Year. 12. Savings Plan means the Savings Plan for Employees of Florida Progress Corporation, as amended. 13. Valuation Date shall mean the last day of each calendar month. ELECTIONS 1. PRE-TAX DEFERRAL ELECTION. Any Participant in the Pre-tax Deferral portion of the Plan may voluntarily make an irrevocable election to defer an amount from 0% 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, as modified herein. 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. 2. TIMING OF DISTRIBUTION ELECTION. For Plan Year 1994, the Participant shall not have any option to specify the date, other than separation of service due to retirement, termination, disability, or death, upon which the balances within the Employee Deferred Contributions and Company Matching Deferred Contributions Accounts shall be paid. No later than the Plan Year beginning in 1996, additional distribution options for these accounts will be added. CONTRIBUTIONS 1. EMPLOYEE DEFERRED CONTRIBUTIONS. (a) Participants who choose to participate in the Pre-tax Deferral portion of 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 Pre-tax Deferral portion of 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 plus any earnings credited thereafter in accordance with Section VI of the Plan. 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 Pre-tax Deferral portion of the Plan in the amounts and at the times Regular Company Contributions and Special Company Contributions 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. (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 Member 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 plus any earnings credited thereafter in accordance with Section VI 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. 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: Completed Years of Credited 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 Credited Service while in the employ of the Company or upon his death while in the employ of the Company or upon his Retirement. 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. No later than the Plan Year beginning in 1996, additional distribution options for these accounts will be added. 2. COMMENCEMENT OF PAYMENT - For Plan Year 1994, distribution of a Participant's Employee Deferred Contributions Account and the vested portion of the Company Matching Deferred Contributions Account shall commence as soon as administratively practicable following the Participant's retirement, termination of employment, disability, or death. No later than the Plan Year beginning in 1996, additional distribution options for these accounts will be added. 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. 3. 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. TERMINATION OF PARTICIPATION IN THE PLAN Any Executive having previously elected to participate in the Plan shall automatically cease to participate in the appropriate portion of the Plan if he or she fails (in a subsequent year) to properly execute a Deferral Election Form and/or a Pre-Tax Deferral Election Form as provided for within the Plan, in which event the accumulated credits in his Deferred Compensation Account, 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. CREDITING OF EARNINGS There shall be credited to the Deferred Compensation Account, 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 Corporation for each Participant or for each group of Participants as it shall determine."; and FURTHER RESOLVED, that the Compensation Committee directs the proper officers of the Company to take such other and further actions as shall be necessary and proper in connection with the adoption and implementation of the foregoing resolutions and to comply with all legal and procedural requirements relating thereto. EX-12 6 EXHIBIT 12 TO FLORIDA PROGRESS/POWER FORM 10-K Exhibit 12 FLORIDA POWER CORPORATION Statement of Computation of Ratios (Dollars In Millions) Ratio of Earnings to Fixed Charges: 1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Net Income $200.8 $194.9 $186.9 $180.9 $182.3 Add: Operating Income Taxes 114.7 104.5 97.7 92.8 102.0 Other Income Taxes (0.8) (0.1) (0.2) (0.1) 1.0 ------ ------ ------ ------ ------ Income Before Taxes 314.7 299.3 284.4 273.6 285.3 Total Interest Charges 108.4 105.8 100.2 95.2 98.8 ------ ------ ------ ------ ------ Total Earnings (A) $423.1 $405.1 $384.6 $368.8 $384.1 ------ ------ ------ ------ ------ Fixed Charges (B) $108.4 $105.8 $100.2 $95.2 $98.8 ------ ------ ------ ------ ------ Ratio of Earnings to Fixed Charges (A/B) 3.90 3.83 3.84 3.87 3.89 ====== ====== ====== ====== ====== EX-21 7 EXHIBIT 21 TO FLORIDA PROGRESS/POWER FORM 10-K EXHIBIT 21 Subsidiaries of Florida Progress Corporation December 31, 1994 Name of Subsidiary * State of Incorporation ------------------- ---------------------- Utility segment: Florida Power Corporation Florida Diversified segment: Progress Capital Holdings, Inc. Florida Electric Fuels Corporation Florida Mid-Continent Life Insurance Company Oklahoma Progress Credit Corporation Florida Progress Leasing Corporation Florida PLC Leasing Corporation Florida ---------- * Each subsidiary does business under its own name. EX-23.(A) 8 EXHIBIT 23.(A) TO FLORIDA PROGRESS/POWER 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, and No. 2-93111 on Form S-3 of Florida Progress Corporation of our report dated January 23, 1995, relating to the consolidated balance sheets of Florida Progress Corporation and subsidiaries as of December 31, 1994 and 1993, 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, 1994, and all related schedules, which report appears in the December 31, 1994 annual report on Form 10-K of Florida Progress Corporation. Our report refers to a change in the methods of accounting for income taxes and postretirement benefits other than pensions. /s/KPMG PEAT MARWICK LLP ------------------------ KPMG PEAT MARWICK LLP St. Petersburg, Florida March 30, 1995 EX-23.(B) 9 EXHIBIT 23.(B) TO FLORIDA PROGRESS/POWER 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, and No. 33-50908 on Form S-3 of Florida Power Corporation of our report dated January 23, 1995, relating to the balance sheets of Florida Power Corporation as of December 31, 1994 and 1993, and the related statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994, and all related schedules which report appears in the December 31, 1994 annual report on Form 10-K of Florida Power Corporation. Our report refers to a change in the methods of accounting for income taxes and postretirement benefits other than pensions. /s/KPMG PEAT MARWICK LLP ------------------------- KPMG PEAT MARWICK LLP St. Petersburg, Florida March 30, 1995 EX-27.(A) 10 FLORIDA PROGRESS CORPORATION SCHEDULE UT
UT 1,000,000 0000357261 FLORIDA PROGRESS CORPORATION DEC-31-1994 DEC-31-1994 YEAR PER-BOOK 3,669 1,205 588 92 165 5,719 1,148 0 836 1,984 30 114 1,860 0 0 55 53 0 0 0 1,623 5,719 2,772 110 2,296 2,406 366 (10) 356 134 222 10 212 186 0 533 2.28 2.28
EX-27.(B) 11 FLORIDA POWER CORPORATION SCHEDULE UT
UT 1,000,000 0000037637 FLORIDA POWER CORPORATION DEC-31-1994 DEC-31-1994 YEAR PER-BOOK 3,669 148 367 0 101 4,285 943 0 725 1,668 30 114 1,364 0 0 55 35 0 0 0 1,019 4,285 2,081 115 1,661 1,776 305 (1) 304 103 201 (10) 191 176 0 498 0.00 0.00