-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C0et0YrJ7kGd+6YfLRYEBWY2R9ky1onKhqFPrhv5mXpFNvpg7K7oKCju6VLnlpec /eiIIkQOzEbA52Y0k0OVMQ== 0001021408-02-004306.txt : 20020415 0001021408-02-004306.hdr.sgml : 20020415 ACCESSION NUMBER: 0001021408-02-004306 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLORIDA POWER CORP / CENTRAL INDEX KEY: 0000037637 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590247770 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03274 FILM NUMBER: 02591384 BUSINESS ADDRESS: STREET 1: 3201 34TH ST SOUTH STREET 2: ONE PROGRESS PLAZA CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 7278205151 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLORIDA PROGRESS CORP CENTRAL INDEX KEY: 0000357261 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 592147112 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08349 FILM NUMBER: 02591383 BUSINESS ADDRESS: STREET 1: ONE PROGRESS PLAZA STREET 2: STE 2600 CITY: ST PETERSBURG STATE: FL ZIP: 33701 BUSINESS PHONE: 7278246400 MAIL ADDRESS: STREET 1: ONE PROGRESS PLZ STREET 2: SUITE 2600 CITY: ST PETERSBURG STATE: FL ZIP: 33701 10-K405 1 d10k405.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) - ---------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ----------- I.R.S. Exact name of each Registrant as specified in Employer Commission its charter, state of incorporation, address Identification File No. of principal executive offices, telephone Number 1-8349 FLORIDA PROGRESS CORPORATION 59-2147112 A Florida Corporation 410 South Wilmington Street Raleigh, North Carolina 27601- Telephone (919) 546-6111 1-3274 FLORIDA POWER CORPORATION 59-0247770 A Florida Corporation One Progress Plaza St. Petersburg, Florida 33701 Telephone (727) 820-5151 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT ----------------------------------------------------------
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Florida Progress Corporation: 7.10% Cumulative Quarterly Income Preferred Securities, New York Stock Exchange Series A, of FPC Capital I (and the Guarantee of Florida Progress with respect thereto) 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] 1 This combined Form 10-K is filed separately by two registrants: Florida Progress Corporation and Florida Power Corporation. Information contained herein relating to either individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrant. As of February 28, 2002, the aggregate market value of the voting stock held by non-affiliates of Florida Progress Corporation as of February 28, 2002 was $-0-. All of the common stock of Florida Progress Corporation is owned by Progress Energy, Inc. As of February 28, 2002, the aggregate market value of the voting stock held by non-affiliates of Florida Power Corporation as of February 28, 2002 was $-0-. All of the common stock of Florida Power Corporation is owned by Florida Progress Corporation. As of February 28, 2002, each registrant had the following shares of common stock outstanding: Registrant Description Shares ---------- ----------- ------ Florida Progress Corporation Common Stock (without par value) 98,616,658 Florida Power Corporation Common Stock (without par value) 100 2 TABLE OF CONTENTS ----------------- GLOSSARY SAFE HARBOR FOR FORWARD LOOKING STATEMENTS PART I. ITEM 1. BUSINESS ITEM 2. PROPERTIES ITEM 3. LEGAL PROCEEDINGS ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS PART II. ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER MATTERS ITEM 6. SELECTED FINANCIAL DATA ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 3 GLOSSARY OF TERMS The following abbreviations or acronyms used in the text of this combined FORM 10-K are defined below:
TERM MEANING ---- ------- AFUDC.....................................Allowance for funds used during construction AOC.......................................Administrative Order on Consent AST.......................................Advanced Separation Technologies Btu.......................................British thermal units CAAA......................................Clean Air Act Amendments of 1990 CERCLA or Superfund.......................Comprehensive Environmental Response Compensation & Liability Act CVO.......................................Contingent Value Obligation Company or Florida Progress...............Florida Progress Corporation CP&L......................................Carolina Power and Light Company CP&L Energy...............................CP&L Energy, Inc. CR3.......................................Florida Power's nuclear generating plant, Crystal River Unit No. 3 DOE.......................................United States Department of Energy EPA.......................................United States Environmental Protection Agency ERISA.....................................Employee Retirement Income Security Act of 1974 FASB......................................Financial Accounting Standards Board FDEP......................................Florida Department of Environmental Protection FERC......................................Federal Energy Regulatory Commission Financial Statements......................Florida Progress' Financial Statements and Florida Power's Financial Statements, for the year ended December 31, 2001 contained under Item 8 herein Florida Power or the Utility..............Florida Power Corporation Florida Progress or the Company...........Florida Progress Corporation FPSC......................................Florida Public Service Commission FRCC......................................Florida Reliability Coordinating Council Funding Corp..............................Florida Progress Funding Corporation Georgia Power.............................Georgia Power Company IRS.......................................Internal Revenue Service KV........................................Kilovolts kVA.......................................Kilovolt Amperes LTIP......................................Florida Progress Long-Term Incentive Plan MD&A......................................Management's Discussion and Analysis of Financial Condition and Results of Operations MEMCO.....................................MEMCO Barge Line, Inc. MGP.......................................Manufactured Gas Plant Mid-Continent.............................Mid-Continent Life Insurance Company MW........................................megawatts NEIL......................................Nuclear Electric Insurance Limited NERC......................................North American Electric Reliability Council NPL.......................................National Priorities List NRC.......................................United States Nuclear Regulatory Commission PLR.......................................Private Letter Ruling Preferred Securities......................7.10% Cumulative Quarterly Income Preferred Securities, Series A, of FPC Capital I, fully and unconditionally guaranteed by Florida Progress Preferred Stock...........................Florida Power Cumulative Preferred Stock, $100 par value Progress Capital..........................Progress Capital Holdings, Inc. Progress Energy...........................Progress Energy, Inc. Progress Fuels............................Progress Fuels Corporation, formerly referred to as Electric Fuels Corporation Progress Rail.............................Progress Rail Services Corporation Progress Telecom..........................Progress Telecom Corporation Progress Telecommunications...............Progress Telecommunications Corporation
4 Progress Ventures.........................Progress Ventures, Inc., formerly referred to as Energy Ventures, a business segment of Progress Energy PRP.......................................potentially responsible party, as defined in CERCLA PUHCA.....................................Public Utility Holding Company Act of 1935, as amended PURPA.....................................Public Utility Regulatory Policies Act of 1978 QFs.......................................Qualifying facilities Retirement Plan...........................Florida Progress Corporation Retirement Plan for Exempt and Nonexempt Employees RTO.......................................Regional Transmission Organization SEC.......................................United States Securities and Exchange Commission SECI......................................Seminole Electric Cooperative Inc. Section 29................................Section 29 of the Internal Revenue Service Code Seminole or Seminole Electric.............Seminole Electric Cooperative, Inc. SERP......................................Florida Progress Corporation Supplemental Executive Retirement Plan SFAS......................................Statements of Financial Accounting Standards TECO......................................Tampa Electric Company the Trust.................................FPC Capital I
5 SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS Statements made throughout this Form 10-K that are not statements of historical facts are forward-looking statements and, accordingly, involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. For example, forward-looking statements are made in "Management's Discussion and Analysis of Financial Condition and Results of Operations" including, but not limited to, statements under the sub-heading "Other Matters" concerning synthetic fuel tax credits and regulatory developments. Any forward-looking statement speaks only as of the date on which such statement is made, and Florida Progress and Florida Power undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made. Examples of factors that you should consider with respect to any forward-looking statements made throughout this document include, but are not limited to, the following: governmental policies and regulatory actions (including those of the Federal Energy Regulatory Commission, the Environmental Protection Agency, the Nuclear Regulatory Commission, the Department of Energy, the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, as amended and the Florida Public Service Commission), particularly legislative and regulatory initiatives that may impact the speed and degree of the restructuring of the electricity industry and the results of negotiations related to the expiration of Florida Power's rate stipulation; the outcome of legal and administrative proceedings, including proceedings before our principal regulators; risks associated with operating nuclear power facilities, availability of nuclear waste storage facilities, and nuclear decommissioning costs; terrorist threats and activities, particularly with respect to our facilities, economic uncertainty caused by recent terror attacks on the United States, and potential adverse reactions to United States anti-terrorism activities; changes in the economy of areas served by Florida Progress; the extent to which we are able to obtain adequate and timely rate recovery of costs, including potential stranded costs arising from the restructuring of the electricity industry; weather conditions and catastrophic weather-related damage; general industry trends, realization of cost savings related to synergies resulting from acquisition by Progress Energy, increased competition from energy and gas suppliers, and market demand for energy; inflation and capital market conditions; the success of our direct and indirect subsidiaries; the extent to which we are able to use tax credits associated with the operations of the synthetic fuel facilities; and unanticipated changes in operating expenses and capital expenditures. All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond the control of Florida Progress or Florida Power. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the effect of each such factor on Florida Progress or Florida Power. 6 PART I ITEM 1. BUSINESS - ---------------- GENERAL - ------- COMPANY - ------- Florida Progress Corporation (Florida Progress or the Company, which term includes consolidated subsidiaries unless otherwise indicated) is a wholly owned subsidiary of Progress Energy, Inc. (Progress Energy), a registered holding company under the Public Utility Holding Company Act (PUHCA) of 1935. Progress Energy and its subsidiaries, including Florida Progress, are subject to the regulatory provisions of PUHCA. Florida Progress is the parent company of Florida Power Corporation (Florida Power or the Utility) and certain other subsidiaries. Progress Energy controls Florida Power Corporation and the other Florida Progress subsidiaries through its ownership of Florida Progress. On November 30, 2000, the acquisition of Florida Progress by CP&L Energy, Inc. (CP&L Energy) became effective. On December 4, 2000, CP&L Energy was renamed Progress Energy. Florida Progress' revenues for the year ended December 31, 2001, were $4.6 billion, and assets at year-end were $6.3 billion. Its principal executive offices are located at 410 South Wilmington Street, Raleigh, North Carolina 27601-1748, telephone number (919) 546-6111. Information about Florida Progress and its subsidiaries can be found at Progress Energy's home page on the Internet at http://www.progress-energy.com, the contents of which are not a part of this document. Florida Progress was incorporated in Florida on January 21, 1982. Florida Progress' principal business segment is Florida Power, which encompasses all regulated public utility operations (See Item 1 "Business - Utility Operations - Florida Power"). Florida Progress' other business segments, including Energy and Related Services, Rail Services, and Other, represent its diversified operations (See Item 1 "Business - Diversified Operations"). Progress Capital Holdings, Inc. (Progress Capital) is the downstream holding company for Florida Progress' diversified subsidiaries and provides a portion of the financing for the non-utility operations. Diversified operations includes Progress Fuels Corporation (Progress Fuels), formerly Electric Fuels Corporation (Electric Fuels), and Progress Telecommunications Corporation (Progress Telecommunications). On January 2, 2002, Electric Fuels changed its name to Progress Fuels. Progress Fuels is a diversified non-utility energy company, whose principal business segments are Energy and Related Services and Rail Services. Florida Progress' Other category consists primarily of Progress Telecommunications, the Company's Investment in FPC Capital Trust, and the holding company, Florida Progress. Progress Telecommunications is a provider of wholesale telecommunications services. After the acquisition of Florida Progress, Progress Energy hired a financial adviser to assist Florida Progress in evaluating its strategic alternatives with respect to Progress Fuels' Inland Marine Transportation and Rail Services segments. On November 1, 2001, the Inland Marine Transportation segment was sold to AEP Resources, Inc. During 2001, Progress Energy decided to retain the Rail Services segment in the near term. ACQUISITION - ----------- On November 30, 2000, CP&L Energy, which subsequently changed its name to Progress Energy, acquired all of the outstanding shares of Florida Progress' common stock in accordance with the Amended and Restated Plan of Exchange, including the related Plan of Share Exchange, dated as of August 22, 1999, as amended and restated as of March 3, 2000, among CP&L Energy, Florida Progress and Carolina Power & Light Company (CP&L). Florida Progress Shareholders received $54.00 in cash or shares of Progress Energy common stock, subject to proration, and one contingent value obligation (CVO) in exchange for each of their shares of Florida Progress common stock. The exchange ratio for the shares of Progress Energy common stock issued to Florida Progress shareholders was 1.3473. Each CVO represents the right to receive contingent payments based upon the net after-tax cash flow to Progress Energy generated by four synthetic fuel facilities purchased by subsidiaries of Florida Progress in 1999. A Securities and Exchange Commission (SEC) order approving the merger of Florida Progress with Progress Energy requires Progress Energy divest of Rail Services and certain immaterial, non-regulated investments of Florida Progress by November 30, 2003. 7 ENVIRONMENTAL - ------------- General In the areas of air quality, water quality, control of toxic substances and hazardous and solid wastes and other environmental matters, the Company is subject to regulation by various federal, state and local authorities. The Company considers itself to be in substantial compliance with those environmental regulations currently applicable to its business and operations and believes it has all necessary permits to conduct such operations. Environmental laws and regulations constantly evolve and the ultimate costs of compliance cannot always be accurately estimated. Clean Air Legislation The 1990 amendments to the Clean Air Act require substantial reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fueled electric generating plants. The Clean Air Act required Florida Power to meet more stringent provisions effective January 1, 2000. The Company meets the sulfur dioxide emissions requirements by fuel switching and maintaining sufficient sulfur dioxide emission allowances. Installation of additional equipment was necessary to reduce nitrogen oxide emissions. Increased operation and maintenance costs, including emission allowance expense, installation of additional equipment and increased fuel costs are not expected to be material to the financial position or results of operations of the Company. The U.S. Environmental Protection Agency (EPA) has been conducting an enforcement initiative related to a number of coal-fired utility power plants in an effort to determine whether modifications at those facilities were subject to New Source Review requirements or New Source Performance Standards under the Clean Air Act. Florida Power was asked to provide information to the EPA as part of this initiative and has cooperated in providing the requested information. The EPA has initiated enforcement actions against other unaffiliated utilities as part of this initiative, some of which have resulted in or may result in settlement agreements calling for expenditures, ranging from $1.0 billion to $1.4 billion. A utility that was not subject to a civil enforcement action settled its New Source review issues with the EPA for $300 million. These settlement agreements have generally called for expenditures to be made over extended time periods, and some of the companies may seek recovery of the related costs through rate adjustments. The Company cannot predict the outcome of this matter. Superfund The provisions of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), authorize the EPA to require the clean up of hazardous waste sites. This statute imposes retroactive joint and several liability. Some states have similar types of legislation. There are presently several sites with respect to which the Company has been notified by the EPA, the State of Florida or other state agencies with respect to potential liability, as described below in greater detail. Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under various federal and state laws. The lead or sole regulatory agency that is responsible for a particular former coal tar site depends largely upon the state in which the site is located. There are several manufactured gas plant (MGP) sites to which Florida Power has some connection. In this regard, Florida Power, with other potentially responsible parties, is participating in investigating and, if necessary, remediating former coal tar sites with several regulatory agencies, including, but not limited to, the EPA and the Florida Department of Environmental Protection (FDEP). Although Florida Power may incur costs at these sites about which it has been notified, based upon current status of these sites, Florida Power does not expect those costs to be material to the financial position or results of operations of the Florida Power. The Company has accrued amounts to address known costs at certain of these sites. The Company is periodically notified by regulators such as the EPA and various state agencies of their involvement or potential involvement in sites, other than MGP sites, that may require investigation and/or remediation. Although the Company may incur costs at the sites about which they have been notified, based upon the current status of these sites, the Company does not expect those costs to be material to the financial position or results of operations of the Company. 8 Other Environmental Matters On November 1, 2001, the Company completed the sale of the Inland Marine Transportation segment to AEP Resources, Inc. In connection with the sale, the Company entered into environmental indemnification provisions covering both unknown and known sites. The Company has recorded an accrual to cover estimated probable future environmental expenditures. The Company believes that it is reasonably possible that additional costs, which cannot be currently estimated, may be incurred related to the environmental indemnification provision beyond the amounts accrued. The Company cannot predict the outcome of this matter. Florida Power has filed claims with the Company's general liability insurance carriers to recover costs arising out of actual or potential environmental liabilities. Some claims have settled and others are still pending. While management cannot predict the outcome of these matters, the outcome is not expected to have a material effect on the financial position or results of operations. EMPLOYEES - --------- As of February 28, 2002, Florida Power had approximately 4,000 regular full-time employees. The International Brotherhood of Electrical Workers represents approximately 2,100 of these full-time employees. The current union contract was ratified in December 1999 and expires in December 2002. As of February 28, 2002, Progress Capital and its subsidiaries had approximately 4,200 regular full-time employees. UTILITY OPERATIONS - FLORIDA POWER - ---------------------------------- GENERAL - ------- Florida Power was incorporated in Florida in 1899, and is an operating public utility engaged in the generation, purchase, transmission, distribution and sale of electricity. At December 31, 2001, Florida Power had a total summer generating capacity (including jointly-owned capacity) of approximately 8,012 megawatts (MW). In 2001, the utility accounted for 70.0% of Florida Progress' consolidated revenues, 79.2% of its assets and 77.0% of its income from continuing operations before goodwill and other long-lived asset impairment costs, loss on sale of assets, and other one-time charges. Florida Power provided electric service during 2001 to an average of 1.4 million customers in west central Florida. Its service area covers approximately 20,000 square miles and includes the densely populated areas around Orlando, as well as the cities of St. Petersburg and Clearwater. Florida Power is interconnected with 20 municipal and 9 rural electric cooperative systems. Major wholesale power sales customers include Seminole Electric Cooperative, Inc. (Seminole) and Florida Municipal Power Agency. Florida Power is subject to the rules and regulations of the Federal Energy Regulatory Commission (FERC) and the Florida Public Service Commission (FPSC). For further information with respect to rates, see Note 15 to the Financial Statements. BILLED ELECTRIC REVENUES - ------------------------ Florida Power's electric revenues billed by customer class, for the last three years, are shown as a percentage of total electric revenues in the table below: BILLED ELECTRIC REVENUES Revenue Class 2001 2000 1999 - ------------- ---- ---- ---- Residential 54% 53% 54% Commercial 24% 24% 24% Industrial 7% 8% 8% Governmental 6% 5% 5% Wholesale 9% 10% 9% 9 Important industries in the territory include phosphate and rock mining and processing, electronics design and manufacturing, and citrus and other food processing. Other important commercial activities are tourism, health care, construction and agriculture. FUEL AND PURCHASED POWER - ------------------------ General Florida Power's consumption of various types of fuel depends on several factors, the most important of which are the demand for electricity by Florida Power's customers, the availability of various generating units, the availability and cost of fuel and the requirements of federal and state regulatory agencies. Florida Power's energy mix for the last three years is presented in the following table: ENERGY MIX PERCENTAGES Fuel Type 2001 2000 1999 - --------- ---- ---- ---- Coal (1) 33% 34% 35% Oil 16% 15% 17% Nuclear 15% 15% 14% Gas 14% 14% 13% Purchased Power 22% 22% 21% (1) Includes synthetic fuel from unrelated third parties and petroleum coke. Florida Power is generally permitted to pass the cost of recoverable fuel and purchased power to its customers through fuel adjustment clauses. The future prices for and availability of various fuels discussed in this report cannot be predicted with complete certainty. However, Florida Power believes that its fuel supply contracts, as described below, will be adequate to meet its fuel supply needs. Florida Power's average fuel costs per million British thermal units (Btu) for each year of the three-year period ended December 31, 2001, were as follows: AVERAGE FUEL COST (per million Btu) 2001 2000 1999 ----- ----- ----- Coal (1) $2.16 $1.89 $1.86 Oil (2) 3.81 4.15 2.36 Nuclear .47 .47 .43 Gas (2) 4.52 4.32 3.18 Weighted Average 2.59 2.46 1.91 (1) Includes synthetic fuel from unrelated third parties and petroleum coke. (2) Changes in the unit price for coal, oil and gas are due to market conditions. Since these costs are primarily recovered through recovery clauses established by regulators, the fluctuation does not materially affect net income. Coal Florida Power anticipates a combined requirement of approximately 5.5 million to 6.0 million tons of coal and synthetic fuel in 2002. Most of the coal is expected to be supplied from the Appalachian coal fields of the United States. Approximately two-thirds of the fuel is expected to be delivered by rail and the remainder by barge. The fuel is supplied by Progress Fuels pursuant to contracts between Florida Power and Progress Fuels. (See Note 16 to the Financial Statements.) 10 For 2002, Progress Fuels has medium and long-term contracts with various sources for approximately 100% of the fuel requirements of Florida Power's coal units. These contracts have price adjustment provisions. All the coal to be purchased for FPC is considered to be low sulphur coal by industry standards. Oil and Gas Oil is purchased under contracts and in the spot market from several suppliers. The cost of Florida Power's oil and gas is determined by market conditions. Management believes that Florida Power has access to an adequate supply of oil for the reasonably foreseeable future. Florida Power's natural gas supply is purchased under firm contracts and in the spot market from numerous suppliers and is delivered under firm, released firm and interruptible transportation contracts. Florida Power believes that existing contracts for oil are sufficient to cover its requirements when natural gas transmission purchased on an interruptible basis is not available. Nuclear Nuclear fuel is processed through four distinct stages. Stages I and II involve the mining and milling of the natural uranium ore to produce a concentrate and the conversion of this uranium concentrate into uranium hexafluoride. Stages III and IV entail the enrichment of the uranium hexafluoride and the fabrication of the enriched uranium hexafluoride into usable fuel assemblies. Florida Power expects to meet its future nuclear fuel requirements from inventory on hand and amounts received under contract. Although Florida Power cannot predict the future availability of uranium and nuclear fuel services, Florida Power does not currently expect to have difficulty obtaining uranium oxide concentrate and the services necessary for its conversion, enrichment and fabrication into nuclear fuel. Purchased Power Florida Power, along with other Florida utilities, buys and sells economy power through the Florida energy brokering system. Florida Power also purchases 1,304 MW of firm power under a variety of purchase power agreements. As of December 31, 2001, Florida Power had long-term contracts for the purchase of about 460 MW of purchased power with other investor-owned utilities, including a contract with The Southern Company for approximately 400 MW. Florida Power also purchased 831 MW of its total capacity from certain qualifying facilities (QFs). The capacity currently available from QFs represents about 10% of Florida Power's total installed system capacity. COMPETITION - ----------- Electric Industry Restructuring Florida Power continues to monitor progress toward a more competitive environment and has actively participated in regulatory reform deliberations in Florida. Movement toward deregulation in this state has been affected by recent developments related to deregulation of the electric industry in California. On January 31, 2001, the Florida 2020 Study Commission voted to forward a "proposed outline for wholesale restructuring" to the Florida legislature for its consideration in the 2001 session. The wholesale restructuring outline is intended to facilitate the evolution of a more robust wholesale marketplace in Florida. On December 11, 2001, the study commission issued its final report. The report covered a number of issues with recommendations in the areas of wholesale competition and reliability, efficiency, transmission infrastructure, environmental issues and new technologies. One key recommendation related to wholesale competition & reliability is to permit the transfer or sale of existing generation assets as follows: . Sales and transfers of generation assets and related timing are discretionary on the part of the investor-owned utility on a plant-by-plant basis. . Transfers of generation assets are recorded at book value. . Load-serving entities (LSE's) have the right to a 6-year cost based transition contract on all transferred capacity with unilateral cancellation rights and a share of the profits from off-system sales. . Gains on sales of existing plants or those transferred and still under transition contracts must be shared 50/50 with customers. 11 . Losses on sales must be absorbed fully by shareholder. . New units under construction and included in the company's 10-Year Site Plan are subject to 6-year transition contract requirement but not the gain/loss sharing. . The FPSC has the authority to review LSE's decision to terminate transition contracts, including prior to actual termination. Although Florida Power believes that the current system of regulation in Florida is working well, Florida Power supported the study commission's efforts. While Florida Power does not see any compelling reason to change, the study commission's proposal is generally consistent with principles the Company believes any sound restructuring plan should adhere to if the state does decide to restructure. The Florida legislature did not take any action on the proposed outline or final report during the 2001 session. There is no way for Florida Power to know what restructuring legislation will be enacted or if the Company would be able to support it in its final form. Regional Transmission Organizations On December 20, 1999, Federal Energy Regulatory Commission (FERC) issued Order No. 2000 on Regional Transmission Organizations (RTO). The Order required public utilities that own, operate or control interstate electricity transmission facilities to have filed, by October 2000, either a proposal to participate in an RTO or an alternative filing describing efforts and plans to participate in an RTO. In October 2000, Florida Power, along with Florida Power & Light Company and Tampa Electric Company filed with FERC an application for approval of a regional transmission organization, or RTO, for peninsular Florida, currently named GridFlorida. On March 28, 2001, FERC issued an order provisionally granting GridFlorida RTO status and directing the GridFlorida applicants to make certain changes in the RTO documents and to file such changes within 60 days. On May 29, 2001, the GridFlorida applicants made the compliance filing as directed by FERC, but FERC has not yet issued an order on that compliance filing. On May 16, 2001, the Florida Public Service Commission (FPSC) initiated dockets to review the prudence of the GridFlorida applicants' decision to form and participate in the GridFlorida RTO. The GridFlorida applicants have announced that they will hold GridFlorida development activities in abeyance. On June 27, 2001, the FPSC issued an order establishing a two-phase process for addressing these GridFlorida RTO issues in the context of Florida Power's pending rate case. In the first phase, the FPSC addressed the general issues associated with the prudence of the GridFlorida RTO on an expedited basis. FPSC hearings were held in October 2001 on the phase one issues, and the FPSC issued an order in December 2001. The order states, among other things, that the GridFlorida applicants acted prudently in moving to establish an RTO for Florida. However, the order also directs the GridFlorida applicants to make certain changes to the proposed GridFlorida structure and refile with the FPSC within 90 days of the order. The GridFlorida applicants made the required changes to GridFlorida and refiled the application with the FPSC on March 20, 2002. The second phase will address ratemaking issues and will be decided as part of the general rate proceeding. The Company cannot predict the outcome or impact of these matters. Merchant Plants In August 1998, Duke Energy filed a petition to build Florida's first merchant power plant, a 514-megawatt facility to be located in Volusia County, Florida. The plant would provide 30 megawatts of energy to the Utilities Commission of the City of New Smyrna Beach and the remaining capacity would be available for wholesale sales. In a move Florida Power believed to be contrary to the existing state law, the Florida Public Service Commission (FPSC) granted Duke Energy's petition. Florida Power and other Florida utilities filed an appeal of the FPSC's decision with the Florida Supreme Court. In April 2000, the Florida Supreme Court ruled in favor of Florida Power and other utilities and reversed the FPSC's order. In December 2000, Duke Energy filed a petition for certiorari with the U.S. Supreme Court. On March 5, 2001, the U.S. Supreme Court denied Duke Energy's petition for certiorari. 12 Franchise Agreements By virtue of municipal legislation, Florida Power holds franchises with varying expiration dates in most of the municipalities in which it distributes electric energy. However, Florida Power does serve within a number of municipalities and in all its unincorporated areas without existing franchise ordinances. The general effect of franchises is to provide for the manner in which Florida Power occupies rights-of-way in incorporated areas of municipalities for the purpose of constructing, operating and maintaining an energy transmission and distribution system. Approximately 39% of Florida Power's total utility revenues for 2001 were from the incorporated areas of the 109 municipalities that had franchise ordinances during the year. Of the 18 franchises that expired during 2001, four municipalities have not yet renewed. A new franchise ordinance was enacted during January 2002 with a municipality that did not previously have a franchise with Florida Power bringing the current number of existing franchises to 106. All but 17 of the existing franchises cover a 30-year period from the date enacted. The exceptions are 15 franchises each with a term of 10 years and expiring between 2011 and 2012; one 30-year franchise that was extended in 1999 for five years expiring in 2005; and one franchise with a term of 20 years expiring in 2020. Of the 106 franchises, 11 expire during 2002, 34 expire between January 1, 2003 and December 31, 2012 and 61 expire between January 1, 2013 and December 31, 2031. Ongoing negotiations are taking place with the municipalities to reach agreement on franchise terms and to enact new franchise ordinances. (See Item 7 "MD&A - Franchise Litigation") Stranded Costs An important issue encompassed by industry restructuring is the recovery of "stranded costs." Stranded costs primarily include the generation assets of utilities whose value in a competitive marketplace would be less than their current book value, as well as above-market purchased power commitments to QFs. Thus far, all states that have passed restructuring legislation have provided for the opportunity to recover a substantial portion of stranded costs. Assessing the amount of stranded costs for a utility requires various assumptions about future market conditions, including the future price of electricity. For Florida Power, the single largest stranded cost exposure is its commitment to QFs. Florida Power has taken a proactive approach to this industry issue. Since 1996, Florida Power has been seeking ways to address the impact of escalating payments from contracts it was obligated to sign under provisions of Public Utility Regulatory Policies Act of 1978 (PURPA). These efforts have resulted in Florida Power successfully mitigating, through buy-outs and buy-downs of these contracts, more than 25% of its purchased power commitments to QFs. REGULATORY MATTERS - ------------------ General Florida Power is subject to the jurisdiction of the FPSC with respect to, among other things, retail rates and issuance of securities. In addition, Florida Power is subject to regulation by FERC with respect to transmission and sales of wholesale power, accounting and certain other matters. The underlying concept of utility ratemaking is to set rates at a level that allows the utility to collect revenues equal to its cost of providing service including a reasonable rate of return on its equity. Increased competition, as a result of industry restructuring, may affect the ratemaking process. (See Item 7 "MD&A - Electric Industry Restructuring.") Retail Rates The FPSC authorizes retail "base rates" that are designed to provide a utility with the opportunity to earn a specific rate of return on its "rate base", or average investment in utility plant. These rates are intended to cover all reasonable and prudent expenses of utility operations and to provide investors with a fair rate of return. The FPSC 13 has authorized a return on equity range for Florida Power of 11-13% and its retail base rates are based on the mid-point of that range - 12%. Florida Power previously operated under an agreement committing several parties not to seek any reduction in its base rates or authorized return on equity. That agreement expired on June 30, 2001. During 2001, the FPSC required Florida Power to submit minimum filing requirements, based on a 2002 projected test year, to initiate a rate proceeding regarding its future base rates. On September 14, 2001, Florida Power submitted its required rate filing, including its revenue requirements and supporting testimony. Florida Power filed supplemental minimum filing requirements and testimony on November 15, 2001. Hearings were scheduled to begin on March 20, 2002, but were postponed to accommodate pending settlement negotiations between the parties. On March 27, 2002, the parties in Florida Power's rate case entered into a Stipulation and Settlement Agreement (the Agreement) related to retail rate matters. The Agreement is to be effective from May 1, 2002 through 2005; provided, however, that if Florida Power's base rate earnings fall below a 10% return on equity, Florida Power may petition the FPSC to amend its base rates. The Agreement provides that Florida Power will reduce its retail revenues from the sale of electricity by $125 million annually through 2005. The Agreement also provides that Florida Power will operate under a Revenue Sharing Incentive Plan (the Plan) that establishes revenue caps and sharing thresholds for the years 2002 through 2005. The Plan provides that retail base rate revenues between the sharing thresholds and the retail base rate revenue caps will be divided into two shares - a 1/3 share to be received by Florida Power's shareholders, and a 2/3 share to be refunded to Florida Power's retail customers; provided, however, that for the year 2002 only, the refund to customers will be limited to 67.1% of the 2/3 customer share. The retail base rate revenue sharing threshold amounts for 2002, 2003, 2004 and 2005 will be $1,296 million, $1,333 million, $1,370 million, and $1,407 million, respectively. The Plan also provides that all retail base rate revenues above the retail base rate revenue caps established for the years 2003, 2004 and 2005 will be refunded to retail customers on an annual basis. For 2002, the refund to customers will be limited to 67.1% of the retail base rate revenues that exceed the 2002 cap. The retail base revenue caps for 2002, 2003, 2004 and 2005 will be $1,356 million, $1,393 million, $1,430 million, and $1,467 million, respectively. The Agreement also provides that beginning with the in-service date of Florida Power's Hines Unit 2 and continuing through December 31, 2005, Florida Power will be allowed to recover through the fuel cost recovery clause a return on average investment and depreciation expense for Hines Unit 2, to the extent such costs do not exceed the Unit's cumulative fuel savings over the recovery period. Additionally, the Agreement provides that Florida Power will effect a mid-course correction of its fuel cost recovery clause to reduce the fuel factor by $50 million for the remainder of 2002. The fuel cost recovery clause will operate as it normally does, including, but not limited to any additional mid-course adjustments that may become necessary, and the calculation of true-ups to actual fuel clause expenses. During the term of the Agreement, Florida Power will suspend accruals on its reserves for nuclear decommissioning and fossil dismantlement. Additionally, for each calendar year during the term of the Agreement, Florida Power will record a $62.5 million depreciation expense reduction, and may, at its option, record up to an equal annual amount as an offsetting accelerated depreciation expense. In addition, Florida Power is authorized, at its discretion, to accelerate the amortization of certain regulatory assets over the term of the Agreement. Under the terms of the Agreement, Florida Power agreed to continue the implementation of its four-year Commitment to Excellence Reliability Plan and expects to achieve a 20% improvement in its annual System Average Interruption Duration Index by no later than 2004. If this improvement level is not achieved for calendar years 2004 or 2005, Florida Power will provide a refund of $3 million for each year the level is not achieved to 10% of its total retail customers served by its worst performing distribution feeder lines. The Agreement also provides that Florida Power will refund to customers $35 million of the $98 million in interim revenues Florida Power has collected subject to refund since March 13, 2001. No other interim revenues that were collected during that period will continue to be held subject to refund. 14 The Agreement was filed with the FPSC for approval on March 27, 2002. If the FPSC approves the Agreement, the new rates will take effect May 1, 2002. The Company cannot predict the outcome of this matter. Other Matters In December 2000, Florida Power received approval from the FPSC to establish a regulatory liability to defer 2000 revenues for disposition by April 2, 2001. (See Note 15 to the Financial Statements.) NUCLEAR MATTERS - --------------- Florida Power has one nuclear generating plant, Crystal River Unit No. 3 (CR3), which is subject to regulation by the Nuclear Regulatory Commission (NRC). The NRC's jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrust considerations and environmental impact. Florida Power has a license to operate the nuclear plant through December 3, 2016. In May 2000, the NRC consented to the indirect transfer of control of the CR3 operating license that occurred as a result of the acquisition by Progress Energy. Florida Power currently has a 91.8% ownership interest in CR3. (See Note 8 to the Financial Statements.) Spent nuclear fuel is stored at CR3 pending disposal under a contract with the United States Department of Energy (DOE). (See Note 8 to the Financial Statements.) At the present time, Florida Power has facilities on site for the temporary storage of spent nuclear fuel generated through the end of the license in 2016. In August 2001, the NRC issued Bulletin 2001-01, "Circumferential Cracking of Reactor Vessel Head Penetration Nozzles," requesting that all pressurized water reactors (PWR) provide their plans for inspecting the reactor vessel head for the conditions described in the bulletin. While performing this inspection, FirstEnergy Corp.'s Davis Besse plant in Ohio found three penetrations with evidence of leakage and further evidence of some wastage of the reactor vessel head around two of these penetrations. As a result of finding the wastage of the vessel head, the NRC issued Bulletin 2002-01, requesting licensees to assess previous inspections of the reactor head and determine the potential for the existence of conditions similar to that found at the Davis Besse plant. Florida Power's CR3 has completed the inspections requested by Bulletin 2001-01. Any indications of leakage have been inspected and repaired, and no wastage of the reactor vessel head has been observed. Based on these inspections, responses to Bulletin 2002-01 are being prepared. The Company does not anticipate any adverse impact from this regulatory action. Enrichment Facilities Decontamination Florida Power and a number of other utilities are involved in litigation against the United States challenging certain retroactive assessments imposed by the federal government on domestic nuclear power companies to fund the decommissioning and decontamination of the government's uranium enrichment facilities. On November 1, 1996, Florida Power filed suit against the U.S. Government in the U.S. Court of Claims alleging breach of contract and illegal taking of property without just compensation. The suit arises out of several contracts under which the government provided uranium enrichment services at fixed prices. After Florida Power paid for all services provided under the contracts, the government, through federal legislation enacted in 1992, imposed a retroactive price increase in order to fund the decontamination and decommissioning of the government's gaseous diffusion uranium enrichment facilities. The government is collecting this increase through an annual "special assessment" levied upon all utilities that had enrichment services contracts with the government. Collection of the special assessments began in 1992 and is scheduled to continue for a fifteen-year period. To date, Florida Power has paid approximately $18 million in special assessments, including its co-owner's share of approximately $1.5 million, and if continued throughout the anticipated fifteen-year remaining license life, the special assessments would increase the cost of Florida Power's contracts by more than $23 million. Florida Power seeks an order declaring that all such special assessments are unlawful, and an injunction prohibiting the government from collecting future special assessments and damages. In June 1998, Florida Power, Consolidated Edison Co. and 15 other utilities filed an action for declaratory judgement against the United States in the Southern District Court of New York, challenging the constitutionality of 15 the $2.25 billion retroactive assessment imposed by the federal government on domestic nuclear power companies to fund the decommissioning and decontamination of the government's uranium enrichment facilities. In August 1998, the utilities filed an amended complaint adding several additional utilities as plaintiffs. In February 1999, the court granted Florida Power's motion to stay the Claims Court action, pending resolution of the District Court case. In April 1999, the District Court ruled that it had subject matter jurisdiction, and denied the government's motion to transfer the action to the Claims Court. The government appealed the decision to the U.S. Court of Appeals for the Federal Circuit, which ultimately reversed the District Court's denial of the motion to transfer. The matter was stayed pending the utilities' petition for a writ of certiorari to the Supreme Court. The Supreme Court denied the utilities' petition for certiorari on December 3, 2001. Consequently, on December 22, 2001, the Federal Circuit issued a mandate remanding the case to the District Court with instructions to transfer the case to the Court of Federal Claims. DIVERSIFIED OPERATIONS - ---------------------- GENERAL - ------- Florida Progress' diversified operations are owned directly or indirectly through Progress Capital, a Florida corporation and wholly owned subsidiary of Florida Progress. Progress Capital holds the capital stock of, and provides the financing for, Florida Progress' non-utility subsidiaries. Its primary subsidiary is Progress Fuels, formerly Electric Fuels. On January 2, 2002, Electric Fuels changed its name to Progress Fuels. Formed in 1976, Progress Fuels is an energy and transportation company. When the Inland Marine Transportation unit was sold in November 2001, Progress Fuels was reorganized into two business units, Energy and Related Services and Rail Services. Progress Fuels' energy and related services business unit supplies coal to Florida Power's Crystal River Energy Complex and other utility and industrial customers. This business unit also produces and sells natural gas and synthetic fuel along with operating terminal services and offshore marine transportation. Progress Fuels also manages all of Progress Energy's synthetic fuel facilities. The rail services business unit, led by Progress Rail Services Corporation (Progress Rail), is one of the largest integrated processors and suppliers of railroad materials in the country. With operations in 26 states, Canada and Mexico, Progress Rail offers a full range of railcar parts, maintenance-of-way equipment, rail and other track material, railcar repair facilities, railcar scrapping and metal recycling as well as railcar sales and leasing. After the acquisition of Florida Progress, Progress Energy hired a financial adviser to assist Florida Progress in evaluating its strategic alternatives with respect to Progress Fuels' Inland Marine Transportation and Rail Services segments. On July 23, 2001, Progress Energy announced the disposition of the Inland Marine Transportation segment of the Company, which was operated by MEMCO Barge Line, Inc. Inland Marine provided transportation of coal, agricultural and other dry-bulk commodities as well as fleet management services. Progress Energy entered into a contract to sell MEMCO Barge Line, Inc., to AEP Resources, Inc., a wholly owned subsidiary of American Electric Power. On November 1, 2001, the Company completed the sale of the Inland Marine Transportation segment (See Note 4 to the Financial Statements). During 2001, Progress Energy decided to retain the Rail Services segment in the near term. A SEC order approving the merger of Florida Progress with Progress Energy requires Progress Energy divest of Rail Services and certain immaterial, non-regulated investments of Florida Progress by November 30, 2003. In October 1998, Florida Progress formed a new subsidiary, Progress Telecommunications Corporation (Progress Telecommunications). Progress Telecommunications has data fiber network transport capabilities that stretch from New York to Miami, Florida, with gateways to Latin America and conducts primarily a carrier's carrier business. Progress Telecommunications markets wholesale fiber-optic-based capacity service in the Eastern United States to long-distance carriers, internet service providers and other telecommunications companies. Progress Telecommunications also markets wireless structure attachments to wireless communication companies and governmental entities. As of December 31, 2001, Progress Telecommunications owned and managed approximately 7,200 route miles and more than 130,000 fiber miles of fiber optic cable. In December 2001, Progress Telecom Corporation (Progress Telecom) was formed. Assets, liabilities, and existing contracts of Progress Telecommunications and Caronet, Inc., a subsidiary of Progress Energy, will be transferred to Progress Telecom upon regulatory approval. Regulatory approval is expected during the first half of 2002. 16 COMPETITION - ----------- Florida Progress' non-utility subsidiaries compete in their respective marketplaces in terms of price, quality of service, location and other factors. Progress Fuels competes in several distinct markets. Its coal and synthetic fuel operations compete in the eastern United States utility and industrial coal markets, and its rail operations compete in the railcar repair, parts and associated services markets primarily in the eastern United States, but also in the midwest and west. Factors contributing to Progress Fuels' success in these markets include a competitive cost structure and strategic locations. There are numerous competitors in each of these markets, although no one competitor is dominant in any industry. The business of Progress Fuels and its subsidiaries, taken as a whole, is not subject to significant seasonal fluctuation. 17 ITEM 2. PROPERTIES - ------------------ GENERAL - ------- 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. UTILITY OPERATIONS - ------------------ As of December 31, 2001, the total summer generating capacity (including jointly-owned capacity) of Florida Power's generating facilities was 8,012 MW. Florida Power's generating plants (all located in Florida) and their summer capacities gross of co-ownership interests at December 31, 2001, are as follows:
- ---------------------------------------------------------------------------------------------------- Summer Facility Location No. of In-Service Fuel Net Units Date Capability (a)(in MW) - ---------------------------------------------------------------------------------------------------- STEAM TURBINES Anclote Holiday, FL 2 1974-1978 Gas/Oil 993 Bartow St. Petersburg, FL 3 1958-1963 Gas/Oil 444 Crystal River Crystal River, FL 4 1966-1984 Coal 2,302 Suwannee River Live Oak, FL 3 1953-1956 Gas/Oil 143 -- ----- Total 12 3,882 COMBINED CYCLE Hines Bartow, FL 1 1999 Gas/Oil 482 Tiger Bay Fort Meade, FL 1 1997 Gas 207 -- ---- Total 2 689 COMBUSTION TURBINES Avon Park Avon Park, FL 2 1968 Gas/Oil 52 Bartow St. Petersburg, FL 4 1958-1972 Gas/Oil 187 Bayboro St. Petersburg, FL 4 1973 Oil 184 DeBary DeBary, FL 10 1975-1992 Gas/Oil 667 Higgins Oldsmar, FL 4 1969-1970 Gas 122 Intercession City Intercession City, FL 14 1974-2000 Gas/Oil 1,029 (b) Rio Pinar Rio Pinar, FL 1 1970 Oil 13 Suwannee River Live Oak, FL 3 1980 Gas/Oil 164 Turner Enterprise, FL 4 1970-1974 Oil 154 University of Florida Cogen. Gainesville, FL 1 1994 Gas 35 -- ----- Total 47 2,607 NUCLEAR Crystal River Crystal River, FL 1 1977 Uranium 834 (c) -- ----- Total 1 834 TOTAL 62 8,012 - ----------------------------------------------------------------------------------------------------
(a) Represents Florida Power's net summer peak rating, gross of co-ownership interest in plant capacity. (b) Florida Power and Georgia Power Company ("Georgia Power") are co-owners of a 143 MW advanced combustion turbine located at Florida Power's Intercession City site. Georgia Power has the exclusive right to the output of this unit during the months of June through September. Florida Power has that right for the remainder of the year. (c) Represents 100% gross of co-owners total plant capacity. Florida Power's ownership percentage is approximately 91.8%. As of December 31, 2001, including both the total generating capacity of 8,012 MW and the total firm contracts for purchased power of 1,304 MW, Florida Power had total capacity resources of approximately 9,316 MW. 18 Substantially all of Florida Power's utility plant is pledged as collateral for Florida Power's First Mortgage Bonds. As of December 31, 2001, Florida Power distributed electricity through 358 substations with an installed transformer capacity of 50,800,000 kVA. Of this capacity, 37,243,000 kVA is located in transmission substations and 13,557,000 kVA in distribution substations. Florida Power has the second largest transmission network in Florida. Florida Power has 4,696 circuit miles of transmission lines, of which 2,577 circuit miles are operated at 500, 230, or 115 kV and the balance at 69 kV. Florida Power has 26,806 circuit miles of distribution lines, which operate at various voltages ranging from 2.4 to 25 kV. DIVERSIFIED OPERATIONS - ---------------------- Progress Fuels owns and/or operates approximately 5,300 railcars and 100 locomotives that are used for the transportation and shipping of coal, steel, and other bulk products. Through a joint venture, Progress Fuels has four oceangoing tug/barge units. Progress Fuels controls, either directly or through subsidiaries, coal reserves located in eastern Kentucky and southwestern Virginia. Progress Fuels owns properties that contain estimated coal reserves of approximately 13 million tons and controls, through mineral leases, additional estimated coal reserves of approximately 20 million tons. The reserves controlled by Progress Fuels include substantial quantities of high quality, low sulfur coal that is appropriate for use at Florida Power's existing generating units. Progress Fuels' total production of coal during 2001 was approximately 3.1 million tons. In connection with its coal operations, Progress Fuels subsidiaries own and operate an underground mining complex located in southeastern Kentucky and southwestern Virginia. Other Progress Fuels subsidiaries own and operate surface and underground mines, coal processing and loadout facilities and a river terminal facility in eastern Kentucky, a railcar-to-barge loading facility in West Virginia, and three bulk commodity terminals: one on the Ohio River in Cincinnati, Ohio, and two on the Kanawha River near Charleston, West Virginia. Progress Fuels and its subsidiaries employ both company and contract miners in their mining activities. Progress Fuels, through its subsidiaries, owns a majority interest in three synthetic fuel entities, two located in Kentucky, the other located in West Virginia. Progress Fuels has a minority interest in three other synthetic fuel entities, each of which is located in West Virginia, Virginia and Kentucky. Progress Ventures, a wholly owned subsidiary of Progress Energy, own a 90% interest in two of these entities, which are located in Kentucky and West Virginia. Progress Fuels production and sales from synthetic fuels operations totaled approximately 8.1 million tons. A subsidiary of Progress Fuels has oil and gas leases on about 20,000 acres in Garfield and Mesa Counties, Colorado, containing proven natural gas net reserves of 67.5 billion cubic feet. This subsidiary currently operates 70 gas wells on the properties. Progress Fuels' natural gas production in 2001 was 4.7 billion cubic feet. Progress Rail, a Progress Fuels subsidiary, is one of the largest integrated processors of railroad materials in the United States, and is a leading supplier of new and reconditioned freight car parts, rail, rail welding and track work components, railcar repair facilities, railcar and locomotive leasing, maintenance-of-way equipment and scrap metal recycling. It has facilities and offices in 26 states, Mexico and Canada. Another subsidiary of Progress Fuels owns and operates a manufacturing facility at the Florida Power Energy Complex in Crystal River, Florida. The manufacturing process utilizes the fly ash generated by the burning of coal as the major raw material in the production of lightweight aggregate used in construction building blocks. Progress Telecommunications provides wholesale telecommunications services throughout the Eastern United States. Progress Telecommunications incorporates more than 130,000 fiber miles in its network including over 150 Points-of-Presence. As a result of the acquisition by Progress Energy, Progress Telecommunications now manages the fiber optic network of Caronet, Inc. (Caronet), a subsidiary of Progress Energy, stretching from Atlanta to Washington, D. C. Progress Telecommunications combined its fiber network with Caronet's fiber network in 2001. 19 ITEM 3. LEGAL PROCEEDINGS - ------------------------- 1. NCP Lake Power, Inc. v. Florida Power Corporation, Florida Circuit Court, Fifth Judicial Circuit for Lake County, Case No. 94-2354-CA-01 In re: Petition for Declaratory Statement Regarding the Negotiated Contract for Purchase of Firm Capacity and Energy between Florida Power Corporation and Lake Cogen, LTD., Florida Public Service Commission, Docket No. 980509-EQ. Florida Power's purchased power contracts with qualifying facilities (QFs) employ separate pricing methodologies for capacity payments and energy payments. Florida Power has interpreted the pricing provision in its qualifying facility contracts to allow it to pay an as-available energy price rather than a higher firm energy price when the avoided unit upon which the contract is based would not have been operated. On October 21, 1994, NCP Lake Cogen, Inc. (Lake), a general partner of Lake Cogen, Ltd., filed the above-referenced suit against Florida Power asserting breach of its QF contract and requesting a declaratory judgment. In December 1996, Florida Power filed a petition with the FPSC seeking approval of a settlement agreement between Florida Power and Lake. In November 1997, the FPSC declined approval, finding the proposed settlement would exceed Florida Power's avoided costs. On April 9, 1998, Florida Power filed a petition with the FPSC for a Declaratory Statement that the contract between the parties limits energy payments thereunder to the avoided costs based upon an analysis of a hypothetical unit having the characteristics specified in the contract. In October 1998, the FPSC denied the petition. In January 1999, Florida Power filed a Notice of Appeal of this FPSC order with the Florida Supreme Court, which subsequently upheld the FPSC. Trial on Lake's action was held in Circuit Court in November and December 1998. In April 1999, the judge entered a non-final trial order. The judge granted Lake's breach of contract claim and ruled that Lake is entitled to receive "firm" energy payments during the on-peak hours, but for all other hours Lake is entitled to the "as-available" rate. The Court also ruled that for purposes of calculating damages, the breach of contract occurred at the inception of the contract. The judge denied Lake's breach of contract claim relating to a coal-pricing dispute, denied Lake's claim for injunctive relief and denied the Florida Power counterclaims. The court reserved jurisdiction to enable the parties to present evidence on damages. After hearing evidence on damages, in August 1999, the court issued a Final Judgment awarding Lake historic damages in the amount of $4,480,247. Lake filed a Notice of Appeal, and in September 1999, Florida Power filed a notice of cross appeal. The 5th District Court of Appeals heard oral argument in September 2000, and in an unusual action, the Court suggested that the parties again attempt mediation. The parties met but did not resolve their dispute. On January 26, 2001, the District Court of Appeals reversed the trial court's order and held that the contract requires Florida Power to pay Lake the firm energy rate for all hours that the avoided unit operates, less any maintenance shut-down hours. The District Court of Appeals remanded the case to the trial court for a new trial to determine the appropriate amount of damages consistent with the appellate court's ruling. Florida Power sought rehearing of the District Court of Appeal's decision, which subsequently confirmed its initial decision. On remand, Florida Power entered a stipulation on issues of fact that resulted in the issuance of a Final Judgement awarding damages to Lake of approximately $20 million, which Florida Power recorded as a charge to purchased power expense, in the third quarter of 2001. (See Note 16 to the Financial Statements - Commitments and Contingencies - Legal Matters - Qualifying Facilities Contracts.) 2. Wanda L. Adams, et al. v. Florida Power Corporation and Florida Progress Corporation, U.S. District Court, Middle District of Florida, Ocala Division, Case No. 95-123-C.V.-OC-10. On October 13, 1995, Florida Power and Florida Progress were served with a multi-party lawsuit involving 17 former Florida Power employees. The plaintiffs generally alleged discrimination in violation of the Age Discrimination and Employment Act and wrongful interference with pension rights in violation of the 20 Employee Retirement Income Security Act of 1974 ("ERISA") as a result of their involuntary terminations during Florida Power's reduction in force. While no dollar amount is specified, each Plaintiff seeks back pay, reinstatement or front pay through their projected dates of normal retirement, costs and attorney's fees. The Plaintiffs subsequently filed motions adding 39 additional plaintiffs. In November 1995, Florida Power filed its answer, a motion to dismiss Florida Progress, and a counterclaim against five of the plaintiffs who signed releases, promising, among other things, not to sue Florida Power with respect to matters involving their employment or termination. The counterclaim sought enforcement of the agreement, dismissal of plaintiffs' complaints, and an award of attorney's fees and costs of litigation. In October 1996, the court approved a joint stipulation to provisionally certify the case as a class action pursuant to the Age Discrimination in Employment Act. By May 28, 1997, the final day for individuals to "opt into" this action, 61 additional former employees elected to do so, for a total of 116 plaintiffs (although, as noted below, four of those plaintiffs have had their federal claims dismissed and 74 others have had their state age claims dismissed). In June 1998, the judge issued an order on several pending motions. The motion to dismiss Florida Progress was denied, but all the ERISA claims were dismissed and the state age claims of 5 plaintiffs were dismissed. The Motion to Dismiss 4 plaintiffs' federal age claims based on Statute of Limitations violations was granted. In December 1998, Florida Power and the plaintiffs engaged in informal settlement discussions, which were terminated on December 22, 1998. However, the plaintiffs have filed a motion to enforce a purported $11 million oral settlement agreement. Florida Power denied that such an agreement existed and filed responsive pleadings to that effect. In August 1999, the Court dismissed the state law claims of an additional 69 plaintiffs who executed releases upon termination (bringing the total number of state law claims dismissed to 74), granted the Florida Power motion to decertify the class, and denied the plaintiff's motion to enforce the alleged $11 million oral settlement agreement. In October 1999, the judge certified the question of whether the case should be tried as a class action to the Eleventh Circuit Court of Appeals for immediate appellate review. In December 1999, the Eleventh Circuit Court of Appeals agreed to review the judge's order decertifying the class, and oral arguments were held in January 2001. In anticipation of a potential ruling decertifying the case as a class action, in March 2000 the plaintiffs filed a motion with the District Court to reopen the case of Akin, et al. vs. Florida Power, which identified all ------------------------------ opt-in plaintiffs as named plaintiffs, and to dismiss the Adams case. The ----- Akin case was originally filed in an effort to preserve the litigation ---- rights of the 61 plaintiffs who opted into the Adams case. The Court had ----- previously stayed the Akin case pending a ruling on Florida Power's motion ---- to decertify the class. Oral arguments were held in January 2001. On July 5, 2001, the Eleventh Circuit Court of Appeals ruled that as a matter of law, disparate claims cannot be brought under the Americans with Disabilities Act (ADEA). This ruling has the effect of decertifying the Akin case as a class action. On October 3, 2001, the plaintiffs filed a ---- petition in the United States Supreme Court, requesting a hearing of the case, on the issue of whether disparate claims can be brought under the ADEA. On December 3, 2001, the United States Supreme Court agreed to hear the case. Oral arguments on the issue were held on March 20, 2002. As of this date, the trial court has not stayed the litigation pending the outcome of the Supreme Court. The Company cannot predict the outcome of this matter. (See Note 16 to the Financial Statements - Commitments and Contingencies - Legal Matters - Age Discrimination Suit.) 3. Calgon Carbon Corporation v. Potomac Capital Investment Corporation, Potomac Electric Power Company, Progress Capital Holdings, Inc., and Florida Progress Corporation, United States District Court for the Western District of Pennsylvania, Civil Action No. 98-0072. Calgon Carbon Corporation (Calgon) filed a complaint on January 12, 1998, asserting securities fraud, breach of contract and other claims in connection with the sale to it by two of the defendants in December 21 1996 of their interests in Advanced Separation Technologies, Incorporated (AST), a corporation engaged in the business of designing and assembling proprietary separation equipment. Prior to closing, Progress Capital, a wholly owned subsidiary of Florida Progress, owned 80% of the outstanding stock of AST and Potomac Capital Investment Corporation (an entity unaffiliated with Progress Capital or Florida Progress) owned 20%. Calgon paid Progress Capital an aggregate of approximately $57.5 million (producing net proceeds of approximately $56 million after certain fees and expenses) in respect of Progress Capital's share of AST's stock. Calgon claims that AST's assets and revenues were overstated and liabilities and expenses were understated for 1996. Calgon also alleges undisclosed facts relating to accounting methodology, poor products, manufacturing and quality control problems and undisclosed warranty claims. Calgon seeks damages, punitive damages and the right to rescind the purchase. The defendants have filed a motion for summary judgement, which is pending. As a result of documents recently produced by the plaintiff which Florida Progress believes undercut several of Calgon's claims, discovery has been reopened. Defendants will be allowed to supplement their motion. (See Note 16 to the Financial Statements - Commitments and Contingencies - Legal Matters - Advanced Separation Technologies.) 4. Wallace Bentley, et al. v. City of Tallahassee, Interstate Fibernet, Inc. and Florida Power Corporation, Circuit Court for Leon County, Florida. Case No. 98-7107. In December 1998, Florida Power was served with this class action lawsuit seeking damages, declaratory and injunctive relief for the alleged improper use of electric transmission easements. The plaintiffs contend that the licensing of fiber optic telecommunications lines to third parties or telecommunications companies for other than Florida Power's internal use along the electric transmission line right-of-way exceeds the authority granted in the easements. In June 1999, plaintiffs amended their complaint to add Progress Telecom as a defendant and adding counts for unjust enrichment and constructive trust. In January 2000, the court conditionally certified the class statewide. In mediation held in March 2000, the parties reached a tentative settlement of this claim. In January 2001, the Court preliminarily approved the amended settlement agreement, certified the settlement class and approved the class notice. On November 16, 2001, the Court issued a final order approving the settlement. Several objectors to the settlement appealed the order to the 1st District Court of Appeal. If the order approving settlement is ultimately upheld on appeal, the settlement would not have a material adverse impact on the financial position, results of operations or liquidity of Florida Power or Progress Telecom. (See Note 16 to the Financial Statements - Commitments and Contingencies - Legal Matters - Easement Litigation.) 22 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- Not applicable 23 PART II ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER - ------------------------------------------------------------------------- MATTERS ------- FLORIDA PROGRESS - ---------------- Prior to the acquisition of Florida Progress by CP&L Energy on November 30, 2000, which was subsequently renamed Progress Energy, Florida Progress' common stock was listed on the New York Stock Exchange and the Pacific Stock Exchange. Subsequent to the acquisition, all of the Florida Progress common stock is owned by Progress Energy, and as a result there is no established public trading market for the stock. Florida Progress receives dividends from Florida Power. Florida Power's Amended Articles of Incorporation and its Indenture dated as of January 1, 1944, under which it issues first mortgage bonds, contain provisions restricting dividends in certain circumstances. At December 31, 2001, Florida Power's ability to pay dividends was not limited by these restrictions. Florida Progress and Progress Capital have entered into a Second Amended and Restated Guaranty and Support Agreement dated as of August 7, 1996, pursuant to which Florida Progress has unconditionally guaranteed the payment of Progress Capital's debt (as defined in the agreement). Florida Progress did not issue any equity securities during 2001 that were not registered under the Securities Act. Progress Capital, however, has a privately placed medium-term note program. (See Item 7 "MD&A-Liquidity and Capital Resources -Diversified Operations" and Note 11 to the Financial Statements.) FLORIDA POWER - ------------- All of Florida Power's common stock is owned by Florida Progress, and as a result there is no established public trading market for the stock. For the past three years, Florida Power has paid quarterly dividends to Florida Progress totaling the amounts shown in the Statements of Common Equity in the Financial Statements. Florida Power's amended articles of incorporation, and its Indenture dated as of January 1, 1944, as supplemented, under which it issues first mortgage bonds, contain provisions restricting dividends in certain circumstances. At December 31, 2001, Florida Power's ability to pay dividends was not limited by these restrictions. 24 ITEM 6. SELECTED FINANCIAL DATA - ------------------------------- FLORIDA PROGRESS CORPORATION - ---------------------------- The consolidated financial data should be read in conjunction with the financial statements and the notes thereto included elsewhere in this report.
Years Ended December 31, 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- (in millions except ratios) Operating results - ----------------- Utility revenues $3,212.8 $2,871.6 $2,649.4 $2,664.5 $2,448.4 Diversified revenues 1,378.3 1,404.0 1,086.1 837.1 762.5 Income from continuing operations 265.4 135.3/(2)/ 304.2 271.4 48.4/(1)/ Income (loss) from discontinued operations /(3)/ (21.1) 8.9 10.7 10.3 5.9 Net income $ 244.3 $ 144.2 $ 314.9 $ 281.7 $ 54.3 Assets $6,308.8 $6,492.6 $6,308.2 $6,061.3 $5,621.1 - ------ Capitalization - -------------- Long-term debt 2,643.9 2,276.4 2,454.1 2,250.4 2,377.8 Preferred stock of subsidiary 33.5 33.5 33.5 33.5 33.5 Common stock equity 2,072.3 1,987.6 2,008.7 1,862.0 1,776.0 -------- -------- -------- -------- -------- Total capitalization $4,749.7 $4,297.5 $4,496.3 $4,145.9 $4,187.3 ======== ======== ======== ======== ========
/(1)/Includes charges for extended nuclear outage costs and a provision for loss on Florida Progress' investment in Mid-Continent. (See Note 16.) /(2)/For 2000, income from continuing operations includes certain merger-related and goodwill and other long-lived asset impairment costs. /(3)/ Represents the income (loss) associated with Florida Progress' divestiture of MEMCO Barge Line, Inc. Certain reclassifications have been made to prior-year amounts to conform to the current year's presentation 25 FLORIDA POWER CORPORATION - ------------------------- The financial data should be read in conjunction with the financial statements and the notes thereto included elsewhere in this report.
Years Ended December 31 (in millions except ratios) 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Operating results - ----------------- Utility revenues $3,212.8 $2,871.6 $2,649.4 $2,664.5 $2,448.4 Earnings for common stock $ 309.6 $ 210.3/(1)/ $ 265.5 $ 248.6 $ 134.4/(2)/ Assets $4,998.2 $4,978.0 $4,889.1 $4,928.1 $4,900.8 - ------ Capitalization - -------------- Long-term debt 1,619.3 1,397.1 1,478.8 1,555.1 1,754.4 Preferred stock 33.5 33.5 33.5 33.5 33.5 Common stock equity 2,031.6 1,965.0 1,885.0 1,820.1 1,767.5 -------- -------- -------- -------- -------- Total capitalization $3,684.4 $3,395.6 $3,397.3 $3,408.7 $3,555.4 ======== ======== ======== ======== ========
/(1)/For 2000, earnings for common stock include certain merger-related costs. /(2)/Includes charges for extended nuclear outage costs Certain reclassifications have been made to prior-year amounts to conform to the current year's presentation 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ------------------------------------------------------------------------ OF OPERATIONS ------------- For 2001 as compared to 2000 and 2000 as compared to 1999 OVERVIEW - -------- Management's Discussion and Analysis includes a review of the operating results and financial condition of Florida Progress Corporation and focuses primarily on Florida Progress' two principal subsidiaries, Florida Power Corporation and Progress Fuels Corporation, formerly Electric Fuels Corporation (Electric Fuels). On January 2, 2002, Electric Fuels changed its name to Progress Fuels. Florida Progress has four business segments, Utility, Energy and Related Services, Rail Services, and Other. Through this analysis we identify the key factors affecting revenues, earnings, cash flows, capital requirements and other financial data. Florida Power provides electric service to approximately 1.4 million customers in west central Florida and serves a predominately retail customer base. Florida Power has one business segment, the Utility. Progress Capital Holdings, Inc. is a holding company for Florida Progress' diversified operations led by Progress Fuels, an energy and transportation company. Progress Fuels currently has two primary business segments: Rail Services and Energy & Related Services. The Inland Marine Transportation segment was sold during 2001, therefore, results of operations of the segment are reflected as discontinued operations. Florida Progress' 2001 consolidated income from continuing operations was $401.9 million, before goodwill and other long-lived asset impairment costs, loss on sale of assets, and other one-time charges of $136.5 million after-tax ($205.5 million pre-tax). This was an increase of 19.5% over 2000 consolidated income from continuing operations of $336.2 million, before $200.9 million, after-tax, of merger-related and goodwill and other long-lived asset impairment charges ($277.7 million pre-tax). The increase was primarily driven by continued customer growth at Florida Power and increased sales of a coal-based synthetic fuel by Progress Fuels, which generates income tax credits. Florida Progress' 2000 consolidated income from continuing operations, before $200.9 million, after-tax, of merger-related and goodwill and other long-lived asset impairment charges ($277.7 million pre-tax), was $336.2 million, an increase of 10.5% over 1999 consolidated income from continuing operations of $304.2 million. The increase was primarily driven by a 5.3% increase in kilowatt-hour sales (based on system requirements) at Florida Power and increased sales of a coal-based synthetic fuel by Progress Fuels, which generates income tax credits. Note 1 to the Florida Progress consolidated financial statements discusses the Company's significant accounting policies. The most critical accounting policies and estimates that impact the Company's financial statements are the economic impacts of utility regulation, which are described in more detail in Note 15 and the impact of synthetic fuel tax credits, which are described in more detail in Note 7 to the Florida Progress consolidated financial statements. ACQUISITION - ----------- On November 30, 2000, CP&L Energy, which subsequently changed its name to Progress Energy, acquired all of the outstanding shares of Florida Progress' common stock in accordance with the Amended and Restated Plan of Exchange, including the related Plan of Share Exchange, dated as of August 22, 1999, as amended and restated as of March 3, 2000 among CP&L Energy, Florida Progress and Carolina Power & Light Company. Florida Progress Shareholders received $54.00 in cash or shares of Progress Energy common stock having a value of $54.00, subject to proration, and one contingent value obligation in exchange for each of their shares of Florida Progress common stock. The exchange ratio for the shares of Progress Energy common stock issued to Florida Progress shareholders was 1.3473. Each CVO represents the right to receive contingent payments based upon the net after-tax cash flow to Progress Energy generated by four synthetic fuel facilities purchased by subsidiaries of Florida Progress in 1999. The acquisition of Florida Progress was accounted for using the purchase method accounting; however, due to the significance of the public debt and preferred securities of the Company and Florida Power, the acquisition cost was not pushed down to the Company's separate financial statements. The financial statements, footnotes and Management's Discussion and Analysis included in this Form 10-K, reflect the complete 12 months of 2001, 2000 and 1999. 27 FLORIDA POWER CORPORATION - ------------------------- Florida Power's operating results are primarily influenced by customer demand for electricity, its ability to control costs and its authorized regulatory return on equity. Annual demand for electricity is based on the number of customers and their annual usage, with usage largely driven by weather. Since Florida Power serves a predominately retail customer base, operating results are primarily influenced by the level of retail sales and the costs associated with those sales. The FPSC oversees the retail sales of the state's investor-owned electric utilities and authorizes retail base rates. Base rates and the resulting base revenues are intended to cover all reasonable and prudent expenses of utility operations and provide investors with a fair rate of return. Costs not covered by base rates include fuel, purchased power and energy conservation expenses. The FPSC allows electric utilities to recover these costs, referred to as "pass-through" costs, through various cost recovery clauses to the extent those costs are prudent. Pass-through costs represent about 46% of Florida Power's annual electric revenues and about 57% of its operating expenses for 2001. Due to the regulatory treatment of these expenses and the method allowed for recovery, changes from year to year have no material impact on operating results. The FPSC has authorized a return on equity range for Florida Power of 11-13% and its retail base rates are based on the mid-point of that range -- 12%. Each year, Florida Power provides the FPSC with a forecast of the current year's earnings and regulatory return on equity. In 2001 and 2000, Florida Power used the additional revenues generated in 2000 and 1999, respectively, to offset additional amortization of its Tiger Bay regulatory asset. (See Note 15.) Florida Power's retail regulatory return on equity for 2001, 2000 and 1999 was 12.9%, 12.7%, and 12.4%, respectively. Utility Revenues and Sales - -------------------------- Florida Power's electric revenues for the years ended December 31, 2001, 2000, and 1999, and the percentage change year by customer class are as follows (in millions): Electric Revenues (In millions of dollars) 2001 % Change 2000 % Change 1999 ------ -------- ------ -------- ------ Residential $1,643 11.3% $1,476 5.8% $1,395 Commercial 754 13.9 662 7.3 617 Industrial 223 5.2 212 1.9 208 Governmental 176 15.8 152 7.0 142 ------ ------ ------ Total Retail Revenues 2,796 11.8 2,502 5.9 2,362 Wholesale 288 4.3 276 21.1 228 Miscellaneous 129 37.2 94 59.3 59 ------ ------ ------ Total Electric Revenues $3,213 11.9% $2,872 8.4% $2,649 ====== ====== ====== 28 Florida Power's electric energy sales for the years ended December 31, 2001, 2000, and 1999, and the percentage change by year by customer class are as follows (in thousands of mWh): Electric Energy Sales (In millions of mWh) 2001 % Change 2000 % Change 1999 ------- -------- ------ -------- ------- Residential 17,604 2.9% 17,116 5.4% $16,245 Commercial 11,061 2.3 10,813 4.7 10,327 Industrial 3,872 (8.9) 4,249 (2.0) 4,334 Governmental 2,726 2.7 2,654 4.7 2,536 ------ ------ ------- Total Retail Energy Sales 35,263 1.2 34,832 4.2 33,442 Wholesale 4,719 (9.4) 5,209 7.3 4,853 Unbilled (511) -- 344 36.5 252 ------ ------ ------- Total mWh Sales 39,471 (2.3)% 40,385 4.8% 38,547 ====== ====== ======= Total utility revenues increased in 2001 compared with 2000 due to residential customer growth and an increase in fuel costs, which contributed to higher pass-through revenues. The number of residential customers increased by approximately 32,000 customers or 2.6%. The weighted average fuel cost increased $0.13, or 5.3%, per million Btu between 2000 and 2001. Total utility revenues increased in 2000 compared with 1999 due to customer growth, higher weather-related usage and an increase in fuel costs, which contributed to higher pass-through revenues. The weighted average fuel cost increased $0.55, or 28.8%, per million Btu between 1999 and 2000. For 2000, Florida Power deferred $63 million of base revenues as approved by the FPSC, which was used in 2001 to offset additional amortization of the Tiger Bay regulatory asset. Residential and commercial sales increased in 2001 and reflected continued growth in the number of customers served by Florida Power, partially offset by milder-than-normal weather. Florida Power added over 35,000 new customers in 2001. The commercial sector, which includes the travel and hotel industry, had a decrease in energy demand due to a downturn in the Florida economy. Industrial sales declined due to weakness in the manufacturing sector and phosphate industry, which continue to be affected by the economic downturn. Sales to wholesale customers decreased for 2001, primarily due to the mild weather and the expected decrease in sales to Seminole Electric in accordance with terms under existing contracts. Florida Power's total kilowatt-hour sales based on system requirements increased in 2000 compared with 1999. The increase was due to continued customer growth and increases in weather related usage, along with strong usage due to a favorable economy. Wholesale sales of electricity were up due largely to higher kilowatt-hour sales to wholesale customers, primarily Seminole Electric, Florida Power's largest wholesale customer. During 2000, Florida Power served approximately 24,000 new customers, of which 21,000 were residential customers. This group of customers represents Florida Power's largest customer class and grows about 2% annually. Average usage in 2000 among residential customers was higher than 1999 due primarily to colder-than-normal temperatures during the latter part of the year. Fuel, Purchased Power and Energy Conservation Costs - --------------------------------------------------- As previously discussed, fuel, purchased power and energy conservation costs are recovered primarily through recovery clauses established by state and/or federal regulators. Factors influencing fuel and purchased power costs include demand for electricity, fuel prices, the availability of generating plants and the amount and price of electricity purchased from qualifying facilities (QFs) and other utilities. Fuel used in generation and purchased power were $1.4 billion for 2001 compared with $1.2 billion for 2000. Fuel expense increased in 2001 due to increases in coal prices and recovery of previously deferred fuel costs. The average fuel cost for coal increased $0.27, or 14.3%, per million Btu between 2000 and 2001. Purchased power 29 expense was consistent between 2000 and 2001. Fuel and purchased power expenses are recovered primarily through cost recovery clauses established by regulators and, as such, have no material impact on operating results. Total fuel, and purchased power expenses were $1.2 billion in 2000 compared with $1.1 billion for 1999. The increase resulted from higher system requirements and an increase in the unit price of fuels (primarily natural gas and oil) and purchased power, offset by a decrease in the deferred fuel component of fuel used in electric generation. The weighted average fuel cost increased $0.55, or 28.8%, per million Btu between 1999 and 2000. A key factor influencing Florida Power's purchased power costs are the prices paid to QFs for electricity. Currently, Florida Power receives 831 MW of its total capacity from QFs. Costs associated with the contracts raised Florida Power's system average cost for generation in 2001 and 2000, and this trend is expected to continue based on the contracts currently in place and the escalating payment schedules associated with each contract. Florida Power will continue its effort to mitigate the impact of escalating payments from its QF contracts. (See Note 16 to the Financial Statements - Fuel, Coal and Purchased Power Commitments.) Factors affecting the level of energy conservation costs include the cost of implementing and maintaining various FPSC-approved conservation programs and credits issued to customers participating in programs where equipment is used to remotely control energy usage among those participants. Florida Power does not expect the level of energy conservation costs to vary materially in the future. Other Expenses - -------------- Other Utility Operating Expenses (Dollars in millions) 2001 Change 2000 Change 1999 --------------- --------------- ------ Other operation & maintenance $425.5 (18.8)% $524.1 13.0% $463.9 Depreciation & amortization $453.0 12.5% $402.6 15.9% $347.5 Taxes other than on income $230.2 7.9% $213.3 5.0% $203.1 Other operation and maintenance expense was $425.5 million for the year ended December 31, 2001, down slightly from 2000 due to cost control efforts. Other operation and maintenance expense was $429.9 million, excluding $94.2 million of merger-related costs, for the year ended December 2000. Operation and maintenance expenses for 2000 were down $34 million compared with 1999 for recurring expenses after excluding $94.2 million of merger-related costs. The decrease is due primarily to lower employee salary and benefit costs, from reduced staffing levels, and the timing of certain maintenance and reliability projects. The combination with Progress Energy resulted in certain synergies due to the consolidation of various Florida corporate functions in Raleigh, North Carolina, headquarters for Progress Energy. As a result, Florida Power's operations and maintenance expenses are likely to continue to decline over time as these cost savings are realized. Depreciation and amortization expense increased in 2001, compared to 2000, primarily due to additional expense related to the Tiger Bay regulatory asset compared to 2000. The Tiger Bay regulatory asset was created as a result of the early termination of certain long-term cogeneration contracts and is amortized according to a plan approved by the Florida Public Service Commission in 1997, including the option to accelerate the amortization. In 2001, $97 million of accelerated amortization was recorded on the Tiger Bay regulatory assets, of which $63 million was associated with deferred revenue from 2000, therefore having no impact on 2001 earnings. The remaining $34 million of accelerated amortization on the Tiger Bay regulatory asset was charged to amortization expense in 2001. Depreciation and amortization expense increased $55.1 million in 2000 when compared with 1999. Excluding $44.4 million of accelerated amortization of the Tiger Bay regulatory asset during 2000, depreciation and amortization expense increased $10.7 million due to higher plant balances resulting primarily from the new Hines Unit 1 being in service the entire year. This 530-megawatt generation plant was added in April 1999. 30 Taxes other than on income were up $16.9 million in 2001 over 2000 primarily due to a $14.6 million increase in revenue related taxes from a comparable increase in Operating Revenues. Taxes other than on income were up $10.2 million in 2000 over 1999 primarily due to a $6.9 million or 6.1% increase in revenue related taxes from a comparable increase in Operating Revenues. DIVERSIFIED OPERATIONS - ---------------------- Net income (loss) from continuing Diversified Operations was ($44.2) million, ($75.0) million and $38.7 million for 2001, 2000 and 1999, respectively. The $44.2 million loss from continuing operations for 2001 includes a $130.6 million after-tax ($196.4 million pre-tax) charge for goodwill and other long-lived asset impairments, loss on sale of assets, and other one-time charges at Progress Fuels. The $44.2 million loss from continuing operations for 2001 also includes a $5.9 million after-tax charge for other-than-temporary declines in the fair value of the investment in affordable housing investments. The $75.0 million loss from continuing operations for 2000 includes nonrecurring merger-related and goodwill and other long-lived asset impairment costs of $130.7 million after-tax. Currently, Progress Fuels makes up the vast majority of Florida Progress' diversified operations. The increases in diversified revenues and net income over the last three years are due to the expansion of Progress Fuels. The growth of Progress Fuels has come from both of its business units but the majority of its growth in income before nonrecurring items during 2001 and 2000 has come from the expansion of its synthetic fuel operations. Progress Fuels Corporation - -------------------------- Progress Fuels' operating results are influenced by several factors, unique to the various markets in which the two business segments compete. The Inland Marine Transportation segment was sold in November 2001. Rail Services -- The key factor affecting operating results is the demand for railcar and trackwork components and services among the country's major railroads and fleet owners. The production of new rail cars is a key factor in the demand for rail car parts, one of Progress Rail's key products. In addition, the supply and demand for scrap steel directly affects the operating margins of its recycling division. Energy & Related Services -- This business segment's operating results are primarily affected by the supply and demand for low-sulfur coal, natural gas and the demand for its coal-based synthetic fuel. Progress Fuels has acquired interests in six synthetic fuel entities that combine a petroleum-based product with coal fines to produce a synthetic fuel. During 2000, Progress Ventures purchased 90% interests in two of these entities. 2001 compared with 2000 Progress Fuels' 2001 loss from continuing operations of $22.3 million includes a $130.6 million after-tax total charge for goodwill and other long-lived asset impairments, loss on sale of assets, and other one-time charges at its rail and river terminal operations. Excluding these charges, Progress Fuels' 2001 income from continuing operations was $108.3 million. This is an increase of $37.2 million over 2000 income from continuing operations of $71.1 million, excluding a $83.6 million after-tax charge for goodwill and other long-lived asset impairments at its rail and coal operations and $21.6 million after-tax merger-related costs. The improvement in earnings was due primarily to increased production at its synthetic fuel facilities in the Energy and Related Services segment. Excluding $126.8 million in after-tax charges for goodwill and other long-lived asset impairments, loss on sale of assets, and other one-time charges, the Rail Services business unit lost $17.5 million in 2001, compared to $10.0 million of net loss, excluding $43.0 million in after-tax merger and goodwill and other long-lived asset impairment charges, for 2000. The losses are due to continued weak demand for rail car parts and for track work by the major class one railroads. In an effort to reduce costs, the major railroads have reduced spending on these types of maintenance items and announced layoffs. In addition, new rail car deliveries dropped nearly 40% during 2001 when compared with 2000. As mentioned above, demand for reconditioned parts, is directly affected by new rail car production. Due to results of divestiture efforts and the decision to retain the Rail Services business segment, coupled with prior and current year losses and a continued decline in the rail services industry, the Company evaluated the rail long-lived assets. 31 As a result of this review, Progress Fuels recorded an after-tax impairment charge of $108.1 million for goodwill and other long-lived assets. Earnings from the Energy and Related business unit were $128.5 million in 2001, compared to $89.0 million, before merger and goodwill and other long-lived asset impairment charges of $54.9 million after-tax, in 2000. The 44% improvement in earnings is due largely to the increased production and sale of synthetic fuel and the impact of the related energy tax credits. Progress Fuels' corporate and other costs of $6.4 million decreased $5.3 million in 2001 over 2000. In 2000, corporate and other costs were $11.7 million, before merger charges of $3.6 million. The decrease in 2001 was primarily due to the impact of lower employee benefits related costs and performance based incentive pay, recorded in 2001. 2000 compared with 1999 Progress Fuels' 2000 loss from continuing operations of $34.1 million includes a $83.6 million after-tax charge for goodwill and other long-lived asset impairments at its rail and coal operations and $21.6 million after-tax merger-related costs. Excluding these charges, Progress Fuels' 2000 income from continuing operations was $71.1 million, a $19.4 million increase over 1999 income from continuing operations of $51.7 million. The 38% improvement in earnings from continuing operations was due primarily to its expanded synthetic fuel operations. Excluding merger and goodwill and other long-lived asset impairment charges of $43.0 million after-tax, the Rail Services business unit lost $10.0 million in 2000, compared to $21.3 million of net income for 1999. The severe decline in earnings was due to continued weak demand for rail car parts and for track work by the major class one railroads. In an effort to reduce costs, the major railroads have reduced spending on these types of maintenance items and announced layoffs. In addition, new rail car deliveries dropped nearly 40% during 2000 when compared with 1999. As mentioned above, demand for reconditioned parts, is directly affected by new rail car production. As a result of the preliminary valuation of the Rail Services business segment coupled with a continued decline in the rail services industry, Progress Fuels recorded an after-tax impairment charge of $36.3 million for goodwill and other long-lived assets. Earnings from the Energy and Related business unit were $89.0 million, before merger and goodwill and other long-lived asset impairment charges of $54.9 million after-tax, up $50.1 million due largely to the addition of four synthetic fuel facilities. This business unit also owns coal mines. Due to the intended changes for the use of these assets by management and a continuing depressed market for coal, Progress Fuels recorded an after-tax goodwill and other long-lived asset impairment charge of $47.3 million to write down coal reserves. Progress Fuels' corporate and other costs of $11.7 million, before merger charges of $3.6 million, increased $3.3 million in 2000 over 1999. The increase was primarily due to higher employee benefits related costs and higher incentive pay due to a dramatic increase in earnings before nonrecurring items. Florida Progress Interest Expense and Other Income - -------------------------------------------------- Florida Progress' interest expense decreased $22.2 million in 2001 over 2000 as a result of lower average debt balances. Florida Progress' interest expense increased $22.3 million in 2000 over 1999 as a result of higher average debt balances and higher short-term rates. The higher debt balances were due primarily to expansion of Progress Fuels' operations, in particular its synthetic fuel business. Allowance for funds used during construction (AFUDC) is primarily influenced by the amount of eligible projects in Florida Power's construction work-in-progress outstanding during the year. Other expense was higher in 2001 as compared to 2000 primarily due to a $9.1 million pre-tax ($5.9 million after-tax) investment impairment charge for other-than-temporary declines in the fair value of the investment in affordable housing investments. 32 Other income was higher in 1999 as compared to 2000 due primarily to a gain on the sale of property at Florida Power and higher earnings from non-regulated activities. Income Taxes - ------------ Income tax expense decreased each year from 1999 to 2001 primarily due to alternative fuel tax credits generated by the sale of Progress Fuels' synthetic fuels. (See Note 7 to the Financial Statements.) LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- OVERVIEW - -------- Florida Progress' utility and diversified operations are capital-intensive businesses. However, approximately 80 percent of Florida Progress' capital needs are driven by Florida Power's construction expenditures. Florida Progress relies upon its operating cash flow, commercial paper facilities and its ability to access long-term capital markets for its liquidity needs. Since a substantial majority of Florida Progress' operating costs are related to its regulated electric utility, a significant portion of these costs are recovered from customers through fuel and energy cost recovery clauses. At Florida Power, cash from operations is the primary source of cash for the utility's construction expenditures, which normally range from approximately $300 million to $400 million annually. Florida Power's current forecast of construction expenditures includes expenditures of about $500 million annually. The increase is due to the construction of a base load generating plant and additional reliability improvements to its energy delivery system. Over the last three years, Florida Power's cash flow from operations has averaged nearly 170% of its construction expenditures. Florida Progress' capital expenditures associated with its diversified operations are expected to decline in the future due to the sale of its barge fleet in November 2001 and the eventual disposition of Progress Rail. During 2001, Progress Energy hired an investment advisor to evaluate strategic alternatives associated with Progress Rail. However, it later announced its intention to retain the Rail Services segment due largely to market conditions in the rail services industry. Due to the noncore nature of the rail services business, Progress Energy does not plan to expand those operations. In addition to funding its construction commitments with cash from operations, the companies access the capital markets through the issuance of commercial paper, secured and unsecured notes, preferred securities, and equity through Progress Energy, which can offer issuances of common stock. Risk factors associated with commercial paper back up credit facilities and credit ratings are discussed below. Other sources of capital for both companies over the last three years include proceeds from the sale and leaseback of equipment, and proceeds from the sale of properties and businesses. Florida Power's interim financing needs are funded primarily through its commercial paper program. The utility has a $170 million, 364-day revolving bank credit facility and a $200-million, long-term revolving bank credit facility expiring in 2004, which are used to back up commercial paper. (See Note 11 to the Financial Statements.) In addition, Florida Power has an uncommitted bank bid facility that authorized it to borrow and re-borrow, and have outstanding at any time, up to $100 million. As of December 31, 2001, there were no loans outstanding under the uncommitted facility. The facility was established to temporarily supplement commercial paper borrowings, as needed. Florida Power's medium-term note program provides for the issuance of either fixed or floating interest rate notes, with maturities that may range from nine months to 30 years. Florida Power has $250 million of medium-term notes available for issuance. (See Note 11 to the Financial Statements.) In November 2001, Progress Energy eliminated a $600 million commercial paper program at Progress Capital. At the same time, Progress Energy established its own $1 billion commercial paper facility, which will be used to fund the working capital needs of Progress Energy's diversified operations including Progress Fuels. In addition to funding the working capital needs of its diversified businesses primarily through its commercial paper program, Progress Energy can issue long-term debt to fund the capital requirements of Progress Fuels. As such, Progress Energy does not intend to issue any long-term debt at Progress Capital. 33 CASH FLOW FROM OPERATING ACTIVITIES - ----------------------------------- Florida Progress' cash from operations of $821.3 million increased $300.6 million compared with 2000 due primarily improved operating cash flow at Florida Power. The utility's improved operating cash flow was due to customer growth and the recovery of fuel costs previously deferred. Cash from operations decreased $152.5 million in 2000 compared with 1999. The decrease was due primarily to lower operating cash flow at Florida Power which resulted from an underrecovery of fuel costs and operation fluctuations in current assets for electric customers. The change in current assets was related to colder than normal weather in December 2000 compared with December 1999 and nonrecurring merger-related expenses. Florida Power is allowed full recovery of prudently incurred costs through rates charged to customers. (See Item 7, "MD&A - Operating Results - Florida Power.") CASH FLOW FROM INVESTING ACTIVITIES - ----------------------------------- Cash requirements for investing activities during 2001 decreased $71 million when compared with 2000 due primarily to lower investing activity at Florida Progress' diversified operations. As mentioned above, Progress Energy sold Progress Fuels' barge fleet in November 2001 and has reduced capital expenditures associated with its Rail Services operations. Cash requirements for investing activities for 2000 of $546.6 million were down $52 million compared with 1999 due primarily to lower property additions by Florida Power. Florida Power's construction expenditures, including nuclear fuel, totaled $366.3 million, $286.8 million and $361.1 million for 2001, 2000 and 1999, respectively. These expenditures are primarily for distribution lines and generating facilities necessary to meet the needs of the utility's growing customer base. In planning for its future generation needs, Florida Power develops a forecast of annual demand for electricity, including a forecast of the level and duration of peak demands during the year. These forecasts have historically been developed using a 15% reserve margin. The reserve margin is the difference between a company's net system generating capacity and the maximum demand on the system. In December 1999, the FPSC approved a joint proposal by Florida Power, Florida Power & Light and Tampa Electric Company to increase the reserve margin to 20% by 2004. In response, Florida Power is currently constructing a second generating unit at the Hines site. Hines Unit 2 will use the same combined-cycle technology as Hines Unit 1 and is expected to have a summer generating capacity of approximately 495 MW. The cost of the plant is included in the projected construction dollars presented below under the heading "Future Cash Requirements." Progress Fuels' capital expenditures for 2001, 2000 and 1999 were $61.8 million, $88.2 million and $101.5 million, respectively. These capital expenditures have been primarily for the expansion of its synthetic fuel operations and the construction of a new rail car repair and trackworks facility. Other capital expenditures for diversified operations are primarily for Progress Telecommunications and totaled $72 million in 2001. Progress Telecommunications expects to spend about $50 million annually over the next three years for the expansion of its telecom network. Other investing activities decreased $37.0 million during 2001 when compared with 2000. The decrease is due primarily to less acquisition activity at Progress Fuels. Net proceeds from the sale of discontinued operations of $28 million resulted from the sale of Progress Fuels' barge fleet in November 2001. Total proceeds from the sale were $270 million of which approximately $230 million were used to terminate certain synthetic leases associated with the barge fleet. CASH FLOW FROM FINANCING ACTIVITIES - ----------------------------------- Strong cash flow from operations and lower investing activities during 2001 when compared with 2000 enabled Florida Progress to reduce debt by approximately $200 million. In contrast, during 2000 higher diversified investing activities and lower cash from operations resulted in an increase in debt outstanding of approximately $170 million when compared with 1999. 34 In July 2001, Florida Power issued $300 million of First Mortgage Bonds due 2011 with a coupon of 6.65%. Proceeds from the issuance were primarily used to retire commercial paper and for general corporate purposes. During 2001, $80 million of Florida Power's medium-term notes matured. In addition, $101 million of medium-term notes matured at Progress Capital. These notes were retired with proceeds obtained through the issuance of commercial paper. Progress Capital has $273 million of medium-term notes outstanding as of December 31, 2001. It is Progress Energy's intent to payoff these remaining notes as they become due with internally generated funds from its diversified operations or through the issuance of debt by Progress Energy. In November 2001, the Company terminated the Progress Capital commercial paper program. The Company and its subsidiaries participate in two internal money pools, operated by Progress Energy, to more effectively utilize cash resources and to reduce outside short-term borrowings. Short-term borrowing needs are met first by available funds of the money pool participants. Borrowing companies pay interest at a rate designed to approximate the cost of outside short-term borrowings. Subsidiaries, which invest in the money pool, earn interest on a basis proportionate to their average monthly investment. The interest rate used to calculate earnings approximates external interest rates. Funds may be withdrawn from or repaid to the pool at any time without prior notice. Interest expense related to advances from Progress Energy in 2001 was not significant. The Company's consolidated subsidiaries have lines of credit totaling $370 million, which are used to support the issuance of commercial paper. The lines of credit were not drawn on as of December 31, 2001. The lines of credit consist of two revolving bank credit facilities for Florida Power. The Florida Power facilities consist of $170 million with a 364-day term and $200 million long-term revolving bank credit facility, expiring in 2004. The Company's financial policy precludes issuing commercial paper in excess of its supporting lines of credit. At December 31, 2001, the total amount of commercial paper outstanding was $154 million, leaving approximately $216 million available for issuance. The Company is required to pay minimal annual commitment fees to maintain its credit facilities. These credit agreements contain various terms and conditions that could affect the Company's ability to borrow under these facilities. These include a maximum debt to total capital ratio, a material adverse change clause and a cross-default provision. For Florida Power, the maximum total debt to total capital ratio is 65%. As of December 31, 2001, the calculated ratio for Florida Power, pursuant to the terms of the agreement, was 44.6% Florida Power's credit facilities include a provision under which lender could refuse to advance funds in the event of a material adverse change in the borrower's financial condition. Each of these credit agreements contains a cross-default provision for defaults of indebtedness in excess of $10 million. Under these provisions, if the applicable borrower or certain affiliates fail to pay various debt obligations in excess of $10 million the lenders could accelerate payment of any outstanding borrowing and terminate their commitments to the credit facility. Capital Structure for Florida Progress As of December 31, 2001 and 2000: 2001 2000 ---- ---- Common stock 42.8% 44.3% Preferred stock of subsidiary .7% .7% Debt 56.5% 55.0% 35 Credit Ratings (December 31, 2001) Moody's Standard and ------- ------------ Investors Service Poor's ----------------- ------ Florida Power Corporation Corporate Credit Rating A2 BBB+/A-2 Commercial Paper P-1 A-2 Senior Secured Debt A1 BBB+ Senior Unsecured Debt A2 BBB+ Preferred Stock Baa1 BBB- FPC Capital I Preferred Stock* A3 BBB- Progress Capital Holdings, Inc. Senior Unsecured Debt* A3 BBB *Guaranteed by Florida Progress Corporation These ratings reflect the current views of these rating agencies and no assurances can be given that these ratings will continue for any given period of time. However, the Company monitors its financial condition as well as market conditions that could ultimately affect its credit ratings. The Company is committed to maintaining its current credit ratings. Neither the Company's debt indentures nor its credit agreements contain any "ratings triggers" which would cause the acceleration of interest and principal payments in the event of a ratings downgrade. However, in the event of a downgrade the Company and/or its subsidiaries may be subject to increased interest costs on the credit facilities backing up the commercial paper program. The Company and its subsidiaries have certain contracts which have provisions that are triggered by a ratings downgrade. These contracts include counterparty trade agreements, derivative contracts and various types of third party purchase agreements. None of these contracts would require any action on the part of Florida Progress or its subsidiaries unless the ratings downgrade results in a rating below investment grade. Future Cash Requirements Florida Power's three-year construction program totals nearly $1.5 billion for the 2002-2004 forecast period. It includes planned expenditures of about $500 million each year. These expenditures are primarily for the expansion of Florida Power's distribution system and generation capacity. Florida Power expects these construction expenditures to be financed primarily with cash from operations. Future Commitments The following tables reflect Florida Progress' contractual cash obligations and other commercial commitments in the respective periods in which they are due.
Contractual Cash Total Amounts Obligations Committed 2002 2003 2004 2005 2006 Thereafter - -------------------------------------------------------------------------------------- Long-term debt $ 2,735 $ 88 $ 430 $ 68 $ 48 $ 109 $1,992 Capital Lease 18 1 1 1 1 1 13 Obligations Operating Leases 120 20 39 28 10 5 18 Fuel 3,494 880 752 602 626 611 23 Purchased Power 6,358 289 295 284 297 308 4,885 - -------------------------------------------------------------------------------------- Total $12,725 $1,278 $1,517 $983 $982 $1,034 $6,931
36
Other Commercial Total Amounts Commitments Committed 2002 2003 2004 2005 2006 Thereafter - ------------------------------------------------------------------------------------ Standby Letters of $ 24 $24 $-- $-- $-- $-- $-- Credit Guarantees and Other 109 18 16 13 11 10 41 Commitments - ------------------------------------------------------------------------------------ Total $133 $42 $16 $13 $11 $10 $41
Information on the Company's future commitments at December 31, 2001, is included in the notes to the Florida Progress consolidated financial statements. Future debt maturities and lease obligations are included in Note 11 and Note 16, respectively. The Company's fuel, purchased power and other commitments are included in Note 16 to the Florida Progress consolidated financial statements. OTHER MATTERS - ------------- CURRENT REGULATORY ENVIRONMENT - ------------------------------ General Florida Power is regulated by the FPSC, FERC, United States Nuclear Regulatory Commission (NRC), EPA, and by environmental authorities in the state of Florida. In addition, Florida Progress and Florida Power are subject to regulation by the SEC. As a result of regulation, many of the Company's fundamental business decisions, as well as the rate of return it is permitted to earn are subject to the approval of governmental agencies. Florida Retail Rate Proceeding Florida Power previously operated under an agreement committing several parties not to seek any reduction in its base rates or authorized return on equity. That agreement expired on June 30, 2001. During 2001, the FPSC required Florida Power to submit minimum filing requirements, based on a 2002 projected test year, to initiate a rate proceeding regarding its future base rates. On September 14, 2001, Florida Power submitted its required rate filing, including its revenue requirements and supporting testimony. Florida Power filed supplemental minimum filing requirements and testimony on November 15, 2001. Hearings were scheduled to begin on March 20, 2002, but were postponed to accommodate pending settlement negotiations between the parties. On March 27, 2002, the parties in Florida Power's rate case entered into a Stipulation and Settlement Agreement (the Agreement) related to retail rate matters. The Agreement is to be effective from May 1, 2002 through 2005; provided, however, that if Florida Power's base rate earnings fall below a 10% return on equity, Florida Power may petition the FPSC to amend its base rates. The Agreement provides that Florida Power will reduce its retail revenues from the sale of electricity by $125 million annually through 2005. The Agreement also provides that Florida Power will operate under a Revenue Sharing Incentive Plan (the Plan) that establishes revenue caps and sharing thresholds for the years 2002 through 2005. The Plan provides that retail base rate revenues between the sharing thresholds and the retail base rate revenue caps will be divided into two shares - a 1/3 share to be received by Florida Power's shareholders, and a 2/3 share to be refunded to Florida Power's retail customers; provided, however, that for the year 2002 only, the refund to customers will be limited to 67.1% of the 2/3 customer share. The retail base rate revenue sharing threshold amounts for 2002, 2003, 2004 and 2005 will be $1,296 million, $1,333 million, $1,370 million, and $1,407 million, respectively. The Plan also provides that all retail base rate revenues above the retail base rate revenue caps established for the years 2003, 2004 and 2005 will be refunded to retail customers on an annual basis. For 2002, the refund to customers will be limited to 67.1% of the retail base rate revenues that exceed the 2002 cap. The retail base revenue caps for 2002, 2003, 2004 and 2005 will be $1,356 million, $1,393 million, $1,430 million, and $1,467 million, respectively. The Agreement also provides that beginning with the in-service date of Florida Power's Hines Unit 2 and continuing through December 31, 2005, Florida Power will be allowed to recover through the fuel cost recovery clause a return 37 on average investment and depreciation expense for Hines Unit 2, to the extent such costs do not exceed the Unit's cumulative fuel savings over the recovery period. Additionally, the Agreement provides that Florida Power will effect a mid-course correction of its fuel cost recovery clause to reduce the fuel factor by $50 million for the remainder of 2002. The fuel cost recovery clause will operate as it normally does, including, but not limited to any additional mid-course adjustments that may become necessary, and the calculation of true-ups to actual fuel clause expenses. During the term of the Agreement, Florida Power will suspend accruals on its reserves for nuclear decommissioning and fossil dismantlement. Additionally, for each calendar year during the term of the Agreement, Florida Power will record a $62.5 million depreciation expense reduction, and may, at its option, record up to an equal annual amount as an offsetting accelerated depreciation expense. In addition, Florida Power is authorized, at its discretion, to accelerate the amortization of certain regulatory assets over the term of the Agreement. Under the terms of the Agreement, Florida Power agreed to continue the implementation of its four-year Commitment to Excellence Reliability Plan and expects to achieve a 20% improvement in its annual System Average Interruption Duration Index by no later than 2004. If this improvement level is not achieved for calendar years 2004 or 2005, Florida Power will provide a refund of $3 million for each year the level is not achieved to 10% of its total retail customers served by its worst performing distribution feeder lines. The Agreement also provides that Florida Power will refund to customers $35 million of the $98 million in interim revenues Florida Power has collected subject to refund since March 13, 2001. No other interim revenues that were collected during that period will continue to be held subject to refund. The Agreement was filed with the FPSC for approval on March 27, 2002. If the FPSC approves the Agreement, the new rates will take effect May 1, 2002. The Company cannot predict the outcome of this matter. Electric Industry Restructuring The electric utility industry is undergoing changes designed to increase competition in the wholesale and retail electricity markets. The wholesale power market includes sales of electricity to utilities from other utilities and non-utility generators. This market is regulated by FERC. The retail electricity market includes sales of electricity to end-use customers, i.e., residential, commercial and industrial customers, and is regulated by FPSC. As a result of the Public Utilities Regulatory Policies Act of 1978 (PURPA) and the Energy Policy Act of 1992 (EPA of 1992), competition in the wholesale electricity market has greatly increased, especially from non-utility generators of electricity. In 1996, FERC issued new rules on transmission service to facilitate competition in the wholesale market on a nationwide basis. The rules give greater flexibility and more choices to wholesale power customers. Florida Power continues to monitor progress toward a more competitive environment and has actively participated in regulatory reform deliberations in Florida. Movement toward deregulation has been affected by recent developments, including developments related to deregulation of the electric industry in California and other states. In May 2000, the Governor of Florida issued an executive order establishing a 17-member commission to study the issue of restructuring. On January 31, 2001, the Florida 2020 Study Commission voted to forward a "proposed outline for wholesale restructuring" to the Florida legislature for its consideration in the 2001 session. The wholesale restructuring outline is intended to facilitate the evolution of a more robust wholesale marketplace in Florida. On December 11, 2001 the study commission issued its final report. The report covered a number of issues with recommendations in the areas of wholesale competition and reliability, efficiency, transmission infrastructure, environmental issues and new technologies. A key recommendation related to wholesale competition and reliability permits the transfer or sale of existing generation at book value and on a plant-by-plant basis, with the sale and transfer being at the discretion of the investor-owned utility. The Florida legislature did not take any action on the proposed outline or final report during the 2001 session. The Company cannot predict what restructuring legislation will be enacted or if the Company would be able to support it in its final form. 38 Regional Transmission Organizations In October 2000, Florida Power, along with Florida Power & Light Company and Tampa Electric Company filed with FERC an application for approval of a regional transmission organization, or RTO, for peninsular Florida, currently named GridFlorida. On March 28, 2001, FERC issued an order provisionally granting GridFlorida RTO status and directing the GridFlorida applicants to make certain changes in the RTO documents and to file such changes within 60 days. On May 29, 2001, the GridFlorida applicants made the compliance filing as directed by FERC, but FERC has not yet issued an order on that compliance filing. On May 16, 2001, the FPSC initiated dockets to review the prudence of the GridFlorida applicants' decision to form and participate in the GridFlorida RTO. The GridFlorida applicants have announced that they will hold GridFlorida development activities in abeyance. On June 27, 2001, the FPSC issued an order establishing a two-phase process for addressing these GridFlorida RTO issues in the context of Florida Power's pending rate case. In the first phase, the FPSC addressed the general issues associated with the prudence of the GridFlorida RTO on an expedited basis. FPSC hearings were held in October 2001 on the phase one issues, and the FPSC issued an order in December 2001. The order states, among other things, that the GridFlorida applicants acted prudently in moving to establish an RTO for Florida. However, the order also directs the GridFlorida applicants to make certain changes to the proposed GridFlorida structure and refile with the FPSC within 90 days of the order. The GridFlorida applicants made the required changes to GridFlorida and refiled the application with the FPSC on March 20, 2002. The second phase will address ratemaking issues and will be decided as part of the general rate proceeding. The Company cannot predict the outcome or impact of these matters. On July 12, 2001, FERC issued an order requiring certain parties, including CP&L, Duke Energy Corporation, South Carolina Electric & Gas Company, Southern Company and Entergy to engage in a mediation to develop a plan for a single RTO for the Southeast. The GridFlorida applicants and the parties to the GridFlorida docket before FERC were encouraged to participate, but were not required to do so. Florida Power and CP&L participated in the mediation. On September 10, 2001, the presiding administrative law judge of the mediation submitted a mediation report to FERC. The report, which has not yet been acted on by FERC, recommended adoption of a for-profit transmission company RTO model. FERC held a discussion on the mediation report on November 24, 2001. In January 2002, FERC stated that it would issue orders on the RTO formations for the Southeast during the first half of 2002 after the development of a standardized market design for the wholesale electricity market. The Company cannot predict the outcome of these matters or the effect that it may have on the GridFlorida proceedings currently ongoing before the FERC and the FPSC. Merchant Plants In August 1998, Duke Energy filed a petition to build Florida's first merchant power plant, a 514 MW facility to be located in Volusia County, Florida. The plant would provide 30 MW of energy to the Utilities Commission of the City of New Smyrna Beach and the remaining capacity would be available for wholesale sales. In a move Florida Power believed to be contrary to the existing state law, the FPSC granted Duke Energy's petition. Florida Power and other Florida utilities filed an appeal of the FPSC's decision with the Florida Supreme Court. In April 2000, the Florida Supreme Court ruled in favor of Florida Power and other utilities and reversed the FPSC's order. In December 2000, Duke Energy filed a petition for certiorari with the U.S. Supreme Court. On March 5, 2001, the U.S. Supreme Court denied Duke Energy's petition for certiorari. Franchise Litigation Five cities, with a total of approximately 36,000 customers, have sued Florida Power in various circuit courts in Florida. The lawsuits principally seek (1) a declaratory judgment that the cities have the right to purchase Florida Power's electric distribution system located within the municipal boundaries of the cities, (2) a declaratory judgment that the value of the distribution system must be determined through arbitration, and (3) injunctive relief requiring Florida Power to continue to collect from Florida Power's customers and remit to the cities, franchise fees during the pending litigation, and as long as Florida Power continues to occupy the cities' rights-of-way to provide electric service, notwithstanding the expiration of the franchise ordinances under which Florida Power had agreed to collect such fees. Three circuit courts have entered orders requiring arbitration to establish the purchase price of Florida Power's electric distribution facilities within three cities. One appellate court has held that one city has the right to determine the value of Florida Power's facilities within the city through arbitration. To date, no city has attempted to actually exercise the right to purchase any portion of Florida Power's electric distribution system, nor has there 39 been any proceeding to determine the value at which such a purchase could be made. Arbitration has been scheduled for two of the cases in the third quarter of 2002. The Company cannot predict the outcome of these matters. Nuclear In the retail jurisdiction, provisions for nuclear decommissioning costs are approved by the FPSC based on site-specific estimates that include the costs for removal of all radioactive and other structures at the site. In the wholesale jurisdiction, the provisions for nuclear decommissioning costs are based on amounts agreed upon by FERC. See Note 8 to the financial statements for a discussion of nuclear decommissioning costs. As required under the Nuclear Waste Policy Act of 1982, Florida Power entered into a contract with the Department of Energy (DOE) under which the DOE agreed to begin taking spent nuclear fuel by no later than January 31, 1998. All similarly situated utilities were required to sign the same standard contract. See Note 8 to the financial statements for a discussion of recent DOE developments. In August 2001, the NRC issued Bulletin 2001-01, "Circumferential Cracking of Reactor Vessel Head Penetration Nozzles," requesting that all pressurized water reactors (PWR) provide their plans for inspecting the reactor vessel head for the conditions described in the bulletin. While performing this inspection, FirstEnergy Corp.'s Davis Besse plant in Ohio found three penetrations with evidence of leakage and further evidence of some wastage of the reactor vessel head around two of these penetrations. As a result of finding the wastage of the vessel head, the NRC issued Bulletin 2002-01, requesting licensees to assess previous inspections of the reactor head and determine the potential for the existence of conditions similar to that found at the Davis Besse plant. Florida Power's CR3 has completed the inspections requested by Bulletin 2001-01. Any indications of leakage have been inspected and repaired, and no wastage of the reactor vessel head has been observed. Based on these inspections, responses to Bulletin 2002-01 are being prepared. The Company does not anticipate any adverse impact from this regulatory action. Synthetic Fuels Progress Fuels, through its subsidiaries, owns a majority interest in three synthetic fuel entities, two located in Kentucky, the other located in West Virginia. Progress Fuels has a minority interest in three other synthetic fuel entities, each of which is located in West Virginia, Virginia and Kentucky. Progress Ventures, a wholly owned subsidiary of Progress Energy, owns a 90% interest in two of these entities, which are located in Kentucky and West Virginia. Progress Fuels production and sales from synthetic fuels operations totaled approximately 8.1 million tons, and generated tax credits (under the Internal Revenue Service Code Section 29) of approximately $213.4 million. All entities have received private letter rulings (PLRs) from the Internal Revenue Service with respect to their synfuel operations. The PLR's do not limit the production on which synthetic fuel tax credits may be claimed. Should the tax credits be denied on future audits and Florida Progress fails to prevail through the audit/legal process, there could be significant tax liability owed for previously taken Section 29 credits, with a significant impact on earnings and cash flows. In Management's opinion, Florida Progress is complying with all the necessary requirements to be allowed such credits under Section 29 and believes it is probable, although it cannot provide certainty, that it will prevail on any credits taken. Fuel Acquisition On January 11, 2002, Progress Energy announced that it had entered into a letter of intent with Westchester Gas Company to acquire approximately 215 producing natural gas wells, 52 miles of intrastate gas pipeline and 170 miles of gas-gathering systems. The properties are located within a 25-mile radius of Jonesville, Texas, on the Texas-Louisiana border. This will add 140 billion cubic feet (Bcf) of gas reserves to Progress Fuels' fuel business, which more than doubles its gas reserves and potential annual production levels. Total consideration of $153 million is expected to include $135 million in Progress Energy common stock and $18 million in cash. This transaction is expected to be completed in the first half of 2002. 40 Environmental Matters The Company is subject to federal, state and local regulations addressing air and water quality, hazardous and solid waste management and other environmental matters. Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under federal and state laws. The lead or sole regulatory agency that is responsible for a particular former coal tar site depends largely upon the state in which the site is located. There are several manufactured gas plant (MGP) sites to which Florida Power has some connection. In this regard, Florida Power, with other potentially responsible parties, is participating in investigating and, if necessary, remediating former coal tar sites with several regulatory agencies, including, but not limited to, the EPA and the FDEP. Although Florida Power may incur costs at these sites about which it has been notified, based upon current status of these sites, Florida Power does not expect those costs to be material to the financial position or results of operations of Florida Power. The Company is periodically notified by regulators such as the EPA and various state agencies of their involvement or potential involvement in sites, other than MGP sites, that may require investigation and/or remediation. Although the Company may incur costs at the sites about which they have been notified, based upon the current status of these sites, the Company does not expect those costs to be material to the financial position or results of operations of the Company. There has been and may be further proposed federal legislation requiring reductions in air emissions for nitrogen oxides, sulfur dioxide and mercury setting forth national caps and emission levels over an extended period of time. This national multi-pollutant approach would have significant costs which could be material to the Company's consolidated financial position or results of operations. Some companies may seek recovery of the related cost through rate adjustments or similar mechanisms. The Company cannot predict the outcome of this matter. The EPA has been conducting an enforcement initiative related to a number of coal-fired utility power plants in an effort to determine whether modifications at those facilities were subject to New Source Review requirements or New Source Performance Standards under the Clean Air Act. Florida Power was asked to provide information to the EPA as part of this initiative and has cooperated in providing the requested information. The EPA has initiated enforcement actions against other unaffiliated utilities as part of this initiative, some of which have resulted in or may result in settlement agreements calling for expenditures ranging from $1.0 billion to $1.4 billion. A utility that was not subject to a civil enforcement action settled its New Source review issues with the EPA for $300 million. These settlement agreements have generally called for expenditures to be made over extended time periods, and some of the companies may seek recovery of the related costs through rate adjustments. The Company cannot predict the outcome of this matter. In July 1997, the EPA issued final regulations establishing a new eight-hour ozone standard. In October 1999, the District of Columbia Circuit Court of Appeals ruled against the EPA with regard to the federal eight-hour ozone standard. The U.S. Supreme Court has upheld, in part, the District of Columbia Circuit Court of Appeals decision. Further litigation and rulemaking are anticipated. The Company cannot predict the outcome of this matter. On November 1, 2001, the Company completed the sale of the Inland Marine Transportation segment to AEP Resources, Inc. In connection with the sale, the Company entered into environmental indemnification provisions covering both unknown and known sites. The Company has recorded an accrual to cover estimated probable future environmental expenditures. The Company believes that it is reasonably possible that additional costs, which cannot be currently estimated, may be incurred related to the environmental indemnification provision beyond the amounts accrued. The Company cannot predict the outcome of this matter. The Company has filed claims with the Company's general liability insurance carriers to recover costs arising out of actual or potential environmental liabilities. Some claims have been settled and others are still pending. While management cannot predict the outcome of these matters, the outcome is not expected to have a material effect on the financial position or results of operations. 41 Other Items Florida Progress is involved in other litigation. (See Note 16 to the Financial Statements - Legal Matters.) Even though the inflation rate has been relatively low during the last three years, inflation continues to affect Florida Progress by reducing the purchasing power of the dollar and increasing the cost of replacing assets used in the business. This has a negative effect on Florida Power because regulators generally do not consider this economic loss when setting utility rates. However, such losses are partly offset by the economic gains that result from the repayment of long-term debt with inflated dollars. MID-CONTINENT LIFE INSURANCE COMPANY - ------------------------------------ Mid-Continent was placed in receivership in the spring of 1997. Since then, Florida Progress has worked to resolve various issues surrounding Mid-Continent with several parties. In September 2000, the Oklahoma County District Court approved a rehabilitation plan for Mid-Continent in which American Fidelity would acquire Mid-Continent's policies. In addition, Florida Progress reached a settlement to resolve a policyholders' class action lawsuit, which was approved by the Court. The settlement included Florida Progress agreeing to contribute $17.5 million, plus attorney's fees and expenses up to approximately $5 million, towards protecting policyholders from future premium increases. Accordingly, Florida Progress accrued approximately $23 million as of December 2000. During 2001, Florida Progress paid the settlement and attorney's fees. In December 2001, Florida Progress, having filed a claim with its insurance carrier related to Mid-Continent, was awarded an $8.8 million insurance settlement, resulting in after-tax income of $5.4 million. In connection with a settlement agreement related to Mid-Continent Life, Florida Progress had charges totaling $8.1 million after-tax during 2000. In 1999, charges related to Mid-Continent were more than offset by the recognition of certain tax benefits, which resulted in net income of $3.6 million in 1999. (See Note 16 to the Financial Statements - Mid-Continent Life Insurance Company.) NEW ACCOUNTING STANDARDS - ------------------------ See Note 1 to the financial statements for a discussion of the anticipated impact of new accounting standards. 42 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- FLORIDA PROGRESS Market risk represents the potential loss arising from adverse changes in market rates and prices. Florida Progress is exposed to certain market risks, including changes in interest rates with respect to its long-term debt and commercial paper, and fluctuations in the return on marketable securities with respect to its nuclear decommissioning trust funds. The Company manages its market risk in accordance with its established risk management policies, which may include entering into various derivative transactions. These financial instruments are held for purposes other than trading. The risks discussed below do not include the price risks associated with non-financial instrument transactions and positions associated with Florida Progress' operations, such as sales commitments and inventory. INTEREST RATE RISK - ------------------ The Company manages its interest rate risks through the use of a combination of fixed and variable rate debt. Variable rate debt has rates that adjust in periods ranging from daily to monthly. The following tables provide information as of December 31, 2001 and 2000, about the Company's interest rate risk sensitive instruments. The tables present principal cash flows and weighted-average interest rates by expected maturity dates for the fixed long-term debt, commercial paper and the FPC obligated mandatorily redeemable securities of trust.
Fair Value December 31, 2001 2002 2003 2004 2005 2006 Thereafter Total December 31 - --------------------------------------------------------------------------------------------------- (Dollars in millions) Fixed rate long-term debt $ 88 $ 276 $ 68 $ 48 $ 109 $1,192 $1,781 $1,832 Average interest rate 5.96% 6.42% 6.60% 6.72% 6.97% 6.87% 6.75% -- Commercial paper -- $ 154 -- -- -- -- $ 154 $ 154 Average interest rate -- 2.54% -- -- -- -- 2.54% -- FPC mandatorily redeemable securities of Trust -- -- -- -- -- $ 300 $ 300 $ 291 Fixed rate 7.10% 7.10% -- Unsecured note with $ 500 $ 500 $ 494 parent Average interest rate 6.43% 6.43%
Fair Value December 31, 2001 2001 2002 2003 2004 2005 Thereafter Total December 31 - --------------------------------------------------------------------------------------------------- (Dollars in millions) Fixed rate long-term debt $ 191 $ 87 $ 275 $ 68 $ 48 $1,001 $1,670 $1,651 Average interest rate 6.73% 5.92% 6.37% 6.32% 6.30% 6.94% 6.73% -- Commercial paper -- -- $ 500 -- -- -- $ 500 $ 500 Average interest rate -- -- 7.10% -- -- -- 7.10% -- FPC mandatorily redeemable securities of Trust -- -- -- -- -- $ 300 $ 300 $ 272 Fixed rate 7.10% 7.10%
43 FLORIDA POWER The information required by this item is incorporated herein by reference to the Florida Progress Quantitative and Qualitative Disclosures About Market Risk insofar as it relates to Florida Power. The following tables provide information as of December 31, 2001 and 2000, about Florida Power's interest rate risk sensitive instruments.
December 31, 2001 Fair Value 2002 2003 2004 2005 2006 Thereafter Total December 31 - ------------------------------------------------------------------------------------------------- (Dollars in millions) Fixed rate long-term debt $ 32 $ 217 $ 43 $ 48 $ 48 $1,112 $1,500 $1,538 Average interest rate 6.55% 6.15% 6.69% 6.72% 6.76% 6.89% 6.76% -- Commercial paper -- $ 154 -- -- -- -- $ 154 $ 154 Average interest rate -- 2.54% -- -- -- -- 2.54% --
December 31, 2000 Fair Value 2001 2002 2003 2004 2005 Thereafter Total December 31 - ------------------------------------------------------------------------------------------------- (Dollars in millions) Fixed rate long-term debt $ 82 $ 32 $ 218 $ 43 $ 48 $ 859 $1,282 $1,267 Average interest rate 6.48% 6.55% 6.15% 6.69% 6.72% 6.97% 6.77% -- Commercial paper -- -- $ 200 -- -- -- $ 200 $ 200 Average interest rate -- -- 6.89% -- -- -- 6.89% --
MARKETABLE SECURITIES PRICE RISK - -------------------------------- Florida Power maintains trust funds, as required by the Nuclear Regulatory Commission, to fund certain costs of decommissioning its nuclear plants. These funds are primarily invested in stocks, bonds and cash equivalents, which are exposed to price fluctuations in equity markets and to changes in interest rates. At December 31, 2001 and 2000, the fair values of these funds were approximately $406.1 million and $400.7 million, respectively. The Company actively monitors its portfolio by benchmarking the performance of its investments against certain indices and by maintaining, and periodically reviewing, target allocation percentages for various asset classes. The accounting for nuclear decommissioning recognizes that the Company's regulated electric rates provide for recovery of these costs, net of any trust fund earnings, and therefore, fluctuations in trust fund marketable security returns do not affect the earnings of the Company. 44 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT TO THE BOARDS OF DIRECTORS OF FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION: We have audited the accompanying consolidated balance sheet and schedule of capitalization of Florida Progress Corporation and its subsidiaries (Florida Progress) and the accompanying balance sheet and schedule of capitalization of Florida Power Corporation (Florida Power) as of December 31, 2001, and the related Florida Progress consolidated statements of income, of common equity and comprehensive income, and of cash flows and the related Florida Power statements of income, of common equity, and of cash flows for the year then ended. Our audits also included the financial statement schedules for the year ended December 31, 2000, listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the respective company's management. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Florida Progress and of Florida Power, respectively, at December 31, 2001, and the results of their respective operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Raleigh, North Carolina February 15, 2002 45 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF FLORIDA PROGRESS CORPORATION: We have audited the accompanying balance sheets and schedules of capitalization of Florida Progress Corporation and subsidiaries, and of Florida Power Corporation, as of December 31, 2000 and 1999, and the related statements of income, cash flows, and common equity and comprehensive income for the years then ended. In connection with our audits of the financial statements, we also have audited the financial statement schedules listed in Item 14 therein. These financial statements and financial statement schedules are the responsibility of the respective management 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/KPMG LLP - ------------------------- KPMG LLP St. Petersburg, Florida February 15, 2001 46 CONSOLIDATED STATEMENTS of INCOME - ---------------------------------
Florida Progress Corporation Years ended December 31 (In thousands) 2001 2000 1999 - --------------------------------------------------------------------------------------------- Operating Revenues Electric $3,212,841 $2,871,563 $2,649,413 Diversified businesses 1,378,278 1,403,997 1,086,132 - --------------------------------------------------------------------------------------------- Total Operating Revenues 4,591,119 4,275,560 3,735,545 - --------------------------------------------------------------------------------------------- Operating Expenses Fuel used in electric generation 912,735 681,869 615,389 Purchased power 514,528 498,458 414,080 Energy conservation costs 61,673 65,041 81,215 Other operation and maintenance 425,471 524,090 463,843 Depreciation and amortization 452,972 402,625 347,515 Taxes other than on income 230,169 213,280 203,099 Diversified businesses 1,690,073 1,655,336 1,038,550 - --------------------------------------------------------------------------------------------- Total Operating Expenses 4,287,621 4,040,699 3,163,691 - --------------------------------------------------------------------------------------------- Operating Income 303,498 234,861 571,854 - --------------------------------------------------------------------------------------------- Other Income (Expense) Interest income 2,872 1,852 867 Other, net (28,382) (18,668) 1,513 - --------------------------------------------------------------------------------------------- Total Other Income (Expense) (25,510) (16,816) 2,380 - --------------------------------------------------------------------------------------------- Interest Charges Long-term debt 150,693 163,047 155,232 Other interest charges 35,718 47,561 33,344 Allowance for borrowed funds used during construction (AFUDC) (1,087) (3,117) (3,350) - --------------------------------------------------------------------------------------------- Total Interest Charges, Net 185,324 207,491 185,226 - --------------------------------------------------------------------------------------------- Income before Income Taxes 92,664 10,554 389,008 Income Taxes (Benefit) (172,719) (124,715) 84,858 - --------------------------------------------------------------------------------------------- Income from Continuing Operations 265,383 135,269 304,150 Discontinued Operations, net of tax (Note 4): Income from discontinued operations 2,682 8,972 10,747 Net loss on disposal of discontinued operations, (net of applicable income tax benefit of $7,896) (23,734) -- -- - --------------------------------------------------------------------------------------------- Net Income $ 244,331 $ 144,241 $ 314,897 =============================================================================================
See Notes to financial statements 47 CONSOLIDATED BALANCE SHEETS - ---------------------------
Florida Progress Corporation (In thousands) December 31 Assets 2001 2000 - --------------------------------------------------------------------------------------------------- Utility Plant Electric utility plant in service $ 7,151,729 $ 6,998,135 Accumulated depreciation (3,984,308) (3,701,975) - --------------------------------------------------------------------------------------------------- Utility plant in service, net 3,167,421 3,296,160 Held for future use 8,274 8,274 Construction work in progress 292,883 124,988 Nuclear fuel, net of amortization 62,536 39,879 - --------------------------------------------------------------------------------------------------- Total Utility Plant, Net 3,531,114 3,469,301 - --------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents 5,201 24,200 Accounts receivable 420,118 482,270 Accounts receivable-affiliates 21,851 507 Taxes receivable 14,761 16,363 Deferred income taxes 32,325 39,576 Inventory 485,891 371,919 Deferred fuel cost 15,147 90,434 Prepayments 10,748 23,027 Net assets of discontinued operations -- 69,642 Other current assets 48,184 25,251 - --------------------------------------------------------------------------------------------------- Total Current Assets 1,054,226 1,143,189 - --------------------------------------------------------------------------------------------------- Deferred Debits and Other Assets Income taxes recoverable through future rates 27,610 19,689 Deferred purchased power contract termination costs 95,326 226,656 Unamortized debt expense 21,021 19,128 Nuclear decommissioning trust funds 406,100 400,719 Diversified business property, net 669,078 666,360 Miscellaneous other property and investments 117,535 181,569 Goodwill, net 11,139 113,152 Other assets and deferred debits 375,641 252,821 - --------------------------------------------------------------------------------------------------- Total Deferred Debits and Other Assets 1,723,450 1,880,094 - --------------------------------------------------------------------------------------------------- Total Assets $ 6,308,790 $ 6,492,584 =================================================================================================== Capitalization and Liabilities - --------------------------------------------------------------------------------------------------- Capitalization - --------------------------------------------------------------------------------------------------- Common stock $ 1,409,034 $ 1,318,309 Retained earnings 666,201 670,679 Accumulated other comprehensive loss (2,985) (1,407) Preferred stock of subsidiaries-not subject to mandatory redemption 33,497 33,497 Long-term debt, net 2,643,934 2,276,416 - --------------------------------------------------------------------------------------------------- Total Capitalization 4,749,681 4,297,494 - --------------------------------------------------------------------------------------------------- Current Liabilities Current portion of long-term debt 88,053 190,466 Accounts payable 285,524 352,606 Accounts payable-affiliates 110,290 48 Interest accrued 74,091 64,118 Short-term obligations -- 467,292 Advances from parent 147,583 45,180 Customer deposits 118,285 108,169 Other current liabilities 139,240 160,673 - --------------------------------------------------------------------------------------------------- Total Current Liabilities 963,066 1,388,552 - --------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities Accumulated deferred income taxes 165,816 341,605 Accumulated deferred investment tax credits 54,387 62,160 Other liabilities and deferred credits 375,840 402,773 - --------------------------------------------------------------------------------------------------- Total Deferred Credits and Other Liabilities 596,043 806,538 - --------------------------------------------------------------------------------------------------- Commitments and Contingencies (Notes 15 and 16) - --------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 6,308,790 $ 6,492,584 ===================================================================================================
48 See Notes to financial statements. CONSOLIDATED STATEMENTS of CASH FLOWS - -------------------------------------
Florida Progress Corporation Years ended December 31 (In thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- Operating Activities: Net income $ 244,331 $ 144,241 $ 314,897 Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations (2,682) (8,972) (10,747) Net loss on disposal of discontinued operations 23,734 -- -- Net loss on sale of assets 25,994 -- -- Impairment of long-lived assets 169,710 130,700 -- Depreciation and amortization 468,576 453,757 385,490 Deferred income taxes and investment tax credits, net (201,787) (236,978) (53,940) Deferred fuel cost (credit) 75,287 (122,076) 9,424 Net (increase) decrease in accounts receivable 44,932 (137,794) (16,793) Net (increase) decrease in inventories (131,662) 47,572 (82,634) Net (increase) decrease in prepayments and other current assets (10,600) (57,602) (39,838) Net increase (decrease) in accounts payable 42,700 48,979 (14,942) Net increase (decrease) in other current liabilities 118,708 84,242 80,978 Other (45,931) 174,627 101,348 - ----------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 821,310 520,696 673,243 - ----------------------------------------------------------------------------------------------------------------------- Investing Activities: Property additions (323,170) (286,800) (361,068) Diversified business property additions (133,447) (194,195) (152,234) Nuclear fuel additions (43,087) -- -- Proceeds from sale of assets 24,988 -- 29,043 Proceeds from sale of discontinued operations 28,023 -- -- Other investing activities (28,644) (65,644) (114,294) - ----------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (475,337) (546,639) (598,553) - ----------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds from issuance of long-term debt 299,201 7,307 50,044 Proceeds from issuance of long-term debt to parent 500,000 -- -- Proceeds from issuance of common stock -- -- 43,221 Issuance of company obligated mandatorily redeemable preferred securities -- -- 300,000 Increase (decrease) in commercial paper reclassified to long-term debt (345,750) 16,455 (16,455) Increase (decrease) in short-term debt (467,292) 314,156 (83,064) Repayment of long-term debt (190,642) (166,441) (144,382) Equity contributions from parent 90,149 84,490 -- Dividends paid to parent (248,808) -- -- Dividends paid on common stock -- (215,277) (214,017) Other financing activities (1,782) (168) (2,946) - ----------------------------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities (364,924) 40,522 (67,599) - ----------------------------------------------------------------------------------------------------------------------- Cash Provided by (Used in ) Discontinued Operations (48) 33 (2) - ----------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (18,999) 14,612 7,089 - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at Beginning of Year 24,200 9,588 2,499 - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 5,201 $ 24,200 $ 9,588 ======================================================================================================================= Supplemental Disclosures of Cash Flow Information Cash paid during the year - interest (net of amount capitalized) $ 169,983 $ 195,500 $ 160,600 income taxes (net of refunds) $ (3,926) $ 182,500 $ 152,000
See Notes to financial statements. 49 CONSOLIDATED SCHEDULES of CAPITALIZATION - ----------------------------------------
Florida Progress Corporation December 31 (In thousands except per share data) 2001 2000 - ----------------------------------------------------------------------------------------------------------- Common Stock Equity Common stock without par value, 250,000,000 shares authorized; 98,616,658outstanding in 2001 and 2000 $1,409,034 $1,318,309 Accumulated other comprehensive loss (2,985) (1,407) Retained earnings 666,201 670,679 - ----------------------------------------------------------------------------------------------------------- Total Common Stock Equity $2,072,250 $1,987,581 - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- Preferred Stock of Florida Power Corporation-not-subject to mandatory redemption - ----------------------------------------------------------------------------------------------------------- Authorized-4,000,000 shares cumulative, $100 par value Preferred Stock;5,000,000 shares cumulative, no par value preferred stock; 1,000,000 shares,$100 par value Preference Stock $100 par value Preferred Stock: 4.00% - 39,980 shares outstanding (redemption price $104.25) $3,998 $ 3,998 4.40% - 75,000 shares outstanding (redemption price $102.00) 7,500 7,500 4.58% - 99,990 shares outstanding (redemption price $101.00) 9,999 9,999 4.60% - 39,997 shares outstanding (redemption price $103.25) 4,000 4,000 4.75% - 80,000 shares outstanding (redemption price $102.00) 8,000 8,000 - ----------------------------------------------------------------------------------------------------------- Total Preferred Stock of Florida Power Corporation $ 33,497 $ 33,497 - ----------------------------------------------------------------------------------------------------------- Long-Term Debt (maturities and weighted average interest rates as of December 31, 2001) Florida Power Corporation: First mortgage bonds, maturing 2003-2023 6.00-8.00% $ 810,000 $ 510,000 Pollution control revenue bonds, maturing 2014-2027 6.35-7.20% 240,865 240,865 Medium-term notes, maturing 2002-2028 6.54-6.81% 449,100 531,100 Commercial paper, reclassified to long-term debt 2.54% 154,250 200,000 Unamortized premium and discount, net (2,935) (2,849) - ----------------------------------------------------------------------------------------------------------- 1,651,280 1,479,116 - ----------------------------------------------------------------------------------------------------------- Florida Progress Funding Corporation: Mandatorily redeemable preferred securities, maturing 2039 7.10% 300,000 300,000 - ----------------------------------------------------------------------------------------------------------- 300,000 300,000 - ----------------------------------------------------------------------------------------------------------- Progress Capital Holdings: Medium-term notes, maturing 2002-2008 5.78-7.45% 273,000 374,000 Commercial paper, reclassified to long-term debt -- 300,000 Unsecured note with parent, maturing 2011 6.43% 500,000 -- Miscellaneous notes 7,707 13,766 - ----------------------------------------------------------------------------------------------------------- 780,707 687,766 - ----------------------------------------------------------------------------------------------------------- Less: Current portion of long-term debt (88,053) (190,466) - ----------------------------------------------------------------------------------------------------------- Total Long-Term Debt, Net $2,643,934 $2,276,416 - ----------------------------------------------------------------------------------------------------------- Total Capitalization $4,749,681 $4,297,494 ===========================================================================================================
All debt securities, except commercial paper, have fixed interest rates. See Notes to financial statements. 50 CONSOLIDATED STATEMENTS of COMMON EQUITY and COMPREHENSIVE INCOME - -----------------------------------------------------------------
Florida Progress Corporation Years ended December 31 (In thousands except per share data) 2001 2000 1999 - ------------------------------------------------------------------------------------------- Beginning Balance $1,987,581 $2,008,707 $1,861,952 Net income 244,331 144,241 314,897 Foreign currency translation adjustment (1,578) (982) (425) -------------------------------------- Comprehensive Income 242,753 143,259 314,472 Common Stock Issued - 162,570 shares and 1,117,623 shares, respectively -- 6,854 46,300 Equity contribution from parent, net 90,720 44,038 -- Dividend to parent (248,804) -- -- Common stock dividends at annual per share rate of $2.22 and $2.18, respectively -- (215,277) (214,017) - ------------------------------------------------------------------------------------------- Ending Balance $2,072,250 $1,987,581 $2,008,707 ===========================================================================================
See Notes to financial statements. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) - -------------------------------------------------
Florida Progress Corporation (In thousands except per share data) First Quarter(a) Second Quarter(a) Third Quarter(a) Fourth Quarter(a)(b) - ------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2001 Operating revenues $1,144,912 $1,133,648 $1,260,604 $1,051,955 Operating income (loss) 129,266 130,120 178,265 (134,153) Income (loss) from continuing operations 75,626 101,900 181,452 (93,595) Net income (loss) 75,988 89,811 167,332 (88,800) Common stock data: (c) Price per share - high NA NA NA NA low NA NA NA NA - ------------------------------------------------------------------------------------------------------------------------ Year ended December 31, 2000 Operating revenues $ 918,934 $1,042,985 $1,267,718 $1,045,923 Operating income (loss) 137,064 146,620 196,293 (245,116) Income (loss) from continuing operations 75,158 106,499 147,205 (193,593) Net income (loss) 76,454 109,987 150,303 (192,503) Common stock data: (c) Price per share - high 46.50 50.56 53.44 56.06 low 40.06 45.31 46.88 51.81 - ------------------------------------------------------------------------------------------------------------------------
(a) In the opinion of management, all adjustments necessary to fairly present amounts shown for interim periods have been made. Results of operations for an interim period may not give a true indication of results for the year. Certain reclassifications have been made to previously reported amounts to conform to the current year's presentation. (b) Includes impairment, loss on sale of assets, and other one-time charges of $136.5 million after-tax for 2001. Includes merger and separation costs and impairment charges of $200.9 million after-tax in 2000. See Note 2 for a discussion of the purchase of Florida Progress by Progress Energy. (c) As of November 30, 2000, all outstanding shares of Florida Progress were acquired by Progress Energy. See Notes to financial statements. 51 STATEMENTS of INCOME - --------------------
Florida Power Corporation Years ended December 31 (In thousands) 2001 2000 1999 - ------------------------------------------------------------------------------------------------- Operating Revenues Electric $3,212,841 $2,871,563 $2,649,413 - ------------------------------------------------------------------------------------------------- Total Operating Revenues 3,212,841 2,871,563 2,649,413 - ------------------------------------------------------------------------------------------------- Operating Expenses Fuel used in electric generation 912,735 681,869 615,389 Purchased power 514,528 498,458 414,080 Energy conservation costs 61,673 65,041 81,215 Other operation and maintenance 425,471 524,090 463,843 Depreciation and amortization 452,972 402,625 347,515 Taxes other than on income 230,169 213,280 203,099 - ------------------------------------------------------------------------------------------------- Total Operating Expenses 2,597,548 2,385,363 2,125,141 - ------------------------------------------------------------------------------------------------- Operating Income 615,293 486,200 524,272 - ------------------------------------------------------------------------------------------------- Other Income (Expense) Interest income 2,872 1,852 867 Other, net (10,780) (407) 13,780 - ------------------------------------------------------------------------------------------------- Total Other Income (Expense) (7,908) 1,445 14,647 - ------------------------------------------------------------------------------------------------- Interest Charges Long-term debt 100,377 102,218 105,812 Other interest charges 14,417 26,261 18,139 Allowance for borrowed funds used during construction (1,087) (3,117) (3,350) - ------------------------------------------------------------------------------------------------- Total Interest Charges, Net 113,707 125,362 120,601 - ------------------------------------------------------------------------------------------------- Income before Income Taxes 493,678 362,283 418,318 Income Taxes 182,590 150,473 151,280 - ------------------------------------------------------------------------------------------------- Net Income 311,088 211,810 267,038 Dividends on Preferred Stock 1,512 1,512 1,512 - ------------------------------------------------------------------------------------------------- Earnings For Common Stock $ 309,576 $ 210,298 $ 265,526 - -------------------------------------------------------------------------------------------------
See Notes to financial statements. 52 BALANCE SHEETS - -------------- Florida Power Corporation
(In thousands) December 31 Assets 2001 2000 - ----------------------------------------------------------------------------------- Utility Plant Electric utility plant in service $ 7,151,729 $ 6,998,135 Accumulated depreciation (3,984,308) (3,701,975) - ----------------------------------------------------------------------------------- Utility plant in service, net 3,167,421 3,296,160 Held for future use 8,274 8,274 Construction work in progress 292,883 124,988 Nuclear fuel, net of amortization 62,536 39,879 - ----------------------------------------------------------------------------------- Total Utility Plant, Net 3,531,114 3,469,301 - ----------------------------------------------------------------------------------- Current Assets Cash and cash equivalents -- 3,380 Accounts receivable 248,642 289,237 Accounts and notes receivable-affiliates 16,424 38,729 Advances to parent 119,799 -- Deferred income taxes 32,325 39,576 Inventory 188,630 139,116 Deferred fuel cost 15,147 90,434 Prepayments 4,345 9,097 - ----------------------------------------------------------------------------------- Total Current Assets 625,312 609,569 - ----------------------------------------------------------------------------------- Deferred Debits and Other Assets Income taxes recoverable through future rates 27,610 19,689 Deferred purchased power contract termination costs 95,326 226,656 Unamortized debt expense 11,844 9,526 Nuclear decommissioning trust funds 406,100 400,719 Miscellaneous other property and investments 46,442 54,816 Other assets and deferred debits 254,414 187,763 - ----------------------------------------------------------------------------------- Total Deferred Debits and Other Assets 841,736 899,169 - ----------------------------------------------------------------------------------- Total Assets $ 4,998,162 $ 4,978,039 =================================================================================== Capitalization and Liabilities - ----------------------------------------------------------------------------------- Capitalization - ----------------------------------------------------------------------------------- Common stock $ 1,081,257 $ 1,075,414 Retained earnings 950,387 889,614 Preferred stock -not subject to mandatory redemption 33,497 33,497 Long-term debt, net 1,619,280 1,397,116 - ----------------------------------------------------------------------------------- Total Capitalization 3,684,421 3,395,641 - ----------------------------------------------------------------------------------- Current Liabilities Current portion of long-term debt 32,000 82,000 Accounts payable 143,828 170,126 Accounts payable-affiliates 189,817 39,526 Taxes accrued 1,768 4,401 Interest accrued 54,440 47,117 Advances from parent -- 20,180 Short-term obligations -- 192,530 Customer deposits 118,285 108,169 Other current liabilities 66,980 110,888 - ----------------------------------------------------------------------------------- Total Current Liabilities 607,118 774,937 - ----------------------------------------------------------------------------------- Deferred Credits and Other Liabilities Accumulated deferred income taxes 394,828 427,477 Accumulated deferred investment tax credits 53,875 61,626 Other liabilities and deferred credits 257,920 318,358 - ----------------------------------------------------------------------------------- Total Deferred Credits and Other Liabilities 706,623 807,461 - ----------------------------------------------------------------------------------- Commitments and Contingencies (Notes 15 and 16) - ----------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 4,998,162 $ 4,978,039 ===================================================================================
See Notes to financial statements 53 STATEMENTS of CASH FLOWS - ------------------------ Florida Power Corporation
Years ended December 31 (In thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- Operating Activities: Net income $ 311,088 $ 211,810 $ 267,038 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 467,025 453,291 384,967 Deferred income taxes and investment tax credits, net (41,080) (59,495) (62,178) Deferred fuel cost (credit) 75,287 (122,076) 9,424 Net (increase) decrease in accounts receivable 62,900 (117,191) (4,763) Net (increase) decrease in inventories (49,514) 28,124 (35,566) Net (increase) decrease in prepayments and other current assets 4,761 (55,550) (37,627) Net increase (decrease) in accounts payable 123,993 33,720 (34,284) Net increase (decrease) in other current liabilities (29,100) 30,433 48,205 Other (129,818) 52,599 41,261 - ----------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 795,542 455,665 576,477 - ----------------------------------------------------------------------------------------------------------------------- Investing Activities: Property additions (323,170) (286,800) (361,068) Nuclear fuel additions (43,087) -- -- Other investing activities (19,711) (16,470) (27,516) - ----------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (385,968) (303,270) (388,584) - ----------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds from issuance of long-term debt 297,621 -- -- Net decrease in commercial paper reclassified to long-term debt (45,750) -- -- Increase (decrease) in short-term debt (192,530) 39,374 105,836 Repayment of long-term debt (82,000) (76,800) (91,600) Equity contributions from parent -- 71,000 -- Advances from parent (139,979) 20,200 -- Dividends paid to parent (248,804) (201,277) (200,617) Dividends paid on preferred stock (1,512) (1,512) (1,512) - ----------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Financing Activities (412,954) (149,015) (187,893) - ----------------------------------------------------------------------------------------------------------------------- Net Increase in Cash and Cash Equivalents (3,380) 3,380 -- - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at Beginning of Year 3,380 -- -- - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ -- $ 3,380 $ -- ======================================================================================================================= Supplemental Disclosures of Cash Flow Information Cash paid during the year - interest (net of amount capitalized) $ 106,384 $ 135,000 $ 114,200 income taxes (net of refunds) $ 210,629 $ 194,400 $ 210,900
See Notes to financial statements 54 SCHEDULES of CAPITALIZATION - ---------------------------
Florida Power Corporation December 31 (In thousands except per share data) 2001 2000 - ------------------------------------------------------------------------------------------------------- Common Stock Equity Common stock without par value $1,081,257 $1,075,414 Retained earnings 950,387 889,614 - ------------------------------------------------------------------------------------------------------- Total Common Stock Equity $2,031,644 $1,965,028 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Preferred Stock-not-subject to mandatory redemption Authorized-4,000,000 shares cumulative, $100 par value Preferred Stock; 5,000,000 shares cumulative, no par value preferred stock; 1,000,000 shares, $100 par value Preference Stock $100 par value Preferred Stock: 4.00% - 39,980 shares outstanding (redemption price $104.25) $ 3,998 $ 3,998 4.40% - 75,000 shares outstanding (redemption price $102.00) 7,500 7,500 4.58% - 99,990 shares outstanding (redemption price $101.00) 9,999 9,999 4.60% - 39,997 shares outstanding (redemption price $103.25) 4,000 4,000 4.75% - 80,000 shares outstanding (redemption price $102.00) 8,000 8,000 - ------------------------------------------------------------------------------------------------------- Total Preferred Stock $ 33,497 $ 33,497 - ------------------------------------------------------------------------------------------------------- Long-Term Debt (maturities and weighted average interest rates as of December 31, 2001) First mortgage bonds, maturing 2003-2023 6.00-8.00% $ 810,000 $ 510,000 Pollution control revenue bonds, maturing 2014-2027 6.35-7.20% 240,865 240,865 Medium-term notes, maturing 2002-2028 6.54-6.81% 449,100 531,100 Commercial paper, reclassified to long-term debt 2.54% 154,250 200,000 Unamortized premium and discount, net (2,935) (2,849) - ------------------------------------------------------------------------------------------------------- 1,651,280 1,479,116 - ------------------------------------------------------------------------------------------------------- Less: Current portion of long-term debt (32,000) (82,000) - ------------------------------------------------------------------------------------------------------- Total Long-Term Debt, Net $1,619,280 $1,397,116 ======================================================================================================= Total Capitalization $3,684,421 $3,395,641 =======================================================================================================
All debt securities, except commercial paper, have fixed interest rates. See Notes to financial statements. 55 STATEMENTS of COMMON EQUITY - ---------------------------
Florida Power Corporation Years ended December 31 (In thousands) 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------- Beginning Balance $1,965,028 $1,885,007 $1,820,098 Net income 309,576 210,298 265,526 Equity contribution from parent 5,844 71,000 -- Dividends paid to parent (248,804) (201,277) (200,617) - --------------------------------------------------------------------------------------------------------------- Ending Balance $2,031,644 $1,965,028 $1,885,007 - ---------------------------------------------------------------------------------------------------------------
See Notes to financial statements. QUARTERLY FINANCIAL DATA (UNAUDITED) - ------------------------------------
Florida Power Corporation (In thousands) First Quarter(a) Second Quarter(a) Third Quarter(a) Fourth Quarter(a)(b) - ------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2001 Operating revenues $810,474 $783,660 $906,131 $712,576 Operating income 145,425 164,904 213,158 91,806 Net income 71,606 84,311 114,079 39,580 - ------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2000 Operating revenues $625,309 $693,336 $907,965 $644,953 Operating income (loss) 131,974 156,470 221,459 (23,703) Net income (loss) 63,402 79,482 121,960 (54,546)
(a) In the opinion of management, all adjustments necessary to fairly present amounts shown for interim periods have been made. Results of operations for an interim period may not give a true indication of results for the year. Certain reclassifications have been made to previously reported amounts to conform to the current year's presentation. (b) Includes merger and separation costs of $94.2 million after-tax in 2000. The business of Florida Power is seasonal in nature and comparisons of earnings for the quarters do not give a true indication of overall trends and changes in Florida Power's operations. In the fourth quarter of 2000 the FPSC approved the establishment of a regulatory liability for the purpose of deferring nonfuel revenues. The 2000 deferral was $63 million. In the first quarter of 2001 and third quarter of 2000, respectively, Florida Power recognized the 2000 $63 million and 1999 $44 million deferral in electric utility revenues and applied it to the amortization of the Tiger Bay regulatory asset, which resulted in no impact to 2001 or 2000 earnings (see Note 15). 56 FLORIDA PROGRESS CORPORATION AND FLORIDA POWER CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General -- Florida Progress Corporation (the Company or Florida Progress) is a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). The Company became subject to the regulations of PUHCA when it was acquired by CP&L Energy, Inc. on November 30, 2000 (See Note 2). CP&L Energy, Inc. subsequently changed its name to Progress Energy, Inc. (Progress Energy or the Parent). Florida Progress' two primary subsidiaries are Florida Power Corporation (Florida Power) and Progress Fuels Corporation (Progress Fuels). The financial statements include the financial results of the Company 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. These investments, which total approximately $33 million at December 31, 2001, are included as miscellaneous property and investments in the Consolidated Balance Sheets. Certain reclassifications have been made to prior-year amounts to conform to the current year's presentation. Use of Estimates -- In preparing financial statements that conform with accounting principles generally accepted in the United States of America, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and amounts of revenues and expenses reflected during the reporting period. Actual results could differ from those estimates. Regulation -- Florida Power is regulated by the Florida Public Service Commission (FPSC) and the Federal Energy Regulatory Commission (FERC). The utility follows the accounting practices set forth in the Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." This standard allows utilities to capitalize or defer certain costs or reduce revenues based on regulatory approval and management's ongoing assessment that it is probable these items will be recovered or refunded through the ratemaking process. PROPERTY, PLANT AND EQUIPMENT Electric Utility Plant -- Utility plant is stated at the original cost of construction, which includes payroll and related costs such as taxes, pensions and other fringe benefits, general and administrative costs, and an allowance for funds used during construction. Substantially all of the utility plant is pledged as collateral for Florida Power's first mortgage bonds. The allowance for funds used during construction (AFUDC) represents the estimated cost of equity and debt for utility plant under construction. Florida Power is permitted to earn a return on construction 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 2001, 2000 and 1999. The cost of nuclear fuel is amortized to expense based on the quantity of heat produced for the generation of electric energy in relation to the quantity of heat expected to be produced over the life of the nuclear fuel core. Florida Power's annual provision for depreciation, including a provision for nuclear plant decommissioning costs and fossil plant dismantlement costs, expressed as a percentage of the average balances of depreciable utility plant, was 4.3% for 2001 and 4.6% for 2000 and 1999. Florida Power also maintains a reserve for fossil plant dismantlement. (See Note 8). 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. In compliance with a regulatory order, Florida Power accrues a reserve for maintenance and refueling expenses anticipated to be incurred during scheduled nuclear plant outages. (See Note 15) 57 Diversified Business Property -- Diversified business property consists primarily of railcars, marine equipment, land, synthetic fuel facilities, mineral rights and telecommunications equipment. The following is a summary of diversified business property (in thousands): 2001 2000 --------- --------- Equipment $ 238,092 $ 259,070 Land and mineral rights 116,998 132,715 Buildings and plants 118,662 142,082 Telecommunications equipment 184,539 116,034 Railcars 77,919 84,988 Marine equipment 78,868 73,287 Computers, office equipment and software 27,887 35,431 Construction work in progress 108,570 111,598 Accumulated depreciation (282,457) (288,845) --------- --------- Diversified business property, net $ 669,078 $ 666,360 ========= ========= Depreciation on diversified business property is calculated principally on the straight-line method over the following estimated useful lives: Equipment, buildings and plant 3 to 40 years Telecommunications equipment 5 to 20 years Railcars 3 to 20 years Marine equipment 3 to 35 years Computers, office equipment and software 3 to 10 years The synthetic fuel facilities are being depreciated through 2007 at which time the Section 29 tax credits will expire. In December 2000, Progress Fuels wrote down certain of its 180 million tons of coal reserves (See Note 3). Excluding reserves determined to be impaired, Progress Fuels owns, in fee, properties that contain estimated proven and probable coal reserves of approximately 2 million tons, and controls, through mineral leases, additional estimated proven and probable coal reserves of approximately 22 million tons. Depletion is provided on the units-of-production method based upon the estimates of recoverable tons of clean coal. Inventory Inventory is carried at average cost. As of December 31, 2001 and 2000, inventory was comprised of : FLORIDA PROGRESS (in thousands) 2001 2000 -------- -------- Fuel $155,188 $ 74,112 Rail equipment and parts 200,697 191,756 Materials and supplies 113,638 91,145 Other 16,368 14,906 -------- -------- Inventory $485,891 $371,919 ======== ======== FLORIDA POWER (in thousands) 2001 2000 -------- -------- Fuel $ 92,417 $ 51,949 Materials and supplies 96,213 87,167 -------- -------- Inventory $188,630 $139,116 ======== ======== Utility Revenues, Fuel and Purchased Power Expenses -- The Company recognizes electric utility revenues as service rendered to customers. Operating revenues include unbilled electric utility revenues earned when service has been delivered but not billed by the end of the accounting period. Revenues include amounts resulting from 58 fuel, purchased power and energy conservation cost recovery clauses, which generally are designed to permit full recovery of these costs. The adjustment factors are based on projected costs for a 12-month period. The cumulative difference between actual and billed costs is included on the balance sheet as a current regulatory asset or liability. Any difference is billed or refunded to customers during the subsequent period. Florida Power accrues the nonfuel portion of base revenues for services rendered but unbilled. As of December 31, 2001 and 2000, the amounts accrued were $63.1 million and $85.1 million, respectively. Diversified Revenues -- Revenues include revenues from mining, processing, and procurement of coal, production and sale of natural gas, river terminal services, production and sale of synthetic fuel, offshore marine transportation, railcar repair and parts reconditioning, railcar leasing and sales, manufacturing and supplying rail and track material, metal recycling, and sales of wholesale telecommunications services. Revenues are recognized at the time products are shipped or as services are rendered. Leasing activities are accounted for in accordance with SFAS No. 13, "Accounting for Leases". Diversified Business Expenses The major components of diversified business expenses for the years ended December 31, 2001, 2000 and 1999 are as follows (in thousands): 2001 2000 1999 ---------- ---------- ---------- Cost of sales $1,360,487 $1,320,168 $ 910,465 Depreciation and amortization 69,407 64,958 51,552 General and administrative expenses 96,616 137,174 75,894 Impairment of assets (Note 3) 160,569 130,700 -- Other 2,994 2,336 639 ------------------------------------ Diversified Business Expenses $1,690,073 $1,655,336 $1,038,550 ==================================== Income Taxes -- Deferred income taxes are provided on all significant temporary differences between the financial and tax basis of assets and liabilities using current tax rates. Deferred investment tax credits, subject to regulatory accounting practices, are amortized to income over the lives of the related properties. Accounting for Certain Investments -- The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Dividend and interest income are recognized when earned. Amounts funded in externally managed decommissioning trusts are recorded at fair value. The trust funds consist primarily of equity securities and municipal, government, corporate, and mortgage-backed debt securities. The debt securities have a weighted-average maturity of approximately 10 years. All realized and unrealized gains and losses are reflected as an adjustment to the accumulated provision for nuclear decommissioning. Acquisitions -- During 2000, subsidiaries of Progress Fuels acquired 7 businesses, in separate transactions. The cash paid for the 2000 acquisitions was $45.7 million. The excess of the aggregate purchase price over the fair value of net assets acquired was approximately $11.1 million. The acquisitions were accounted for under the purchase method of accounting and, accordingly, the operating results of the acquired businesses have been included in the Company's financial statements since the date of acquisition. Each of the acquired companies conducted operations similar to those of the subsidiaries and has been integrated into Progress Fuels' operations. The pro forma results of consolidated operations for 2000 and 1999, assuming the 2000 acquisitions were made at the beginning of each year, would not differ significantly from the historical results. The Company had no acquisitions during 2001. Accounting for the Impairment of Goodwill and Long-Lived Assets -- SFAS No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of" requires review of long-lived assets and certain intangibles for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. Any impairment losses are reported in the period in which the recognition criteria are first applied based on the fair value of the asset. SFAS No. 121 was superseded by SFAS No. 142 and SFAS No. 144 as of January 1, 2002. (See New Accounting Standards) 59 Environmental -- The Company accrues environmental remediation liabilities when the criteria of SFAS No. 5, "Accounting for Contingencies," have been met. Environmental expenditures are expensed as incurred or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Loss Contingencies -- Liabilities for loss contingencies arising from litigation are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Other Policies -- Leasing activities are accounted for in accordance with SFAS No. 13, "Accounting for Leases." Due to the geographical locations of Progress Fuels' Rail Services and the non-Florida portion of its Energy & Related Services operations, it is necessary to report their results one-month in arrears. The Company maintains an allowance for doubtful accounts receivable, which totaled approximately $25.7 million and $26.2 million at December 31, 2001 and 2000, respectively. Florida Power's allowance for doubtful accounts receivable totaled $2.5 million and $5.2 million, respectively, at December 31, 2001 and 2000. Long-term debt premiums, discounts and issuance expenses are amortized over the life of the related debt using the straight-line method. Any expenses or call premiums associated with the reacquisition of debt obligations by Florida Power are amortized over the remaining life of the original debt using the straight-line method. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. New Accounting Standards -- Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. The adoption of SFAS No. 133 did not have any effect on the Company's financial statements. During the second quarter of 2001, the FASB issued interpretations of SFAS No. 133 indicating that options in general cannot qualify for the normal purchases and sales exception, but provided an exception that allows certain electricity contracts, including certain capacity-energy contracts, to be excluded from the mark-to-market requirements of SFAS No. 133. The interpretations were effective July 1, 2001. Those interpretations did not require the Company to mark-to-market any of its electricity capacity-energy contracts currently outstanding. In December 2001, the FASB revised the criteria related to the exception for certain electricity contracts, with the revision to be effective April 1, 2002. The Company does not expect the revised interpretation to change its assessment of mark-to-market requirements for its current contracts. If an electricity or fuel supply contract in its regulated businesses is subject to mark-to-market accounting, there would be no income statement effect of the mark-to-market because the contract's mark-to-market gain or loss will be recorded as a regulatory asset or liability. Any mark-to-market gains or losses in its non-regulated businesses will affect income unless those contracts qualify for hedge accounting treatment. The application of the new rules is still evolving, and further guidance from the FASB is expected, which could additionally impact the Company's financial statements. Effective January 1, 2002, the Company adopted SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements require that all business combinations initiated after June 30, 2001 be accounted for using the purchase method of accounting and clarifies the criteria for recording of other intangible assets separately from goodwill. Effective January 1, 2002, goodwill is no longer subject to amortization over its estimated useful life. Instead, goodwill is subject to at least an annual assessment for impairment by applying a fair-value based test. This assessment could result in periodic impairment charges. The Company has not yet determined whether its goodwill is impaired under the initial impairment test required. The FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" in July 2001. This statement provides accounting requirements for retirement obligations associated with tangible long-lived assets and is effective January 1, 2003. This statement requires that the present value of retirement costs for which the Company has a legal obligation be recorded as liabilities with an equivalent amount added to the asset cost and depreciated over an appropriate period. The Company is currently assessing the effects this statement may ultimately have on the Company's accounting for decommissioning, dismantlement and other retirement costs. 60 Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides guidance for the accounting and reporting of impairment or disposal of long-lived assets. The statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." It also supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" related to the disposal of a segment of a business. Adoption of this statement did not have a material effect on the Company's financial statements. NOTE 2: ACQUISITION BY PROGRESS ENERGY, INC. On November 30, 2000, Progress Energy acquired all of the outstanding shares of Florida Progress' common stock in accordance with the Amended and Restated Plan of Exchange, including the related Plan of Share Exchange, dated as of August 22, 1999, as amended and restated as of March 3, 2000, among CP&L Energy, Florida Progress and Carolina Power & Light Company. Florida Progress shareholders received $54.00 in cash or shares of Progress Energy common stock having a value of $54.00, subject to proration, and one contingent value obligation (CVO) in exchange for each share of Florida Progress common stock. The exchange ratio for the shares of Progress Energy common stock issued to Florida Progress shareholders was 1.3473. Each CVO represents the right to receive contingent payments based upon the net after-tax cash flow to Progress Energy generated by four synthetic fuel facilities purchased by subsidiaries of Florida Progress in 1999. The acquisition was accounted for by Progress Energy using the purchase method of accounting; however, due to the significance of the public debt and preferred securities of the Company and Florida Power, the acquisition cost was not pushed down to the Florida Progress or Florida Power separate financial statements. Even though a new basis of accounting and reporting for the Company was not established, significant merger-related costs were incurred in 2000 and reported in the following captions on the Consolidated Statements of Income:
Florida Power Total - Florida Other Operation Diversified Business Progress and Maintenance Expenses Corporation -------------------------------------------------------- (in millions) Employee separation costs $72.8 $17.9 $ 90.7 Other merger-related costs 21.4 34.9 56.3 ----- ----- ------ Total $94.2 $52.8 $147.0 ===== ===== ======
In connection with the acquisition of the Company by Progress Energy, the Company began the implementation of a plan to combine operations with Progress Energy. In the fourth quarter 2000, the Company recorded executive involuntary termination costs of $24.5 million and non-executive involuntary termination costs of $41.8 million. Substantially all of the executive termination expense was attributable to lump-sum severance costs paid in December 2000. In connection with the termination of certain key executives, the Company also recorded a curtailment and special termination benefit charge of $25.5 million related to two supplemental defined benefit pension plans (See Note 13). The non-executive involuntary termination accrual includes estimates for administrative leave, severance, employer FICA, medical benefits and outplacement costs associated with the Company's employee involuntary termination plan. During 2001, the Company finalized the plan to combine operations of the companies with certain final termination payments occurring in 2002. The termination did not result in a plan curtailment related to postretirement benefits other than pension. An immaterial curtailment gain was recorded for the pension plan in 2001. The activity for the non-executive involuntary termination costs is detailed in the table below: (in millions) 2001 ------ Balance at January 1 $ 41.8 Payments (28.0) Adjustments credited to operating results (6.1) ------ Balance at December 31 $ 7.7 ====== Other merger-related costs include $17.9 million of change of control costs substantially related to the immediate vesting of a stock-based performance plan (See Note 12), and $17.3 million of direct transaction costs related to investment banker, legal and accounting fees. Other costs incurred include employee retention costs and excise tax payments triggered by executive severance and change of control payments. 61 NOTE 3: IMPAIRMENT OF LONG-LIVED ASSETS AND INVESTMENTS SFAS No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of" requires review of long-lived assets and certain intangibles for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. Any impairment losses are reported in the period in which the recognition criteria are first applied based on the fair value of the asset. Due to results of divestiture efforts and the decision to retain the Rail Services business segment in the near term, coupled with prior and current year losses and a continued decline in the rail services industry, the Company evaluated the recoverability of rail long-lived assets and associated goodwill. Fair value was generally determined based on discounted cash flows. As a result of this review, the Company recorded asset impairments, primarily goodwill, of $160.6 million pre-tax ($108.1 million after-tax) during the fourth quarter of 2001. Asset write-downs resulting from this review were charged to Diversified Business Expenses on the Consolidated Statements of Income. The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other-than-temporary. During the fourth quarter of 2001, the Company determined that the decline in fair value of its affordable housing investments, held by Progress International Holdings, a subsidiary of Progress Capital Holdings, was other-than-temporary. As a result, the Company has recorded investment impairments for other-than-temporary declines in the fair value of its affordable housing investments. Investment write-downs of $9.1 million pre-tax were charged to Other, net. During the fourth quarter of 2000, Progress Fuels evaluated the economic feasibility of accessing and mining its existing coal reserves in light of the intended changes for the use of these assets by management and a significant downturn in the coal industry. Progress Fuels concluded that approximately 180 million tons of its existing reserves are impaired. Based on the Progress Fuels' expectation of future net cash flow, these reserves were written-down to their fair value, resulting in a pre-tax loss of $70.2 million. This impairment charge is included in diversified business expenses on the Company's Consolidated Statements of Income. During 2000, Progress Energy hired a financial adviser to assist Florida Progress in evaluating its strategic alternatives with respect to two of Progress Fuels' business segments, Rail Services and Inland Marine Transportation. Preliminary valuations on the Rail Services business segment indicated that the carrying amounts of goodwill and other long-lived assets are not recoverable. As such, the carrying values of these assets were written down to estimated fair value based on discounted cash flows considering cash flows expected to result from the use of the assets and their eventual disposition. During the fourth quarter of 2000, the Rail Services segment recognized the resulting pre-tax impairment loss of $60.5 million, which was substantially attributed to the write-down of goodwill. This impairment charge is included in diversified business expenses on the Company's Consolidated Statements of Income. (See Note 14 for additional information on the Rail Services segment.) NOTE 4: DISCONTINUED OPERATIONS On July 23, 2001, Progress Energy announced the disposition of the Inland Marine Transportation segment of the Company, which is operated by MEMCO Barge Line, Inc. Inland Marine provides transportation of coal, agricultural and other dry-bulk commodities as well as fleet management services. Progress Energy entered into a contract to sell MEMCO Barge Line, Inc., to AEP Resources, Inc., a wholly-owned subsidiary of American Electric Power. On November 1, 2001, the Company completed the sale of the Inland Marine Transportation segment. As a result of the sale, the Company recorded a pre-tax loss on disposal of $31.6 million ($23.7 million after-tax). The $23.7 million net loss on disposal includes net earnings from the period between measurement date and date of sale of $6.4 million, net of $4.0 million income tax expense. Proceeds from disposal were $270 million, of which approximately $230 million was used for the early termination of certain off balance sheet arrangements for assets leased by MEMCO. Remaining proceeds were used to retire commercial paper. The results of operations for all periods presented have been restated for the discontinued operations of the Inland Marine Transportation segment. The net income of these operations is reported in the Consolidated Statements of Income under discontinued operations. Results for discontinued operations are as follows: (in thousands) 2001 2000 1999 -------- -------- -------- Revenues $142,721 $170,329 $141,041 ======== ======== ======== Earnings before income taxes $ 4,530 $ 16,961 $ 17,588 Income taxes 1,848 7,989 6,841 -------- -------- -------- Net earnings $ 2,682 $ 8,972 $ 10,747 ======== ======== ======== In connection with the sale, the Company entered into environmental indemnification provisions covering both unknown and known sites. The Company has recorded an accrual to cover estimated probable future environmental 62 expenditures. Management believes that it is reasonably possible that additional costs, which cannot be currently estimated, may be incurred related to the environmental indemnification provision beyond the amounts accrued. Management cannot predict the outcome of this matter. NOTE 5: RELATED PARTY TRANSACTIONS The Company and its subsidiaries participate in two internal money pools, operated by Progress Energy, to more effectively utilize cash resources and to reduce outside short-term borrowings. Short-term borrowing needs are met first by available funds of the money pool participants. Borrowing companies pay interest at a rate designed to approximate the cost of outside short-term borrowings. Subsidiaries, which invest in the money pool, earn interest on a basis proportionate to their average monthly investment. The interest rate used to calculate earnings approximates external interest rates. Funds may be withdrawn from or repaid to the pool at any time without prior notice. Interest expense related to advances from Progress Energy was $8.2 for Florida Progress in 2001. Florida Progress and Florida Power both recorded $2.4 million of interest income related to the money pool for 2001. Interest expense and interest income related to the money pool in 2000 were not significant During 2000, Progress Energy formed Progress Energy Service Company, LLC (PESC) to provide specialized services, at cost, to the Company and its subsidiaries, as approved by the SEC. The Company and its subsidiaries have an agreement with PESC under which PESC services, including purchasing, accounting, treasury, tax, marketing, legal, and human resources are rendered at cost. Amounts billed by PESC to Florida Progress and Florida Power for these services during 2001 amounted to $116.1 million and $110.9 million, respectively. At December 31, 2001, Florida Progress and Florida Power had a net $31.7 million and $28.1 million, respectively, payable to the service company that are included in accounts payable to affiliates on the consolidated balance sheet. Progress Fuels sells coal to Florida Power. For the years ended December 31, 2001, 2000 and 1999, sales of coal to Florida Power that were not eliminated on Florida Power, but were eliminated in consolidation, were $302.6 million, $244.1 million and $262.1 million, respectively. From time-to-time the Company and its subsidiaries may receive equity contributions from Progress Energy. During 2001, the Company received cash equity contributions of $90.1 million and a non-cash equity contribution of $0.6 million. During 2000, the Company received cash equity contributions totaling $84.5 million from Progress Energy. In April 2000, Progress Ventures, a wholly-owned subsidiary of Progress Energy, purchased a 90% interest in an affiliate of Progress Fuels that owns a synthetic fuel facility located at the company-owned mine site in Virginia. In May 2000, Progress Ventures purchased a 90% ownership interest in another synthetic fuel facility located in West Virginia. The purchase agreements contained a provision that would require Progress Ventures to sell, and the respective Progress Fuels affiliate to repurchase, the 90% interest had the share exchange among Florida Progress, CP&L Energy and CP&L not occurred. Progress Fuels has accounted for the transactions as a sale for tax purposes and, because of the repurchase obligation, as a financing for financial reporting purposes in the pre-acquisition period and as a transfer of assets within a controlled group as of the acquisition date. At the date of acquisition, assets of $8.3 million were transferred to Progress Energy. As of December 31, 2001, the Company has a note receivable of $59.9 million from Progress Ventures that has been recorded as a reduction to equity for financial reporting purposes. Payments on the note during 2001 totaled $13.9 million representing $9.4 million in principal and $4.5 million representing interest. As of December 31, 2000, the company had a note receivable of $69.3 million from Progress Ventures that has been recorded as a reduction to equity for financial reporting purposes, offset by a $46.8 million reclassification of the repurchase obligation to equity. NOTE 6: FINANCIAL INSTRUMENTS Estimated fair value amounts have been determined by the Company using available market information. Judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates may be different than the amounts that the Company could realize in a current market exchange. The Company's exposure to market risk for a change in interest rates relates primarily to the Company's marketable securities, debt obligations and Company-obligated mandatorily redeemable preferred securities. The Company's short-term obligations, comprised of commercial paper, are carried at cost, which approximate market value. There were miscellaneous investments, consisting primarily of investments in company-owned life insurance, included in miscellaneous other property and investments. 63 The Company held only securities classified as available for sale at both December 31, 2001 and 2000. At December 31, 2001 and 2000, the Company had the following financial instruments with estimated fair values and carrying amounts:
FLORIDA PROGRESS 2001 2000 ------------------- ------------------- CARRYING FAIR CARRYING FAIR (In millions) AMOUNT VALUE AMOUNT VALUE - ---------------------------------------------------------------------------------- ASSETS: Investments in company-owned life insurance $ 74.3 $ 74.3 $ 87.3 $ 87.3 Nuclear decommissioning fund 406.1 406.1 400.7 400.7 - ---------------------------------------------------------------------------------- LIABILITIES: Long-term debt: Florida Power Corporation $1,651.3 $1,692.4 $1,479.1 $1,467.0 Florida Progress Funding Corporation 300.0 290.7 300.0 271.5 Progress Capital Holdings 780.7 788.9 687.8 684.3 - ----------------------------------------------------------------------------------
FLORIDA POWER 2001 2000 ------------------- ------------------- CARRYING FAIR CARRYING FAIR (In millions) AMOUNT VALUE AMOUNT VALUE - ---------------------------------------------------------------------------------- ASSETS: Investments in company-owned life insurance $ 38.4 $ 38.4 $ 45.4 $ 45.4 Nuclear decommissioning fund 406.1 406.1 400.7 400.7 - ---------------------------------------------------------------------------------- LIABILITIES: Long-term debt: Florida Power Corporation $1,651.3 $1,692.4 $1,479.1 $1,467.0
The change in the cash surrender value of the Company's investment in company-owned life insurance is reflected in other expense (income) in the accompanying Consolidated Statements of Income. NOTE 7: INCOME TAXES FLORIDA PROGRESS (In millions) 2001 2000 1999 - ------------------------------------------------------------------------------- Components of income tax expense: Payable currently: Federal $ 3.4 $ 96.8 $117.9 State 25.7 15.5 20.9 - ------------------------------------------------------------------------------- 29.1 112.3 138.8 - ------------------------------------------------------------------------------- Deferred, net: Federal (187.5) (215.6) (41.6) State (6.5) (13.5) (4.5) - ------------------------------------------------------------------------------- (194.0) (229.1) (46.1) - ------------------------------------------------------------------------------- Amortization of investment tax credits, net (7.8) (7.9) (7.8) - ------------------------------------------------------------------------------- Income tax expense (benefit) $(172.7) $(124.7) $ 84.9 - ------------------------------------------------------------------------------- 64 FLORIDA POWER (In millions) 2001 2000 1999 - ------------------------------------------------------------------------------- Components of income tax expense: Payable currently: Federal $192.9 $181.3 $185.1 State 30.7 28.6 28.4 - ------------------------------------------------------------------------------- 223.6 209.9 213.5 - ------------------------------------------------------------------------------- Deferred, net: Federal (30.2) (46.0) (49.5) State (3.1) (5.6) (4.9) - ------------------------------------------------------------------------------- (33.3) (51.6) (54.4) - ------------------------------------------------------------------------------- Amortization of investment tax credits, net (7.8) (7.8) (7.8) - ------------------------------------------------------------------------------- Income tax expense (benefit) $182.5 $150.5 $151.3 - ------------------------------------------------------------------------------- The primary differences between the statutory rates and the effective income tax rates are detailed below: FLORIDA PROGRESS 2001 2000 1999 - ------------------------------------------------------------------------------ Federal statutory income tax rate 35.0% 35.0% 35.0% State income tax, net of federal income tax benefits 12.8 12.4 2.7 Amortization of investment tax credits (8.4) (74.8) (2.0) Synthetic fuel income tax credits (230.3) (1,402.7) (10.0) Other income tax credits (6.5) (66.3) (1.6) Goodwill amortization 9.7 0.2 0.4 Non deductible acquisition costs -- 233.8 0.5 Net unfunded taxes from prior years -- 40.0 -- Other 1.3 40.7 (3.2) - ------------------------------------------------------------------------------ Effective income tax rates (186.4)% (1,181.7)% 21.8% - ------------------------------------------------------------------------------ FLORIDA POWER 2001 2000 1999 - ----------------------------------------------------------------------------- Federal statutory income tax rate 35.0% 35.0% 35.0% State income tax, net of federal income tax benefits 3.6 4.1 3.7 Amortization of investment tax credits (1.6) (2.2) (1.9) Non deductible acquisition costs -- 3.0 -- Other -- 1.6 (0.6) - ----------------------------------------------------------------------------- Effective income tax rates 37.0% 41.5% 36.2% - ----------------------------------------------------------------------------- The following summarizes the components of deferred tax liabilities and assets at December 31, 2001 and 2000: FLORIDA PROGRESS (In millions) 2001 2000 - ------------------------------------------------------------------------------- Deferred tax liabilities: Difference in tax basis of property, plant and equipment $436.4 $566.2 Investment in partnerships 1.8 6.2 Deferred book expenses 7.0 9.1 Other 80.6 16.4 - ------------------------------------------------------------------------------- Total deferred tax liabilities $525.8 $597.9 - ------------------------------------------------------------------------------- Deferred tax assets: Accrued book expenses $ 71.4 $109.8 Income tax credit carry forward 202.9 92.9 Unbilled revenues 17.7 17.8 State income tax loss carry forward 20.4 10.9 Valuation allowance (20.4) (10.9) Other 100.3 75.4 - ------------------------------------------------------------------------------- Total deferred tax assets $392.3 $295.9 - ------------------------------------------------------------------------------- 65 FLORIDA POWER (In millions) 2001 2000 - ------------------------------------------------------------------------------- Deferred tax liabilities: Difference in tax basis of property, plant and equipment $413.7 $491.8 Deferred book expenses 7.0 9.1 Other 10.4 9.2 - ------------------------------------------------------------------------------- Total deferred tax liabilities $431.1 $510.1 - ------------------------------------------------------------------------------- Deferred tax assets: Accrued book expenses $ 40.4 $ 90.2 Unbilled revenues 17.7 17.8 Other 10.5 14.2 - ------------------------------------------------------------------------------- Total deferred tax assets $ 68.6 $122.2 - ------------------------------------------------------------------------------- At December 31, 2001 and 2000, Florida Progress had net non-current deferred tax liabilities of $165.8 million and $341.6 million and net current deferred tax assets of $32.3 million and $39.6 million, respectively. Income tax credit carry forward at December 31, 2001, consists of $196.9 million of alternative minimum tax credit with an indefinite carry forward period and $6 million of general business credit with a carry forward period expiring in 2020. The valuation allowance in 2001 offsets a related amount of deferred tax assets recorded for state income tax net operating losses. The valuation allowance was recorded because of uncertainties associated with the ability to offset future state taxable amounts during the carry forward period. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to allow for the utilization of the remaining deferred tax assets. At December 31, 2001 and 2000, Florida Power had net non-current deferred tax liabilities of $394.8 million and $427.5 million and net current deferred tax assets of $32.3 million and $39.6 million, respectively. Florida Power expects the results of future operations will generate sufficient taxable income to allow for the utilization of deferred tax assets. The Company, through its subsidiaries, is a majority owner in three entities and a minority owner in three entities that own facilities that produce synthetic fuel as defined under the Internal Revenue Service Code (Code). The production and sale of the synthetic fuel from these facilities qualifies for tax credits under Section 29 of the Code (Section 29) if certain requirements are satisfied, including a requirement that the synthetic fuel differs significantly in chemical composition from the coal used to produce such synthetic fuel. All entities have received private letter rulings (PLR's) from the Internal Revenue Service (IRS) with respect to their synthetic fuel operations. The PLR's do not limit the production on which synthetic fuel credits may be claimed. Should the tax credits be denied on future audits, and the Company fails to prevail through the IRS or legal process, there could be a significant tax liability owed for previously-taken Section 29 credits, with a significant impact on earnings and cash flows. In management's opinion, the Company is complying with all the necessary requirements to be allowed such credits under Section 29 and believes it is probable, although it cannot provide certainty, that it will prevail on any credits taken. NOTE 8: NUCLEAR OPERATIONS Jointly Owned Plant -- In September 1999, Florida Power purchased the City of Tallahassee's 1.33% interest in the Crystal River Nuclear Plant (CR3), which was approved by regulatory authorities. The following information relates to Florida Power's 91.78% proportionate share of the nuclear plant at December 31, 2001 and 2000: (In millions) 2001 2000 - ------------------------------------------------------------------------------- Utility plant in service $ 773.8 $ 773.3 Construction work in progress 25.7 14.1 Unamortized nuclear fuel 62.5 39.9 Accumulated depreciation (469.8) (431.9) Accumulated decommissioning (417.0) (423.7) - ------------------------------------------------------------------------------- Net capital additions/(retirements) for Florida Power were $12.1 million in 2001 and $(4.9) million in 2000. Depreciation expense, exclusive of nuclear decommissioning, was $36.4 million in 2001 and 2000. Each co-owner provides for its own financing of its investment. Florida Power's share of the asset balances and operating costs is 66 included in the appropriate financial statements. Amounts exclude any allocation of costs related to common facilities. Decommissioning and Dismantlement Provisions -- 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. Management believes that the decommissioning costs being recovered through rates by Florida Power, when coupled with reasonable assumed after-tax fund earnings rates, are currently sufficient to provide for the costs of decommissioning. In January 2002, Florida Power received regulatory approval from the FPSC to decrease its retail provision for nuclear decommissioning from approximately $20.5 million annually to approximately $7.7 million annually, effective January 1, 2001. Florida Power's most recent site-specific estimate of decommissioning costs for the Crystal River Nuclear Plant (CR3) was developed in 2000 based on prompt dismantlement decommissioning. The estimate, in 2000 dollars, is $490.9 million and is subject to change based on a variety of factors including, but not limited to, cost escalation, changes in technology applicable to nuclear decommissioning and changes in federal, state or local regulations. The cost estimate excludes the portion attributable to other co-owners of CR3. Florida Power has a license to operate the nuclear unit through December 3, 2016. Florida Power's reserve for fossil plant dismantlement was approximately $140.5 million and $134.6 million at December 31, 2001 and 2000, respectively, and was included in accumulated depreciation. The provision for fossil plant dismantlement was previously suspended per a 1997 FPSC settlement agreement, but resumed mid-2001. The current annual provision, approved by the FPSC, is $8.8 million. Fuel Disposal Costs -- Florida Power has entered into a contract with the DOE for the transportation and disposal of spent nuclear fuel. Disposal costs for nuclear fuel consumed are being collected from customers through the fuel adjustment clause at a rate of $.001 per net nuclear kilowatt-hour sold and are paid to the DOE quarterly. Florida Power currently is storing spent nuclear fuel on-site and has sufficient storage capacity in place for fuel consumed through the year 2016. NOTE 9: PREFERRED AND PREFERENCE STOCK The authorized capital stock of the Company 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 the Company's preferred stock are issued and outstanding. 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. All Cumulative Preferred Stock series are without sinking funds and are not subject to mandatory redemption. NOTE 10: COMPANY-OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES OF A SUBSIDIARY TRUST HOLDING SOLELY FLORIDA PROGRESS GUARANTEED SUBORDINATED DEFERRABLE INTEREST NOTES In April 1999, FPC Capital I (the Trust), an indirect wholly-owned subsidiary of the Company, issued 12 million shares of $25 par cumulative Company-obligated mandatorily redeemable preferred securities (Preferred Securities) due 2039, with an aggregate liquidation value of $300 million with an annual distribution rate of 7.10%, payable quarterly. Currently, all 12 million shares of the Preferred Securities that were issued are outstanding. Concurrent with the issuance of the Preferred Securities, the Trust issued to Florida Progress Funding Corporation (Funding Corp.) all of the common securities of the Trust (371,135 shares), for $9.3 million. Funding Corp. is a direct wholly-owned subsidiary of the Company. The existence of the Trust is for the sole purpose of issuing the Preferred Securities and the common securities and using the proceeds thereof to purchase from Funding Corp. its 7.10% Junior Subordinated Deferrable Interest Notes (subordinated notes) due 2039, for a principal amount of $309.3 million. The subordinated notes and the Notes Guarantee (as discussed below) are the sole assets of the Trust. Funding Corp.'s proceeds from the sale of the 67 subordinated notes were advanced to Progress Capital Holdings and used for general corporate purposes including the repayment of a portion of certain outstanding short-term bank loans and commercial paper. The Company has fully and unconditionally guaranteed the obligations of Funding Corp. under the subordinated notes (the Notes Guarantee). In addition, the Company has guaranteed the payment of all distributions required to be made by the Trust, but only to the extent that the Trust has funds available for such distributions (Preferred Securities Guarantee). The Preferred Securities Guarantee, considered together with the Notes Guarantee, constitutes a full and unconditional guarantee by the Company of the Trust's obligations under the Preferred Securities. The subordinated notes may be redeemed at the option of Funding Corp. beginning in 2004 at par value plus accrued interest through the redemption date. The proceeds of any redemption of the subordinated notes will be used by the Trust to redeem proportional amounts of the Preferred Securities and common securities in accordance with their terms. Upon liquidation or dissolution of Funding Corp., holders of the Preferred Securities would be entitled to the liquidation preference of $25 per share plus all accrued and unpaid dividends thereon to the date of payment. These Preferred Securities are classified as long-term debt on Florida Progress' consolidated balance sheets. NOTE 11: DEBT AND CREDIT FACILITIES The Company's consolidated subsidiaries have lines of credit totaling $370 million, which are used to support the issuance of commercial paper. The lines of credit were not drawn on as of December 31, 2001. Interest rate availability under the lines of credit arrangements vary from subprime or money market rates to the prime rate. Banks providing lines of credit are compensated through fees. Commitment fees on lines of credit vary between .08 and .20 of 1%. The lines of credit consist of two revolving bank credit facilities for Florida Power. The Florida Power facilities consist of $170 million with a 364-day term and $200 million long-term revolving bank credit facility, expiring in 2004. During November 2001, Progress Capital Holding's $600 million commercial paper program, which was in existence at December 31, 2000, was eliminated. At the same time, Progress Energy established its own $1 billion commercial paper facility, which funds working capital needs of the diversified businesses. Based on the duration of the underlying backup credit facilities, $154.2 million and $200 million of Florida Power's outstanding commercial paper at December 31, 2001 and 2000, respectively, are classified as long-term debt. As of December 31, 2000, Progress Capital Holdings also had $300 million of outstanding commercial paper classified as long-term debt. At December 31, 2000 Florida Progress had $467.3 million and Florida Power had $192.5 million of short-term commercial paper outstanding at average interest rates of 7.10% and 6.89%, respectively. In March 2000, Florida Power established an uncommitted bank bid facility allowing it to borrow and re-borrow and have loans outstanding at any time, up to $100 million. The facility was established to temporarily supplement commercial paper borrowings, as needed. As of December 31, 2001 and 2000, there were no loans outstanding under this bid facility. Florida Power has a public medium-term note program providing for the issuance of either fixed or floating interest rate notes. These notes may have maturities ranging from nine months to 30 years. A balance of $250 million is available for issuance at December 31, 2001. The combined aggregate maturities of long-term debt for 2002 through 2006 for Florida Progress are $88 million, $430 million, $68 million, $48 million and $109 million, respectively. Florida Power's maturities of long-term debt for 2002 through 2006 are $32 million, $372 million, $43 million, $48 million and $48 million, respectively. Florida Progress has unconditionally guaranteed the payment of Progress Capital's debt. NOTE 12: STOCK-BASED COMPENSATION A. Long Term Incentive Plan Prior to November 30, 2000, the Company and one of its subsidiaries had Long-Term Incentive Plans (LTIPs) which authorized the granting of common stock to certain executives in various forms. These plans were terminated on November 30, 2000, in conjunction with the acquisition by Progress Energy (See Note 2). All outstanding LTIP awards as of November 30, 2000 were paid in full in 2000 in accordance with the change in control provisions of 68 these plans. Certain executives were also eligible to receive restricted stock, which also fully vested and was paid in conjunction with the merger. The Company accounted for these plans in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as allowed under SFAS No. 123, "Accounting for Stock Based Compensation." Compensation costs for performance shares; performance units and restricted stock were recognized at the fair market value of the Company's stock and recognized over the performance cycle. Compensation costs related to the LTIPs for 2000 and 1999 were $17 million and $19 million, respectively. There was no expense during 2001. In addition the Company recognized merger-related costs of $18 million associated with these plans in 2000, as a result of the immediate vesting of all outstanding awards. B. Stock Option Agreements Pursuant to Progress Energy's 1997 Equity Incentive Plan, Amended and Restated as of September 26, 2001, Progress Energy may grant options to purchase shares of common stock to officers and eligible employees. During 2001, approximately 2.4 million common stock options were granted to officers and eligible employees of Progress Energy. Of this amount, approximately 0.4 million were granted to officers and eligible employees of both Florida Progress and Florida Power. No compensation expense was recognized under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees and related Interpretations." Had compensation expense been measured based on the fair value of the options on the date of grant, calculated under the provisions of SFAS No. 123, "Accounting for Stock Based Compensation," Florida Progress's and Florida Power's allocated share of such compensation expense would have reduced reported net income in 2001 by approximately $0.6 million and $0.5 million, respectively. The allocated share of compensation expense for Florida Power includes approximately $0.3 million of after-tax expense allocated to Florida Power for PESC employees. NOTE 13: BENEFIT PLANS Pension Benefits -- The Company and some of its subsidiaries (including Florida Power) have two noncontributory defined benefit pension plans covering most employees. The Company also has two supplementary defined benefit pension plans, that provide additional benefits to certain higher-level employees. As a result of the acquisition by Progress Energy, the benefits of one plan were frozen on December 31, 2000 and the Company recorded merger-related charges of $24.4 million associated with the two plans. (See Note 2) The net pension benefit recognized in 2000 of $53.6 million does not include the merger-related charges. Other Postretirement Benefits -- The Company and some of its subsidiaries (including Florida Power) also provide certain health care and life insurance benefits for retired employees that reach retirement age while working for the Company. Shown below are the components of the net pension expense and net postretirement benefit expense calculations for 2001, 2000 and 1999:
Pension Benefits Other Postretirement Benefits (In millions) 2001 2000 1999 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------- Service cost $ 10.5 $ 18.7 $ 22.0 $ 3.9 $ 3.2 $ 3.5 Interest cost 42.0 42.5 39.4 12.5 10.9 10.4 Expected return on plan assets (86.3) (92.0) (78.4) (0.6) (0.5) (0.4) Net amortization and deferral (18.8) (22.8) (15.1) 3.5 2.7 3.0 - -------------------------------------------------------------------------------------------------------------- Net cost/(benefit) recognized by Florida Progress $(52.6) $(53.6) $(32.1) $19.3 $16.3 $16.5 - -------------------------------------------------------------------------------------------------------------- Net cost/(benefit) recognized by Florida Power $(50.3) $(51.3) $(32.7) $18.0 $15.9 $15.9
69 The following weighted average actuarial assumptions at December 31 were used in the calculation of the year-end funded status:
Pension Benefits Other Postretirement Benefits - ---------------------------------------------------------------------------------------------------------- (In millions) 2001 2000 1999 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------- Discount rate 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% Expected long-term rate of return 9.25% 9.00% 9.00% 5.00% 5.00% 5.00% Rate of compensation increase: Bargaining unit employees 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% Nonbargaining unit employees 4.00% 4.50% 4.50% 4.00% 4.50% 4.50% Nonqualified plans 4.50% 4.50% 4.50% N/A% N/A% N/A% - ----------------------------------------------------------------------------------------------------------
The following summarizes the change in the benefit obligation and plan assets for both the pension plan and postretirement benefit plan for 2001 and 2000:
Pension Benefits Other Postretirement Benefits (In millions) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------ Change in benefit obligation Benefit obligation at beginning of year $627.7 $ 582.2 $ 156.2 $ 154.5 Service cost 10.5 18.7 3.9 3.2 Interest cost 42.0 42.5 12.5 10.9 Plan amendment (43.0) -- 7.8 -- Actuarial (gain)/loss (13.4) (10.7) 9.6 (3.8) Benefits paid (35.0) (30.5) (9.6) (8.6) Curtailment gain and special termination benefits (See Note 2) (1.0) 25.5 -- -- - ------------------------------------------------------------------------------------------------------ Benefit obligation at end of year 587.8 627.7 180.4 156.2 - ------------------------------------------------------------------------------------------------------ Change in plan assets Fair value of plan assets at beginning of year 948.8 1,039.0 11.6 9.2 Return on plan assets (63.3) (61.7) 0.5 1.1 Employer contributions 3.2 -- 10.9 1.3 Benefits paid (35.0) (28.5) (9.6) -- - ------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year 853.7 948.8 13.4 11.6 - ------------------------------------------------------------------------------------------------------ Funded status 265.9 321.1 (167.0) (144.6) Unrecognized transition (asset) obligation (5.6) (10.6) 38.4 41.9 Unrecognized prior service cost (21.7) 19.6 7.5 -- Unrecognized net actuarial gain (96.5) (244.8) (16.6) (25.6) - ------------------------------------------------------------------------------------------------------ Prepaid (accrued) benefit cost-Florida Progress $142.1 $ 85.3 $(137.7) $(128.3) - ------------------------------------------------------------------------------------------------------ Prepaid (accrued) benefit cost-Florida Power $168.4 $ 113.5 $(132.9) $(125.2)
The Company has assets in a rabbi trust for the purpose of providing benefits to the participants in the supplementary defined benefit retirement plans and certain other plans for higher level employees. The assets of the rabbi trust are not reflected as plan assets because the assets could be subject to creditors' claims. The assets and liabilities of the supplementary defined benefit retirement plans are included in Other Assets and Deferred Debits and Other Liabilities and Deferred Credits on the accompanying Consolidated Balance Sheets. 70 The assumed pre-medicare and post medicare health care cost trend rates are: 2001 2000 ---- ---- Initial medical cost trend for pre-medicare benefits 7.50% 7.20% Initial medical cost trend for post-medicare benefits 7.50% 6.20% Ultimate medical cost trend rate 5.00% 5.30% Year ultimate medical cost trend rate is achieved 2008 2005 A one-percentage point increase or decrease in the assumed health care cost trend rate would change the total service and interest cost by approximately $1 million and the postretirement benefit obligation by approximately $10 million. Due to different retail and wholesale regulatory rate requirements, Florida Power makes quarterly contributions to the postretirement benefit plan to an irrevocable external trust fund for wholesale ratemaking, while continuing to accrue post-retirement benefit costs to an unfunded reserve for retail ratemaking. NOTE 14: BUSINESS SEGMENTS The Company's principal business segment is Florida Power, an electric utility engaged in the generation, purchase, transmission, distribution and sale of electricity primarily in Florida. The other reportable business segments are Progress Fuels' Energy & Related Services and Rail Services. The Inland Marine Transportation business, formerly a business segment, was sold in November 2001 (See Note 4). The Energy & Related Services includes coal and synthetic fuel operations, natural gas production and sales, river terminal services and off-shore marine transportation. Rail Services' operations include railcar repair, rail parts reconditioning and sales, railcar leasing and sales, providing rail and track material, and scrap metal recycling. The other category consists primarily of Progress Telecommunications the Company's telecommunications subsidiary, the Company's investment in FPC Capital Trust, which holds the Preferred Securities, and the holding company, Florida Progress Corporation. Progress Telecommunications markets wholesale fiber-optic based capacity service in the Eastern United States and also markets wireless structure attachments to wireless communication companies and governmental entities. Florida Progress allocates a portion of its operating expenses to business segments. The Company's business segment information for 2001, 2000 and 1999 is summarized below. The Company's significant operations are geographically located in the United States with limited operations in Mexico and Canada. The Company's segments are based on differences in products and services, and therefore no additional disclosures are presented. Intersegment sales and transfers consist primarily of coal sales from the Energy and Related Services segment of Progress Fuels to Florida Power. The price Progress Fuels charges Florida Power is based on market rates for coal procurement and for water-borne transportation under a methodology approved by the FPSC. Rail transportation is also based on market rates plus a return allowed by the FPSC on equity in transportation equipment utilized in transporting coal to Florida Power. The allowed rate of return is currently 12%. No single customer accounted for 10% or more of unaffiliated revenues. Segment net income (loss) for 2001 includes a long-lived asset impairment pre-tax loss of $160.6 million (after-tax $108.1 million) included in the Rail Services segment. Segment net income (loss) for 2000 includes a long-lived asset impairment pre-tax loss of $70.2 million (after-tax $47.3 million) included in the Energy & Related Services segment and $60.5 million impairment pre-tax loss (after-tax $36.3 million) included in the Rail Services segment (See Note 3). 71
Energy and Related Rail (In millions) Utility Services Services Other Consolidated - ----------------------------------------------------------------------------------------- 2001 Revenues $3,212.8 $ 369.7 $ 874.7 $ 133.9 $4,591.1 Intersegment revenues -- 398.3 1.1 (399.4) -- Depreciation and amortization 453.0 23.6 33.8 12.0 522.4 Interest expense 113.7 12.0 36.4 23.2 185.3 Income tax expense/(benefit) 182.6 (253.6) (74.7) (27.0) (172.7) Income (loss) from continuing operations 309.6 128.5 (144.4) (28.3) 265.4 Total assets 4,998.2 452.9 602.6 255.1 6,308.8 Property additions 323.2 43.5 18.0 71.9 456.6 - ----------------------------------------------------------------------------------------- 2000 Revenues $2,871.6 $ 329.3 $1,047.4 $ 27.3 $4,275.6 Intersegment revenues -- 244.3 0.7 (245.0) -- Depreciation and amortization 402.6 25.2 32.3 7.5 467.6 Interest expense 125.4 12.2 42.7 27.2 207.5 Income tax expense/(benefit) 150.5 (200.4) (28.9) (45.9) (124.7) Income (loss) from continuing operations 210.3 34.1 (52.9) (56.2) 135.3 Total assets 4,978.0 345.4 802.3 366.9 6,492.6 Property additions 286.8 63.0 25.1 106.1 481.0 - ----------------------------------------------------------------------------------------- 1999 Revenues $2,649.4 $ 193.7 $ 880.2 $ 12.2 $3,735.5 Intersegment revenues -- 262.9 1.5 (264.4) -- Depreciation and amortization 347.5 21.0 27.5 3.0 399.0 Interest expense 120.6 6.9 32.3 25.4 185.2 Income tax expense/(benefit) 151.3 (39.2) 16.6 (43.8) 84.9 Income (loss) from continuing operations 265.5 38.9 21.3 (21.5) 304.2 Total assets 4,961.2 390.5 815.0 286.8 6,453.5 Property additions 361.1 39.5 61.8 50.9 513.3 - -----------------------------------------------------------------------------------------
NOTE 15: REGULATORY MATTERS Rates -- Florida Power's retail rates are set by the FPSC, while its wholesale rates are governed by FERC. Florida Power's last general retail rate case was approved in 1992 and allowed a 12% regulatory return on equity with an allowed range between 11% and 13%. Florida Power previously operated under an agreement committing several parties not to seek any reduction in its base rates or authorized return on equity. That agreement expired on June 30, 2001. On June 20, 2001, the Florida Public Service Commission (FPSC) initiated a rate proceeding regarding Florida Power's future base rates when it issued an order that Florida Power be required to hold $114 million of revenue subject to refund and to file, by September 14, 2001, minimum filing requirements based on a projected 2002 test year. On July 2, 2001, Florida Power filed a request for rehearing of the portion of the FPSC's order requiring that it hold $114 million of revenues subject to refund on the grounds that the order contradicted FPSC precedent, was inconsistent with the applicable statutory requirements and violated Florida Power's due process rights. On October 16, 2001, the Commission approved Florida Power's motion for reconsideration and reduced the revenue subject to refund by $16 million to $98 million. The Commission also allowed Florida Power to reduce the amount subject to refund for the accelerated 72 amortization of a regulatory asset and may allow Florida Power to further reduce revenue subject to refund if successful in the rate case. On September 14, 2001, Florida Power submitted its required rate filing, including its revenue requirements and supporting testimony. Under the filing, Florida Power customers would receive a $5 million annual credit for 15 years, or $75 million in total, from net synergies of its merger with Progress Energy. Additionally, the filing provides that the regulatory asset related to the purchase of Tiger Bay cogeneration facility in 1997 would be fully amortized by the end of 2003, which would provide customers with a further rate reduction of a minimum of $37 million annually beginning in 2004. Included in the filing is an incentive regulatory plan, which would provide for additional rate reductions through efficiencies derived as a result of Florida Power's ability to lower the future costs of its utility operations. Florida Power filed supplemental minimum filing requirements and testimony on November 15, 2001. Hearings are scheduled to begin March 20, 2002, with a final decision expected in July 2002. The FPSC has encouraged its staff, Florida Power, and other parties to negotiate a settlement, if possible, before the hearings begin. Progress Energy cannot predict the outcome or impact of these matters. Regulatory Assets and Liabilities -- Florida Power has total regulatory assets (liabilities) at December 31, 2001 and 2000 as detailed below: (in thousands) 2001 2000 -------- --------- Deferred fuel (included in current assets) $ 15,147 $ 90,434 --------------------- Income taxes recoverable through future rates 27,610 19,689 Deferred purchased power contract termination costs 95,326 226,656 Loss on reacquired debt 19,848 21,568 Deferred DOE enrichment facilities-related costs 8,531 9,979 Other 13,103 23,248 --------------------- Total long-term regulatory assets 164,418 301,140 --------------------- Nuclear maintenance and refueling (346) (10,835) Deferred revenues -- (63,000) Storm reserve (Note 16) (35,527) (29,527) Other (9,669) (10,077) --------------------- Total long-term regulatory liabilities (45,542) (113,439) --------------------- Net regulatory assets $134,023 $ 278,135 ===================== Except for portions of deferred fuel, all assets earn a return or the cash has not yet been expended, in which case the assets are offset by liabilities that do not incur a carrying cost. The utility expects to fully recover these assets and refund the liabilities through customer rates under current regulatory practice. If Florida Power no longer applied SFAS No. 71 due to competition, regulatory changes or other reasons, the utility would make certain adjustments. These adjustments could include the write-off of all or a portion of its regulatory assets and liabilities, the evaluation of utility plant, contracts and commitments and the recognition, if necessary, of any losses to reflect market conditions. The Tiger Bay regulatory asset, for contract termination costs, is being recovered pursuant to an agreement between Florida Power and several intervening parties, which was approved by the FPSC in June 1997. The amortization of the regulatory asset is calculated using revenues collected under the fuel adjustment clause as if the purchased power agreements related to the facility were still in effect, less the actual fuel costs and the related debt interest expense. This will continue until the regulatory asset is fully amortized. Under the plan, Florida Power has the option to accelerate the amortization at its discretion. Including accelerated amounts, Florida Power recorded amortization expense of $130.5 million, $71.2 million, and $23 million, in 2001, 2000 and 1999, respectively. In December 2000, Florida Power received approval from the FPSC to establish a regulatory liability to defer 2000 revenues for disposition by April 2, 2001. Florida Power applied the deferred revenues of $63 million, plus accrued interest, to amortization of the Tiger Bay regulatory asset during the first quarter of 2001. 73 Similar approvals were given by the FPSC in November 1999 and December 1998. Florida Power received approval from the FPSC to defer nonfuel revenues towards the development of a plan that would allow customers to realize the benefits earlier than if they were used to accelerate the amortization of the Tiger Bay regulatory asset. Florida Power was unable to identify any rate initiatives that might allow its ratepayers to receive these benefits sooner. In September 2000 and June 1999, Florida Power recognized $44.4 million and $10.1 million of revenue, and recorded $44.4 million and $10.1 million, plus interest, of amortization against the Tiger Bay regulatory asset. NOTE 16: COMMITMENTS AND CONTINGENCIES Fuel, Coal and Purchased Power Commitments -- Progress Fuels has two coal supply contracts with Florida Power, the provisions of which require Florida Power to buy and Progress Fuels to supply substantially all of the coal requirements of four of Florida Power's power plants, two through 2002 and two through 2004. In connection with these contracts, Progress Fuels has entered into several contracts with outside parties for the purchase of coal. The annual obligations for coal purchases and transportation under these contracts are $208.0 million, $142.3 million and $30.6 million for 2002 though 2004, respectively, with no current obligations thereafter. The total cost incurred for these commitments in 2001, 2000 and 1999 was $134.1 million, $110.6 million, and $125.3 million, respectively. Florida Power has long-term contracts for about 460 MW of purchased power with other utilities, including a contract with The Southern Company for approximately 400 MW of purchased power annually through 2010. This represents less than 5% of Florida Power's total current system capacity. Florida Power has an option to lower these purchases to approximately 200 MW annually with a three-year notice. The purchased power from The Southern Company is supplied by generating units with a capacity of approximately 3,500 MW and is guaranteed by The Southern Company's entire system, totaling more than 30,000 MW. As of December 31, 2001, Florida Power has ongoing purchased power contracts with certain qualifying facilities for 871 MW of capacity with expiration dates ranging from 2002 to 2025. The purchased power contracts provide for capacity and energy payments. Energy payments are based on the actual power taken under these contracts. Capacity payments are subject to the qualifying facilities meeting certain contract performance obligations. In most cases, these contracts account for 100% of the generating capacity of each of the facilities. Of the 871 MW under contract, 831 MW currently are available to Florida Power. All commitments have been approved by the FPSC. The FPSC allows the capacity payments to be recovered through a capacity cost recovery clause, which is similar to, and works in conjunction with, energy payments recovered through the fuel cost recovery clause. Florida Power incurred purchased power capacity costs totaling $279.9 million in 2001, $280.4 million in 2000, and $240.6 million in 1999. The following table shows minimum expected future capacity payments for purchased power commitments. Because the purchased power commitments have relatively long durations, the total present value of these payments using a 10% discount rate also is presented. Purchased Power Capacity Payments --------------------------------- (In millions) Utilities Cogenerators Total - ------------------------------------------------------------------------------- 2002 $ 53 $ 236 $ 289 2003 51 244 295 2004 29 255 284 2005 29 268 297 2006 29 279 308 2007-2025 128 4,757 4,885 - ------------------------------------------------------------------------------- Total $319 $6,039 $6,358 - ------------------------------------------------------------------------------- Total net present value $2,615 - ------------------------------------------------------------------------------- Leases -- The Company has several non-cancelable operating leases, primarily for transportation equipment, with varying terms extending to 2014, and generally require the subsidiaries to pay all executory costs such as maintenance and insurance. Some rental payments include minimum rentals plus contingent rentals based on mileage. Contingent rentals were not significant. The minimum future lease payments under noncancelable operating leases, with initial terms in excess of one year are $19.9 million, $39.0 million, $28.1 million, $10.5 million and $4.9 million for 2002 through 2006, respectively, with a $18.1 million total obligation thereafter. The total costs incurred under these commitments were $25.3 million, $73.9 million, and $51.1 million during 2001, 2000 and 1999, respectively. 74 In addition, Progress Telecom has entered into capital leases for equipment that have minimum future lease payments of approximately $1.4 million annually through 2006, with a $13.2 million total obligation thereafter. In December 2000, Progress Rail Services Corporation (PRS), a subsidiary of Progress Fuels, sold a portfolio of railcars to Railcar Asset Financing Trust (RAFT). PRS made a $4.9 million (9.95%) investment in RAFT and will remain as servicer of the portfolio. The RAFT term is five years at which time PRS has the option to repurchase the railcars at fair value. Construction Program -- Substantial commitments have been made in connection with the Company's construction program. For the year 2002, Florida Power has projected annual construction expenditures of $524.1 million, primarily for electric plant. Insurance -- Florida Progress and its subsidiaries utilize various risk management techniques to protect certain assets from risk of loss, including the purchase of insurance. Risk avoidance, risk transfer and self-insurance techniques are utilized depending on the Company's ability to assume risk, the relative cost and availability of methods for transferring risk to third parties, and the requirements of applicable regulatory bodies. Florida Power self-insures its transmission and distribution lines against loss due to storm damage and other natural disasters. Pursuant to a regulatory order, Florida Power is accruing $6 million annually to a storm damage reserve and may defer any losses in excess of the reserve. The reserve balances at December 31, 2001 and 2000 were $35.5 million and $29.5 million, respectively are recorded in other long-term liabilities. (See Note 15) Under the provisions of the Price Anderson Act, which limits liability for accidents at nuclear power plants, Florida Power, as an owner of a nuclear plant, can be assessed for a portion of any third-party liability claims arising from an accident at any commercial nuclear power plant in the United States. If total third-party claims relating to a single nuclear incident exceed $200 million (the amount of currently available commercial liability insurance), Florida Power could be assessed up to $88.1 million per incident, with a maximum assessment of $10 million per year. Florida Power also maintains nuclear property damage insurance and decontamination and decommissioning liability insurance totaling $1.6 billion. This insurance coverage is purchased from Nuclear Electric Insurance Ltd. (NEIL). Florida Power is self-insured for any losses that are in excess of this coverage. Under the terms of the NEIL policy, Florida Power could be assessed up to a maximum of $8.7 million in any policy year if losses in excess of NEIL's available surplus are incurred. There have been recent revisions made to the nuclear property and nuclear liability insurance policies regarding the maximum recoveries available for multiple terrorism occurrences. Under the NEIL policies, if there were multiple terrorism losses occurring within one year after the first loss from terrorism, NEIL would make available one industry aggregate limit of $3.2 billion, along with any amounts it recovers from reinsurance, government indemnity or other sources up to the limits for each claimant. If terrorism losses occurred beyond the one-year period, a new set of limits and resources would apply. For nuclear liability claims arising out of terrorist acts, the primary level available through commercial insurers is now subject to an industry aggregate limit of $200.0 million. The second level of coverage obtained through the assessments discussed above would continue to apply to losses exceeding $200.0 million and would provide coverage in excess of any diminished primary limits due to the terrorist acts aggregate. Florida Power has never been assessed under these nuclear indemnities or insurance policies. Claims and Uncertainties -- The Company is subject to federal, state and local regulations addressing air and water quality, hazardous and solid waste management and other environmental matters. Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under federal and state laws. The lead or sole regulatory agency that is responsible for a particular former coal tar site depends largely upon the state in which the site is located. There are several MGP sites to which Florida Power has some connection. In this regard, Florida Power, with other potentially responsible parties, is participating in investigating and, if necessary, remediating former coal tar sites with several regulatory agencies, including, but not limited to, the U.S. Environmental Protection Agency (EPA) and the FDEP. Although the Company may incur costs at these sites about which it has been notified, based upon current status of these sites, the Company does not expect those costs to be material to the financial position or results of operations of the Company. The Company has accrued amounts to address known costs at certain of these sites. 75 The Company is periodically notified by regulators such as the EPA and various state agencies of their involvement or potential involvement in sites, other than MGP sites, that may require investigation and/or remediation. Although the Company may incur costs at the sites about which they have been notified, based upon the current status of these sites, the Company does not expect those costs to be material to the financial position or results of operations of the Company. There has been and may be further proposed federal legislation requiring reductions in air emissions for nitrogen oxides, sulfur dioxide and mercury setting forth national caps and emission levels over an extended period of time. This national multi-pollutant approach would have significant costs which could be material to the Company's consolidated financial position or results of operations. Some companies may seek recovery of the related cost through rate adjustments or similar mechanisms. The Company cannot predict the outcome of this matter. The EPA has been conducting an enforcement initiative related to a number of coal-fired utility power plants in an effort to determine whether modifications at those facilities were subject to New Source Review requirements or New Source Performance Standards under the Clean Air Act. Florida Power was asked to provide information to the EPA as part of this initiative and cooperated in providing the requested information. The EPA has initiated enforcement actions against other utilities as part of this initiative, some of which have resulted in or may result in settlement agreements, ranging from $1.0 billion to $1.4 billion. A utility that was not subject to a civil enforcement action settled its New Source Review issues with the EPA for $300 million. These settlement agreements have generally called for expenditures to be made over extended time periods, and some of the companies may seek recovery of the related costs through rate adjustments. The Company cannot predict the outcome of this matter. In July 1997, the EPA issued final regulations establishing a new eight-hour ozone standard. In October 1999, the District of Columbia Circuit Court of Appeals ruled against the EPA with regard to the federal eight-hour ozone standard. The U.S. Supreme Court has upheld, in part, the District of Columbia Circuit Court of Appeals decision. Further litigation and rulemaking are anticipated. The Company cannot predict the outcome of this matter. On November 1, 2001, the Company completed the sale of the Inland Marine Transportation segment to AEP Resources, Inc. In connection with the sale, the Company entered into environmental indemnification provisions covering both unknown and known sites. The Company has recorded an accrual to cover estimated probable future environmental expenditures. The Company believes that it is reasonably possible that additional costs, which cannot be currently estimated, may be incurred related to the environmental indemnification provision beyond the amounts accrued. The Company cannot predict the outcome of this matter. Florida Power has filed claims with the Company's general liability insurance carriers to recover costs arising out of actual or potential environmental liabilities. Some claims have been settled and others are still pending. While management cannot predict the outcome of these matters, the outcome is not expected to have a material effect on the financial position or results of operations. Other Commitments -- Florida Progress has certain future commitments related to synthetic fuel facilities purchased that provide for contingent payments (royalties) of up to $25.2 million on sales from Florida Progress' interests in these plants annually through 2007. The related agreements were amended in December 2001 to require the payment of minimum annual royalties of which Florida Progress' share is approximately $14.5 million through 2007. As a result of the amendment, Florida Progress recorded a liability (included in other liabilities and deferred credits on the Consolidated Balance Sheets) and a deferred cost asset (included in other assets and deferred debits in the Consolidated Balance Sheets) of approximately $67.0 million at December 31, 2001, representing the minimum amounts due through 2007, discounted at 6.05%. As of December 31, 2001, the portion of the asset and liability recorded that was classified as current was $12.9 million. The deferred cost asset will be amortized to expense each year as synthetic fuel sales are made. The maximum amounts payable under these agreements remain unchanged. Actual amounts accrued under these agreements were approximately $25.2 million in 2001, $22.5 million in 2000, and $0.9 thousand in 1999. In January 2002, the Company entered into a letter of intent to acquire approximately 215 natural gas wells, 52 miles of intrastate gas pipeline and 170 miles of gas-gathering systems. Total consideration of $153 million is expected to include $135 million in Progress Energy common stock and $18 million in cash. This transaction is expected to be completed in the first half of 2002. 76 LEGAL MATTERS Age Discrimination Suit -- Florida Power and Florida Progress have been named defendants in an age discrimination lawsuit. The number of plaintiffs remains at 116, but four of those plaintiffs have had their federal claims dismissed and 74 others have had their state age claims dismissed. While no dollar amount was requested, each plaintiff seeks back pay, reinstatement or front pay through their projected dates of normal retirement, costs and attorneys' fees. In October 1996, the Federal Court approved an agreement between the parties to provisionally certify this case as a class action suit under the Age Discrimination in Employment Act. Florida Power filed a motion to decertify the class and in August 1999, the Court granted Florida Power's motion. In October 1999, the judge certified the question of whether the case should be tried as a class action to the Eleventh Circuit Court of Appeals for immediate appellate review. In December 1999, the Court of Appeals agreed to review the judge's order decertifying the class. In anticipation of a potential ruling decertifying the case as a class action, plaintiffs filed a virtually identical lawsuit, which identified all opt-in plaintiffs as named plaintiffs. On July 5, 2001, the Eleventh Circuit Court of Appeals ruled that as a matter of law, disparate claims cannot be brought under the Americans with Disabilities Act (ADEA). This ruling has the effect of decertifying the Akin case as a class action. On ---- October 3, 2001, the plaintiffs filed a petition in the United States Supreme Court, requesting a hearing of the case, on the issue of whether disparate claims can be brought under the ADEA. On December 3, 2001, the United States Supreme Court agreed to hear the case. Oral arguments on the issue were held on March 20, 2002. As of this date, the trial court has not stayed the litigation pending the outcome of the Supreme Court. The Company cannot predict the outcome of this matter. In December 1998, during mediation in this age discrimination suit, plaintiffs alleged damages of $100 million. Company management, while not believing plaintiffs' claim to have merit, offered $5 million in an attempt to settle all claims. Plaintiffs rejected that offer. Florida Power and the plaintiffs engaged in informal settlement discussions, which terminated on December 22, 1998. As a result of the plaintiffs' claims, management has identified a probable range of $5 million to $100 million with no amount within that range a better estimate of probable loss than any other amount; accordingly, Florida Power has accrued $5 million. In December 1999, Florida Power also recorded an accrual of $4.8 million for legal fees associated with defending its position in these proceedings. There can be no assurance that this litigation will be settled, or if settled, that the settlement will not exceed $5 million. Additionally, the ultimate outcome, if litigated, cannot presently be determined. Advanced Separation Technologies (AST) -- In 1996, Florida Progress sold its 80% interest in AST to Calgon Carbon Corporation (Calgon) for net proceeds of $56 million in cash. In January 1998, Calgon filed a lawsuit against Florida Progress and the other selling shareholder and amended it in April 1998, alleging misstatement of AST's 1996 revenues, assets and liabilities, seeking damages and granting Calgon the right to rescind the sale. The lawsuit also accused the sellers of failing to disclose flaws in AST's manufacturing process and a lack of quality control. Florida Progress believes that the aggregate total of all legitimate warranty claims by customers of AST for which it is probable that Florida Progress will be responsible for under the Stock Purchase Agreement with Calgon is approximately $3.2 million, and accordingly, accrued $3.2 million in the third quarter of 1999 as an estimate of probable loss. Florida Progress filed a motion for summary judgement, which is pending. Qualifying Facilities Contracts -- Florida Power's purchased power contracts with qualifying facilities employ separate pricing methodologies for capacity payments and energy payments. Florida Power has interpreted the pricing provision in these contracts to allow it to pay an as-available energy price rather than a higher firm energy price when the avoided unit upon which the applicable contract is based would not have been operated. The owners of four qualifying facilities filed suits against Florida Power in state court over the contract payment terms, and one owner also filed suit in federal court. Three of the state court suits have been settled and the federal case was dismissed. The most recent case to settle involved Dade County/Dade Cogen. In May 1999, the parties reached an agreement to settle their dispute in its entirety, including all of the ongoing litigation. The definitive settlement agreement was approved by the Dade County Commission in December 1999 and by the FPSC in June 2000. In the remaining state court suit, the trial regarding NCP Lake Power (Lake) concluded in December 1998. In April 1999, the judge entered an order granting Lake's breach of contract claim and ruled that Lake is entitled to receive "firm" energy payments during on-peak hours, but for all other hours, Lake is entitled to the "as-available" rate. The Court also ruled that for purposes of calculating damages, the breach of contract occurred at the inception of the contract. In August 1999, a Final Judgment was entered for Lake for approximately $4.5 million and Lake filed a Notice of Appeal. Also in this case, in April 1998, Florida Power filed a petition with the FPSC for a Declaratory Statement that the contract between the parties limits energy payments thereunder to the avoided costs based upon an analysis of a hypothetical unit having the characteristics specified in the contract. In October 1998, the FPSC 77 denied the petition, but Florida Power appealed to the Florida Supreme Court. On January 26, 2001, the District Court of Appeals reversed the trial court's order and held that the contract requires Florida Power to pay Lake the firm energy rate for all hours that the avoided unit operates, less any maintenance shut-down hours. The District Court of Appeals remanded the case to the trial court for a new trial to determine the appropriate amount of damages consistent with the appellate court's ruling. Florida Power sought rehearing of the District Court of Appeal's decision, which subsequently confirmed its initial decision. On remand, Florida Power entered a stipulation on issues of fact that resulted in the issuance of a Final Judgement awarding damages to Lake of approximately $20 million, which Florida Power recorded as a charge to purchased power expense. Florida Power anticipates that all fuel and capacity expenses, including any settlement amounts incurred as a result of the matters discussed above, will be recovered from its customers. Mid-Continent Life Insurance Company (Mid-Continent) -- As discussed below, a series of events in 1997 significantly jeopardized the ability of Mid-Continent to implement a plan to eliminate a projected reserve deficiency, resulting in the impairment of Florida Progress' investment in Mid-Continent. Therefore, Florida Progress recorded a provision for loss on investment of $86.9 million in 1997. Florida Progress also recorded an accrual at December 31, 1997, for legal fees associated with defending its position in current Mid-Continent legal proceedings. In the spring of 1997, the Oklahoma State Insurance Commissioner (Commissioner) received court approval to seize control as receiver of the operations of Mid-Continent. The Commissioner had alleged that Mid-Continent's reserves were understated by more than $125 million, thus causing Mid-Continent to be statutorily impaired. The Commissioner further alleged that Mid-Continent had violated Oklahoma law relating to deceptive trade practices in connection with the sale of its "Extra Life" insurance policies and was not entitled to raise premiums, a key element of Mid-Continent's plan to address the projected reserve deficiency. While sustaining the receivership, the court also ruled that premiums could be raised. Although both sides appealed the decision to the Oklahoma Supreme Court, those appeals were withdrawn in early 1999. In December 1997, the receiver filed a lawsuit (Receiver's Lawsuit) against Florida Progress, certain of its directors and officers, and certain former Mid-Continent officers, making a number of allegations and seeking access to Florida Progress' assets to satisfy policyholder and creditor claims. In April 1998, the court granted motions to dismiss the individual defendants, leaving Florida Progress as the sole remaining defendant in the lawsuit. A new Commissioner was elected in November 1998 and has worked with Florida Progress and others to develop a plan to rehabilitate Mid-Continent rather than pursue litigation against Florida Progress. Based on data through December 31, 1998, Florida Progress' actuarial estimate of the additional assets necessary to fund the reserve, after applying Mid-Continent's statutory surplus is in the range of $100 million. The amount put forth by the actuary hired by the former Commissioner was in the range of $350 million. Florida Progress believes that any estimate of the projected reserve deficiency would affect only the assets of Mid-Continent, because Florida Progress has legal defenses to any claims asserted against it. In January 1999, five Mid-Continent policyholders filed a purported class action (Policyholders' Lawsuit) against Mid-Continent and the same defendants named in the case filed by the former Commissioner. The complaint contains substantially the same factual allegations as those made by the former Commissioner. The suit asserts "Extra Life" policyholders have been injured as a result of representations made in connection with the sale of that policy. The suit seeks actual and punitive damages. On April 17, 2000, Florida Progress filed an answer in the purported policyholder class action. That answer denied all material allegations of the petition. On April 27, 2000, Florida Progress filed an amended answer and third party petition, which asserted claims for indemnity and contribution against John P. Crawford in his capacity as a prior actuary to Mid-Continent and Lewis & Ellis, Inc., the actuarial firm that designed the Mid-Continent "Extra Life" policy. Proposals for a plan of rehabilitation were received and opened in June 1999. In October 1999, the new Commissioner signed a letter of intent, subject to approval by the Oklahoma District Court, concerning the assumption of all policies of Mid-Continent. In a letter of intent in connection with the proposed plan of rehabilitation, Florida Progress agreed to assign all of Mid-Continent's stock to the receiver, and contribute $10 million to help offset future premium rate increases or coverage reductions, provided that, among other things, Florida Progress receives a full release from liability, and the receiver's action against Florida Progress is dismissed, with prejudice. The $10 million was proposed to be held in escrow by the Commissioner for a period of 10 years and invested for the benefit of the policyholders. Any proposed premium increases would have been offset by this fund until it was exhausted. The Mid-Continent plan was originally scheduled to be considered by the Oklahoma 78 County District Court in December 1999, but the Court postponed its consideration. Florida Progress accrued an additional provision for loss of $10 million in December 1999. The loss was more than offset by the recognition of tax benefits of approximately $11 million, related to the excess of the tax basis over the current book value of the investment in Mid-Continent, and thus, did not have a material impact on Florida Progress' consolidated financial position, results of operations, or liquidity. This benefit had not been recorded earlier due to uncertainties associated with the timing of the tax deduction. The Court ordered the filing of new proposals by May 22, 2000. The Commissioner recommended the proposal submitted by American Fidelity Assurance Company (American Fidelity). In September 2000, the Oklahoma County District Court began a hearing to approve the rehabilitation plan proposed by the Oklahoma Insurance Commissioner, under which American Fidelity would acquire Mid-Continent's policies. On September 26, 2000, the Court approved acquisition of the Mid-Continent policies by American Fidelity. In addition, Florida Progress reached a settlement to resolve the Policyholders' Lawsuit. Under the terms of the settlement, Florida Progress agreed to contribute an additional $7.5 million, towards protecting policyholders in the event that future premium rate increases are necessary, and pay attorney's fees and expenses up to $4.875 million. Florida Progress also agreed with the Commissioner to provide approximately $.6 million to fund welfare benefits for retired Mid-Continent employees. Accordingly Florida Progress accrued $12.8 million in September 2000. The additional $7.5 million brings the total contribution to the fund by Florida Progress to $17.5 million. In the event that future premium rate increases are necessary, the $17.5 million, plus interest accrued, will offset increases until the fund is exhausted. Dismissal of the Receiver's Lawsuit is part of the settlement. The Policyholders' Lawsuit case has been transferred to the rehabilitation court. On February 21, 2001, the Court approved the settlement of the Policyholders' Lawsuit and the dismissal of the Receiver's Lawsuit. During 2001, Florida Progress paid the settlement and attorney's fees. In December 2001, Florida Progress, having filed a claim with its insurance carrier related to Mid-Continent, was awarded an $8.8 million insurance settlement that was recorded in Other income(net), resulting in after-tax income of $5.4 million. Easement Litigation -- In December 1998, Florida Power was served with this class action lawsuit seeking damages, declaratory and injunctive relief for the alleged improper use of electric transmission easements. The plaintiffs contend that the licensing of fiber optic telecommunications lines to third parties or telecommunications companies for other than Florida Power's internal use along the electric transmission line right-of-way exceeds the authority granted in the easements. In June 1999, plaintiffs amended their complaint to add Progress Telecom as a defendant and adding counts for unjust enrichment and constructive trust. In January 2000, the court conditionally certified the class statewide. In mediation held in March 2000, the parties reached a tentative settlement of this claim. In January 2001, the Court preliminarily approved the amended settlement agreement, certified the settlement class and approved the class notice. On November 16, 2001, the Court issued a final order approving the settlement. Several objectors to the settlement appealed the order to the 1st District Court of Appeal. If the order approving settlement is ultimately upheld on appeal, the settlement would not have a material adverse impact on the financial position, results of operations or liquidity of Florida Power or Progress Telecom. Franchise Litigation -- Five cities, with a total of approximately 36,000 customers, have sued Florida Power in various circuit courts in Florida. The lawsuits principally seek (1) a declaratory judgment that the cities have the right to purchase Florida Power's electric distribution system located within the municipal boundaries of the cities, (2) a declaratory judgment that the value of the distribution system must be determined through arbitration, and (3) injunctive relief requiring Florida Power to continue to collect from Florida Power's customers and remit to the cities, franchise fees during the pending litigation, and as long as Florida Power continues to occupy the cities' rights-of-way to provide electric service, notwithstanding the expiration of the franchise ordinances under which Florida Power had agreed to collect such fees. Three circuit courts have entered orders requiring arbitration to establish the purchase price of Florida Power's electric distribution facilities within three cities. One appellate court has held that one city has the right to determine the value of Florida Power's facilities within the city through arbitration. To date, no city has attempted to actually exercise the right to purchase any portion of Florida Power's electric distribution system, nor has there been any proceeding to determine the value at which such a purchase could be made. Arbitration's for two of the cases have been scheduled for the third quarter of 2002. The Company cannot predict the outcome of these matters. 79 Other Legal Matters -- Florida Progress and Florida Power are involved in various other claims and legal actions arising in the ordinary course of business, some of which involve substantial amounts. Where appropriate, accruals have been made in accordance with SFAS No. 5, "Accounting for Contingencies," to provide for such matters. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect upon either company's consolidated financial position, results of operations or liquidity. NOTE 17: SUBSEQUENT EVENT (UNAUDITED) On March 27, 2002, the parties in Florida Power's rate case entered into a Stipulation and Settlement Agreement (the Agreement) related to retail rate matters. The Agreement is to be effective from May 1, 2002 through 2005; provided, however, that if Florida Power's base rate earnings fall below a 10% return on equity, Florida Power may petition the FPSC to amend its base rates. The Agreement provides that Florida Power will reduce its retail revenues from the sale of electricity by $125 million annually through 2005. The Agreement also provides that Florida Power will operate under a Revenue Sharing Incentive Plan (the Plan) that establishes revenue caps and sharing thresholds for the years 2002 through 2005. The Plan provides that retail base rate revenues between the sharing thresholds and the retail base rate revenue caps will be divided into two shares - a 1/3 share to be received by Florida Power's shareholders, and a 2/3 share to be refunded to Florida Power's retail customers; provided, however, that for the year 2002 only, the refund to customers will be limited to 67.1% of the 2/3 customer share. The retail base rate revenue sharing threshold amounts for 2002, 2003, 2004 and 2005 will be $1,296 million, $1,333 million, $1,370 million, and $1,407 million, respectively. The Plan also provides that all retail base rate revenues above the retail base rate revenue caps established for the years 2003, 2004 and 2005 will be refunded to retail customers on an annual basis. For 2002, the refund to customers will be limited to 67.1% of the retail base rate revenues that exceed the 2002 cap. The retail base revenue caps for 2002, 2003, 2004 and 2005 will be $1,356 million, $1,393 million, $1,430 million, and $1,467 million, respectively. The Agreement also provides that beginning with the in-service date of Florida Power's Hines Unit 2 and continuing through December 31, 2005, Florida Power will be allowed to recover through the fuel cost recovery clause a return on average investment and depreciation expense for Hines Unit 2, to the extent such costs do not exceed the Unit's cumulative fuel savings over the recovery period. Additionally, the Agreement provides that Florida Power will effect a mid-course correction of its fuel cost recovery clause to reduce the fuel factor by $50 million for the remainder of 2002. The fuel cost recovery clause will operate as it normally does, including, but not limited to any additional mid-course adjustments that may become necessary, and the calculation of true-ups to actual fuel clause expenses. During the term of the Agreement, Florida Power will suspend accruals on its reserves for nuclear decommissioning and fossil dismantlement. Additionally, for each calendar year during the term of the Agreement, Florida Power will record a $62.5 million depreciation expense reduction, and may, at its option, record up to an equal annual amount as an offsetting accelerated depreciation expense. In addition, Florida Power is authorized, at its discretion, to accelerate the amortization of certain regulatory assets over the term of the Agreement. Under the terms of the Agreement, Florida Power agreed to continue the implementation of its four-year Commitment to Excellence Reliability Plan and expects to achieve a 20% improvement in its annual System Average Interruption Duration Index by no later than 2004. If this improvement level is not achieved for calendar years 2004 or 2005, Florida Power will provide a refund of $3 million for each year the level is not achieved to 10% of its total retail customers served by its worst performing distribution feeder lines. The Agreement also provides that Florida Power will refund to customers $35 million of the $98 million in interim revenues Florida Power has collected subject to refund since March 13, 2001. No other interim revenues that were collected during that period will continue to be held subject to refund. The Agreement was filed with the FPSC for approval on March 27, 2002. If the FPSC approves the Agreement, the new rates will take effect May 1, 2002. The Company cannot predict the outcome of this matter. 80 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACOUNTANTS ON ACCOUNTING AND - ---------------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- As a result of the acquisition of Florida Progress Corporation (FPC) and Florida Power Corporation (Florida Power) by Progress Energy. Inc. (Progress Energy), management decided to retain Deloitte & Touche LLP (D&T) as its independent public accountants. D&T has served as the independent public accountants for Progress Energy for over fifty years. On March 21, 2001, the Audit Committee of the Board of Directors approved this recommendation and formally elected to (i) engage D&T as the independent accountants for FPC and Florida Power and (ii) dismiss KPMG LLP (KPMG) as such independent accountants. KPMG's reports on FPC's and Florida Power's financial statements for 2000 and 1999 (the last two fiscal years of KPMG's engagement) contained no adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. D&T became FPC's and Florida Power's independent accountants upon the completion of the 2000 audit and issuance of the related financial statements. During FPC's and Florida Power's last two fiscal years and the subsequent interim period to the date of their dismissal, there were no disagreements between FPC and Florida Power and KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused them to make reference to the subject matter of the disagreements in connection with their report on the financial statements for such years. KPMG furnished a letter addressed to the Securities and Exchange Commission stating that it agreed with the above statements made by FPC and Florida Power in this Form 10-K 81 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS - ------------------------------------------------------------ FLORIDA PROGRESS DIRECTORS Edwin B. Borden, age 68, is President of The Borden Manufacturing Company, a textile management services company. He has served as a Director of the Company since November 30, 2000 and also serves as a director of Progress Energy, CP&L Jefferson-Pilot Corporation, Ruddick Corporation and Winston Hotels, Inc. David L. Burner, age 62, is Chairman, and Chief Executive Officer of the Goodrich Corporation, a provider of aerospace components, systems and services (since July 1997). He previously served as President and Chief Executive Officer (from December 1996 to July 1997) and President (from December 1995 to December 1996) of the Goodrich Corporation and as President, Goodrich Aerospace and Executive Vice President of the Goodrich Corporation (from January 1995 to December 1995). He has served as a Director of the Company since November 30, 2000 and also serves as a director of Progress Energy, CP&L, Milacron, Inc., Lance, Inc. and Briggs & Stratton Corporation. William Cavanaugh III, age 63, is Chairman, President and Chief Executive Officer, Progress Energy, August 1999 to present; Chairman, Progress Energy Service Company, LLC, August 2000 to present; Chairman, Florida Power, November 30, 2000 to present; Chairman, Progress Ventures, Inc., March 2000 to present; Chairman, President and Chief Executive Officer, (CP&L), May 1999 to present; President and Chief Executive Officer, CP&L, October 1996 to May 1999; President and Chief Operating Officer, CP&L, September 1992 to October 1996. Since November 30, 2000, and also serves as a director of Duke Realty Corporation. Member of the Board of Directors of the Company since 1993. Charles W. Coker, age 68, is Chairman of Sonoco Products Company, a manufacturer of paperboard and paper and plastics packaging products (since April 1998). He previously served as Chairman and Chief Executive Officer of Sonoco Products Company (from 1976 to April 1998). He has served as a Director of the Company since November 30, 2000 and also serves as a director of Progress Energy, CP&L, BankAmerica Corporation, Sara Lee Corporation and Springs Industries, Inc. Richard L. Daugherty, age 66, is retired Executive Director of NCSU Research Corporation, a development corporation of the Centennial Campus of North Carolina State University (since March 1995). He has served as a Director of the Company since November 30, 2000 and also serves as a director of Progress Energy, and CP&L. W. D. Frederick, Jr., age 67 is a citrus grower and rancher. He is a retired partner in the law firm of Holland & Knight. He has served as a Director of the Company since 1995 and also serves as a director of Progress Energy, CP&L, Blue Cross/Blue Shield of Florida and United Heritage Bank. E. Marie McKee, age 51, is Senior Vice President of Corning Incorporated, a developer of technologies for glass, ceramics, fiber optics and photonics. She has served as a Director of the Company since November 30, 2000 and also serves as a director of Progress Energy, and CP&L. William O. McCoy, age 68, is a partner in Franklin Street Partners, an investment management firm (since 1998). He previously served as Interim Chancellor of the University of North Carolina at Chapel Hill from April 1999 to August 14, 2000 and as Vice President-Finance of the University of North Carolina at Chapel Hill from 1995 to 1998. He has served as a Director of the Company since November 30, 2000 and also serves as a director of Progress Energy, CP&L, The Liberty Corporation, Duke Realty Corporation, Acterna Corp. and North Carolina Capital Management Trust, and as a Trustee of Fidelity Investments. John H. Mullin, III, age 60, is Chairman of Ridgeway Farm, LLC, a limited liability company engaged in timber and agricultural activities. He has served as a Director of the Company since November 30, 2000 and also serves as a director of Progress Energy, CP&L, Alex Brown Realty, Inc. and The Liberty Corporation, and as a Trustee of The Putnam Funds. Richard A. Nunis, age 69, is President of New Business Solutions, Inc. He previously served as Chairman, Walt Disney Parks & Resorts. He has served as a Director of the Company since 1989 and also serves as a director of Progress Energy, and CP&L. Carlos A. Saladrigas, age 53, is Chief Executive Officer of ADP TotalSource, (previously the Vincam Group, Inc.), a Miami-based human resources outsourcing company that provides human resource functions to small and mid-sized businesses. He is also 82 Chairman of Premier American Bank in Miami, Florida. He has served as a Director of the Company since September 1, 2001 and also serves as a director of, CP&L and Progress Energy. J. Tylee Wilson, age 70, is retired Chairman and Chief Executive Officer of RJR Nabisco, Inc. He has served as a Director of the Company since November 30, 2000 and also serves as a director of Progress Energy, and CP&L. Jean Giles Wittner, age 67, is President and Secretary of Wittner & Co., Inc. a Florida holding company for companies that provide life insurance products, employee benefit insurance programs, and commercial office leasing and property management services. She has served as a director of the Company since 1982 and also serves as a director of Progress Energy, CP&L and Raymond James Bank, FSB. EXECUTIVE OFFICERS William Cavanaugh III, age 63 Information concerning Mr. Cavanaugh is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Directors." H. William Habermeyer, Jr., age 59 President and Chief Executive Officer, Florida Power, November 30, 2000 to present; Vice President, CP&L, Western Region, July 1997 to November 2000; Vice President, CP&L, Nuclear Engineering, August 1995 to July 1997. William D. Johnson, age 48 Executive Vice President, General Counsel and Secretary, Progress Energy, February 2001 to present; Executive Vice President and Corporate Secretary, Progress Energy, June 2000 to February 2001; Senior Vice President and Secretary, Progress Energy, August 1999 to June 2000; Executive Vice President, General Counsel and Corporate Secretary, Progress Energy Service Company, LLC, August 2000 to present; Executive Vice President, General Counsel and Corporate Secretary, CP&L, November 2000 to present; Senior Vice President and Corporate Secretary, CP&L, Legal and Risk Management, March 1999 to November 2000; Vice President-Legal Department and Corporate Secretary, CP&L, 1997 to 1999; Vice President, Senior Counsel and Manager-Legal Department, CP&L, 1995 to 1997. Tom D. Kilgore, age 54 President and CEO, Progress Ventures, Inc., March 2000 to present; Group President, CP&L, November 30, 2000 to present; Senior Vice President, CP&L, Power Operations, August 1998 to November 30, 2000; President and Chief Executive Officer, Oglethorpe Power Corporation, Georgia Transmission Corporation and Georgia Operations Corporation, July 1991 to August 1998. These three companies provide power generation, transmission and system operations services, respectively, to 39 of Georgia's 42 customer-owned Electric Membership Corporations. Robert B. McGehee, age 59 Executive Vice President, Progress Energy, and CP&L, February, 2001 to present; Executive Vice President, Florida Progress, December 2000 to present; President and Chief Executive Officer, Progress Energy Service Company, LLC, from August, 2000 to present; Executive Vice President and General Counsel, Progress Energy, August, 1999 to February, 2001; Executive Vice President and General Counsel, CP&L, May 2000 to February 2001; Executive Vice President, General Counsel, Chief Administrative Officer and Interim Chief Financial Officer, CP&L, March 3, 2000 to May 2000; Executive Vice President, General Counsel and Chief Administrative Officer, CP&L, March 1999 to March 3, 2000; Senior Vice President and General Counsel, CP&L, May 1997 to March 1999. From 1974 to May 1997, Mr. McGehee was a practicing attorney with Wise Carter Child & Caraway, a law firm in Jackson, Mississippi. He primarily handled corporate, contract, nuclear regulatory and employment matters. From 1987 to 1997 he managed the firm, serving as chairman of its Board from 1992 to May 1997. Peter M. Scott III, age 52 Executive Vice President and Chief Financial Officer ("CFO") Florida Progress, November 30, 2000 to present; Executive Vice President and CFO, Progress Energy, June 2000 to present; Executive Vice President and CFO, Florida Power, November 30, 2000 to present, Executive Vice President and CFO, Progress Energy Service Company, LLC, August 2000 to present; Executive Vice President and CFO, CP&L, May 2000 to present; Executive Vice President and CFO, NCNG, December 2000 to present. Before joining the Company, Mr. Scott was President of Scott, Madden & Associates, Inc., a management consulting firm he founded in 1983. The firm advises companies on key strategic initiatives for growing shareholder value. 83 Robert H. Bazemore, Jr., age 47 Controller and Chief Accounting Officer of the Company, November 30, 2000 to present; Controller and Chief Accounting Officer, Progress Energy, June 2000 to present; Controller, Florida Power, November 30, 2000 to present; Vice President and Controller, Progress Energy Service Company, LLC, August 2000 to present; Chief Accounting Officer and Controller, CP&L, May 2000 to present; Director, CP&L, Operations & Environmental Support Department, December 1998 to May 2000; Manager, CP&L, Financial & Regulatory Accounting, September 1995 to December 1998. There are no family relationships between any director or any executive officer of Florida Progress. The executive officers serve at the pleasure of the Florida Progress Board of Directors. Each executive officer is appointed annually. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS - ---------------------------------------- On September 27, 1999, Florida Progress and its directors were served with a purported class action complaint, Case No. 99-6167CI-20, styled Lisa Fruchter, on behalf of herself and all others similarly situated, v. Florida Progress Corporation; Richard Korpan; Clarence V. McKee; Richard A. Nunis, Jean Giles Wittner; Michael P. Graney; Joan D. Ruffier, Robert T. Stuart, Jr.; W. D. Frederick; and Vincent J. Naimoli. The complaint was filed in the Circuit Court of the 6th Judicial Circuit in and for Pinellas County, Florida on September 14, 1999. The complaint seeks class action status and injunctive relief (1) declaring that the agreement and plan of exchange among CP&L Energy, Inc. (now Progress Energy), Florida Progress and CP&L was entered into in breach of the fiduciary duties of the Florida Progress board of directors, (2) enjoining Florida Progress from proceeding with the share exchange, (3) rescinding the agreement and plan of exchange; (4) enjoining any other business combination until an auction is conducted to obtain the highest price possible for Florida Progress, (5) directing the Florida Progress board of directors to commence such an auction, and (6) awarding the class an unspecified amount of damages. The complaint also seeks an award of costs and attorneys' fees. The parties have reached agreement on terms of a settlement, which are subject to court approval. If the settlement is not approved, Florida Progress and the nine individual defendants intend to vigorously defend against this action. The share exchange closed on November 30, 2000. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires Florida Progress' executive officers and directors, and persons who own more than ten percent of a registered class of Florida Progress' equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Based upon Company records and other information, Florida Progress believes that all Section 16(a) filing requirements applicable to its executive officers and directors with respect to Florida Progress' 2001 fiscal year were met. FLORIDA POWER DIRECTORS William Cavanaugh III, age 63 Information concerning Mr. Cavanaugh is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Directors." Fred N. Day IV, age 58 Executive Vice President, Florida Power and CP&L, November 30, 2000 to present; Senior Vice President, CP&L, Energy Delivery, July 1997 to November 30, 2000; Vice President, CP&L, Western Region, 1995 to July 1997. H. William Habermeyer, Jr., age 59 Information concerning Mr. Habermeyer is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Executive Officers." William D. Johnson, age 48 Information concerning Mr. Johnson is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Executive Officers." 84 Robert B. McGehee, age 59 Information concerning Mr. McGehee is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Executive Officers." William S. Orser, age 57 Group President, Florida Power and CP&L, November 30, 2000 to present; Executive Vice President, CP&L, Energy Supply, June 1998 to November 30, 2000; Executive Vice President and Chief Nuclear Officer, CP&L, December 1996 to June 1998; Executive Vice President, CP&L, Nuclear Generation, April 1993 to December 1996. Peter M. Scott III, age 52 Information concerning Mr. Scott is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Executive Officers." EXECUTIVE OFFICERS William Cavanaugh III, age 63 Information concerning Mr. Cavanaugh is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Directors." Donald K. Davis, age 56 Executive Vice President, Florida Power, February 2001 to present; Executive Vice President, CP&L, May 2000 to present; President and Chief Executive Officer, North Carolina Natural Gas Corporation, July 2000 to present; Chief Executive Officer, Strategic Resource Solutions, June 2000 to present. Before joining Florida Power, Mr. Davis was Chairman, President and Chief Executive Officer of Yankee Atomic Electric Company and served as Chairman, President and Chief Executive Officer of Connecticut Atomic Power Company from 1997 to May 2000. Fred N. Day IV, age 58 Information concerning Mr. Day is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Power, Directors." Cecil L. Goodnight, age 59 Senior Vice President, Florida Power, June 2001 to present; Senior Vice President, Progress Energy Service Company, LLC, August 2000 to present; Senior Vice President, CP&L, December 1998 to present; Senior Vice President and Chief Administrative Officer, CP&L, December 1996 to December 1998. H. William Habermeyer, Jr., age 59 Information concerning Mr. Habermeyer is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Executive Officers." C. S. Hinnant, age 57 Senior Vice President, Florida Power Corporation, November 30, 2000 to present; Senior Vice President and Chief Nuclear Officer, CP&L, June 1998 to present; Vice President, CP&L, Brunswick Nuclear Plant, April 1997 to May 1998; Vice President, CP&L, Robinson Nuclear Plant, March 1994 to March 1997. William D. Johnson, age 48 Information concerning Mr. Johnson is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Executive Officers." 85 William S. Orser, age 57 Information concerning Mr. Orser is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Power, Directors." Peter M. Scott III age 52 Information concerning Mr. Scott is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Executive Officers." Robert H. Bazemore, Jr. age 47 Information concerning Mr. Bazemore is set forth in Part III hereof, under the heading "Directors and Executive Officers of the Registrants - Florida Progress, Executive Officers." E. Michael Williams, age 53 Senior Vice President, Florida Power, November 30, 2000 to present; Senior Vice President, CP&L, June 2000 to present; Before joining Florida Power, Mr. Williams held the position of Vice President, Fossil Generation, Central and South West Corp., an investor-owned utility from March 1994 to June 2000. There are no family relationships between any director or any executive officer of Florida Power. The executive officers serve at the pleasure of the Florida Power Board of Directors. Each executive officer is appointed annually. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Based upon Florida Power's records and other information, Florida Power believes that all Section 16(a) filing requirements applicable to its executive officers and directors with respect to Florida Power's 2001 fiscal year were met. 86 ITEM 11. EXECUTIVE COMPENSATION - ------------------------------- The Organization and Compensation Committee of the Progress Energy Board of Directors sets the compensation for the Progress Energy senior management team, which includes all officers of Florida Progress and/or Florida Power who serve as Senior Vice Presidents or in higher-level positions, and makes recommendations as to compensation for directors and officers of its subsidiaries, to be ratified by the boards of directors of the appropriate subsidiaries. FLORIDA PROGRESS COMPENSATION OF DIRECTORS All compensation paid to outside Directors of Progress Energy is for services rendered on behalf of Progress Energy's Board of Directors and the boards of Florida Progress and CP&L. Sponsorship of certain benefit and deferred compensation plans and arrangements in which the outside Directors participate was transferred from CP&L to Progress Energy, effective August 1, 2000. A description of the compensation paid to said outside Directors follows. Directors who are not employees of Progress Energy or any of its subsidiaries receive an annual retainer of $35,000, of which $15,000 is automatically deferred under the Progress Energy Directors' Deferred Compensation Plan (see below), and an attendance fee of $1,500 per meeting for regularly scheduled Board meetings. Directors who are not employees of Progress Energy or any of its subsidiaries also receive an attendance fee for committee meetings of $1,000. The Chairman of each Committee receives an additional retainer of $3,000 per year. Directors who are not employees of Progress Energy or any of its subsidiaries receive an attendance fee of $1,000 for each day of a visit to a plant or office of the Company or its subsidiaries, or for attendance at any other business meeting to which the director is invited by the Company. Directors who are officers do not receive an annual retainer or attendance fees. All Directors are reimbursed for expenses incident to their service as Directors. In addition to the $15,000 annual retainer and any matching contributions under the incentive compensation program that are automatically deferred, outside Directors may elect to defer any portion of the remainder of their annual retainer and Board attendance fees until after the termination of their service on the Board under the Progress Energy Directors' Deferred Compensation Plan. Any deferred fees are deemed to be invested in a number of Units of Common Stock of Progress Energy, but participating Directors receive no equity interest or voting rights in the Common Stock. The number of Units credited to the account of a participating Director is equal to the dollar amount of the deferred fees divided by the average of the high and low selling prices (i.e., market value) of Progress Energy's Common Stock on the day the deferred fees would otherwise be payable to the participating Director. The number of Units in each account is adjusted from time to time to reflect the payment of dividends on the number of shares of Progress Energy Common Stock represented by the Units. Unless otherwise agreed to by the participant and the Board, when the participant ceases to be a member of the Board of Directors, he or she will receive cash equal to the market value of a share of Progress Energy's Common Stock on the date of payment multiplied by the number of Units credited to the participant's account. Directors are also eligible for matching contributions of up to $15,000 under an incentive compensation program. Awards under this program are based upon the achievement of the corporate incentive goals established each year by the Progress Energy Board and used as the basis for a matching contribution of shares of Progress Energy Common Stock for participating employees in the Progress Energy 401(k) Savings & Stock Ownership Plan. In the event that five of the corporate incentive goals are met, the $15,000 portion of the annual retainer that is automatically deferred pursuant to the Progress Energy's Directors' Deferred Compensation Plan will be increased by 50 percent, with an additional 10 percent increase for each corporate incentive goal met in excess of five (up to a maximum matching contribution of 100 percent). Such matching contribution is automatically deferred until the Director's retirement. Effective January 1, 1998, the Board of Directors Retirement Plan was replaced by the Progress Energy Non-Employee Director Stock Unit Plan. Directors had the option of rolling the value of their benefits under the Retirement Plan into the Stock Unit Plan. Effective January 1, 2001, the Stock Unit Plan provides for an annual grant of 350 "stock units" to each non-employee Director who has served on the Board for at least one year and for matching grants of up to 350 additional units to be awarded to those Directors for each year in which certain incentive goals established by the Board of Progress Energy are met. Each unit is equal in value to one share of Progress Energy's Common Stock. The number of units is adjusted from time to time to reflect the payment of dividends with respect to the Common Stock of Progress Energy. Benefits under the Non-Employee Director Stock Unit Plan vest after a participant has been a member of the Progress Energy Board for five years, and are payable solely in cash. All of the Directors who were existing Directors or retired Directors of CP&L on or prior to September 16, 1998 participate in a Directors' Educational Contribution Plan (Educational Plan). The Educational Plan is funded by policies of corporate-owned life insurance on the lives of pairs of Directors, with proceeds payable to Progress Energy at the death of the second to die in each pair. All costs of the 87 Educational Plan are expected to be covered from the life insurance proceeds to be received by Progress Energy. Pursuant to this Educational Plan, Progress Energy will make a contribution in the name of each Director to an educational institution or approved educational foundation or fund in North Carolina or South Carolina selected by the Director and approved by the Executive Committee of the Board of Directors of Progress Energy. The contribution will be made at the later to occur of the retirement of the Director from the Progress Energy Board of Directors or ten years from the date of adoption of the Educational Plan. If a Director has served as a Director for at least five but less than ten years at the time the contribution is to be made, Progress Energy will contribute $250,000 in the name of the Director. If the Director has served for ten or more years, the amount of the contribution will be $500,000. The Educational Plan was discontinued September 16, 1998 and will not be offered as a benefit for any Director who joins the Board subsequent to that date. The Educational Plan may be terminated at any time in the discretion of the Executive Committee without recourse or obligation to Progress Energy. Stock Ownership Guidelines In an effort to more closely link the interests of the Company's Directors with those of Progress Energy's shareholders, in December 2000, the Board of Directors of Progress Energy adopted stock ownership guidelines which are designed to ensure that Progress Energy's outside Directors have a significant financial equity investment in Progress Energy. Those guidelines require the outside Directors to own Progress Energy Common Stock or Units whose value is equivalent to the value of that stock with a total value equal to five times the annual retainer paid to outside Directors. The stock and/or Units may be acquired over a five-year period and may include Units acquired under the Progress Energy Directors' Deferred Compensation Plan and the Progress Energy Non-Employee Director Stock Unit Plan. COMPENSATION OF EXECUTIVE OFFICERS The following table contains information with respect to compensation awarded, earned or paid during the year 2001 to the CEO of Florida Progress and the Company's four most highly compensated executive officers other than the CEO who were serving as executive officers at the end of the last completed fiscal year for services rendered to Florida Progress. These individuals are also executive officers of Progress Energy, Inc. It is not the policy of Progress Energy to allocate compensation paid to its executive officers among the various subsidiaries to which they provide services. SUMMARY COMPENSATION TABLE
Annual Compensation ------------------------------------------------------- Other Annual Name and Salary/1/,/2/ Bonus/3/ Compensation/4/ Principal Position Year ($) ($) ($) - --------------------------------------------------------------------------------------------- William Cavanaugh III, 2001 $1,043,380 $1,300,000 $110,038/9/ Chairman, President 2000 80,836 1,657,640/13/ 126,616 (elected November 30, 2000) Robert B. McGehee, 2001 $ 487,110 $ 328,000 $ 15,484 Executive Vice President 2000 31,918 444,281/16/ 15,901 (elected November 30, 2000) Peter M. Scott III, 2001 $ 422,283 $ 275,000 $ 7,635 Executive Vice 2000 30,126 304,000 50,350 Chief Financial Officer (elected November 30, 2000) Long-Term Compensation ------------------------------ Awards Payouts ------------------------------ Restricted Stock LTIP All Other Name and Award(s)/5/,/6/ Payouts/7/ Compensation/8/ Principal Position ($) ($) ($) - -------------------------------------------------------------------------------------- William Cavanaugh III, $ 46,824/10/ $296,949/11/ $329,140/12/ Chairman, President 3,871,402 N/A 258,389 (elected November 30, 2000) Robert B. McGehee, $ 598,247/14/ $ 73,530 $ 93,785/15/ Executive Vice President 280,030 N/A 74,807 (elected November 30, 2000) Peter M. Scott III, $ 138,990 N/A $ 80,707/18/ Executive Vice 1,126,195 N/A 50,485 Chief Financial Officer (elected November 30, 2000)
88
Annual Compensation ------------------------------------------------------- Other Annual Name and Salary/1/,/2/ Bonus/3/ Compensation/4/ Principal Position Year ($) ($) ($) - --------------------------------------------------------------------------------------------- Tom Kilgore, 2001 $358,404 $240,000 $ 6,975 President and Chief Executive 2000 25,751 254,786/21/ 48,215 Officer, Progress Fuels Corporation (elected November 30, 2000) H. William Habermeyer, Jr. 2001 $252,834 $160,000 $ 7,833 President and Chief 2000 15,201 75,772/24/ 14 Executive Officer- Florida Power (elected November 30, 2000) - --------------------------------------------------------------------------------------------- Long-Term Compensation ------------------------------ Awards Payouts ------------------------------ Restricted Stock LTIP All Other Name and Award(s)/5/,/6/ Payouts/7/ Compensation/8/ Principal Position ($) ($) ($) - -------------------------------------------------------------------------------------- Tom Kilgore, $115,817/19/ $75,550 $75,607/20/ President and Chief Executive 453,753 N/A 61,488 Officer, Progress Fuels Corporation (elected November 30, 2000) H. William Habermeyer, Jr. $ 68,183/22/ $16,561 $36,384/23/ President and Chief 870,171 N/A 24,451 Executive Officer- Florida Power (elected November 30, 2000) - --------------------------------------------------------------------------------------
/1/For 2001, consists of base salary prior to (i) employee contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan and (ii) voluntary deferrals, if any, under the Management Deferred Compensation Plan (MDCP). See "Other Benefit Opportunities" on page 100. /2/For 2000, consists of one month's base salary prior to (i) employee contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan and (ii) voluntary deferrals, if any, under the MDCP. See "Other Benefit Opportunities" on page 100. /3/Except as otherwise noted, consists of amounts awarded with respect to performance in the stated year under the Management Incentive Compensation Plan. See "Other Annual Compensation Opportunities" on page 98. /4/Consists of gross-up payments for certain federal and state income tax obligations, and where indicated by footnote disclosure, certain perquisites. /5/Includes the value of restricted stock awards as of the grant date (calculated by multiplying the closing market price of Progress Energy's unrestricted stock on the date of grant by the number of shares awarded) granted pursuant to Progress Energy's 1997 Equity Incentive Plan. None of the restricted stock awards will vest, in whole or in part, in under three years from the date of grant except in the event of a change in control of Progress Energy the Company or in the event of the recipient's death or disability more than one year from the grant date. During the period for which the shares are restricted, the grantee will receive all voting rights and cash dividends associated with the restricted stock. /6/Includes the value of matchable deferrals credited to the account of a participant to replace the value of Company contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan that would have been made on behalf of the participant but for the deferral of salary under the MDCP compensation limitations under Section 415 of the Internal Revenue Code of 1986, as amended ("Phantom Stock Units"). Phantom Stock Units do not represent an equity interest in Progress Energy and the crediting of such Units to a participant's account does not convey any voting rights. However, a Phantom Stock Unit is equal in value at all times to a share of Progress Energy's Common Stock. Additional Phantom Stock Units are credited from time to time to reflect the payment of dividends on the underlying Progress Energy Common Stock. For participants with less than five years of service with the Company, these Phantom Stock Units vest two years from the end of the calendar year in which they are granted. Participants with five or more years of service with the Company are 100% vested in all Phantom Stock Units credited to their accounts. Phantom Stock Units are not deemed "Matured" and therefore available for reallocation to other deemed investment funds chosen by the participant until two years after the end of the MDCP Year for which they were allocated. Payment of the value of the Phantom Stock Units will be made in cash and will generally be made on one of the following dates in accordance with the participant's deferral election: (i) the April 1 following the date that is five or more years from the last day of the MDCP Year for which the participant's salary deferral is made, (ii) the April 1 following the participant's retirement, or (iii) the April 1 following the first anniversary of the participant's retirement. The amount of the payment will equal the fair market value of notational deemed investment funds on the valuation date multiplied by the number of units credited to the account of the participant for each fund. See "Other Benefit Opportunities" on page 100. /7/Consists of the value of payouts of awards granted under the Performance Share Sub-Plan of Progress Energy's 1997 Equity Incentive Plan. /8/Amounts reported in this column include dividends earned in 2001 on awards granted under Progress Energy's Long-Term Compensation Program and dividends allocated in 2001 on awards granted under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan. 89 /9/Consists of (i) $48,114 in gross-up payments for certain federal and state income tax obligations; and (ii) certain perquisites, including company airplane expenses of $20,942 and a company automobile allowance of $18,600, both of which exceed thresholds for footnote disclosure. /10/Consists of 1,104 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. Cavanaugh owns a total of 175,000 shares of Progress Energy Restricted Stock which were valued at $7,880,250 as of December 31, 2001. /11/Mr. Cavanaugh has elected to defer receipt of this award until after his date of retirement. /12/Consists of (i) $56,966 which represents dividends earned in 2001 on performance units awarded under the Progress Energy Long-Term Compensation Program; (ii) $166,325 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan; (iii) $10,200 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iv) $95,649 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. /13/Adjusted to include additional bonus amount of $372,640 that was not determinable at the time the proxy statement for Progress Energy's 2001 Annual Meeting of Shareholders was prepared. /14/Consists of (i) 14,500 shares of Progress Energy Restricted Stock valued at $583,738 as of March 22, 2001; and (ii) 342 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. McGehee owns a total of 41,500 shares of Progress Energy Restricted Stock which were valued at $1,868,745 as of December 31, 2001. /15/Consists of (i) $42,703 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iii) $40,882 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. /16/Adjusted to include additional bonus amount of $92,281 that was not determinable at the time the proxy statement for Progress Energy's 2001 Annual Meeting of Shareholders was prepared. /17/Consists of (i) 3,200 shares of Progress Energy Restricted Stock valued at $128,825 as of March 22, 2001; and (ii) 239 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. Scott owns a total of 35,900 shares of Progress Energy Restricted Stock, which were valued at $1,252,326 as of December 31, 2001. /18/Consists of (i) $27,773 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iii) $42,734 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. /19/Consists of (i) 2,400 shares of Progress Energy Restricted Stock valued at $96,617 as of March 22, 2001; and (ii) 217 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. Kilgore owns a total of 30,800 shares of Progress Energy Restricted Stock which were valued at $1,386,924 as of December 31, 2001. /20/Consists of (i) $35,004 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iii) $30,403 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. /21/Adjusted to include additional bonus amount of $94,786 that was not determinable at the time the proxy statement for Progress Energy's 2001 Annual Meeting of Shareholders was prepared. 90 /22/Consists of (i) 1,600 shares of Progress Energy Restricted Stock which were valued at $64,413 on March 22, 2001; and (ii) 63 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. Habermeyer owns a total of 21,800 shares of Progress Energy Restricted Stock which were valued at $981,654 as of December 31, 2001. /23/Consists of (i) $14,544 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan; (ii) $9,716 which represents Progress Energy contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iii) $12,124 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. /24/Adjusted to include additional bonus amount of $20,772 that was not determinable at the time the proxy statement for Progress Energy's 2001 Annual Meeting of Shareholders was prepared. OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term - -------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) Number of Securities Underlying % of Total Options/ Options/SARs Exercise SARs Granted to or Base Granted Employees in Price Expiration Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($) - ---- ---------- ------------ -------- ---------- ---------- ----------- William Cavanaugh III 202,100 8.59% $43.49 9/30/2011 $5,527,562 $14,007,927 Robert B. McGehee 55,100 2.34% $43.49 9/30/2011 $1,507,020 $ 3,819,083 Peter M. Scott III 42,500 1.81% $43.49 9/30/2011 $1,162,402 $ 2,945,754 Tom D. Kilgore 42,500 1.81% $43.49 9/30/2011 $1,162,402 $ 2,945,754 H. William Habermeyer, Jr 25,800 1.10% $43.49 9/30/2011 $ 705,646 $ 1,788,246
91 LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
Name Number of Performance - ---- Units/1/ Period Ends --------- ----------- William Cavanaugh III, Chairman, President and Chief Executive Officer.................. 38,686 2003 Robert B. McGehee, Executive Vice President ........................................ 11,800 2003 Peter M. Scott III, Executive Vice President and Chief Financial Officer.......................................... 10,219 2003 Tom D. Kilgore, President and Chief Executive Officer - Progress Fuels Corporation............................. 8,759 2003 H. William Habermeyer, Jr., President and Chief Executive Officer Florida Power Corporation........................................ 6,204 2003
- ---------- /1/Consists of the number of performance shares awarded in 2001 under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan, based on the closing price of a share of Progress Energy's Common Stock on March 20, 2001, as published in The Wall Street Journal. Performance Share awards may range from up to 40% to up to 150% of a participant's base salary depending on the participant's position and job value. The number of performance shares awarded is recorded in a separate account for each participant, and is adjusted to reflect dividends, stock splits or other adjustments in Progress Energy's Common Stock. The performance period for an award under the Sub-Plan is the three-consecutive-year period beginning in the year in which the award is granted. There are two equally weighted performance measures under the Sub-Plan. One performance measure is Total Shareholder Return ("TSR"), which is defined in the Sub-Plan as the appreciation or depreciation in the value of stock (which is equal to the closing value of the stock on the last trading day of the relevant period minus the closing value of the stock on the last trading day of the preceding year) plus dividends declared during the relevant period divided by the closing value of the stock on the last trading day of the preceding year. The other performance measure is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) growth. Awards under the Sub-Plan vest on January 1 following the end of the three-year performance period, provided, however, that to determine each award vested under the Sub-Plan, the TSR and EBITDA growth of Progress Energy are compared to the TSR and EBITDA growth of a Peer Group comprised of the twenty-seven electric utility companies currently comprising the Standard & Poor's Electric Index. The differences between Progress Energy's TSR and EBITDA growth, and the Peer Group TSR and EBITDA growth, respectively, are used to determine the multipliers that will be used to calculate the number of vested performance shares in each participant's account. (Differences in TSR can range from a low of (2.0%) or less to a high of 5% or more, and correspond to multipliers of 0% to 200%. Differences in EBITDA growth can range from a low of less than 0% to a high of 5% or more and correspond to multipliers of 0% to 200%). The multiplier is applied to the number of performance shares in the participant's performance share account to determine the actual number of vested performance shares in that account. The aggregate value of vested performance shares is equal to the number of vested performance shares in the participant's account multiplied by the closing price of Progress Energy's Common Stock, as published in The Wall Street Journal on the last trading day before payment of the award. Awards are paid in cash after expiration of the performance period. Payment can be made in either (i) lump sum on or about April 1 of the year immediately following the performance period or (ii) in accordance with an election to defer in 25% increments, made during the first year of the performance period. In the event of death, disability, retirement or a change-in-control of Progress Energy, any award granted under the Sub-Plan immediately becomes vested. The aggregate value of the vested award is determined using multipliers that are based on the difference between Progress Energy's TSR and EBITDA growth and the Peer Group TSR and EBITDA growth, respectively over the portion of the performance period that was completed before the terminating event occurred. See "Long-Term Compensation Opportunities" on page 98. 92 PENSION PLAN TABLE - -------------------------------------------------------------------------------- Average Compensation Estimated Annual Pension at Normal Retirement (Years of Credited Service) - -------------------------------------------------------------------------------- 10 years 15 years 15 1/2 or more years - -------------------------------------------------------------------------------- $ 190,000 $ 76,000 $114,000 $117,800 255,000 102,000 153,000 158,100 320,000 128,000 192,000 198,400 385,000 154,000 231,000 238,700 450,000 180,000 270,000 279,000 515,000 206,000 309,000 319,300 555,000 222,000 333,000 344,100 595,000 238,000 357,000 368,900 635,000 254,000 381,000 393,700 675,000 270,000 405,000 418,500 715,000 286,000 429,000 443,300 760,000 304,000 456,000 471,200 795,000 318,000 477,000 492,900 840,000 336,000 504,000 520,800 900,000 360,000 540,000 558,000 960,000 384,000 576,000 595,200 1,020,000 408,000 612,000 632,400 1,080,000 432,000 648,000 669,600 1,140,000 456,000 684,000 706,800 1,200,000 480,000 720,000 744,000 1,260,000 504,000 756,000 781,200 - -------------------------------------------------------------------------------- The above table demonstrates senior executive pension benefits payable upon normal retirement under the Progress Energy Pension Plan and the Progress Energy Supplemental Senior Executive Retirement Plan at age 65 as a function of average annual income and years of service. Covered compensation under these plans consists only of the amounts in the Salary and Bonus columns of the Summary Compensation Table on page 89. Pursuant to the Progress Energy Pension Plan, a defined benefit plan, benefits are partially offset by Social Security payments and the monthly pension benefit payable upon retirement is based on base pay earnings, age, and years of credited service. . Benefits under the Supplemental Senior Executive Retirement Plan are fully offset by Social Security benefits and by benefits paid under the Progress Energy Pension Plan. The monthly benefit payable upon retirement under this plan is equal to 4% of the average of a participant's highest three years of eligible earnings for each year of credited service with Progress Energy up to a maximum of 62%. Benefits listed in the table above do not reflect the Social Security or other offset. For purposes of benefits under these plans, Mr. Cavanaugh has more than 15 1/2 years of credited service as well as three or more years of service on the Senior Management Committee, and is thereby entitled to the maximum percentage allowable in the benefit formula under these plans. Mr. McGehee has 14 years of credited service, Mr. Scott has ten years of credited service, Mr. Kilgore has eight years of credited service, and Mr. Habermeyer has eight years of credited service. EMPLOYMENT AGREEMENTS Messrs. Cavanaugh, McGehee, Scott, Kilgore and Habermeyer have entered into employment agreements, with one of Progress Energy's subsidiaries (the "Employer"). These agreements provide for base salary, bonuses, perquisites and participation in the various executive compensation plans offered to senior executives of Progress Energy and its subsidiaries. The agreements with Messrs. Cavanaugh, McGehee, Scott and Kilgore have effective dates of August 1, 2000. The agreement with Mr. Habermeyer has an effective date of November 30, 2000. The agreements all provide that they will remain in effect for three years from the effective date. Each agreement also includes an "Evergrow provision" which provides that each year, the agreement will be extended such that the prospective term will always be three years forward on the anniversary date of the effective date. The Employer may elect not to extend an executive officer's agreement and must notify the officer of such an election at least sixty days prior to the annual anniversary date of his agreement's effective date. Executive benefit plan targets, termination and other key provisions of the agreements are discussed below. 93 Agreement with Mr. Cavanaugh Mr. Cavanaugh's agreement provides that his target compensation under Progress Energy's Management Incentive Compensation Plan (MICP) increased to 65% of base salary earnings, effective January 1, 2001. Mr. Cavanaugh's target compensation under the Performance Share Sub-Plan (PSSP) of Progress Energy's 1997 Equity Incentive Plan is 147% of his base salary. Mr. Cavanaugh's agreement notes that he received a recruitment bonus under the now suspended Deferred Compensation Plan for Key Management Employees that included a payment of $150,000 deferred for calendar year 1992. That amount will be used to provide retirement income to him of $121,368 per year for 15 years commencing January 1 following his attainment of age 65. The agreement with Mr. Cavanaugh also provides that as of September 2, 1992, Mr. Cavanaugh was granted 14 years of deemed service for purposes of the Supplemental Senior Executive Retirement Plan (SERP). The agreement with Mr. Cavanaugh provides that upon termination of employment without cause or constructive termination of employment, he will be provided with his base salary at the current rate for the remainder of the term of the agreement and will be eligible to retain all benefits in which he has vested under existing benefit plans. Additionally, the Employer will reimburse him for certain health benefits for up to 18 months after the termination of his employment. The agreement provides that a constructive termination will be deemed to occur if (i) there is a change in the form of ownership of Progress Energy or the Employer and (ii) Mr. Cavanaugh is offered a new position with a material change in authority, duty, wages or benefits, or Mr. Cavanaugh is asked to relocate more than 50 miles. If Mr. Cavanaugh's employment is constructively terminated, he will be entitled to the greater of the benefits described above or the benefits, if any, to which he is entitled under Progress Energy's Management Change-in-Control Plan. If the Employer terminates Mr. Cavanaugh's employment for cause, he will be eligible to retain all benefits in which he has vested under existing benefit plans, but he shall not be entitled to any form of salary continuance or any form of severance benefits. He will also be entitled to any earned but unpaid salary. The agreement with Mr. Cavanaugh provides that if he terminates his employment voluntarily at any time, he shall retain all vested benefits but shall not be entitled to any form of salary continuance or any form of severance benefit. Agreement with Mr. McGehee Mr. McGehee's agreement provides that his target compensation under the MICP increased to 45% of base salary earnings, effective January 1, 2001. Mr. McGehee's target compensation under the PSSP of Progress Energy's 1997 Equity Incentive Plan is 78% of his base salary. Mr. McGehee's agreement notes that he received a retention agreement bonus under the now suspended Deferred Compensation Plan for Key Management Employees which vests based on his continued employment beyond age 60. The agreement also notes that upon hire, Mr. McGehee was awarded 10 years of service toward the benefits and vesting requirements of the SERP, three years of which were deemed to have been in service on the Senior Management Committee, solely for purposes of the SERP. The agreement with Mr. McGehee provides that upon termination of employment without cause or constructive termination of employment, he will be provided with his base salary at the current rate for the remainder of the term of the agreement, and will be eligible to retain all benefits in which he has vested under existing benefit programs. Additionally, the Employer will reimburse him for certain health benefits for up to 18 months after the termination of his employment. The agreement provides that a constructive termination will be deemed to occur if (i) there is a change in the form of ownership of Progress Energy or the Employer and (ii) Mr. McGehee is offered a new position with a material change in authority, duty, wages or benefits, or is asked to relocate more than 50 miles. If Mr. McGehee's employment is constructively terminated, he will be entitled to the greater of the benefits described above or the benefits, if any, to which he is entitled under Progress Energy's Management Change-in-Control Plan. If the Employer terminates Mr. McGehee's employment for cause, he will be eligible to retain all benefits in which he has vested under existing benefit plans, but he shall not be entitled to any form of salary continuance or any form of severance benefits. He will also be entitled to any earned but unpaid salary. The agreement with Mr. McGehee provides that if he terminates his employment voluntarily at any time, he shall retain all vested benefits but shall not be entitled to any form of salary continuance or any form of severance benefit. Agreement with Mr. Scott Mr. Scott's agreement provides that his target compensation under the MICP increased to 45% of base salary earnings, effective January 1, 2001. Mr. Scott's target compensation under the PSSP of Progress Energy's 1997 Equity Incentive Plan is 78% of his base salary. Pursuant to the terms of his agreement, Mr. Scott received transition compensation of $100,000 and has been awarded seven years of deemed service toward the benefits and vesting requirements of the SERP. The agreement with Mr. Scott provides that upon termination of employment without cause or constructive termination of employment, he will be provided with his base salary at the current rate for the remainder of the term of the agreement and will be eligible to retain all benefits in which he has vested under existing benefit plans. Additionally, the Employer will reimburse him for certain health benefits for up to 18 months after the termination of his employment. The agreement provides that a constructive termination will be deemed to occur if (i) there is a change in the form of ownership of Progress Energy or the Employer and (ii) Mr. 94 Scott is offered a new position with a material change in authority, duty, wages or benefits, or Mr. Scott is asked to relocate more than 50 miles. If Mr. Scott's employment is constructively terminated, he will be entitled to the greater of the benefits described above or the benefits, if any, to which he is entitled under Progress Energy's Management Change-in-Control Plan. If the Employer terminates Mr. Scott's employment for cause, he will be eligible to retain all benefits in which he has vested under existing benefit plans, but he shall not be entitled to any form of salary continuance or any form of severance benefits. He will also be entitled to any earned but unpaid salary. The agreement with Mr. Scott provides that if he terminates his employment voluntarily at any time, he shall retain all vested benefits but shall not be entitled to any form of salary continuance or any form of severance benefit. Agreement with Mr. Kilgore Mr. Kilgore's agreement provides that his target compensation under the MICP increased to 45% of base salary earnings, effective January 1, 2001. Mr. Kilgore's target compensation under the PSSP of Progress Energy's Equity Incentive Plan is _78% of his base salary. Mr. Kilgore's agreement notes that pursuant to a 1998 employment agreement CP&L, he received a retention bonus under the now suspended Deferred Compensation Plan for Key Management Employees which vests based on continued employment until or beyond age 60. The agreement also notes that Mr. Kilgore has been awarded five years of service solely in connection with the benefits and vesting requirements of the SERP. The agreement with Mr. Kilgore provides that upon termination of employment without cause or constructive termination of employment, he will be provided with his base salary at the current rate for the remainder of the term of the agreement and will be eligible to retain all benefits in which he has vested under existing benefit programs. Additionally, the Employer will reimburse him for certain health benefits for up to 18 months after the termination of his employment. The agreement provides that a constructive termination will be deemed to occur if (i) there is a change in the form of ownership of Progress Energy or the Employer and (ii) Mr. Kilgore is offered a new position with a material change in authority, duty, wages or benefits, or Mr. Kilgore is asked to relocate more than 50 miles. If Mr. Kilgore's employment is constructively terminated, he will be entitled to the greater of the benefits described above or the benefits, if any, to which he is entitled under Progress Energy's Management Change-in-Control Plan. If the Employer terminates Mr. Kilgore's employment for cause, he will be eligible to retain all benefits in which he has vested under existing benefit plans, but he shall not be entitled to any form of salary continuance or any form of severance benefits. He will also be entitled to any earned but unpaid salary. The agreement with Mr. Kilgore provides that if he terminates his employment voluntarily at any time, he shall retain all vested benefits but shall not be entitled to any form of salary continuance or any form of severance benefit. Agreement with Mr. Habermeyer Mr. Habermeyer's agreement provides that his target compensation under the MICP was 45% of base salary earnings, effective January 1, 2001. Mr. Habermeyer's target compensation under the PSSP of the Progress Energy 1997 Equity Incentive Plan is 78% of his base salary. The agreement with Mr. Habermeyer provides that upon termination of employment without cause or constructive termination of employment, he will be provided with his base salary at the current rate for the remainder of the term of the agreement and will be eligible to retain all benefits in which he has vested under existing benefit plans. Additionally, the Employer will reimburse him for certain health benefits for up to 18 months after the termination of his employment. The agreement provides that a constructive termination will be deemed to occur if (i) there is a change in the form of ownership of the Employer and (ii) Mr. Habermeyer is offered a new position with a material change in authority, duty, wages or benefits, or Mr. Habermeyer is asked to relocate more than 50 miles. If Mr. Habermeyer's employment is constructively terminated, he will be entitled to the greater of the benefits described above or the benefits, if any, to which he is entitled under Progress Energy's Management Change-in-Control Plan. If the Employer terminates Mr. Habermeyer's employment for cause, he will be eligible to retain all benefits in which he has vested under existing benefit plans, but he shall not be entitled to any form of salary continuance or any form of severance benefits. He will also be entitled to any earned but unpaid salary. The agreement with Mr. Habermeyer provides that if he terminates his employment voluntarily at any time, he shall retain all vested benefits but shall not be entitled to any form of salary continuance or any form of severance benefit. REPORT OF BOARD COMMITTEE ON ORGANIZATION AND COMPENSATION The composition of the Boards of Directors of Florida Progress, Progress Energy and CP&L is identical, as is the composition of the Committees on Organization and Compensation of those Boards (collectively, the "Committees"). The Committees are composed entirely of the same six independent outside directors who are not eligible to participate in any compensation program in which Progress Energy executives participate other than the Progress Energy 1997 Equity Incentive Plan. The following report is the joint report of the Committees with respect to the compensation of the executive officers of Progress Energy. Progress Energy's executive officers serve as officers and/or directors of various Progress Energy subsidiaries. They have multiple responsibilities within and provide various services to Progress Energy and its subsidiaries. The total compensation of Progress Energy's executive officers is 95 designed to cover the full range of services they provide to Progress Energy and its subsidiaries. It is not the policy of Progress Energy to allocate compensation paid to its executive officers among the various subsidiaries to which they provide services. Compensation Principles Comparison Groups Progress Energy uses an independent executive benefits consulting firm to assist Progress Energy in meeting its compensation objectives. Each year this consulting firm provides the Committees with an analysis comparing overall compensation paid to Progress Energy's executives with overall compensation paid to executives of two comparison groups of electric utility companies. One comparison group consists of fourteen of the electric utility companies with fossil fuel and nuclear operations in the eastern portion of the United States. The other comparison group consists of a broad group of electric utilities across the United States. While these comparison groups are different from the group of companies comprising the Standard & Poor's Electric Index, which is a published industry index, the Committees believe these electric utility companies are appropriate for overall compensation comparisons because they reflect the most appropriate labor markets for Progress Energy's executives. Progress Energy's executive compensation program consists of four major elements: base salary; other annual compensation opportunities; long-term compensation opportunities; and other benefit opportunities. The Committees' objective in administering this program is to structure, through a combination of these elements, an overall compensation package for executives which approximates in value the 75th percentile of overall compensation paid to executives of the comparison group. Overall compensation paid to Progress Energy's executives in 2001 met this objective. Stock Ownership Guidelines In an effort to more closely link the interests of Progress Energy's management with those of its shareholders, in 1996 the Board of Directors of Progress Energy adopted stock ownership guidelines which are designed to ensure that Progress Energy's management has a significant financial equity investment in Progress Energy. Those guidelines require Progress Energy's officers to own from 1 to 4 times their base salary in the form of Progress Energy Common Stock within five years. (The specific multiplier applied to base salary depends upon the individual's position.) In addition to shares owned outright, the following are considered stock owned by executives and department heads for purposes of the guidelines: (1) stock held in any defined benefit, defined contribution, ESOP or other stock-based plan; (2) performance units or phantom stock ("derivative securities") deferred under an annual incentive or deferral plan; (3) performance units or phantom stock earned and deferred in any long-term incentive plan account; (4) restricted stock awards; and (5) stock held in a family trust or immediate family holdings. Section 162(m) Section 162(m) of the Internal Revenue Code imposes a limit, with certain exceptions, on the amount a publicly held corporation may deduct for compensation over $1 million paid or accrued with respect to the company's Chief Executive Officer and any of the other four most highly compensated officers. Certain performance-based compensation is, however, specifically exempt from the deduction limit. To qualify as exempt, compensation must be made pursuant to a plan that is (1) administered by a committee of outside directors, (2) based on achieving objective performance goals and (3) disclosed to and approved by the shareholders. The 2001 compensation disclosed in Part III hereof under the heading "Executive Compensation - Florida Progress - Compensation of Executive Officers." does not exceed the limit, except in the cases of Messrs. Cavanaugh, and McGehee, who had nondeductible compensation of approximately $3,211,526; and $386,770, respectively. Mr. Cavanaugh's nondeductible compensation was attributable to restricted stock income, miscellaneous income, non-deferred bonuses and base salary. Mr. McGehee's nondeductible compensation was attributable to restricted stock income, miscellaneous income and nondeferred bonuses. The Committees believe the current design of Progress Energy's compensation program is sound in linking pay to performance and to the interests of shareholders, and allowing appropriate flexibility in determining amounts to be awarded. Therefore, Progress Energy does not have a policy that requires the Committees to qualify compensation awarded to executive officers for deductibility under Section 162(m) of the Code. The Committees do, however, consider the impact of Section 162(m) when determining executive compensation, and the Progress Energy 1997 Equity Incentive Plan is intended to minimize the effect of this provision. Although the Committees are not required to qualify executive compensation paid to Company executives for exemption from Section 162(m), they will continue to consider the effects of Section 162(m) when making compensation decisions. 96 Elements of Executive Compensation Program Set forth below is a description of the major elements of Progress Energy's executive compensation program and their relationship to corporate performance, as well as a summary of the actions taken by the Committees with respect to the compensation of Progress Energy's Chief Executive Officer. Base Salary Executives within Progress Energy receive a base salary determined by the Committees based upon the value of their position compared to competitively established salary ranges, their individual performance and overall corporate performance. The Committees do not utilize a specific mathematical formula in determining base salaries. The Committees in their discretion approved the base salaries of the Chief Executive Officer and the named executives of the Company, as set forth in the Summary Compensation Table. These salaries were based on each executive's level of responsibility within Progress Energy, the competitive level of compensation for executives in the comparison group of utilities, the achievement of corporate goals and individual merit performance as qualitatively determined by the Committees. Other Annual Compensation Opportunities Management Incentive Compensation Plan Progress Energy sponsors the Management Incentive Compensation Plan (MICP) for its senior executives, department heads and selected key employees. In order for awards to be made under the MICP, two conditions must be satisfied. First, a contribution must be earned by one or more groups of employees under the corporate incentive feature of Progress Energy's 401(k) Savings & Stock Ownership Plan, a tax qualified 401(k) plan. Incentive matching contributions are earned by participating employees if at least five out of ten annual corporate and business unit goals are met. (See the description of Progress Energy's 401(k) Savings & Stock Ownership Plan, under "Other Benefit Opportunities" below.) Second, Progress Energy's return on common equity and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) growth for the most recent three-year period must be above the median of those companies in a comparison group that is comprised of the twenty-seven electric utility companies currently comprising the Standard & Poor's Electric Index . If participants at or above the department head level of Progress Energy are eligible for awards, then the Committees in their discretion determine whether awards are to be made and, if so, in what amounts. If participants below the department head level of Progress Energy are eligible for awards, then the Chief Executive Officer of Progress Energy has sole and complete authority to approve such awards. Awards consist of both a corporate component and a noncorporate component. Award opportunities, expressed as a percentage of annual base salary earnings, are applicable to both components of an award. The corporate component of an award is based upon the overall performance of Progress Energy. The noncorporate component of an award is based upon the level of attainment of business unit/subsidiary, departmental and individual performance measures. Those measures are evaluated in terms of three levels of performance--outstanding, target and threshold--each of which is related to a particular payout percentage. If earned, awards are either paid in cash in the succeeding year or deferred to a later date, as elected by each individual participant. Deferred awards are recorded in the form of performance units. Each performance unit is generally equivalent to a share of Progress Energy's Common Stock. The threshold requirements for award eligibility, as discussed above, were met and exceeded in 2001. At meetings of the Committees on March 20, 2002, based on highly commendable performance, awards were made at the discretion of the Committees to the named executives, including the Chief Executive Officer of Progress Energy, as set forth in the Summary Compensation Table under the Bonus column. Long-Term Compensation Opportunities 1997 Equity Incentive Plan The Progress Energy 1997 Equity Incentive Plan (the "Plan"), which was approved by Progress Energy's shareholders in 1997, allows the Progress Energy Board Committee on Organization and Compensation (the "Progress Energy Committee") to make various types of awards to officers, other key employees, and also Directors of Progress Energy, its affiliates and subsidiaries. Selection of non-Director participants is within the sole discretion of the Progress Energy Committee. Thus, the number of persons eligible to participate in the Plan and the number of grantees may vary from year to year. The Plan was effective as of January 1, 1997, and will expire on January 1, 2007; provided, however, that the Plan will be frozen effective May 8, 2002 if Progress Energy's shareholders approve the proposed 2002 97 Equity Incentive Plan. All Plan awards made prior to and outstanding on that date shall remain valid in accordance with their terms and conditions. The Plan is a broad umbrella plan that allows Progress Energy to enter into Award Agreements with participants and adopt various individual Sub-Plans that will permit the grant of the following types of awards: nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, performance units, performance shares and other stock unit awards or stock-based forms of awards. The Plan sets forth certain minimum requirements for each type of award, with detailed provisions regarding awards to be set out either in Award Agreements or in the Sub-Plans adopted under the Plan. Subject to adjustment as provided in the Plan, the maximum aggregate number of shares that may be issued over the years pursuant to awards made under the Plan cannot exceed 5,000,000 shares of Progress Energy Common Stock, which may be in any combination of options, restricted stock, or any other right or option. Under the terms of the Plan, the Progress Energy Committee may grant awards in a manner that qualifies them for the performance-based exception to Section 162(m) of the Internal Revenue Code of 1986, as amended, or it may grant awards that do not qualify for the exemption. Performance Share Sub-Plan Pursuant to the provisions of the Plan, the Progress Energy Committee adopted the Performance Share Sub-Plan, which governs the issuance of performance share awards to officers and key employees within Progress Energy, as selected by the Progress Energy Committee in its sole discretion. A "performance share" is a unit granted to a participant, the value of which is equal to the value of a share of Progress Energy's Common Stock. The Progress Energy Committee may grant performance share awards subject to a limit that ranges from up to 40% to up to 150% of a participant's base salary, depending upon the participant's position and job value. (For purposes of the Sub-Plan, base salary is not reduced to reflect salary deferrals and does not include incentive compensation.) The number of performance shares awarded are recorded in a separate account for each participant, and are adjusted to reflect dividends, stock splits or other adjustments in Progress Energy's Common Stock. The performance period for an award under the Sub-Plan is the three consecutive year period beginning in the year in which the award is granted. There are two equally weighted performance measures under the Sub-Plan. One performance measure is Total Shareholder Return ("TSR"), which is defined in the Sub-Plan as the appreciation or depreciation in the value of stock (which is equal to the closing value of the stock on the last trading day of the relevant period minus the closing value of the stock on the last trading day of the preceding year) plus dividends declared during the relevant period, divided by the closing value of the stock on the last trading day of the preceding year. The other performance measure is EBITDA growth. Awards under the Sub-Plan vest on January 1 following the end of a three-year performance period; provided, however, that the following methodology is used to determine each award vested under the Sub-Plan: 1) the TSR and EBITDA growth for Progress Energy for each year during the performance period is determined; 2) those annual figures are averaged to determine Progress Energy TSR and EBITDA growth, respectively; 3) the average TSR and EBITDA growth for all Peer Group utilities for each year during the performance period is determined (the Peer Group is currently comprised of the twenty-seven major electric utility companies within the Standard & Poor's Electric Index); 4) those figures are averaged, respectively, to determine the Peer Group TSR and EBITDA growth; 5) the Peer Group TSR and EBITDA growth for the performance period is subtracted from Progress Energy TSR and EBITDA growth, respectively, for the performance period; 6) the differences between Progress Energy TSR and EBITDA growth and the Peer Group TSR and EBITDA growth, respectively, are used to determine the multipliers that will be used to calculate the number of vested performance shares in each participant's account. (Differences in TSR can range from a low of (2.0%) or less to a high of 5% or more, and correspond to multipliers of 0 to 200%. Differences in EBITDA growth can range from a low of less than 0% to a high of 5% or more and correspond to multipliers of 0 to 200%.); and 7) the multipliers are each applied independently to one-half of the number of performance shares in the participant's performance share account to determine the actual number of vested performance shares in that account. The aggregate value of vested performance shares is equal to the number of vested performance shares in the participant's account multiplied by the closing price of Progress Energy's Common Stock, as published in The Wall Street Journal on the last trading day before payment of the award. Awards are paid in cash after expiration of the performance period. Payment can be made in either (i) lump sum on or about April 1 of the year immediately following the performance period or (ii) in accordance with an election to defer in 25% increments, made during the first year of the performance period. In the event of death, disability, retirement or a change-in-control of Progress Energy, any award granted under the Sub-Plan immediately becomes vested. The aggregate value of the vested award is determined using multipliers that are based on the difference between Progress Energy TSR and EBITDA growth and the Peer Group TSR and EBITDA growth, respectively, over the portion of the performance period that was completed before the terminating event occurred. 98 Restricted Stock Awards Section 9 of the Plan provides for the granting of shares of restricted stock by the Progress Energy Committee to "key employees" within Progress Energy in such amounts and for such duration and/or consideration as it shall determine. The Plan defines "key employee" as an officer or other employee within Progress Energy, who, in the opinion of the Progress Energy Committee, can contribute significantly to the growth and profitability of, or perform services of major importance to, Progress Energy, including its affiliates. Each restricted stock grant must be evidenced by an agreement specifying the period of restriction, the conditions that must be satisfied prior to removal of the restriction, the number of shares granted, and such other provisions as the Progress Energy Committee shall determine. Restricted stock covered by each award made under the Plan will be provided to and become freely transferable by the recipient after the last day of the period of restriction and/or upon the satisfaction of other conditions as determined by the Progress Energy Committee. If the grant of restricted stock is performance based, the total period of restriction for any or all shares or units of restricted stock granted shall be no less than one (1) year except in the event of a change in control of Progress Energy. Any other shares of restricted stock issued pursuant to the Plan must provide that the minimum period of restrictions shall be three (3) years, which period of restriction may permit the removal of restrictions on no more than one-third (1/3) of the shares of restricted stock at the end of the first year following the grant date, and the removal of the restrictions on an additional one-third (1/3) of the shares at the end of each subsequent year. The Plan provides that in no event shall any restrictions be removed from shares of restricted stock during the first year following the grant date, except in the event of a change-in-control. During the period of restriction, recipients of shares of restricted stock granted under the Plan may exercise full voting rights with respect to those shares, and shall be entitled to receive all dividends and other distributions paid with respect to those shares. If any such dividends or distributions are paid in shares, those shares shall be subject to the same restrictions on transferability as the restricted stock with respect to which they were distributed. Stock Options Pursuant to Section 7 of the Plan, the Progress Energy Committee is authorized to grant stock options to "key employees." Grants of stock options to directors of Progress Energy must be approved by the full Board of Progress Energy, and must consist only of "Nonqualified Stock Options" (options that are not intended to be "Incentive Stock Options" within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended). Subject to the terms and provisions of the Plan, the Progress Energy Committee has sole and complete discretion to determine the type of option granted, the option price, the duration of the option, the number of shares to which an option pertains, any conditions on the exercisability of the option and the conditions under which the option may be terminated. The specific terms and conditions applicable to each option will be detailed in an Award Agreement. The exercise price per share of stock covered by an option will be determined by the Progress Energy Committee at the time of grant; provided, however that the option price shall not be less than 100% of the fair market value of Progress Energy's Common Stock on the grant date. Options granted under the Plan are exercisable at such times and subject to such restrictions and conditions as the Progress Energy Committee determines at the time of grant; provided, however, that no option may be exercisable more than ten years from the grant date. Options must be exercised by the delivery of a notice from the grantee to Progress Energy or its designee in the form prescribed by the Progress Energy Committee. The notice must set forth the number of shares with respect to which the option is to be exercised. The option price is payable to Progress Energy in cash and/or by the delivery of shares of Progress Energy Common Stock valued at fair market value at the time of exercise. In addition, at the request of the grantee, and subject to applicable laws and regulation, Progress Energy may cooperate in a cashless exercise of the option. The maximum number of shares of Progress Energy Common Stock subject to options, stock appreciation rights and/or restricted stock granted to any covered participant for any performance period cannot exceed 250,000 shares. Other Benefit Opportunities The following additional benefit opportunities are also available to Progress Energy's senior executives: . Progress Energy sponsors the Management Deferred Compensation Plan (MDCP), an unfunded, deferred compensation arrangement established for the benefit of a select group of management and highly compensated employees of Progress Energy and its participating subsidiaries. Under the MDCP, an eligible employee may elect to defer a portion of his or her salary until the April 1 following the date that is five or more years from the last day of the 99 MDCP Year for which the deferral is made, the April 1 following his or her date of retirement, or the April 1 following the first anniversary of his or her date of retirement. Deferrals will be made to deferral accounts administered pursuant to the MDCP in the form of deemed investments in certain deemed investment funds individually chosen by each participating employee from a list of investment options provided pursuant to the MDCP. Additionally, qualifying participants will receive matching allocations from Progress Energy or one of its affiliates (generally reflecting foregone company allocations to participants' 401(k) accounts due to such salary deferrals, and/or foregone company allocations to the participants' 401(k) accounts due to certain Internal Revenue Code limits), which will be allocated to a Company account that will be deemed initially to be invested in hypothetical shares of Progress Energy's Common Stock. These allocations do not represent an equity interest in Progress Energy and convey no voting rights to their owners. However, additional allocations are credited from time to time to reflect the payment of dividends on Progress Energy's Common Stock. When a participant's Company account has matured, pursuant to the terms of the MDCP, the participant may reallocate any part of such account among the deemed investment funds chosen by the participant. . Progress Energy sponsors an executive split dollar life insurance program which consists of two separate plans. The first plan provides life insurance coverage approximately equal to three times salary for senior executives. The second plan provides additional life insurance coverage approximately equal to three times salary for those officers of Progress Energy who are also members of the Progress Energy Board of Directors. . Progress Energy also sponsors broad-based employee benefit plans for senior executives of participating subsidiaries. Under the Progress Energy 401(k) Savings & Stock Ownership Plan, a salary reduction plan under Section 401(k) of the Internal Revenue Code of 1986, as amended ("Code"), eligible, highly compensated employees of participating companies may invest up to 12% of earnings (up to a maximum of $10,500 in 2001) on a before-tax basis in Progress Energy's Common Stock and other investment options. Progress Energy makes a matching allocation of 50% of such investment (up to 3% of eligible earnings) which is invested in Progress Energy Common Stock. Under an incentive feature, Progress Energy's allocation may be increased by up to an additional 50% if certain strategic corporate and business unit financial, operating, safety, customer satisfaction, and other performance goals are met. Progress Energy also sponsors the Progress Energy Pension Plan, a defined benefit plan (cash balance formula) which covers eligible employees of participating subsidiaries who have been employed within Progress Energy for at least one year. The right to receive pension benefits under this plan is vested after five years. . Progress Energy sponsors the Restoration Retirement Plan (the "Restoration Plan"), an unfunded retirement plan for a select group of management or highly compensated employees of participating subsidiaries. The Restoration Plan "restores" the full benefit that would be provided under the Pension Plan but for certain Code limits imposed on the benefit levels of highly compensated employees. Generally, the benefit for participants is a monthly benefit payment equal to the difference between (i) a participant's accrued benefit under the Pension Plan without regard to the Internal Revenue Service compensation and benefit limits and (ii) a participant's accrued benefit as calculated under the Pension Plan. The Restoration Plan also applies to any employee who defers more than 10% of his salary under the MDCP. The eligibility and vesting requirement for the Restoration Plan are the same as those for the Pension Plan. Participants eligible to receive benefits under the Supplemental Senior Executive Retirement Plan forego participation in and rights under the Restoration Plan. . Progress Energy sponsors the Supplemental Senior Executive Retirement Plan which provides a retirement benefit for eligible senior executives equal to 4% of the average of their highest three years of base salary earnings and annual bonus for each year of credited service with Progress Energy up to a maximum of 62%. Benefits under the Supplemental Senior Executive Retirement Plan are fully offset by Social Security benefits and by benefits paid under Progress Energy's Pension Plan. . Progress Energy's senior executives also receive certain perquisites and other personal benefits. In addition, executives received gross-up payments in 2001 for related federal and state income tax obligations, as disclosed in the Summary Compensation Table on page 89. Compensation of Chief Executive Officer Compensation in 2001 for the Chief Executive Officer was consistent with the compensation principles described above and reflected performance of Progress Energy and the individual in 2001, as well as services in 2001. The determination of his compensation by the Committees was qualitative in nature and based on a variety of factors, including comparison group compensation data, attainment of various corporate goals, total shareholder return, earnings per share and other financial and operating performance, individual performance and other factors. Specific mathematical weights were not assigned to these factors. Overall compensation in 2001 fell within the targeted level (seventy-fifth percentile) of overall compensation paid to chief executive officers in the comparison groups. 100 The Committee considered the successful completion of the acquisition of Florida Progress, noting that the transaction represented the attainment of one of Progress Energy's key strategic objectives--gaining the scope and scale to be a formidable competitor among energy providers for the Southeast. The Committee also considered the significant progress made in the process of integrating the two companies, and specifically noted the reorganization of Progress Energy's business along strategic lines and the formation of new business units, including one which was created to manage and grow Progress Energy's non-regulated generation assets and wholesale energy marketing and trading. The Committee took into account the progress of Progress Energy's development of its non-regulated enterprises. . The Committee considered the success of Progress Energy in obtaining all regulatory approvals required for the creation of a registered holding company and for the acquisition of Florida Progress, with no significant conditions or restrictions. The Committee also noted Progress Energy's success in developing and effectively communicating its position on industry restructuring and in addressing other important regulatory issues at the state and federal levels. The Committee considered the fact that the leadership provided by Mr. Cavanaugh contributed significantly to Progress Energy's success in achieving corporate goals, implementing strategic initiatives, achieving national leadership in the fields of nuclear power and electric utility operations, focusing on leadership development and succession planning, implementing programs designed to enhance the diversity of Progress Energy's work force, improving customer and community relations and supporting the economic growth and quality of life in Progress Energy's service area. Committee on Organization and Compensation Charles W. Coker, Chairman Edwin B. Borden William O. McCoy E. Marie McKee Richard A. Nunis J. Tylee Wilson 101 FLORIDA POWER COMPENSATION OF DIRECTORS The directors of Florida Power are also directors of Progress Energy, Inc. and are not compensated separately for services rendered to Florida Power. COMPENSATION OF EXECUTIVE OFFICERS The Table below provides compensation information regarding the CEO of Florida Power and the four most highly compensated executive officers other than the CEO who were serving as executive officers at the end of the last completed fiscal year. These individuals are also executive officers of Progress Energy. It is not the policy of Progress Energy to allocate compensation paid to its executive officers among the various subsidiaries to whom they provide services. SUMMARY COMPENSATION TABLE
Annual Compensation ----------------------------------------------------- Other Annual Name and Salary/1/,/2/ Bonus/3/ Compensation/4/ Principal Position Year ($) ($) ($) - --------------------------------------------------------------------------------------------- H. William Habermeyer, Jr. 2001 $252,834 $160,000 $ 7,833 President and Chief 2000 15,201 75,772/11/ 14 Executive Officer- Florida Power (elected November 30, 2000) William S. Orser 2001 $548,225 $350,000 $ 5,943 Group President - 2000 40,709 416,963/14/ 7,144 (elected November 30, 2000) Peter M. Scott III, 2001 $422,283 $275,000 $ 7,635 Executive Vice 2000 30,126 304,000 50,350 Chief Financial Officer (elected November 30, 2000) William Johnson 2001 $378,776 $255,000 $78,698/17/ Executive Vice 2000 23,918 265,803/20/ 26,734 President, General Counsel and Secretary (elected November 30, 2000) Donald K. Davis 2001 $316,712 $190,000 $24,049 Executive Vice President 2000 25,000 93,000 47 (hired May 15, 2000; elected November 30, 2000) - --------------------------------------------------------------------------------------------- Long-Term Compensation ---------------------------- Awards Payouts ---------------------------- Restricted Stock LTIP All Other Name and Award(s)/5/,/6/ Payouts/7/ Compensation/8/ Principal Position ($) ($) ($) - -------------------------------------------------------------------------------------- H. William Habermeyer, Jr. $ 68,183/9/ $ 16,561 $36,384/10/ President and Chief 870,171 N/A 24,451 Executive Officer- Florida Power (elected November 30, 2000) William S. Orser $ 624,194/12/ $113,124 $128,367/13/ Group President - 178,624 N/A 105,758 (elected November 30, 2000) Peter M. Scott III, $ 138,990/15/ N/A $80,707/16/ Executive Vice 1,126,195 N/A 50,485 Chief Financial Officer (elected November 30, 2000) William Johnson $ 394,701/18/ $ 21,352 $56,923/19/ Executive Vice 405,131 N/A 38,012 President, General Counsel and Secretary (elected November 30, 2000) Donald K. Davis $ 5,797/21/ N/A $103,048/22/ Executive Vice President 946,764/23/ N/A 79,445/24/ (hired May 15, 2000; elected November 30, 2000) - --------------------------------------------------------------------------------------
102 /1/For 2001,consists of base salary prior to (i) employee contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan and (ii) voluntary deferrals, if any, under the Progress Energy Management Deferred Compensation Plan (MDCP). See "Other Benefit Opportunities" on page 100. /2/For 2000, consists of one month's base salary prior to (i) employee contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan and (ii) voluntary deferrals, if any, under they MDCP. See "Other Benefit Opportunities" on page 100. /3/Except as otherwise noted, consists of amounts awarded with respect to performance in the stated year under the Management Incentive Compensation Plan. See "Other Annual Compensation Opportunities" on page 98. /4/Consists of gross-up payments for certain federal and state income tax obligations, and where indicated by footnote disclosure, certain perquisites. /5/Includes the value of restricted stock awards as of the grant date (calculated by multiplying the closing market price of Progress Energy's unrestricted stock on the date of grant by the number of shares awarded) granted pursuant to Progress Energy's 1997 Equity Incentive Plan. None of the restricted stock awards will vest, in whole or in part, in under three years from the date of grant except in the event of a change in control of Progress Energy or in the event of the recipient's death or disability more than one year from the grant date. During the period for which the shares are restricted, the grantee will receive all voting rights and cash dividends associated with the restricted stock. /6/Includes the value of matchable deferrals credited to the account of a participant to replace the value of Company contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan that would have been made on behalf of the participant but for the deferral of salary under the MDCP and contribution limitations under Section 415 of the Internal Revenue Code of 1986, as amended ("Phantom Stock Units"). Phantom Stock Units do not represent an equity interest in Progress Energy and the crediting of such Units to a participant's account does not convey any voting rights. However, a Phantom Stock Unit is equal in value at all times to a share of Progress Energy's Common Stock. Additional Phantom Stock Units are credited from time to time to reflect the payment of dividends on the underlying Common Stock. For participants with less than five years of service with the Company, these Phantom Stock Units vest two years from the end of the calendar year in which they are granted. Participants with five or more years of service with the Company are 100% vested in all Phantom Stock Units credited to their accounts. Phantom Stock Units are not deemed "Matured" and therefore available for reallocation to other deemed investment funds chosen by the participant until two years after the end of the MDCP Year for which they were allocated. Payment of the value of the Phantom Stock Units will be made in cash and will generally be made on one of the following dates in accordance with the participant's deferral election: (i) the April 1 following the date that is five or more years from the last day of the MDCP Year for which the participant's salary deferral is made, (ii) the April 1 following the participant's retirement, or (iii) the April 1 following the first anniversary of the participant's retirement. The amount of the payment will equal the fair market value of notational deemed investment funds on the valuation date multiplied by the number of units credited to the account of the participant for each fund. See "Other Benefit Opportunities" on page 100. /7/Consists of the value of payouts of awards granted under the Company's Performance Share Sub-Plan of Progress Energy's 1997 Equity Incentive Plan. /8/Amounts reported in this column include dividends earned in 2001 on awards granted under the Long-Term Compensation Program and dividends allocated in 2001 on awards granted under the Performance Share Sub-Plan of Progress Energy's 1997 Equity Incentive Plan. /9/Consists of (i) 1,600 shares of Progress Energy Restricted Stock which were valued at $64,413 on March 22, 2001; and (ii) 63 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. Habermeyer owns a total of 21,800 shares of Progress Energy Restricted Stock which were valued at $981,654 as of December 31, 2001. /10/Consists of (i) $14,544 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of Progress Energy's 1997 Equity Incentive Plan; (ii) $9,716 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iii) $12,124 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. /11/Adjusted to include additional bonus amount of $20,772 that was not determinable at the time the proxy statement for Progress Energy's 2001 Annual Meeting of Shareholders was prepared. 103 /12/Consists of (i) 15,000 shares of Progress Energy Restricted Stock valued at $603,867 as of March 22, 2001; and (ii) 479 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. Orser owns a total of 46,667 shares of Progress Energy Restricted Stock which were valued at $2,101,415 as of December 31, 2001. /13/Consists of (i) $23,146 which represents dividends earned in 2001 on performance units awarded under the Long-Term Compensation Program; (ii) $55,471 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of Progress Energy's 1997 Equity Incentive Plan; (iii) $10,200 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iv) $39,550 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. /14/Adjusted to include additional bonus amount of $141,963 that was not determinable at the time the proxy statement for Progress Energy's 2001 Annual Meeting of Shareholders was prepared. /15/Consists of (i) 3,200 shares of Progress Energy Restricted Stock valued at $128,825 as of March 22, 2001; and (ii) 239 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. Scott owns a total of 35,900 shares of Progress Energy Restricted Stock, which were valued at $1,252,326 as of December 31, 2001. /16/Consists of (i) $27,773 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iii) $42,734 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. /17/Consists of (i) $24,939 in gross-up payments for certain federal and state income tax obligations; and (ii) certain perquisites, including club dues of $33,020 and a company automobile allowance of $16,200, both of which exceed thresholds for footnote disclosure. /18/Consists of (i) 9,600 shares of Progress Energy Restricted Stock valued at $386,475 as of March 22, 2001; and (ii) 194 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. Johnson owns a total of 32,500 shares of Progress Energy Restricted Stock which were valued at $1,463,475 as of December 31, 2001. /19/Consists of (i) $31,244 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan; (ii) $10,200 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iii) $15,479 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. /20/Adjusted to include additional bonus amount of $26,803 that was not determinable at the time the proxy statement for Progress Energy's 2001 Annual Meeting of Shareholders was prepared. /21/Consists of 136 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. Mr. Davis owns a total of 27,000 shares of Progress Energy Restricted Stock which were valued at $1,215,810 as of December 31, 2001. /22/Consists of (i) 27,000 shares of Progress Energy Restricted Stock which were valued at $945,020 on March 20, 2000 and at $1,328,063 as of December 31, 2000; and (ii) 45 Phantom Stock Units based on the market value of a share of Progress Energy Common Stock on the date such units were credited to the account of the participant. /23/Consists of (i) $4,302 which represents dividends allocated in 2000 on performance shares awarded under the Performance Share Sub-Plan of Progress Energy's 1997 Equity Incentive Plan; (ii) $3,058 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and $72,085 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program. 104 /24/Consists of (i) $21,536 which represents dividends allocated in 2001 on performance shares awarded under the Performance Share Sub-Plan of Progress Energy's 1997 Equity Incentive Plan; (ii) $9,792 which represents Company contributions under the Progress Energy 401(k) Savings & Stock Ownership Plan; and (iii) $71,720 which represents the dollar value of the premium relating to the term portion and the present value of the premium relating to the whole life portion of the benefit to be received pursuant to the Executive Permanent Life Insurance Program.
OPTION/SAR GRANTS IN LAST FISCAL YEAR - ------------------------------------------------------------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term - ------------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) (f) (g) Number of Securities Underlying % of Total Options/ Options/SARs Exercise SARs Granted to or Base Granted Employees in Price Expiration Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($) - ---- ----------- ------------ --------- --------- ---------- ---------- H. William Habermeyer, Jr 25,800 1.10% $43.49 9/30/2011 $ 705,646 $1,788,246 William S. Orser 50,000 2.12% $43.49 9/30/2011 $1,367,531 $3,465,593 Peter M. Scott III 42,500 1.81% $43.49 9/30/2011 $1,162,402 $2,945,754 William D. Johnson 42,500 1.81% $43.49 9/30/2011 $1,162,402 $2,945,754 Donald K. Davis 31,900 1.36% $43.49 9/30/2011 $ 872,485 $2,211,048
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR Name Number of Performance - ---- Units/1/ Period Ends --------- ---------- H. William Habermeyer, Jr., President and Chief Executive Officer ........ 6,204 2003 William S. Orser, Group President .............................. 13,260 2003 Peter M. Scott III, Executive Vice President and Chief Financial Officer ...................... 10,219 2003 William D. Johnson, Executive Vice President, General Counsel and Secretary ................................ 9,246 2003 Donald K. Davis, Executive Vice President ..................... 7,664 2003 - ---------- 105 /1/Consists of the number of performance shares awarded in 2001 under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan, based on the closing price of a share of Progress Energy's Common Stock on March 20, 2001, as published in The Wall Street Journal. Performance Share awards may range from up to 40% to up to 150% of a participant's base salary depending on the participant's position and job value. The number of performance shares awarded is recorded in a separate account for each participant, and is adjusted to reflect dividends, stock splits or other adjustments in Progress Energy's Common Stock. The performance period for an award under the Sub-Plan is the three-consecutive-year period beginning in the year in which the award is granted. There are two equally weighted performance measures under the Sub-Plan. One performance measure is Total Shareholder Return ("TSR"), which is defined in the Sub-Plan as the appreciation or depreciation in the value of stock (which is equal to the closing value of the stock on the last trading day of the relevant period minus the closing value of the stock on the last trading day of the preceding year) plus dividends declared during the relevant period divided by the closing value of the stock on the last trading day of the preceding year. The other performance measure is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) growth. Awards under the Sub-Plan vest on January 1 following the end of the three-year performance period, provided, however, that to determine each award vested under the Sub-Plan, the TSR and EBITDA growth of Progress Energy are compared to the TSR and EBITDA growth of a Peer Group comprised of the twenty-seven electric utility companies currently comprising the Standard & Poor's Electric Index. The differences between Progress Energy's TSR and EBITDA growth, and the Peer Group TSR and EBITDA growth, respectively, are used to determine the multipliers that will be used to calculate the number of vested performance shares in each participant's account. (Differences in TSR can range from a low of (2.0%) or less to a high of 5% or more, and correspond to multipliers of 0% to 200%. Differences in EBITDA growth can range from a low of less than 0% to a high of 5% or more and correspond to multipliers of 0% to 200%). The multiplier is applied to the number of performance shares in the participant's performance share account to determine the actual number of vested performance shares in that account. The aggregate value of vested performance shares is equal to the number of vested performance shares in the participant's account multiplied by the closing price of Progress Energy's Common Stock, as published in The Wall Street Journal on the last trading day before payment of the award. Awards are paid in cash after expiration of the performance period. Payment can be made in either (i) lump sum on or about April 1 of the year immediately following the performance period or (ii) in accordance with an election to defer in 25% increments, made during the first year of the performance period. In the event of death, disability, retirement or a change-in-control of the Company, any award granted under the Sub-Plan immediately becomes vested. The aggregate value of the vested award is determined using multipliers that are based on the difference between Progress Energy's TSR and EBITDA growth and the Peer Group TSR and EBITDA growth, respectively over the portion of the performance period that was completed before the terminating event occurred. See "Long-Term Compensation Opportunities" on page 98. PENSION PLAN TABLE - ------------------------------------------------------------------------ Average Compensation Estimated Annual Pension at Normal Retirement (Years of Credited Service) - ------------------------------------------------------------------------ 10 years 15 years 151/2or more years - ------------------------------------------------------------------------ $190,000 $ 76,000 $114,000 $117,800 255,000 102,000 153,000 158,100 320,000 128,000 192,000 198,400 385,000 154,000 231,000 238,700 450,000 180,000 270,000 279,000 515,000 206,000 309,000 319,300 555,000 222,000 333,000 344,100 595,000 238,000 357,000 368,900 635,000 254,000 381,000 393,700 675,000 270,000 405,000 418,500 - ------------------------------------------------------------------------ 106 The above table demonstrates senior executive pension benefits payable upon normal retirement under the Progress Energy Pension Plan and the Progress Energy Supplemental Senior Executive Retirement Plan at age 65 as a function of average annual income and years of service. Covered compensation under these plans consists only of the amounts in the Salary and Bonus columns of the Summary Compensation Table on page 103. Pursuant to the Progress Energy's Pension Plan, a defined benefit plan, benefits are partially offset by Social Security payments and the monthly pension benefit payable upon retirement is based on base pay earnings, age, and years of credited service. Benefits under the Supplemental Senior Executive Retirement Plan are fully offset by Social Security benefits and by benefits paid under the Progress Energy Pension Plan. The monthly benefit payable upon retirement under this plan is equal to 4% of the average of a participant's highest three years of eligible earnings for each year of credited service with Progress Energy up to a maximum of 62%. Benefits listed in the table above do not reflect the Social Security or other offset. For purposes of benefits under these plans, Mr. Habermeyer has eight years of credited service, Mr. Orser has eight years of credited service, Mr. Scott has ten years of credited service, and Mr. Davis has seven years of credited service. Mr. Johnson has 15 1/2 years of credited service, three of which are credited for service on the Senior Management Committee, and is thereby entitled to the maximum percentage allowable in the benefit formula under these plans. EMPLOYMENT AGREEMENTS Messrs. Habermeyer, Orser, Scott, Johnson and Davis have entered into employment agreements, with one or more of Progress Energy's subsidiaries (the "Employer"). These agreements provide for base salary, bonuses, perquisites and participation in the various executive compensation plans offered to senior executives of Progress Energy and its subsidiaries. The agreement with Mr. Habermeyer has an effective date of November 30, 2000. The agreements with Messrs. Orser, Scott, Johnson and Davis have effective dates of August 1, 2000. The agreements all provide that they will remain in effect for three years from the effective date. Each agreement also includes an "Evergrow provision" which provides that each year, the agreement will be extended such that the prospective term will always be three years forward on the anniversary date of the effective date. The Employer may elect not to extend an executive officer's agreement and must notify the officer of such an election at least sixty days prior to the annual anniversary date of his agreement's effective date. Executive benefit plan targets, termination and other key provisions of the agreements are discussed below. Agreement with Mr. Habermeyer Information concerning the employment agreement with Mr. Habermeyer is set forth in Part III hereof under the heading "Executive Compensation - Florida Progress, Compensation of Executive Officers." Agreement with Mr. Orser Mr. Orser's agreement provides that his target compensation under the MICP increased to 45% of base salary earnings, effective January 1, 2001. Mr. Orser's target compensation under the PSSP of Progress Energy's 1997 Equity Incentive Compensation Plan is 78% of his base salary. Mr. Orser's agreement notes that pursuant to a 1993 employment agreement with CP&L, he received a recruitment bonus under the now suspended Deferred Compensation Plan for Key Management Employees, and that he is credited with nine years of service solely for purposes of determining benefits in connection with that bonus. The agreement also notes that Mr. Orser is automatically deemed vested for his benefits under the SERP, and will be deemed eligible for early retirement benefits under the SERP at age 60, assuming his continued employment at the Company until age 60. The agreement with Mr. Orser provides that upon termination of employment without cause or constructive termination of employment, he will be provided with his base salary at the current rate for the remainder of the term of the agreement, and will be eligible to retain all benefits in which he has vested under existing benefit plans. Additionally, he will be entitled to certain health benefits. The agreement provides that a constructive termination will be deemed to occur if (i) there is a change in the form of ownership of Progress Energy or the Employer and (ii) Mr. Orser is offered a new position with a material change in authority, duty, wages or benefits, or is asked to relocate more than 50 miles. If Mr. Orser's employment is constructively terminated, he will be entitled to the greater of the benefits described above or the benefits, if any, to which he is entitled under Progress Energy's Management Change-in-Control Plan. If the Employer terminates Mr. Orser's employment for cause, he will be eligible to retain all benefits in which he has vested under existing benefit plans, but he shall not be entitled to any form of salary continuance or any form of severance benefits. He will also be entitled to any earned but unpaid salary. The agreement with Mr. Orser provides that if he terminates his employment voluntarily at any time, he shall retain all vested benefits but shall not be entitled to any form of salary continuance or any form of severance benefit. The agreement also provides that if, while Mr. Orser is between the ages of 55 and 60, his employment is terminated without cause, or constructively terminated or if he voluntarily terminates his employment, he will receive $153,912 (less applicable taxes) a year for life, less benefits payable under the Supplemental Retirement Plan and in lieu of any SERP benefit. Additionally, Mr. Orser will be eligible to retain all benefits in which he has vested under existing benefit plans. 107 Agreement with Mr. Scott Information concerning the employment agreement with Mr. Scott is set forth in Part III hereof under the heading "Executive Compensation-Florida Progress, Compensation of Executive Officers." Agreement with Mr. Johnson Mr. Johnson's agreement provides that his target compensation under the MICP increased to 45% of base salary earnings, effective January 1, 2001. Mr. Johnson's target compensation under the PSSP of Progress Energy's 1997 Equity Incentive Plan is 78% of his base salary. The agreement with Mr. Johnson also notes Mr. Johnson has been awarded seven years of deemed service for purposes of the SERP. Three of those years will also be deemed service on the Senior Management Committee. The agreement with Mr. Johnson provides that upon termination of employment without cause or constructive termination of employment, he will be provided with his base salary at the current rate for the remainder of the term of the agreement and will be eligible to retain all benefits in which he has vested under existing benefit plans. Additionally, the Employer will reimburse him for certain health benefits for up to 18 months after the termination of his employment. The agreement provides that a constructive termination will be deemed to occur if (i) there is a change in the form of ownership of Progress Energy or the Employer and (ii) Mr. Johnson is offered a new position with a material change in authority, duty, wages or benefits, or Mr. Johnson is asked to relocate more than 50 miles. If Mr. Johnson's employment is constructively terminated, he will be entitled to the greater of the benefits described above or the benefits, if any, to which he is entitled under Progress Energy's Management Change-in-Control Plan. If the Employer terminates Mr. Johnson's employment for cause, he will be eligible to retain all benefits in which he has vested under existing benefit plans, but he shall not be entitled to any form of salary continuance or any form of severance benefits. He will also be entitled to any earned but unpaid salary. The agreement with Mr. Johnson provides that if he terminates his employment voluntarily at any time, he shall retain all vested benefits but shall not be entitled to any form of salary continuance or any form of severance benefit. Agreement with Mr. Davis Mr. Davis' agreement provides that his target compensation under the MICP increased to 45% of base salary earnings, effective January 1, 2001. Mr. Davis' target compensation under the PSSP of Progress Energy's 1997 Equity Incentive Plan is 78% of his base salary. The agreement with Mr. Davis also notes that Mr. Davis has been awarded six years of credited service for purposes of the SERP. The agreement with Mr. Davis provides that upon termination of employment without cause or constructive termination of employment, he will be provided with his base salary at the current rate for the remainder of the term of the agreement and will be eligible to retain all benefits in which he has vested under existing benefit plans. Additionally, the Employer will reimburse him for certain health benefits for up to 18 months after the termination of his employment. The agreement provides that a constructive termination will be deemed to occur if (i) there is a change in the form of ownership of Progress Energy or the Employer and (ii) Mr. Davis is offered a new position with a material change in authority, duty, wages or benefits, or Mr. Davis is asked to relocate more than 50 miles. If Mr. Davis' employment is constructively terminated, he will be entitled to the greater of the benefits described above or the benefits, if any, to which he is entitled under Progress Energy's Management Change-in-Control Plan. If the Company terminates Mr. Davis' employment for cause, he will be eligible to retain all benefits in which he has vested under existing benefit plans, but he shall not be entitled to any form of salary continuance or any form of severance benefits. He will also be entitled to any earned but unpaid salary. The agreement with Mr. Davis provides that if he terminates his employment voluntarily at any time, he shall retain all vested benefits but shall not be entitled to any form of salary continuance or any form of severance benefit. 108 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ----------------------------------------------------------------------- FLORIDA PROGRESS Security Ownership of Certain Beneficial Owners All of Florida Progress' common stock is held beneficially and of record by Progress Energy, Inc. None of Florida Progress' directors or executive officers own any shares of Florida Progress' common stock. Security Ownership of Management The following table describes the beneficial ownership of the Common Stock of Progress Energy, Inc. and ownership of Progress Energy, Inc. Common Stock units as of December 31, 2001, of (i) all current Directors and nominees for Director of Florida Progress, (ii) each executive officer of Florida Progress named in the Summary Compensation Table presented on page 89 of this document and (iii) all Directors and executive officers of Florida Progress as a group. A unit of Common Stock does not represent an equity interest in Progress Energy and possesses no voting rights, but is equal in value at all times to a share of Progress Energy Common Stock. As of December 31, 2001, none of the individuals or group in the above categories owned one percent (1%) or more of Progress Energy's, securities. - -------------------------------------------------------------------------------- NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED1 AND UNITS REPRESENTING NAME SHARES OF COMMON STOCK/2,3,4,5,6,7/ - ---- - -------------------------------------------------------------------------------- Edwin B. Borden 5,297 Common Stock 25,837/2/ Units David L. Burner 0 Common Stock 4,801/2/ Units William Cavanaugh III 212,190/8/ Common Stock 185,500/4,5,6,7/ Units Charles W. Coker 7,498/9/ Common Stock 30,565/2/ Units Richard L. Daugherty 995 Common Stock 17,987/2/ Units W. D. Frederick, Jr. 1,000 Common Stock 1,720/2/ Units H. William Habermeyer, Jr. 25,665/10/ Common Stock 8,540/5,6/ Units Tom D. Kilgore 34,880/11/ Common Stock 25,393/5/,/6/,/7/ Units William O. McCoy 1,000 Common Stock 10,194/2/ Units Robert B. McGehee 45,083/12/ Common Stock 26,032/5,6,7/ Units E. Marie McKee 600 Common Stock 4,994/2/ Units John H. Mullin, III 1,500/13/ Common Stock 6,037/2/ Units Richard A. Nunis 5,000 Common Stock 731/2/ Units Carlos A. Saladrigas 0 Common Stock 118/3/ Units Peter M. Scott III 36,291/14/ Common Stock 16,442/5,6/ Units J. Tylee Wilson 5,000 Common Stock 8,073/2/ Units Jean Giles Wittner 2,000 Common Stock 1,679/2/ Units 109 Shares of Progress Energy Common Stock beneficially owned by all directors and executive officers of Florida Progress as a group (19persons) 423,668 Common Stock - ---------- /1/Unless otherwise noted, all shares of Progress Energy Common Stock set forth in the table are beneficially owned, directly or indirectly, with sole voting and investment power, by such shareholder. /2/Consists of units representing Common Stock of Progress Energy under the Directors' Deferred Compensation Plan and the Non-Employee Director Stock Unit Plan (see "Compensation of Directors" on page 88). /3/Consists of units representing Common Stock of Progress Energy under the Directors' Deferred Compensation Plan. /4/Consists of performance units under the Progress Energy Long-Term Compensation Program. /5/Consists of performance shares awarded under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan (see "Long-Term Incentive Plan Awards Table" on page 93 and footnote 1 thereunder for performance shares awarded in 2001). /6/Consists of replacement units to replace the value of Progress Energy contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan that would have been made but for the deferral of salary under the Progress Energy Management Deferred Compensation Plan and contribution limitations under Section 415 of the Internal Revenue Code of 1986, as amended (see "Summary Compensation Table" on page 89 and footnote 6 thereunder). /7/Consists of performance units recorded to reflect awards deferred under the Progress Energy Management Incentive Compensation Plan. /8/Includes 175,000 shares of Progress Energy Restricted Stock and 7,764 shares with shared voting and investment power owned by members of immediate family to which beneficial ownership has not been disclaimed. /9/Includes 7,298 shares with shared voting and investment power owned by members of immediate family to which beneficial ownership has not been disclaimed. /10/Includes 21,800 shares of Progress Energy Restricted Stock. /11/Includes 25,934 shares of Progress Energy Restricted Stock and 1,500 shares with shared voting and investment power owned by members of immediate family to which beneficial ownership has not been disclaimed. /12/Includes 41,500 shares of Progress Energy Restricted Stock. /13/Includes 500 shares with shared voting and investment power owned by members of immediate family to which beneficial ownership has not been disclaimed. /14/Includes 35,900 shares of Progress Energy Restricted Stock. FLORIDA POWER Security Ownership of Certain Beneficial Owners 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 own any shares of Florida Power's common or preferred stock. Security Ownership of Management MANAGEMENT OWNERSHIP OF COMMON STOCK The following table describes the beneficial ownership of the Common Stock of Progress Energy, and ownership of Progress Energy Common Stock units as of December 31, 2001, of (i) all Florida Power Directors, (ii) each executive officer of Florida Power named 110 in the Summary Compensation Table presented on page 103 of this document and (iii) all Directors and executive officers of Florida Power as a group. A unit of Common Stock does not represent an equity interest in Progress Energy, and possesses no voting rights, but is equal in value at all times to a share of Progress Energy Common Stock. As of December 31, 2001, none of the individuals or group in the above categories owned one percent (1%) or more of Progress Energy's voting securities. - -------------------------------------------------------------------------------- NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED1 AND UNITS REPRESENTING NAME SHARES OF COMMON STOCK/2,3,4,5,6/ - -------------------------------------------------------------------------------- William Cavanaugh III 212,190/6/ Common Stock 185,500/2,3,4,5/ Units Donald K. Davis 27,874/7/ Common Stock 15,233/3,4,5/ Units Fred N. Day IV 32,229/8/ Common Stock 18,675/3,4,5/ Units H. William Habermeyer, Jr. 25,665/9/ Common Stock 8,540/3,4/ Units William D. Johnson 36,550/10/ Common Stock 19,473/3,4,5/ Units Robert B. McGehee 45,083/11/ Common Stock 26,032/3,4,5/ Units William S. Orser 62,364/12/ Common Stock 43,644/2,3,4/ Units Peter M. Scott III 36,291/13/ Common Stock 16,442/3,4/ Units Shares of Progress Energy Common Stock beneficially owned by all directors and executive officers of Florida Power as a group (12 persons) 572,118 Common Stock - ----------- /1/Unless otherwise noted, all shares of Common Stock set forth in the table are beneficially owned, directly or indirectly, with sole voting and investment power, by such shareholder. /2/Consists of performance units under the Progress Energy Long-Term Compensation Program. /3/Consists of performance shares awarded under the Performance Share Sub-Plan of the Progress Energy 1997 Equity Incentive Plan (see "Long-Term Incentive Plan Awards Table" on page 106 and footnote 1 thereunder for performance shares awarded in 2000). /4/Consists of replacement units to replace the value of Company contributions to the Progress Energy 401(k) Savings & Stock Ownership Plan that would have been made but for the deferral of salary under the Management Deferred Compensation Plan and contribution limitations under Section 415 of the Internal Revenue Code of 1986, as amended (see "Summary Compensation Table" on page 103 and footnote 6 thereunder). /5/Consists of performance units recorded to reflect awards deferred under the Progress Energy Management Incentive Compensation Plan. /6/Includes 175,000 shares of Progress Energy Restricted Stock and 7,764 shares with shared voting and investment power owned by members of immediate family to which beneficial ownership has not been disclaimed. /7/Includes 27,000 shares of Progress Energy Restricted Stock. /8/Includes 25,734 shares of Progress Energy Restricted Stock. /9/Includes 21,800 shares of Progress Energy Restricted Stock. 111 /10/Includes 32,500 shares of Progress Energy Restricted Stock. /11/Includes 41,500 shares of Progress Energy Restricted Stock. /12/Includes 46,667 shares of Progress Energy Restricted Stock. /13/Includes 35,900 shares of Progress Energy Restricted Stock. 112 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION - -------------------------------------------------------- None. 113 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FOR - ----------------------------------------------------------------------------- FLORIDA PROGRESS AND FLORIDA POWER ---------------------------------- 1. Financial Statements, notes to Financial Statements and reports thereon of DELOITTE & TOUCHE LLP and KPMG LLP are found in Item 8 "Financial Statements and Supplementary Data" herein. 2. The following Financial Statement Schedules are included herein: Florida Progress II-Valuation and Qualifying Accounts for the years ended December 31, 2001, 2000 and 1999 Florida Power II-Valuation and Qualifying Accounts for the years ended December 31, 2001, 2000 and 1999 All other schedules are not submitted because they are not applicable or not required or because the required information is included in the financial statements or notes thereto. 3. Exhibits filed herewith: Florida Florida Number Exhibit Progress Power - ------ ------- -------- ----- *2 Amended and Restated Agreement and X Plan of Exchange by and among Carolina Power and Light Company, Florida Progress Corporation and CP&L Energy, Inc., dated as of August 22, 1999, amended and restated as of March 3, 2000. (Filed as Annex A to the Florida Progress preliminary proxy statement on Schedule 14 A, as filed with the SEC on March 6, 2000). *3. (a) Amended Articles of Incorporation, as 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.) *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.) 3. (c) Bylaws of Florida Progress, as amended X November 30, 2000. 3. (d) Bylaws of Florida Power, as amended X October 1, 2001. *4. (a) Indenture, dated as of January 1, 1944 X X (the "Indenture"), between Florida Power and Guaranty Trust Company of New York and The 114 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. (b) Twenty-Ninth Supplemental Indenture, X X dated as 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. (c) Seventh Supplemental Indenture, dated as X X of 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. (d) Eighth Supplemental Indenture, X X dated as of July 1, 1958, between Florida Power and Guaranty Trust Company of New York and The Florida National Bank of Jacksonville, as Trustees, with reference to the modification and amendment of the Indenture. (Filed as Exhibit 4(c) to Florida Power's Registration Statement on Form S-3 (No. 33-16788) filed with the SEC on September 27, 1991.) *4. (e) Sixteenth Supplemental X X Indenture, dated as of 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. (f) Rights Agreement, dated as of X November 21, 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. (g) Thirty-Eighth Supplemental X X Indenture dated as 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 115 confirmation of First Chicago Trust Company of New York as successor Trustee under the Indenture. (Filed as exhibit 4(f) to Florida Power's Registration Statement on Form S-3 (No. 33-55273) as filed with the SEC on August 29, 1994.) *4.(h) Thirty-Ninth Supplemental X Indenture dated as of July 1, 2001 between Florida Power Corporation and First Chicago Trust Company of New York, as Trustee. (Filed as Exhibit 4 to Current Report on Form 8-K filed with the SEC on July 23, 2001). *4. (i) Amendment to Shareholder Rights X Agreement dated February 20, 1997, between Florida Progress and The First National Bank of Boston. (Filed as Exhibit 4(a) to the Florida Progress Form 10-K for the year ended December 31, 1996, as filed with the SEC on March 27, 1997.) *4. (j) Form of Certificate representing X shares of Florida Progress Common Stock. (Filed as Exhibit 4(b) to the Florida Progress Form 10-K for the year ended December 31, 1996, as filed with the SEC on March 27, 1997.) *4. (k) Second Amendment to Shareholder X Rights Agreement dated as of August 22, 1999, between Florida Progress and BankBoston, N.A. (Filed as Exhibit 4 to the combined Florida Progress and Florida Power Form 8-K dated August 22, 1999.) *10. (a)(1) Second Amended and Restated X Guaranty and Support Agreement dated as of August 7, 1996. (Filed as Exhibit 4 to Florida Progress' Form 10-Q for the quarter ended June 30, 1996). 10. (a)(2) Florida Power Corporation $170,000,000 X 364-Day Revolving Credit Agreement dated as of December 18, 2001. +*10. (b)(1) Executive Optional Deferred Compensation X X Plan. (Filed as Exhibit 10.(c) to the Florida Progress Form 10-K for the year ended December 31, 1996 as filed with the SEC on March 27, 1997.) +*10.(b)(2) Management Incentive Compensation Plan X X of Florida Progress Corporation, as amended December 14, 1999. (Filed as Exhibit 10.(a) to the Florida Progress Form 10-K for the year ended December 31, 1999, as filed with the SEC on March 30, 2000.) +*10. (b)(3) Florida Progress Supplemental Executive X X Retirement Plan, as amended and restated effective February 20, 1997. (Filed as Exhibit 10.(e) to the Florida Progress Form 10-K for the year ended December 31, 1999, as filed with the SEC on March 30, 2000.) 116 - -+*10.(b)(4) Resolutions of the Board of Directors of X Carolina Power & Light Company dated May 8, 1991, amending the Directors Deferred Compensation Plan (filed as Exhibit 10(b), File No. 33-48607). +*10.b(5) Carolina Power & Light Company Non-Employee Director Stock Unit Plan, effective January 1, 1998. X - -+*10.(b)(6) Carolina Power & Light Company X X Restricted Stock Agreement, as approved January 7, 1998, pursuant to Carolina Power & Light Company's 1997 Equity Incentive Plan (filed as Exhibit No. 10 to Carolina Power & Light Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998, File No. 1-3382.) - -+*10.(b)(7) Carolina Power & Light Company X X Restoration Retirement Plan, as amended January 1, 2000 (filed as Exhibit No. 10c(9) to the Progress Energy, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2001). - -+*10.(b)(8) Amended and Restated Supplemental Senior X X Executive Retirement Plan of Carolina Power & Light Company, effective January 1, 1984, as last amended March 15, 2000 (filed as Exhibit 10b(24) to Carolina Power & Light Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, File No. 1-3382). - -+*10.(b)(9) Performance Share Sub-Plan of the X X Carolina Power & Light Company 1997 Equity Incentive Plan, as amended January 1, 2001 (filed as Exhibit 10b(11) to the Progress Energy, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2001). +*10.(b)(10) 1997 Equity Incentive Plan, Amended and X X Restated as of September 26, 2001 (filed as Exhibit 4.3 to Progress Energy, Inc. Form S-8 dated September 27, 2001, File No. 1-3382). +*10.(b)(11) Progress Energy, Inc. Form of Stock X X Option Agreement (filed as Exhibit 4.4 to Form S-8 dated September 27, 2001, File No. 333-70332.) +*10.(b)(12) Progress Energy, Inc. Form of Stock X X Option Award (filed as Exhibit 4.5 to Form S-8 dated September 27, 2001, File No. 333-70332.) - -+*10.(b)(13) Amended Management Incentive X X Compensation Plan of Progress Energy, Inc., as amended and restated January 1, 2002 (filed as Exhibit 10c(15) to the Progress Energy, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2001). 117 - -+*10.(b)(14) Progress Energy, Inc. Management X X Deferred Compensation Plan, amended and restated as of January 1, 2002 (filed as Exhibit 10c(16) to the Progress Energy, Inc. Annual Report on Form 10-K for the fiscal year Ended December 31, 2001). +*10.(b)(15) Employment Agreement dated August 1, X 2000 between CP&L Service Company LLC and William Cavanaugh III (filed as Exhibit 10(i) to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, File No. 1-15929 and No. 1-3382) +*10.(b)(16) Employment Agreement dated August 1, X 2000 between Carolina Power & Light Company and William S. "Skip" Orser (filed as Exhibit 10(ii) to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, File No. 1-15929 and No. 1-3382). *+10.(b)(17) Employment Agreement dated August 1, X 2000 between Carolina Power & Light Company and Tom Kilgore (filed as Exhibit 10(iii) to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, File No. 1-15929 and No. 1-3382. +*10.(b)(18) Employment Agreement dated August 1, X 2000 between CP&L Service Company LLC and Robert McGehee (filed as Exhibit 10(iv) to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, File No. 1-15929 and No. 1-3382). +*10.(b)(19) Form of Employment Agreement dated X X August 1, 2000 (i) between Carolina Power & Light Company and Don K. Davis; and (ii) between CP&L Service Company LLC and Peter M. Scott III; and (iii) between CP&L Service Company LLC and William D. Johnson (filed as Exhibit 10(v) to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, File No. 1-15929 and No. 1-3382). +*10.(b)(20) Form of Employment Agreement dated X August 1, 2000 between Carolina Power & Light Company and (i) Fred Day IV, (ii) C.S. "Scotty" Hinnant, (iii) Cecil L Goodnight and (iv)E. Michael Williams (filed as Exhibit 10(vi) to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2000, File No. 1-15929 and No. 1-3382.) *+10.(b)(21) Employment Agreement dated November 30, X X 2000 between Carolina Power & Light Company, Florida Power Corporation and H. William Habermeyer (filed as Exhibit 10.(b)(32) to Annual Report on Form 10-K for the year ended December 31, 2000). 118 *+10.(b)(22) Florida Power Corporation Management X Incentive Compensation Plan, effective January 1, 2001 (filed as Exhibit 10b(25) to Annual Report on Form 10-K for the year ended December 31, 2000, File No. 1-15929 and No. 1-3382.) 12 Statement of Computation of Ratios. X X 21 Subsidiaries of Florida Progress. X 23. (a) Consent of Deloitte & Touche LLP X X 23. (b) Consent of KPMG LLP X 23. (c) Consent of KPMG LLP X 24 Powers of Attorney are included in X X the signature pages of this Form 10-K. X Exhibit is filed for that respective company. * Incorporated herein by reference as indicated. +Management contract or compensation plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K. - Sponsorship of this management contract or compensation plan or arrangement was transferred by Carolina Power & Light Company to Progress Energy, Inc., effective August 1, 2000. (b) Reports on Form 8-K filed during or with respect to the last quarter of 2001 and the portion of the first quarter of 2002 prior to the filing of this Form 10-K: Florida Progress Corporation and Florida Power Corporation Financial Item Statements Reported Included Date of Event Date Filed -------- -------- ------------- ---------- 7 Yes March 15, 2002 March 15, 2002 119 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 ---------------------------- (Registrant) Date: 3/28/02 ------- By: /s/Peter M. Scott III ------------------------------- Peter M. Scott III Executive Vice President and Chief Financial Officer By: /s/ Robert H. Bazemore, Jr. ------------------------------- Robert H. Bazemore, Jr. Vice President and Controller (Chief Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date - --------- ----- ---- /s/ William Cavanaugh III Principal Executive 3/20/02 - -------------------------- Officer and Director ------- (William Cavanaugh III, Chairman, President and Chief Executive Officer) /s/ Peter M. Scott III Principal Financial 3/20/02 - ----------------------- Officer ------- (Peter M. Scott III, Executive Vice President and Chief Chief Financial Officer) /s/ Edwin B. Borden Director 3/20/02 - -------------------- ------- (Edwin B. Borden) /s/ David L. Burner Director 3/20/02 - -------------------- ------- (David L. Burner) /s/ Charles W. Coker Director 3/20/02 - --------------------- ------- (Charles W. Coker) /s/ Richard L. Daugherty Director 3/20/02 - ------------------------- ------- (Richard L. Daugherty) /s/ W.D. Frederick, Jr. Director 3/20/02 - ------------------------ ------- (W.D. Frederick, Jr.) 120 /s/ William O. McCoy Director 3/20/02 - --------------------- ------- (William O. McCoy) /s/ E. Marie McKee Director 3/20/02 - ------------------- ------- (E. Marie McKee) /s/ John H. Mullin, III Director 3/20/02 - ------------------------ ------- (John H. Mullin, III) /s/ Richard A. Nunis Director 3/20/02 - --------------------- ------- (Richard A. Nunis) /s/ Carlos A. Saladrigas Director 3/20/02 - ------------------------- ------- (Carlos A. Saladrigas) /s/ J. Tylee Wilson Director 3/20/02 - -------------------- ------- (J. Tylee Wilson) /s/ Jean Giles Wittner Director 3/20/02 - ----------------------- ------- (Jean Giles Wittner) 121 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 ------------------------- Date: 3/28/02 (Registrant) ------- By: /s/ Peter M. Scott III ---------------------------- Peter M.Scott III Executive Vice President and Chief Financial Officer By: /s/ Robert H. Bazemore, Jr. ---------------------------- Robert H. Bazemore, Jr. Controller (Chief Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date - --------- ----- ---- /s/ William Cavanaugh III Principal Executive 3/20/02 - -------------------------- Officer and Director ------- (William Cavanaugh III, Chairman) /s/ H. William Habermeyer, Jr. Principal Executive 3/20/02 - ------------------------------ Officer and Director ------- (H. William Habermeyer, Jr., President and Chief Executive Officer) /s/ Peter M. Scott III Principal Financial 3/20/02 - ----------------------- Officer and Director ------- (Peter M. Scott, Executive Vice President and Chief Chief Financial Officer) /s/ Robert B. McGehee Director 3/20/02 - ---------------------- ------- (Robert B. McGehee) /s/ William D. Johnson Director 3/20/02 - ---------------------- ------- (William D. Johnson) /s/ Fred N. Day, IV Director 3/20/02 - ------------------- ------- (Fred N. Day, IV) /s/ William S. Orser Director 3/20/02 - --------------------- ------- (William S. Orser) 122 Schedule II FLORIDA PROGRESS CORPORATION Valuation and Qualifying Accounts For the Years Ended December 31, 2001, 2000, and 1999 (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, 2001 Nuclear refueling outage reserve $10.8 $17.3 $27.8 $ -- $ 0.3 ===== ===== ===== ===== ===== Allowance for doubtful accounts $26.2 $10.2 $11.2 $ 0.5 $25.7 ===== ===== ===== ===== ===== FOR THE YEAR ENDED DECEMBER 31, 2000 Nuclear refueling outage reserve $ 0.5 $10.6 $ 0.3 $ -- $10.8 ===== ===== ===== ===== ===== Allowance for doubtful accounts $ 5.8 $25.1 $ 4.5 $(0.2) $26.2 ===== ===== ===== ===== ===== FOR THE YEAR ENDED DECEMBER 31, 1999 Nuclear refueling outage reserve $19.9 $ 1.4 $20.8 $ -- $ 0.5 ===== ===== ===== ===== ===== Allowance for doubtful accounts $ 5.0 $ 4.5 $ 3.6 $(0.1) $ 5.8 ===== ===== ===== ===== =====
123 Schedule II FLORIDA POWER CORPORATION Valuation and Qualifying Accounts For the Years Ended December 31, 2001, 2000, and 1999 (In millions)
Balance at Additions Balance at Beginning Charged to Deductions Other End of Description Of Period Expense (See Note) Add (Ded) Period - ------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 2001 2001 Nuclear Refueling Outage Reserve (#12) $10.8 $16.6 $27.8 $ -- $(0.4) 2003 Nuclear Refueling Outage Reserve (#13) -- 0.7 -- -- 0.7 ----- ----- ----- ---- ----- $10.8 $17.3 $27.8 $ -- $ 0.3 ===== ===== ===== ==== ===== Allowance for doubtful accounts $ 5.2 $ 3.5 $ 6.2 $ -- $ 2.5 ----- ----- ----- ---- ----- FOR THE YEAR ENDED DECEMBER 31, 2000 1999 Nuclear Refueling Outage Reserve (#11) $(0.3) $ -- $ 0.3 $ -- $ -- 2001 Nuclear Refueling Outage Reserve (#12) 0.8 10.6 (0.6) -- 10.8 ----- ----- ----- ---- ----- $ .5 $10.6 $(0.3) $ -- $10.8 ===== ===== ===== ==== ===== Allowance for doubtful accounts $ 4.0 $ 4.3 $ 3.2 $ .1 $ 5.2 ----- ----- ----- ---- ----- FOR THE YEAR ENDED DECEMBER 31, 1999 1999 Nuclear Refueling Outage Reserve (#11) $19.9 $ 0.6 $20.8 $ -- $(0.3) 2001 Nuclear Refueling Outage Reserve (#12) -- 0.8 -- -- 0.8 ----- ----- ----- ---- ----- $19.9 $ 1.4 $20.8 $ -- $ 0.5 ===== ===== ===== ==== ===== Allowance for doubtful accounts $ 3.8 $ 3.2 $ 2.9 $(.1) $ 4.0 ----- ----- ----- ---- -----
Note: Deductions are payments of actual expenditures related to the outage. 124 EX-3.(C) 3 dex3c.txt AMENDED BYLAWS OF FLORIDA PROGRESS Exhibit 3.(c) BYLAWS OF Florida Progress Corporation (A Florida Corporation) As of November 30, 2000 TABLE OF CONTENTS ARTICLE 1 Offices 1.1 Principal Office.....................................................1 1.2 Registered Office....................................................1 1.3 Other Offices........................................................1 ARTICLE 2 Meetings of Shareholders 2.1 Place of Meetings....................................................1 2.2 Annual Meetings......................................................1 2.3 Substitute Annual Meeting............................................1 2.4 Special Meetings.....................................................1 2.5 Notice of Meetings...................................................1 2.6 Quorum...............................................................2 2.7 Voting of Shares.....................................................2 2.8 Conduct of Meetings..................................................3 2.9 Informal Action by Shareholders......................................3 ARTICLE 3 Board of Directors 3.1 General Powers.......................................................3 3.2 Number and Qualifications............................................3 3.3 Election of Directors................................................3 3.4 Term of Directors....................................................4 3.5 Removal..............................................................4 3.6 Resignation..........................................................4 3.7 Vacancies............................................................4 3.8 Chairman of the Board................................................4 3.9 Compensation.........................................................5 ARTICLE 4 Meetings of Directors 4.1 Regular Meetings.....................................................5 4.2 Special Meetings.....................................................5 4.3 Notice of Meetings...................................................5 4.4 Waiver of Notice.....................................................5 4.5 Quorum...............................................................5 4.6 Manner of Acting.....................................................5 4.7 Presumption of Assent................................................6 4.8 Informal Action by Directors.........................................6 4.9 Participation by Telephone...........................................6 i ARTICLE 5 [Reserved] ARTICLE 6 Officers 6.1 Officers of the Corporation..........................................6 6.2 Appointment and Term.................................................6 6.3 Compensation.........................................................7 6.4 Removal and Resignation..............................................7 6.5 Bonds................................................................7 6.6 President............................................................7 6.7 Vice Presidents......................................................7 6.8 Secretary............................................................8 6.9 Assistant Secretaries................................................8 6.10 Treasurer............................................................8 6.11 Assistant Treasurers.................................................8 6.12 Voting of Stock Held.................................................9 ARTICLE 7 Capital Stock 7.1 Certificated and Uncertificated Shares...............................9 7.2 Share Transfer Records..............................................10 7.3 Lost or Destroyed Certificate.......................................10 7.4 Closing of Transfer Books or Fixing Record Date.....................10 7.5 Holder of Record....................................................10 ARTICLE 8 Loans; Contracts; Checks; Deposits 8.1 Loans...............................................................11 8.2 Contracts...........................................................11 8.3 Checks, Notes and Drafts............................................11 8.4 Deposits............................................................11 ARTICLE 9 General Provisions 9.1 Distributions.......................................................11 9.2 Seal................................................................11 9.3 Notice..............................................................11 9.4 Waiver of Notice....................................................12 9.5 Fiscal Year.........................................................12 9.6 Amendment of Bylaws.................................................12 ii ARTICLE 10 Indemnification 10.1 Indemnification of Directors........................................12 10.2 Indemnification of Officers, Etc....................................13 10.3 Enforcement Expenses................................................14 10.4 Insurance...........................................................14 iii FLORIDA PROGRESS CORPORATION ARTICLE 1 Offices ------- 1.1 Principal Office. The Board of Directors may designate where the ---------------- principal office of the Corporation shall be from time to time. 1.2 Registered Office. The Board of Directors may designate where the ----------------- registered office of the Corporation required by law to be maintained in the State of Florida shall be. The registered office may be, but need not be, identical with the principal office. 1.3 Other Offices. The Corporation may have offices at such other places, ------------- either within or without the State of Florida, as the Board of Directors may designate or as the affairs of the Corporation may require from time to time. ARTICLE 2 Meetings of Shareholders ------------------------ 2.1 Place of Meetings. All meetings of shareholders shall be held at such ----------------- place, either within or without the State of Florida, as may be fixed by the person or persons calling the meeting pursuant to these Bylaws and designated in the notice of meeting or in a duly executed waiver of notice. Absent a designation in the notice of meeting or a waiver of notice, meetings of shareholders shall be held at the principal office of the Corporation. 2.2 Annual Meetings. The annual meeting of shareholders, for the election --------------- of directors and the transaction of any other business properly brought before the meeting, shall be held on or before December 15 of each year, at 10 o'clock A.M. or at such other date or hour as stated in the notice of meeting. If the day fixed for the annual meeting is a legal holiday in the place where the meeting is to be held, the meeting shall be held on the next business day at the designated time. 2.3 Substitute Annual Meeting. If the annual meeting is not held on the day ------------------------- designated in Section 2.2, a substitute annual meeting shall be held as soon as convenient after the planned date, as provided in Section 2.4. A substitute annual meeting shall be designated and treated for all purposes as the annual meeting. 2.4 Special Meetings. Special meetings of the shareholders for any purpose ---------------- or purposes may be called at any time by the President, or upon call by a majority of the Board of Directors of the Corporation or by the Chairman of the Board or as required by law. 2.5 Notice of Meetings. ------------------ (a) Written notice stating the place, date and hour of every meeting of shareholders shall be given not less than 10 days nor more than 60 days before the date of the meeting to each shareholder entitled to vote on any matter at the meeting. Notice shall be given to all shareholders at least 25 days in advance with respect to any meeting at which a merger or share exchange is to be considered, and in other instances as required by law. Delivery and effectiveness of notice shall be as provided by Section 9.3 of these Bylaws. (b) In the case of a special meeting, the notice of meeting shall specifically state the purpose or purposes for which the meeting is called, and no business shall be transacted or corporate action taken other than that stated in the notice. In the case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted unless required by law. (c) When a meeting is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. When a meeting is adjourned to a different place or time, or to a different date not more than 30 days after the date of the original meeting, and a new record date is not fixed for the adjourned meeting, it is not necessary to give any notice of the adjourned meeting other than by announcement at the meeting at which the adjournment is taken. A new record date must be set if the meeting is adjourned to a date more than 30 days after the date of the original meeting, and in such case a notice of the adjourned meeting must be given to every shareholder of record as of the new record date who is otherwise entitled to notice of a meeting (based on the matters to be addressed at such meeting) under these Bylaws. Any meeting at which directors are to be elected shall be adjourned only from day-to-day until such directors have been elected. 2.6 Quorum. ------ (a) The holders of a majority of the stock of the Corporation having voting powers must be present in person or represented by proxy at each meeting of the shareholders to constitute a quorum. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of the meeting unless a new record date is or must be set for the adjourned meeting. (b) In the absence of a quorum at the opening of any meeting of shareholders, such meeting may be adjourned from time to time by a vote of the majority of the shares voting on the motion to adjourn. Subject to the notice requirements of Section 2.5, at any adjourned meeting any business may be transacted which might have been transacted at the original meeting, following establishment of a quorum with respect to the matter. 2.7 Voting of Shares. ---------------- (a) Subject to the provisions of the Articles of Incorporation, each shareholder entitled to vote on a matter coming before the meeting shall be entitled to one vote as to that matter for each share of capital stock held of record by the shareholder. 2 (b) Action on a matter is approved if a quorum of shares exists and the votes cast in favor of the action exceed the votes opposed to the action, unless a greater vote in favor is required by law, by the Articles of Incorporation or by a Bylaw adopted by the shareholders in accordance with law. (c) The President of the Corporation's parent, or his designee, shall vote the shares of the Corporation. 2.8 Conduct of Meetings. At each meeting of the shareholders, the Chairman ------------------- of the Board, if any, shall act as chairman and preside. The Chairman of the Board may designate another person to preside as chairman of the meeting. If the Chairman of the Board is absent from the meeting and has not made a designation, or if there is no Chairman of the Board, the designation may be made by the directors present or the President. The Secretary or an Assistant Secretary, or a person whom the chairman of such meeting shall appoint, shall act as secretary of the meeting. The chairman of the meeting shall announce the opening and closing of the polls for each matter voted upon. 2.9 Informal Action by Shareholders. Any action that may be taken at a ------------------------------- meeting of the shareholders may be taken without a meeting if one or more written consents, setting forth the action taken, is signed by all of the shareholders who would be entitled to vote upon such action at a meeting, and is delivered to the Secretary to be kept as part of the corporate records, whether done before or after the action so taken. ARTICLE 3 Board of Directors ------------------ 3.1 General Powers. All corporate powers shall be exercised by or under the -------------- authority of, and the business and affairs of the Corporation shall be managed by, the Board of Directors, except as otherwise expressly provided by law, the Articles of Incorporation or these Bylaws. 3.2 Number and Qualifications. The number of directors constituting the ------------------------- Board of Directors shall be fourteen (14). The directors, in accordance with law, may from time-to-time change the number of directors by amendment of these Bylaws. Directors need not be residents of the State of Florida or shareholders of the Corporation. The number of directors shall not be reduced to a number less than the number of directors then in office unless such reduction shall become effective only at and after the next ensuing meeting of the shareholders for the election of directors. 3.3 Election of Directors. Except as provided in Sections 3.4 and 3.5, the --------------------- directors shall be elected at the annual meeting of shareholders. In addition, an election of directors may take place at a special meeting of shareholders called for that purpose. That number of persons, corresponding with the number of available seats, who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected. 3 3.4 Term of Directors. ----------------- (a) Each initial director named in the Articles of Incorporation or organizational minutes of the Corporation shall hold office until the first shareholders' meeting at which directors are elected, or until such director's death, resignation or removal. The term of every other director (including directors elected to fill a vacancy) shall expire at the next annual shareholders' meeting following the director's election or upon such director's earlier death, resignation or removal. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. (b) A decrease in the number of directors made pursuant to these Bylaws does not shorten an incumbent director's term; removal or resignation is required. (c) Despite the expiration of a director's stated term, such director shall continue to serve until the director's death, resignation or removal, until a successor shall be elected or until there is a decrease in the number of directors. 3.5 Removal. An individual director can be removed upon the affirmative ------- vote of the remaining directors in office. If any director is removed, a successor director may be elected at the same meeting. A director may not be removed at a meeting unless the notice of the meeting states that one of the purposes of the meeting is removal of the director. 3.6 Resignation. A director may resign at any time by communicating his ----------- resignation, orally or in writing, to the Board of Directors, its Chairman, or the Corporation (if orally given, the resignation must be communicated to the chief executive officer of the Corporation). Such resignation is effective when communicated unless it specifies in writing a later date or subsequent event upon which it will become effective. 3.7 Vacancies. Any vacancy occurring on the Board of Directors, including a --------- vacancy caused by an increase in the authorized number of directors or a failure of the shareholders to elect the full authorized numbers of directors, may be filled by the affirmative vote of a majority of the remaining directors (even though a quorum cannot be established) or by the sole remaining director or as required by law. 3.8 Chairman of the Board. There may be a Chairman and Vice Chairman of the --------------------- Board of Directors elected by the directors from among their number at any meeting of the Board of Directors. The Chairman, or in his absence his designee or the Vice Chairman, shall preside at all meetings of the Board of Directors and shareholders, and each shall perform such other duties as may be directed by the Board of Directors. Upon the failure of the Chairman, Vice Chairman or their designee to attend, the directors present, if a quorum, may elect any of them to serve as Chairman of the meeting. 4 3.9 Compensation. The Board of Directors may authorize the Corporation to ------------ compensate directors for their services as such and may provide for the payment of any or all expenses incurred by directors in attending regular and special meetings of the Board of Directors and Shareholders. This provision shall not preclude directors from serving the Corporation in other capacities and receiving compensation for such other services. ARTICLE 4 Meetings of Directors --------------------- 4.1 Regular Meetings. A regular meeting of the Board of Directors shall be ---------------- held immediately after, and at the same place as, the annual meeting of shareholders. In addition, the Board of Directors may provide, by resolution, the time and place, either within or without the State of Florida, for the holding of additional regular meetings. 4.2 Special Meetings. Special meetings of the Board of Directors may be ---------------- called by or at the request of the Chairman of the Board, the President or any two directors. Such a meeting may be held either within or without the State of Florida, as fixed by the person or persons calling the meeting. 4.3 Notice of Meetings. Regular meetings of the Board of Directors may be ------------------ held without notice. The person or persons calling a special meeting of the Board of Directors shall, at least two days before the meeting, give notice thereof by any usual means of communication. Notice of a regular meeting need not specify the purpose for which the meeting is called. Notice of a special meeting need only be given as may be required by law. Any duly convened regular or special meeting may be adjourned by the directors to a different place, date or time without further notice. 4.4 Waiver of Notice. Any director may waive notice of any meeting, either ---------------- before or after the meeting. Except as set forth in the next sentence, a waiver of notice shall be in writing and shall be filed by the Secretary with the corporate records or as part of the minutes of the meeting. The attendance by a director at a meeting shall constitute a waiver of notice of such meeting, except where a director at the beginning of the meeting (or promptly upon his arrival) objects to the holding of the meeting or transacting business at the meeting and does not vote for or assent to any action taken at the meeting. 4.5 Quorum. A majority of the number of directors fixed by these Bylaws ------ shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 4.6 Manner of Acting. Except as otherwise provided in the Articles of ---------------- Incorporation, in these Bylaws or as required by law, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 5 4.7 Presumption of Assent. A director of the Corporation who is present at --------------------- a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (i) he objects at the beginning of the meeting, or promptly upon his arrival, to holding the meeting or transacting business at it, (ii) his dissent or abstention from the action is entered in the minutes of the meeting, or (iii) he files written notice of his dissent to or abstention from such action with the presiding officer of the meeting before its adjournment or with the Corporation immediately after the adjournment of the meeting. The right of dissent or abstention is not available to a director who voted in favor of such action. 4.8 Informal Action by Directors. Action taken by a majority of the Board ---------------------------- of Directors without a meeting is nevertheless Board action if one or more written consents to the action in question is signed by all of the directors before or after the action is taken, and is included in the minutes of the proceedings of the Board of Directors or filed with the corporate records. 4.9 Participation by Telephone. Any one or more directors may participate -------------------------- in a meeting of the Board of Directors by means of a conference telephone or similar communications device that allows all persons participating in the meeting to hear each other. Directors participating in the Board of Directors meeting by this means shall be deemed present in person at the meeting. ARTICLE 5 [Reserved] -------- ARTICLE 6 Officers -------- 6.1 Officers of the Corporation. The officers of the Corporation shall --------------------------- consist of a Chairman of the Board, a President, a Vice President, a Secretary and a Treasurer, and such other officers, as may from time to time be appointed by or under the authority of the Board of Directors. Any two or more offices may be held by the same person but no officer may act in more than one capacity where the action of two or more officers is required. The Board of Directors shall appoint the Chief Executive Officer. In the event the Chief Executive Officer is unavailable at the time for needed action, or in other circumstances as directed by the Chief Executive Officer, then the Chairman, or if the Chairman is unavailable, then the Vice Chairman, if any, or the President if there is no Vice Chairman, who is not then serving as Chief Executive Officer, shall be the next officer in line of authority to perform the duties of Chief Executive Officer. If the Chairman, the Vice Chairman and the President should be unavailable at the time for needed action, or in other circumstances as directed by the Chief Executive Officer, then the next officer in line of authority to perform the duties of the Chief Executive Officer shall be a Vice President as designated by the Chief Executive Officer. 6.2 Appointment and Term. The officers of the Corporation shall be -------------------- appointed by the Board of Directors or by a duly appointed officer authorized by the Board of Directors to appoint one or more subordinate officers. Each officer serves at the pleasure of the directors and shall hold 6 office until his death, resignation, retirement or removal or until his successor shall have been appointed. 6.3 Compensation. The compensation of all officers of the Corporation shall ------------ be fixed by or under the authority of the Board of Directors. No officer shall serve the Corporation in any other capacity (other than as a director) and receive compensation therefor unless such additional compensation is authorized by the Board of Directors. 6.4 Removal and Resignation. ----------------------- (a) Any officer may be removed by the Board of Directors at any time with or without cause, but such removal shall not itself affect the officer's contract rights under a written agreement, if any, with the Corporation. (b) An officer may resign at any time by communicating his resignation to the Corporation, orally or in writing, but such resignation shall not affect the Corporation's contract rights, if any, with the officer. Such resignation is effective when communicated unless it specifies in writing a delayed effective time. If a resignation specifies a delayed effective time and is accepted by the Corporation, the Board of Directors may fill the pending vacancy if the successor does not take office until the effective time of the resignation. 6.5 Bonds. The Board of Directors may by resolution require any officer, ----- agent, or employee of the Corporation to give bond to the Corporation, with sufficient sureties, conditioned on the faithful performance of the duties of his respective office or position, and to comply with such other conditions as may from time to time be required by the Board of Directors. 6.6 President. Unless otherwise specified by the Board of Directors, the --------- President shall be primarily responsible for the implementation of policies of the Board of Directors. Subject to the control of the Board, he shall supervise and control all of the business and affairs of the Corporation. In the absence of the Chairman and the Vice Chairman of the Board, or if there are no persons appointed to those positions, the President shall preside at all meetings of shareholders. The President may execute in the name of the Corporation stock certificates, deeds, mortgages, bonds, contracts or other documents authorized by the Board of Directors except in cases where the signing and the execution thereof is expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or is required by law otherwise to be executed. In addition, the President shall perform all duties incident to the office of the President and such other duties as may be assigned to him by the Board of Directors. 6.7 Vice Presidents. Each Vice President, if any, shall have such powers --------------- and duties as may from time to time be assigned to him by the Board of Directors or delegated to him by the President. Any Vice President may execute in the name of the Corporation certificates for shares of the Corporation. In the absence of the President or in the event of his death, inability or refusal to act, unless otherwise determined by the Board of Directors, the Vice Presidents (if more than one, in order based on length of service in such capacity), shall perform the duties of the President, and 7 when so acting shall have all the powers of and be subject to all the restrictions upon the office of the President. 6.8 Secretary. The Secretary shall: (i) keep the minutes of the meetings of --------- shareholders, of the Board of Directors and of all committees of the Board of Directors in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (iii) maintain and authenticate the records of the Corporation and be custodian of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (iv) sign with the President, or a Vice President, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (v) maintain and have general charge of the stock transfer books of the Corporation; (vi) prepare or cause to be prepared shareholder lists prior to each meeting of shareholders as required by law; (vii) attest the signature or certify the incumbency or signature of any officer of the Corporation; and (viii) in general perform all duties incident to the office of secretary and such other duties as from time to time may be prescribed by the President or by the Board of Directors. 6.9 Assistant Secretaries. In the absence of the Secretary or in the event --------------------- of his death, inability or refusal to act, the Assistant Secretaries in the order of their length of service as Assistant Secretary, unless otherwise determined by the President or the Board of Directors, shall perform the duties of the Secretary and when so acting shall have all the powers of and be subject to all the restrictions upon the office of the Secretary. The Assistant Secretaries shall perform such other duties as may be assigned to them by the Secretary, by the President, or by the Board of Directors. Any Assistant Secretary may sign, with the President or a Vice President, documents authorized to be signed by the Secretary and certificates for shares of the Corporation. 6.10 Treasurer. The Treasurer shall: (i) have charge and custody of and be --------- responsible for all funds and securities of the Corporation; receive and give receipts for money due and payable to the Corporation from any source whatsoever, and deposit all such money in the name of the Corporation in such depositories as shall be selected in accordance with the provisions of Section 8.4 of these Bylaws; (ii) maintain appropriate accounting records as required by law; (iii) prepare, or cause to be prepared, annual financial statements of the Corporation that include a balance sheet as of the end of the fiscal year and an income and cash flow statement for that year, which statements, or a written notice of their availability, shall be mailed to each shareholder within 120 days after the end of such fiscal year; and (iv) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be prescribed by the President or by the Board of Directors. 6.11 Assistant Treasurers. In the absence of the Treasurer or in the event -------------------- of his death, inability or refusal to act, the Assistant Treasurers in the order of their length of service as Assistant Treasurer, unless otherwise determined by the Board of Directors, shall perform the duties of the Treasurer, and when so acting shall have all the powers of and be subject to all the restrictions upon the office of the Treasurer. They shall perform such other duties as may be assigned to them by the Treasurer, by the President, by the Board of Directors or an authorized committee thereof. 8 6.12 Voting of Stock Held. Unless otherwise provided by the Board of -------------------- Directors, the President or, if authorized by the President, any Vice President or the Secretary may from time to time appoint one or more attorneys-in-fact or agent or agents of the Corporation to cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, to waive notice of meetings or to consent in writing to any action by shareholders of any other such corporation, or to take any action for the Corporation as a partner in any partnership or a member in any limited liability company. Such officer may instruct the person or persons so appointed as to the manner of casting votes, waiving notice or giving consent, and may execute or cause to be executed on behalf of the Corporation written appointments of proxies, consents, waivers or other instruments he may deem necessary or proper. The President or at his direction any Vice President or the Secretary may attend any meeting of the holders of stock or other securities of such other corporation, any meeting of partners of a partnership or members of a limited liability company, and vote or exercise any powers of the Corporation as the holder of such stock or other securities, as partner or as member. ARTICLE 7 Capital Stock ------------- 7.1 Certificated and Uncertificated Shares. -------------------------------------- (a) The Board of Directors, as permitted by law, may authorize the issuance of some or all of the shares of the Corporation's classes or series of capital stock without issuing certificates to represent such shares. If shares are represented by certificates, the certificates shall be in such form as required by law and as determined by the Board of Directors. Certificates shall be signed by the President or a Vice President and by the Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer. The signatures of any such officers upon a certificate may be facsimiles or may be engraved or printed or omitted if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. If an officer who has signed or whose facsimile or other signature has been placed upon a certificate ceases to hold the office before the certificate is issued, the certificate may be issued by the Corporation with the same effect as if he held the office on the date of issuance. (b) All certificates for shares shall be consecutively numbered or otherwise identified and entered into the stock transfer records of the Corporation. When shares are represented by certificates, the Corporation shall issue and deliver to each shareholder to whom such shares have been issued or transferred certificates representing the shares owned by him. When shares are not represented by certificates, then within a reasonable time after the issuance or transfer of such shares, the Corporation shall send the shareholder to whom such shares have been issued or transferred a written statement of the information required by law to be on certificates. (c) If uncertificated shares are issued, the Corporation shall send each holder of such shares a written statement containing the information required by law. 9 (d) Transfer agents or registrars, or both, for one or more classes of the stock of the Corporation may be appointed by the Board of Directors and may be required to countersign certificates representing shares of such class or classes. 7.2 Share Transfer Records. The Corporation shall maintain share transfer ---------------------- records, containing the name and address of each shareholder of record and the number and class or series of shares held by such shareholder. Transfers of shares of the Corporation shall be made only on the share transfer records of the Corporation by the holder of record thereof or by an agent or legal representative duly authorized in writing and only upon surrender for cancellation of the certificate for such shares (if the shares are represented by certificates), duly endorsed. 7.3 Lost or Destroyed Certificate. The Board of Directors may direct that a ----------------------------- new certificate be issued in place of a certificate claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming loss or destruction. In authorizing the issuance of a new certificate, the Board of Directors may require the claimant to give the Corporation a bond in such sum, and with such surety, as the Board of Directors may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost or destroyed, except where the Board of Directors by resolution finds that in its judgment the circumstances justify omission of a bond. 7.4 Closing of Transfer Books or Fixing Record Date. ----------------------------------------------- (a) If no record date is fixed by the Board of Directors for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the day before the first notice of the meeting is given to shareholders shall be the record date for such determination of shareholders or as required by law. (b) The Board of Directors may fix a date as the record date for determining shareholders entitled to a distribution or share dividend. If no record date is fixed by the Board of Directors for such determination, the record date shall be the date the Board of Directors authorizes the distribution or share dividend. 7.5 Holder of Record. Except as otherwise provided by law, the Corporation ---------------- may treat the person in whose name the shares stand of record on its books as the absolute owner of shares. The Corporation may assume that the holder of record had full competency, capacity and authority to exercise all rights of ownership, irrespective of any knowledge or notice to the contrary or any description indicating a representative, pledge or other fiduciary relation or any reference to any other instrument or to the rights of any other person appearing upon the records of the Corporation or upon the share certificate. 10 ARTICLE 8 Loans; Contracts; Checks; Deposits ---------------------------------- 8.1 Loans. No loans shall be contracted on behalf of the Corporation, and ----- no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. 8.2 Contracts. The Board of Directors may authorize any officer or --------- officers, agent or agents, to enter into any contract or execute and deliver any instrument, filing or certificate in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. 8.3 Checks, Notes and Drafts. All checks, notes, drafts or other orders for ------------------------ the payment of money, issued in the name of the Corporation, shall be signed by such officer or officers, agent or employees of the Corporation as shall from time to time be determined by resolution of the Board of Directors. Any authorized signature may be a facsimile. 8.4 Deposits. All funds of the Corporation not otherwise employed shall be -------- deposited to the credit of the Corporation in such depositories as the Board of Directors select. ARTICLE 9 General Provisions ------------------ 9.1 Distributions. The Board of Directors may from time to time authorize, ------------- and the Corporation may grant, distributions and share dividends to its shareholders pursuant to law and subject to the provisions of the Articles of Incorporation. 9.2 Seal. The corporate seal of the Corporation shall be in the form ---- approved from time to time by the Board of Directors. 9.3 Notice. ------ (a) Notice may be communicated: in person; by telephone, telegraph, teletype, or other form of wire or wireless communication, or by facsimile transmission; or by mail or private carrier. (b) Written notice is effective at the earliest of the following: (i) When received; (ii) Five days after its deposit in a depository in the United States mail, as evidenced by the postmark or based on the affidavit of the person depositing the 11 notice, if mailed with postage thereon prepaid and correctly addressed; (iii)On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, signed by or on behalf of the addressee. Anyone accepting the mail at the stated address and signing the receipt shall be conclusively presumed to have acted on behalf of the addressee. (c) Oral notice is effective when actually communicated to the person to whom given. (d) If these Bylaws prescribe notice requirements for particular circumstances, those requirements govern. 9.4 Waiver of Notice. In addition to provisions elsewhere in these Bylaws ---------------- regarding waiver of notice, whenever any notice is required to be given to any shareholder or director by law, by the Articles of Incorporation or by these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice to such person. 9.5 Fiscal Year. The fiscal year of the Corporation shall be fixed by the ----------- Board of Directors. 9.6 Amendment of Bylaws. Except as otherwise provided by law, by the ------------------- Articles of Incorporation or herein, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors or by the shareholders. No Bylaw adopted, amended or repealed by the shareholders shall be readopted, amended or repealed by the Board of Directors, unless the Articles of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of Directors to adopt, amend or repeal that particular Bylaw or the Bylaws generally. ARTICLE 10 Indemnification --------------- 10.1 Indemnification of Directors. ---------------------------- (a) In addition to any indemnification required or permitted by law, or under any contract entered into by the Corporation that has been authorized by the Board of Directors, and except as otherwise provided in these Bylaws, any person who at any time serves or has served as a director of the Corporation, or who, while serving as a director of the Corporation serves, or has served, at the request of the Corporation as a director, officer, partner, trustee, employee or agent for any other corporation, partnership, limited liability company, joint venture, trust or other enterprise, or as a trustee or administrator under an employee benefit plan, shall have a right to be indemnified 12 by the Corporation against (i) reasonable expenses, including attorneys' fees, incurred by him in connection with any threatened, pending or completed action, suit or proceeding (including appeals), whether or not brought by or on behalf of the Corporation, and whether civil, criminal, administrative, investigative or arbitrative, seeking to hold him liable by reason of the fact that he is or was acting in such capacity, and (ii) payments made by him in satisfaction of any judgment, money decree, fine, tax, penalty or settlement for which he may have become liable in any such action, suit or proceeding. (b) Notwithstanding other provisions of these Bylaws, the Corporation shall not indemnify any person against liability or expense he may incur on account of his activities which were at the time taken known or believed by him to be clearly in conflict with the best interests of the Corporation. Furthermore, the Corporation shall not indemnify any director with respect to any liability of that director arising out of an unlawful distribution or any transaction from which the director derived an improper personal benefit as provided in law. The Corporation shall have the burden of proving that the indemnitee failed to satisfy the standard of conduct or otherwise is not entitled to indemnification payments under this Article or at law. (c) The Board of Directors of the Corporation shall take all such action as may be necessary and appropriate to authorize the Corporation to pay the indemnification required by this Section 10.1, including, without limitation, making a determination (consistent with the burden of proof specified in Section 10.1(b), above) that indemnification is permissible in the circumstances and a good faith evaluation of the manner in which the claimant for indemnity acted and of the amount of indemnity due. The Board of Directors may appoint a committee or special counsel to make such determination and evaluation. To the extent needed, the Board shall give notice to, and obtain approval by, the shareholders of the Corporation for any decision to indemnify under these Bylaws. (d) Any person who at any time after the adoption of this Bylaw serves or has served in any of the capacities indicated in subsection (a) of this Bylaw shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein. Such right shall inure to the benefit of the legal representatives of any such person and shall not be exclusive of any other rights to which such person may be entitled apart from the provision of this Bylaw. (e) The Corporation shall pay the expenses incurred by a director in defending a civil or criminal action, suit or proceeding for which indemnification is claimed in advance of final disposition upon receipt of an undertaking by or on behalf of the director to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation against such expenses. The undertaking need not be secured and shall be sufficient without reference to the financial ability of the director to make repayment. 10.2 Indemnification of Officers, Etc. The Corporation may indemnify and -------------------------------- advance expenses of defense, to the same extent as in the case of a director, persons serving as officers, employees or agents of the Corporation, or in such capacity at the request of the Corporation for any 13 other corporation, partnership, limited liability company, joint venture, trust or other enterprise, or as a trustee or administrator under an employee benefit plan, to the fullest extent permitted by law. 10.3 Enforcement Expenses. A person entitled to indemnification under these -------------------- Bylaws also shall be entitled to recovery of reasonable costs, expenses and attorneys' fees incurred in connection with enforcement of indemnification rights under these Bylaws. 10.4 Insurance. To the extent allowed by law, the Corporation shall have --------- the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or who is or was serving at the request of the Corporation as a director, officer or employee or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, or other enterprise or as a trustee or administrator under an employee benefit plan against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation has the power to indemnify him against such liability. Dated: November 30, 2000 14 EX-3.(D) 4 dex3d.txt AMENDED BYLAWS OF FLORIDA POWER Exhibit 3.(d) BYLAWS OF Florida Power Corporation (A Florida Corporation) As of October 1, 2001 TABLE OF CONTENTS ARTICLE 1 Offices 1.1 Principal Office......................................................1 1.2 Registered Office.....................................................1 1.3 Other Offices.........................................................1 ARTICLE 2 Meetings of Shareholders 2.1 Place of Meetings.....................................................1 2.2 Annual Meetings.......................................................1 2.3 Substitute Annual Meeting.............................................1 2.4 Special Meetings......................................................1 2.5 Notice of Meetings....................................................1 2.6 Quorum................................................................2 2.7 Voting of Shares......................................................2 2.8 Conduct of Meetings...................................................3 2.9 Informal Action by Shareholders.......................................3 ARTICLE 3 Board of Directors 3.1 General Powers........................................................3 3.2 Number and Qualifications.............................................3 3.3 Election of Directors.................................................3 3.4 Term of Directors.....................................................4 3.5 Removal...............................................................4 3.6 Resignation...........................................................4 3.7 Vacancies.............................................................4 3.8 Chairman of the Board.................................................4 3.9 Compensation..........................................................5 ARTICLE 4 Meetings of Directors 4.1 Regular Meetings......................................................5 4.2 Special Meetings......................................................5 4.3 Notice of Meetings....................................................5 4.4 Waiver of Notice......................................................5 4.5 Quorum................................................................5 4.6 Manner of Acting......................................................6 4.7 Presumption of Assent.................................................6 4.8 Informal Action by Directors..........................................6 4.9 Participation by Telephone............................................6 i ARTICLE 5 [Reserved] ARTICLE 6 Officers 6.1 Officers of the Corporation...........................................6 6.2 Appointment and Term..................................................7 6.3 Compensation..........................................................7 6.4 Removal and Resignation...............................................7 6.5 Bonds.................................................................7 6.6 President.............................................................7 6.7 Vice Presidents.......................................................7 6.8 Secretary.............................................................8 6.9 Assistant Secretaries.................................................8 6.10 Treasurer.............................................................8 6.11 Assistant Treasurers..................................................8 6.12 Voting of Stock Held..................................................9 ARTICLE 7 Capital Stock 7.1 Certificated and Uncertificated Shares................................9 7.2 Share Transfer Records...............................................10 7.3 Lost or Destroyed Certificate........................................10 7.4 Closing of Transfer Books or Fixing Record Date......................10 7.5 Holder of Record.....................................................10 ARTICLE 8 Loans; Contracts; Checks; Deposits 8.1 Loans................................................................11 8.2 Contracts............................................................11 8.3 Checks, Notes and Drafts.............................................11 8.4 Deposits.............................................................11 ARTICLE 9 General Provisions 9.1 Distributions........................................................11 9.2 Seal.................................................................11 9.3 Notice...............................................................11 9.4 Waiver of Notice.....................................................12 9.5 Fiscal Year..........................................................12 9.6 Amendment of Bylaws..................................................12 ii ARTICLE 10 Indemnification 10.1 Indemnification of Directors.........................................12 10.2 Indemnification of Officers, Etc.....................................13 10.3 Enforcement Expenses.................................................14 10.4 Insurance............................................................14 iii FLORIDA POWER CORPORATION ARTICLE 1 Offices ------- 1.1 Principal Office. The Board of Directors may designate where the ---------------- principal office of the Corporation shall be from time to time. 1.2 Registered Office. The Board of Directors may designate where the ----------------- registered office of the Corporation required by law to be maintained in the State of Florida shall be. The registered office may be, but need not be, identical with the principal office. 1.3 Other Offices. The Corporation may have offices at such other ------------- places, either within or without the State of Florida, as the Board of Directors may designate or as the affairs of the Corporation may require from time to time. ARTICLE 2 Meetings of Shareholders ------------------------ 2.1 Place of Meetings. All meetings of shareholders shall be held at ----------------- such place, either within or without the State of Florida, as may be fixed by the person or persons calling the meeting pursuant to these Bylaws and designated in the notice of meeting or in a duly executed waiver of notice. Absent a designation in the notice of meeting or a waiver of notice, meetings of shareholders shall be held at the principal office of the Corporation. 2.2 Annual Meetings. The annual meeting of shareholders, for the --------------- election of directors and the transaction of any other business properly brought before the meeting, shall be held on or before December 15 of each year, at 10 o'clock A.M. or at such other date or hour as stated in the notice of meeting. If the day fixed for the annual meeting is a legal holiday in the place where the meeting is to be held, the meeting shall be held on the next business day at the designated time. 2.3 Substitute Annual Meeting. If the annual meeting is not held on ------------------------- the day designated in Section 2.2, a substitute annual meeting shall be held as soon as convenient after the planned date, as provided in Section 2.4. A substitute annual meeting shall be designated and treated for all purposes as the annual meeting. 2.4 Special Meetings. Special meetings of the shareholders for any ---------------- purpose or purposes may be called at any time by the President, or upon call by a majority of the Board of Directors of the Corporation or by the Chairman of the Board or as required by law. 2.5 Notice of Meetings. ------------------ (a) Written notice stating the place, date and hour of every meeting of shareholders shall be given not less than 10 days nor more than 60 days before the date of the meeting to each shareholder entitled to vote on any matter at the meeting. Notice shall be given to all shareholders at least 25 days in advance with respect to any meeting at which a merger or share exchange is to be considered, and in other instances as required by law. Delivery and effectiveness of notice shall be as provided by Section 9.3 of these Bylaws. (b) In the case of a special meeting, the notice of meeting shall specifically state the purpose or purposes for which the meeting is called, and no business shall be transacted or corporate action taken other than that stated in the notice. In the case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted unless required by law. (c) When a meeting is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. When a meeting is adjourned to a different place or time, or to a different date not more than 30 days after the date of the original meeting, and a new record date is not fixed for the adjourned meeting, it is not necessary to give any notice of the adjourned meeting other than by announcement at the meeting at which the adjournment is taken. A new record date must be set if the meeting is adjourned to a date more than 30 days after the date of the original meeting, and in such case a notice of the adjourned meeting must be given to every shareholder of record as of the new record date who is otherwise entitled to notice of a meeting (based on the matters to be addressed at such meeting) under these Bylaws. Any meeting at which directors are to be elected shall be adjourned only from day-to-day until such directors have been elected. 2.6 Quorum. ------ (a) The holders of a majority of the stock of the Corporation having voting powers must be present in person or represented by proxy at each meeting of the shareholders to constitute a quorum. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of the meeting unless a new record date is or must be set for the adjourned meeting. (b) In the absence of a quorum at the opening of any meeting of shareholders, such meeting may be adjourned from time to time by a vote of the majority of the shares voting on the motion to adjourn. Subject to the notice requirements of Section 2.5, at any adjourned meeting any business may be transacted which might have been transacted at the original meeting, following establishment of a quorum with respect to the matter. 2.7 Voting of Shares. ---------------- (a) Subject to the provisions of the Articles of Incorporation, each shareholder entitled to vote on a matter coming before the meeting shall be entitled to one vote as to that matter for each share of capital stock held of record by the shareholder. 2 (b) Action on a matter is approved if a quorum of shares exists and the votes cast in favor of the action exceed the votes opposed to the action, unless a greater vote in favor is required by law, by the Articles of Incorporation or by a Bylaw adopted by the shareholders in accordance with law. (c) The President of the Corporation's parent, or his designee, shall vote the shares of the Corporation. 2.8 Conduct of Meetings. At each meeting of the shareholders, the Chairman ------------------- of the Board, if any, shall act as chairman and preside. The Chairman of the Board may designate another person to preside as chairman of the meeting. If the Chairman of the Board is absent from the meeting and has not made a designation, or if there is no Chairman of the Board, the designation may be made by the directors present or the President. The Secretary or an Assistant Secretary, or a person whom the chairman of such meeting shall appoint, shall act as secretary of the meeting. The chairman of the meeting shall announce the opening and closing of the polls for each matter voted upon. 2.9 Informal Action by Shareholders. Any action that may be taken at a ------------------------------- meeting of the shareholders may be taken without a meeting if one or more written consents, setting forth the action taken, is signed by all of the shareholders who would be entitled to vote upon such action at a meeting, and is delivered to the Secretary to be kept as part of the corporate records, whether done before or after the action so taken. ARTICLE 3 Board of Directors ------------------ 3.1 General Powers. All corporate powers shall be exercised by or under the -------------- authority of, and the business and affairs of the Corporation shall be managed by, the Board of Directors, except as otherwise expressly provided by law, the Articles of Incorporation or these Bylaws. 3.2 Number and Qualifications. The number of directors constituting the ------------------------- Board of Directors shall by seven (7). The directors, in accordance with law, may from time-to-time change the number of directors by amendment of these Bylaws. Directors need not be residents of the State of Florida or shareholders of the Corporation. The number of directors shall not be reduced to a number less than the number of directors then in office unless such reduction shall become effective only at and after the next ensuing meeting of the shareholders for the election of directors. 3.3 Election of Directors. Except as provided in Sections 3.4 and 3.5, the --------------------- directors shall be elected at the annual meeting of shareholders. In addition, an election of directors may take place at a special meeting of shareholders called for that purpose. That number of persons, corresponding with the number of available seats, who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected. 3 3.4 Term of Directors. ----------------- (a) Each initial director named in the Articles of Incorporation or organizational minutes of the Corporation shall hold office until the first shareholders' meeting at which directors are elected, or until such director's death, resignation or removal. The term of every other director (including directors elected to fill a vacancy) shall expire at the next annual shareholders' meeting following the director's election or upon such director's earlier death, resignation or removal. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. (b) A decrease in the number of directors made pursuant to these Bylaws does not shorten an incumbent director's term; removal or resignation is required. (c) Despite the expiration of a director's stated term, such director shall continue to serve until the director's death, resignation or removal, until a successor shall be elected or until there is a decrease in the number of directors. 3.5 Removal. An individual director can be removed upon the affirmative ------- vote of the remaining directors in office. If any director is removed, a successor director may be elected at the same meeting. A director may not be removed at a meeting unless the notice of the meeting states that one of the purposes of the meeting is removal of the director. 3.6 Resignation. A director may resign at any time by communicating his ----------- resignation, orally or in writing, to the Board of Directors, its Chairman, or the Corporation (if orally given, the resignation must be communicated to the chief executive officer of the Corporation). Such resignation is effective when communicated unless it specifies in writing a later date or subsequent event upon which it will become effective. 3.7 Vacancies. Any vacancy occurring on the Board of Directors, including --------- a vacancy caused by an increase in the authorized number of directors or a failure of the shareholders to elect the full authorized numbers of directors, may be filled by the affirmative vote of a majority of the remaining directors (even though a quorum cannot be established) or by the sole remaining director or as required by law. 3.8 Chairman of the Board. There may be a Chairman and Vice Chairman of the --------------------- Board of Directors elected by the directors from among their number at any meeting of the Board of Directors. The Chairman, or in his absence his designee or the Vice Chairman, shall preside at all meetings of the Board of Directors and shareholders, and each shall perform such other duties as may be directed by the Board of Directors. Upon the failure of the Chairman, Vice Chairman or 4 their designee to attend, the directors present, if a quorum, may elect any of them to serve as Chairman of the meeting. 3.9 Compensation. The Board of Directors may authorize the Corporation to ------------ compensate directors for their services as such and may provide for the payment of any or all expenses incurred by directors in attending regular and special meetings of the Board of Directors and Shareholders. This provision shall not preclude directors from serving the Corporation in other capacities and receiving compensation for such other services. ARTICLE 4 Meetings of Directors --------------------- 4.1 Regular Meetings. A regular meeting of the Board of Directors shall be ---------------- held immediately after, and at the same place as, the annual meeting of shareholders. In addition, the Board of Directors may provide, by resolution, the time and place, either within or without the State of Florida, for the holding of additional regular meetings. 4.2 Special Meetings. Special meetings of the Board of Directors may be ---------------- called by or at the request of the Chairman of the Board, the President or any two directors. Such a meeting may be held either within or without the State of Florida, as fixed by the person or persons calling the meeting. 4.3 Notice of Meetings. Regular meetings of the Board of Directors may be ------------------ held without notice. The person or persons calling a special meeting of the Board of Directors shall, at least two days before the meeting, give notice thereof by any usual means of communication. Notice of a regular meeting need not specify the purpose for which the meeting is called. Notice of a special meeting need only be given as may be required by law. Any duly convened regular or special meeting may be adjourned by the directors to a different place, date or time without further notice. 4.4 Waiver of Notice. Any director may waive notice of any meeting, either ---------------- before or after the meeting. Except as set forth in the next sentence, a waiver of notice shall be in writing and shall be filed by the Secretary with the corporate records or as part of the minutes of the meeting. The attendance by a director at a meeting shall constitute a waiver of notice of such meeting, except where a director at the beginning of the meeting (or promptly upon his arrival) objects to the holding of the meeting or transacting business at the meeting and does not vote for or assent to any action taken at the meeting. 4.5 Quorum. A majority of the number of directors fixed by these Bylaws ------ shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 5 4.6 Manner of Acting. Except as otherwise provided in the Articles of ---------------- Incorporation, in these Bylaws or as required by law, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 4.7 Presumption of Assent. A director of the Corporation who is present at --------------------- a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (i) he objects at the beginning of the meeting, or promptly upon his arrival, to holding the meeting or transacting business at it, (ii) his dissent or abstention from the action is entered in the minutes of the meeting, or (iii) he files written notice of his dissent to or abstention from such action with the presiding officer of the meeting before its adjournment or with the Corporation immediately after the adjournment of the meeting. The right of dissent or abstention is not available to a director who voted in favor of such action. 4.8 Informal Action by Directors. Action taken by a majority of the Board ---------------------------- of Directors without a meeting is nevertheless Board action if one or more written consents to the action in question is signed by all of the directors before or after the action is taken, and is included in the minutes of the proceedings of the Board of Directors or filed with the corporate records. 4.9 Participation by Telephone. Any one or more directors may participate -------------------------- in a meeting of the Board of Directors by means of a conference telephone or similar communications device that allows all persons participating in the meeting to hear each other. Directors participating in the Board of Directors meeting by this means shall be deemed present in person at the meeting. ARTICLE 5 [Reserved] ---------- ARTICLE 6 Officers -------- 6.1 Officers of the Corporation. The officers of the Corporation shall --------------------------- consist of a Chairman of the Board, a President, a Vice President, a Secretary and a Treasurer, and such other officers, as may from time to time be appointed by or under the authority of the Board of Directors. Any two or more offices may be held by the same person but no officer may act in more than one capacity where the action of two or more officers is required. The Board of Directors shall appoint the Chief Executive Officer. In the event the Chief Executive Officer is unavailable at the time for needed action, or in other circumstances as directed by the Chief Executive Officer, then the Chairman, or if the Chairman is unavailable, then the Vice Chairman, if any, or the President if there is no Vice Chairman, who is not then serving as Chief Executive Officer, shall be the next officer in line of authority to perform the duties of Chief Executive Officer. If the Chairman, the Vice Chairman and the President should be unavailable at the time for needed action, or in other circumstances as directed by the Chief Executive Officer, then the next officer in line of authority to perform the duties of the Chief Executive Officer shall be a Vice President as designated by the Chief Executive Officer. 6 6.2 Appointment and Term. The officers of the Corporation shall be -------------------- appointed by the Board of Directors or by a duly appointed officer authorized by the Board of Directors to appoint one or more subordinate officers. Each officer serves at the pleasure of the directors and shall hold office until his death, resignation, retirement or removal or until his successor shall have been appointed. 6.3 Compensation. The compensation of all officers of the Corporation shall ------------ be fixed by or under the authority of the Board of Directors. No officer shall serve the Corporation in any other capacity (other than as a director) and receive compensation therefor unless such additional compensation is authorized by the Board of Directors. 6.4 Removal and Resignation. ----------------------- (a) Any officer may be removed by the Board of Directors at any time with or without cause, but such removal shall not itself affect the officer's contract rights under a written agreement, if any, with the Corporation. (b) An officer may resign at any time by communicating his resignation to the Corporation, orally or in writing, but such resignation shall not affect the Corporation's contract rights, if any, with the officer. Such resignation is effective when communicated unless it specifies in writing a delayed effective time. If a resignation specifies a delayed effective time and is accepted by the Corporation, the Board of Directors may fill the pending vacancy if the successor does not take office until the effective time of the resignation. 6.5 Bonds. The Board of Directors may by resolution require any officer, ----- agent, or employee of the Corporation to give bond to the Corporation, with sufficient sureties, conditioned on the faithful performance of the duties of his respective office or position, and to comply with such other conditions as may from time to time be required by the Board of Directors. 6.6 President. Unless otherwise specified by the Board of Directors, the --------- President shall be primarily responsible for the implementation of policies of the Board of Directors. Subject to the control of the Board, he shall supervise and control all of the business and affairs of the Corporation. In the absence of the Chairman and the Vice Chairman of the Board, or if there are no persons appointed to those positions, the President shall preside at all meetings of shareholders. The President may execute in the name of the Corporation stock certificates, deeds, mortgages, bonds, contracts or other documents authorized by the Board of Directors except in cases where the signing and the execution thereof is expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or is required by law otherwise to be executed. In addition, the President shall perform all duties incident to the office of the President and such other duties as may be assigned to him by the Board of Directors. 6.7 Vice Presidents. Each Vice President, if any, shall have such powers --------------- and duties as may from time to time be assigned to him by the Board of Directors or delegated to him by the President. Any Vice President may execute in the name of the Corporation certificates for shares of 7 the Corporation. In the absence of the President or in the event of his death, inability or refusal to act, unless otherwise determined by the Board of Directors, the Vice Presidents (if more than one, in order based on length of service in such capacity), shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the office of the President. 6.8 Secretary. The Secretary shall: (i) keep the minutes of the meetings of --------- shareholders, of the Board of Directors and of all committees of the Board of Directors in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (iii) maintain and authenticate the records of the Corporation and be custodian of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (iv) sign with the President, or a Vice President, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (v) maintain and have general charge of the stock transfer books of the Corporation; (vi) prepare or cause to be prepared shareholder lists prior to each meeting of shareholders as required by law; (vii) attest the signature or certify the incumbency or signature of any officer of the Corporation; and (viii) in general perform all duties incident to the office of secretary and such other duties as from time to time may be prescribed by the President or by the Board of Directors. 6.9 Assistant Secretaries. In the absence of the Secretary or in the event --------------------- of his death, inability or refusal to act, the Assistant Secretaries in the order of their length of service as Assistant Secretary, unless otherwise determined by the President or the Board of Directors, shall perform the duties of the Secretary and when so acting shall have all the powers of and be subject to all the restrictions upon the office of the Secretary. The Assistant Secretaries shall perform such other duties as may be assigned to them by the Secretary, by the President, or by the Board of Directors. Any Assistant Secretary may sign, with the President or a Vice President, documents authorized to be signed by the Secretary and certificates for shares of the Corporation. 6.10 Treasurer. The Treasurer shall: (i) have charge and custody of and be --------- responsible for all funds and securities of the Corporation; receive and give receipts for money due and payable to the Corporation from any source whatsoever, and deposit all such money in the name of the Corporation in such depositories as shall be selected in accordance with the provisions of Section 8.4 of these Bylaws; (ii) maintain appropriate accounting records as required by law; (iii) prepare, or cause to be prepared, annual financial statements of the Corporation that include a balance sheet as of the end of the fiscal year and an income and cash flow statement for that year, which statements, or a written notice of their availability, shall be mailed to each shareholder within 120 days after the end of such fiscal year; and (iv) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be prescribed by the President or by the Board of Directors. 6.11 Assistant Treasurers. In the absence of the Treasurer or in the event -------------------- of his death, inability or refusal to act, the Assistant Treasurers in the order of their length of service as Assistant Treasurer, unless otherwise determined by the Board of Directors, shall perform the duties of the 8 Treasurer, and when so acting shall have all the powers of and be subject to all the restrictions upon the office of the Treasurer. They shall perform such other duties as may be assigned to them by the Treasurer, by the President, by the Board of Directors or an authorized committee thereof. 6.12 Voting of Stock Held. Unless otherwise provided by the Board of -------------------- Directors, the President or, if authorized by the President, any Vice President or the Secretary may from time to time appoint one or more attorneys-in-fact or agent or agents of the Corporation to cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, to waive notice of meetings or to consent in writing to any action by shareholders of any other such corporation, or to take any action for the Corporation as a partner in any partnership or a member in any limited liability company. Such officer may instruct the person or persons so appointed as to the manner of casting votes, waiving notice or giving consent, and may execute or cause to be executed on behalf of the Corporation written appointments of proxies, consents, waivers or other instruments he may deem necessary or proper. The President or at his direction any Vice President or the Secretary may attend any meeting of the holders of stock or other securities of such other corporation, any meeting of partners of a partnership or members of a limited liability company, and vote or exercise any powers of the Corporation as the holder of such stock or other securities, as partner or as member. ARTICLE 7 Capital Stock ------------- 7.1 Certificated and Uncertificated Shares. -------------------------------------- (a) The Board of Directors, as permitted by law, may authorize the issuance of some or all of the shares of the Corporation's classes or series of capital stock without issuing certificates to represent such shares. If shares are represented by certificates, the certificates shall be in such form as required by law and as determined by the Board of Directors. Certificates shall be signed by the President or a Vice President and by the Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer. The signatures of any such officers upon a certificate may be facsimiles or may be engraved or printed or omitted if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. If an officer who has signed or whose facsimile or other signature has been placed upon a certificate ceases to hold the office before the certificate is issued, the certificate may be issued by the Corporation with the same effect as if he held the office on the date of issuance. (b) All certificates for shares shall be consecutively numbered or otherwise identified and entered into the stock transfer records of the Corporation. When shares are represented by certificates, the Corporation shall issue and deliver to each shareholder to whom such shares have been issued or transferred certificates representing the shares owned by him. When shares are not represented by certificates, then within a reasonable time after the issuance or transfer of such shares, the Corporation shall send the shareholder to whom such shares have been issued or transferred a written statement of the information required by law to be on certificates. 9 (c) If uncertificated shares are issued, the Corporation shall send each holder of such shares a written statement containing the information required by law. (d) Transfer agents or registrars, or both, for one or more classes of the stock of the Corporation may be appointed by the Board of Directors and may be required to countersign certificates representing shares of such class or classes. 7.2 Share Transfer Records. The Corporation shall maintain share transfer ---------------------- records, containing the name and address of each shareholder of record and the number and class or series of shares held by such shareholder. Transfers of shares of the Corporation shall be made only on the share transfer records of the Corporation by the holder of record thereof or by an agent or legal representative duly authorized in writing and only upon surrender for cancellation of the certificate for such shares (if the shares are represented by certificates), duly endorsed. 7.3 Lost or Destroyed Certificate. The Board of Directors may direct that a ----------------------------- new certificate be issued in place of a certificate claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming loss or destruction. In authorizing the issuance of a new certificate, the Board of Directors may require the claimant to give the Corporation a bond in such sum, and with such surety, as the Board of Directors may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost or destroyed, except where the Board of Directors by resolution finds that in its judgment the circumstances justify omission of a bond. 7.4 Closing of Transfer Books or Fixing Record Date. ----------------------------------------------- (a) If no record date is fixed by the Board of Directors for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the day before the first notice of the meeting is given to shareholders shall be the record date for such determination of shareholders or as required by law. (b) The Board of Directors may fix a date as the record date for determining shareholders entitled to a distribution or share dividend. If no record date is fixed by the Board of Directors for such determination, the record date shall be the date the Board of Directors authorizes the distribution or share dividend. 7.5 Holder of Record. Except as otherwise provided by law, the Corporation ---------------- may treat the person in whose name the shares stand of record on its books as the absolute owner of shares. The Corporation may assume that the holder of record had full competency, capacity and authority to exercise all rights of ownership, irrespective of any knowledge or notice to the contrary or any description indicating a representative, pledge or other fiduciary relation or any reference to any other instrument or to the rights of any other person appearing upon the records of the Corporation or upon the share certificate. 10 ARTICLE 8 Loans; Contracts; Checks; Deposits ---------------------------------- 8.1 Loans. No loans shall be contracted on behalf of the Corporation, and ----- no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. 8.2 Contracts. The Board of Directors may authorize any officer or --------- officers, agent or agents, to enter into any contract or execute and deliver any instrument, filing or certificate in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. 8.3 Checks, Notes and Drafts. All checks, notes, drafts or other orders for ------------------------ the payment of money, issued in the name of the Corporation, shall be signed by such officer or officers, agent or employees of the Corporation as shall from time to time be determined by resolution of the Board of Directors. Any authorized signature may be a facsimile. 8.4 Deposits. All funds of the Corporation not otherwise employed shall be -------- deposited to the credit of the Corporation in such depositories as the Board of Directors select. ARTICLE 9 General Provisions ------------------ 9.1 Distributions. The Board of Directors may from time to time authorize, ------------- and the Corporation may grant, distributions and share dividends to its shareholders pursuant to law and subject to the provisions of the Articles of Incorporation. 9.2 Seal. The corporate seal of the Corporation shall be in the form ---- approved from time to time by the Board of Directors. 9.3 Notice. ------ (a) Notice may be communicated: in person; by telephone, telegraph, teletype, or other form of wire or wireless communication, or by facsimile transmission; or by mail or private carrier. (b) Written notice is effective at the earliest of the following: (i) When received; (ii) Five days after its deposit in a depository in the United States mail, as evidenced by the postmark or based on the affidavit of the person depositing the 11 notice, if mailed with postage thereon prepaid and correctly addressed; (iii) On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, signed by or on behalf of the addressee. Anyone accepting the mail at the stated address and signing the receipt shall be conclusively presumed to have acted on behalf of the addressee. (c) Oral notice is effective when actually communicated to the person to whom given. (d) If these Bylaws prescribe notice requirements for particular circumstances, those requirements govern. 9.4 Waiver of Notice. In addition to provisions elsewhere in these Bylaws ---------------- regarding waiver of notice, whenever any notice is required to be given to any shareholder or director by law, by the Articles of Incorporation or by these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice to such person. 9.5 Fiscal Year. The fiscal year of the Corporation shall be fixed by the ----------- Board of Directors. 9.6 Amendment of Bylaws. Except as otherwise provided by law, by the ------------------- Articles of Incorporation or herein, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors or by the shareholders. No Bylaw adopted, amended or repealed by the shareholders shall be readopted, amended or repealed by the Board of Directors, unless the Articles of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of Directors to adopt, amend or repeal that particular Bylaw or the Bylaws generally. ARTICLE 10 Indemnification --------------- 10.1 Indemnification of Directors. ---------------------------- (a) In addition to any indemnification required or permitted by law, or under any contract entered into by the Corporation that has been authorized by the Board of Directors, and except as otherwise provided in these Bylaws, any person who at any time serves or has served as a director of the Corporation, or who, while serving as a director of the Corporation serves, or has served, at the request of the Corporation as a director, officer, partner, trustee, employee or agent for any other corporation, partnership, limited liability company, joint venture, trust or other enterprise, or as a trustee or administrator under an employee benefit plan, shall have a right to be indemnified 12 by the Corporation against (i) reasonable expenses, including attorneys' fees, incurred by him in connection with any threatened, pending or completed action, suit or proceeding (including appeals), whether or not brought by or on behalf of the Corporation, and whether civil, criminal, administrative, investigative or arbitrative, seeking to hold him liable by reason of the fact that he is or was acting in such capacity, and (ii) payments made by him in satisfaction of any judgment, money decree, fine, tax, penalty or settlement for which he may have become liable in any such action, suit or proceeding. (b) Notwithstanding other provisions of these Bylaws, the Corporation shall not indemnify any person against liability or expense he may incur on account of his activities which were at the time taken known or believed by him to be clearly in conflict with the best interests of the Corporation. Furthermore, the Corporation shall not indemnify any director with respect to any liability of that director arising out of an unlawful distribution or any transaction from which the director derived an improper personal benefit as provided in law. The Corporation shall have the burden of proving that the indemnitee failed to satisfy the standard of conduct or otherwise is not entitled to indemnification payments under this Article or at law. (c) The Board of Directors of the Corporation shall take all such action as may be necessary and appropriate to authorize the Corporation to pay the indemnification required by this Section 10.1, including, without limitation, making a determination (consistent with the burden of proof specified in Section 10.1(b), above) that indemnification is permissible in the circumstances and a good faith evaluation of the manner in which the claimant for indemnity acted and of the amount of indemnity due. The Board of Directors may appoint a committee or special counsel to make such determination and evaluation. To the extent needed, the Board shall give notice to, and obtain approval by, the shareholders of the Corporation for any decision to indemnify under these Bylaws. (d) Any person who at any time after the adoption of this Bylaw serves or has served in any of the capacities indicated in subsection (a) of this Bylaw shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein. Such right shall inure to the benefit of the legal representatives of any such person and shall not be exclusive of any other rights to which such person may be entitled apart from the provision of this Bylaw. (e) The Corporation shall pay the expenses incurred by a director in defending a civil or criminal action, suit or proceeding for which indemnification is claimed in advance of final disposition upon receipt of an undertaking by or on behalf of the director to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation against such expenses. The undertaking need not be secured and shall be sufficient without reference to the financial ability of the director to make repayment. 10.2 Indemnification of Officers, Etc. The Corporation may indemnify and -------------------------------- advance expenses of defense, to the same extent as in the case of a director, persons serving as officers, employees or agents of the Corporation, or in such capacity at the request of the Corporation for any 13 other corporation, partnership, limited liability company, joint venture, trust or other enterprise, or as a trustee or administrator under an employee benefit plan, to the fullest extent permitted by law. 10.3 Enforcement Expenses. A person entitled to indemnification under these -------------------- Bylaws also shall be entitled to recovery of reasonable costs, expenses and attorneys' fees incurred in connection with enforcement of indemnification rights under these Bylaws. 10.4 Insurance. To the extent allowed by law, the Corporation shall have --------- the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or who is or was serving at the request of the Corporation as a director, officer or employee or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, or other enterprise or as a trustee or administrator under an employee benefit plan against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation has the power to indemnify him against such liability. Dated: November 30, 2000 14 EX-10.(A)(2) 5 dex10a2.txt $170,000,000 364-DAY REVOLVING CREDIT AGREEMENT Exhibit 10.(a)(2) EXECUTION COPY ================================================================================ $170,000,000 (364-DAY FACILITY) CREDIT AGREEMENT Dated as of December 18, 2001 FLORIDA POWER CORPORATION (Borrower) and THE BANKS LISTED ON THE SIGNATURE PAGES HEREOF (Banks) and BANK OF AMERICA, N.A. (Administrative Agent) ================================================================================ MERRILL LYNCH CAPITAL CORPORATION (Sole Lead Arranger and Syndication Agent) TABLE OF CONTENTS ----------------- Section Page - ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms..........................................1 SECTION 1.02. Computation of Time Periods...................................10 SECTION 1.03. Accounting Terms..............................................10 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances.................................................10 SECTION 2.02. Making the Advances...........................................11 SECTION 2.03. Fees..........................................................12 SECTION 2.04. Reduction of the Commitments..................................12 SECTION 2.05. Repayment of Advances.........................................13 SECTION 2.06. Interest on Advances..........................................13 SECTION 2.07. Additional Interest on Eurodollar Rate Advances...............13 SECTION 2.08. Interest Rate Determination...................................14 SECTION 2.09. Voluntary Conversion of Advances..............................15 SECTION 2.10. Prepayments of Advances.......................................15 SECTION 2.11. Increased Costs...............................................16 SECTION 2.12. Illegality....................................................17 SECTION 2.13. Payments and Computations.....................................17 SECTION 2.14. Sharing of Payments, Etc......................................18 ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Closing...............................18 SECTION 3.02. Conditions Precedent to Each Borrowing........................19 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower................20 ARTICLE V COVENANTS OF THE COMPANY SECTION 5.01. Affirmative Covenants.........................................22 SECTION 5.02. Negative Covenants............................................24 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default.............................................25 i ARTICLE VII THE AGENT SECTION 7.01. Authorization and Action......................................27 SECTION 7.02. The Agent's Reliance, Etc.....................................27 SECTION 7.03. The Agent and its Affiliates..................................28 SECTION 7.04. Lender Credit Decision........................................28 SECTION 7.05. Indemnification...............................................28 SECTION 7.06. Successor Administrative Agent................................29 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc...............................................29 SECTION 8.02. Notices, Etc..................................................30 SECTION 8.03. No Waiver; Remedies...........................................30 SECTION 8.04. Costs, Expenses, Taxes and Indemnification....................31 SECTION 8.05. Right of Set-off..............................................33 SECTION 8.06. Binding Effect................................................34 SECTION 8.07. Assignments and Participations................................34 SECTION 8.08. Governing Law.................................................38 SECTION 8.09. Waiver of Jury Trial..........................................38 SECTION 8.10. Execution in Counterparts.....................................38 SECTION 8.11. Severability..................................................38 SECTION 8.12. Headings......................................................38 SECTION 8.13. Entire Agreement..............................................38 SCHEDULES - --------- SCHEDULE I - List of Commitments and Applicable Lending Offices SCHEDULE II - Permitted Existing Indebtedness EXHIBITS - -------- A-1 Form of Notice of Borrowing A-2 Form of Notice of Conversion B Form of Assignment and Acceptance C-1 Form of Opinion of General Counsel to the Borrower C-2 Form of Opinion of Special Counsel for the Borrower D Form of Opinion of Counsel for the Arranger E Form of Compliance Certificate ii CREDIT AGREEMENT Dated as of December 18, 2001 This CREDIT AGREEMENT (this "Agreement") is made by FLORIDA POWER CORPORATION, a Florida corporation (the "Borrower"), the banks listed on the signature pages hereof (the "Banks"), BANK OF AMERICA, N.A. ("Bank of America"), as administrative agent (the "Administrative Agent") for the Lenders (as hereinafter defined). ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Administrative Agent" has the meaning specified in the introductory paragraph of this Agreement. "Advance" means an advance by a Lender to the Borrower as part of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of Advance. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with such Person or is a director or officer of such Person. "Applicable Lending Office" means, with respect to each Lender, (i) such Lender's Domestic Lending Office in the case of a Base Rate Advance, or (ii) such Lender's Eurodollar Lending Office, in the case of a Eurodollar Rate Advance. "Applicable Margin" means for each Type of Advance at all times during which any Applicable Rating Level set forth below is in effect, the interest rate per annum set forth below next to such Applicable Rating Level : - -------------------------------------------------------------------------- Applicable Margin for Applicable Margin for Applicable Rating Level Eurodollar Rate Advances Base Rate Advances - -------------------------------------------------------------------------- 1 0.295% 0% - -------------------------------------------------------------------------- 2 0.410% 0% - -------------------------------------------------------------------------- 3 0.650% 0% - -------------------------------------------------------------------------- 4 0.750% 0% - -------------------------------------------------------------------------- 5 0.950% 0% - -------------------------------------------------------------------------- 6 1.300% 0% - -------------------------------------------------------------------------- provided, that (i) the Applicable Margins for Eurodollar Rate Advances set forth above for each Applicable Rating Level shall increase at any time the aggregate principal amount of Advances outstanding is greater than 50% of the aggregate Commitments by 0.125% at Levels 1, 2, 3, 4 and 5 and by 0.250% at Level 6, (ii) the Applicable Margins set forth above for each Applicable Rating Level shall increase upon the occurrence and during the continuance of any Event of Default by 2.0%, and (iii) any change in the Applicable Margin resulting from a change in the Applicable Rating Level shall become effective upon the date of announcement of a change in the Moody's Rating or the S&P Rating that results in a change in the Applicable Rating Level. "Applicable Rating Level" at any time shall be determined in accordance with the then-applicable S&P Rating and the then-applicable Moody's Rating as follows: - ----------------------------------------------------------------- S&P Rating/Moody's Rating Applicable Rating Level - ----------------------------------------------------------------- A or higher or A2 or higher 1 - ----------------------------------------------------------------- A- or A3 2 - ----------------------------------------------------------------- BBB+ or Baa1 3 - ----------------------------------------------------------------- BBB or Baa2 4 - ----------------------------------------------------------------- BBB- and Baa3 5 - ----------------------------------------------------------------- lower than BBB- and Baa3 or unrated 6 - ----------------------------------------------------------------- 2 In the event that the S&P Rating and the Moody's Rating are not at the same Applicable Rating Level but differ by only one Applicable Rating Level, then the higher of the two ratings shall determine the Applicable Rating Level. In the event that the S&P Rating and the Moody's Rating differ by more than one Applicable Rating Level, then the Applicable Rating Level immediately below the higher of the two ratings shall be the Applicable Rating Level. The Applicable Rating Level shall be redetermined on the date of announcement of a change in the S&P Rating or the Moody's Rating. "Arranger" has the meaning specified in the introductory paragraph of this Agreement. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit B hereto. "Banks" has the meaning specified in the introductory paragraph of this Agreement. "Base Rate" means, for any Interest Period or any other period, a fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall at all times be equal to the higher from time to time of: (i) the rate of interest announced publicly by Bank of America in Charlotte, North Carolina, from time to time, as Bank of America's base rate; and (ii) 1/2 of one percent per annum above the Federal Funds Rate in effect from time to time. "Base Rate Advance" means an Advance that bears interest as provided in Section 2.06(a). "Bank of America" has the meaning specified in the introductory paragraph of this Agreement. "Borrower" has the meaning specified in the introductory paragraph of this Agreement. "Borrowing" means a borrowing consisting of simultaneous Advances of the same Type made by each of the Lenders pursuant to Section 2.01 or Converted pursuant to Section 2.08 or 2.09. "Business Day" means a day of the year on which banks are not required or authorized to close at the principal office of any Lender and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Change of Control" means the occurrence, after the date of this Agreement, of (i) the failure of the Parent to own, directly or indirectly, 100% of the voting stock of the Borrower or (ii) any Person or "group" (within the meaning of Rule 13(d) or 14(d) of the Securities and Exchange Commission under the Exchange Act), directly or indirectly, acquiring beneficial ownership of or control over securities of the Parent (or other securities convertible into such 3 securities) representing 30% or more of the combined voting power of all securities of the Parent entitled to vote in the election of directors. "Commitment" has the meaning specified in Section 2.01. "Consolidated" refers to the consolidation of the accounts of the Borrower and its subsidiaries in accordance with generally accepted accounting principles, including principles of consolidation, consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e). "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type, or the selection of a new, or the renewal of the same, Interest Period for Eurodollar Rate Advances, pursuant to Section 2.08(g) or 2.09. "CP&L" means the Carolina Power & Light Company. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Eligible Assignee" means (i) any other Lender or any Affiliate of a Lender and (ii) (A) any other commercial bank organized under the laws of the United States, or any State thereof, and having a combined capital and surplus of at least $250,000,000 (as established in its most recent report of condition to its primary regulator), (B) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having a combined capital and surplus of at least $250,000,000 (as established in its most recent report of condition to its primary regulator), (C) a commercial bank organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow of the Cayman Islands, or a political subdivision of any such country, and having a combined capital and surplus of at least $250,000,000 (as established in its most recent report of condition to its primary regulator); provided that such bank is acting through a branch or agency located in the United States or in the country in which it is organized or another country that is described in this clause (C), (D) the central bank of any country that is a member of the OECD, or (E) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business, whose outstanding unsecured indebtedness is rated AA- or better by S&P or Aa3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured indebtedness). "Environmental Laws" means any federal, state or local laws, ordinances or codes, rules, orders, or regulations relating to pollution or protection of the environment, including, without limitation, laws relating to hazardous substances, laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of 4 pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollution, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to each Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Eurodollar Rate" means, for the Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/8 of 1% per annum, if such average is not such a multiple) of the rates per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London Interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of such Eurodollar Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period from such Reference Bank. The Eurodollar Rate for the Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing shall be determined by the Administrative Agent on the basis of the applicable rates furnished to and received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08. "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.06(b). "Eurodollar Rate Reserve Percentage" of any Lender for the Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Events of Default" has the meaning assigned to that term in Section 6.01. 5 "Exchange Act" means the Securities Exchange Act of 1934, and the regulations promulgated thereunder, in each case as amended and in effect from time to time. "Existing Credit Facility" means, the Fourth Amended and Restated Credit Agreement A, dated as of November 14, 2000, among the Borrower, the Lenders identified therein and The Chase Manhattan Bank, as Agent "Facility Fee Percentage" means, at all times during which any Applicable Rating Level set forth below is in effect, the rate per annum set forth below next to such Applicable Rating Level: - ------------------------------------- Applicable Rating Facility Fee Level Percentage - ------------------------------------- 1 0.100% - ------------------------------------- 2 0.100% - ------------------------------------- 3 0.100% - ------------------------------------- 4 0.125% - ------------------------------------- 5 0.175% - ------------------------------------- 6 0.200% - ------------------------------------- provided, that a change in the Facility Fee Percentage resulting from a change in the Applicable Rating Level shall become effective upon the date of announcement of a change in the Moody's Rating or the S&P Rating that results in a change in the Applicable Rating Level. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Florida Power Mortgage" means the Indenture, dated as of January 1, 1944, between the Borrower, Guaranty Trust Company of New York and the Florida National Bank of Jacksonville, as modified, amended or supplemented from time to time. "Florida Power Mortgage Bonds" means those bonds issued from time to time by the Borrower pursuant to the Florida Power Mortgage. "FPC" means Florida Progress Corporation. "FPSC Order" means an order of the Florida Public Service Commission that authorizes the Borrower to borrow and perform its obligations under this Agreement. 6 "Guaranty" of any Person means any obligation, contingent or otherwise, of such Person (i) to pay any Liability of any other Person or to otherwise protect, or having the practical effect of protecting, the holder of any such Liability against loss (whether such obligation arises by virtue of such Person being a partner of a partnership or participant in a joint venture or by agreement to pay, to keep well, to purchase assets, goods, securities or services or to take or pay, or otherwise) or (ii) incurred in connection with the issuance by a third Person of a Guaranty of any Liability of any other Person (whether such obligation arises by agreement to reimburse or indemnify such third Person or otherwise). The word "Guarantee" when used as a verb has the correlative meaning. "Indebtedness" of any Person means (i) any obligation of such Person for borrowed money, (ii) any obligation of such Person evidenced by a bond, debenture, note or other similar instrument, (iii) any obligation of such Person to pay the deferred purchase price of property or services, except a trade account payable that arises in the ordinary course of business but only if and so long as the same is payable on customary trade terms, (iv) any obligation of such Person as lessee under a capital lease, (v) any Mandatorily Redeemable Stock of such Person (the amount of such Mandatorily Redeemable Stock to be determined for this purpose as the higher of the liquidation preference and the amount payable upon redemption of such Mandatorily Redeemable Stock), (vi) any obligation of such Person to purchase securities or other property that arises out of or in connection with the sale of the same or substantially similar securities or property, (vii) any non-contingent obligation of such Person to reimburse any other Person in respect of amounts paid under a letter of credit or other Guaranty issued by such other Person to the extent that such reimbursement obligation remains outstanding after it becomes non-contingent, (viii) any Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a mortgage, lien, pledge, charge or other encumbrance on any asset of such Person, (ix) any Liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA, (x) any Synthetic Lease Obligations of such Person and (xi) any Indebtedness of others Guaranteed by such Person. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Advance or the date of the Conversion of any Advance into such an Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, as the Borrower may, in the Notice of Borrowing given by the Borrower to the Administrative Agent pursuant to Section 2.02, select; provided, however, that: (i) the Borrower may not select any Interest Period that ends after the Termination Date; (ii) Interest Periods commencing on the same date for Advances comprising the same Borrowing shall be of the same duration; and (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to 7 occur on the next succeeding Business Day; provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. The Administrative Agent shall promptly advise each Lender by or telecopy transmission of each Interest Period so selected by the Borrower. "Lenders" means the Lenders listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 8.07. "Liability" of any Person means any indebtedness, liability or obligation of or binding upon, such Person or any of its assets, of any kind, nature or description, direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, whether arising under contract, applicable law, or otherwise, whether now existing or hereafter arising. "Majority Lenders" means at any time Lenders holding at least 66 2/3% of the aggregate principal amount of the Advances then outstanding, or, if no such principal amount is then outstanding, Lenders having at least 66 2/3% of the Commitments (provided that, for purposes hereof, neither the Borrower, nor any of its Affiliates, if a Lender, shall be included in (i) the Lenders holding such amount of the Advances or having such amount of the Commitments or (ii) determining the aggregate unpaid principal amount of the Advances or the total Commitments). "Mandatorily Redeemable Stock" means, with respect to any Person, any share of such Person's capital stock to the extent that it is (i) redeemable, payable or required to be purchased or otherwise retired or extinguished, or convertible into any Indebtedness or other Liability of such Person, (A) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (B) at the option of any Person other than such Person or (C) upon the occurrence of a condition not solely within the control of such Person, such as a redemption required to be made out of future earnings or (ii) convertible into Mandatorily Redeemable Stock. "Moody's" means Moody's Investors Service, Inc., or any successor thereto. "Moody's Rating" means, on any date of determination, the debt rating most recently announced by Moody's with respect to the Borrower's long-term senior unsecured non-credit-enhanced debt. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Conversion" has the meaning specified in Section 2.09. "OECD" means the Organization for Economic Cooperation and Development. "Parent" means Progress Energy, Inc. 8 "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a foreign state or political subdivision thereof or any agency of such state or subdivision. "Plan" means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any of its Affiliates and covered by Title IV of ERISA. "Progress Capital" means Progress Capital Holdings, Inc. "Reference Banks" means Bank of America and Bank One, NA. "Register" has the meaning specified in Section 8.07(c). "Responsible Officer" means the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller or any Assistant Treasurer of the Borrower the signatures of whom, in each case, have been certified to the Administrative Agent and each other Lender pursuant to Section 3.01(d), or in a certificate delivered to the Administrative Agent replacing or amending such certificate. Each Lender may conclusively rely on each certificate so delivered until it shall have received a copy of a certificate from the Secretary or an Assistant Secretary of the Borrower amending, canceling or replacing such certificate. "S&P" means Standard & Poor's Ratings Group or any successor thereto. "S&P Rating" means, on any date of determination, the debt rating most recently announced by S&P with respect to the Borrower's long-term senior unsecured non-credit-enhanced debt. "SEC Order" means Order Nos. 35-27440 and 70-9909 of the Securities and Exchange Commission issued September 20, 2001. "Significant Subsidiary" means any Subsidiary of the Borrower that at any time constitutes a "significant subsidiary", as such term is defined in Regulation S-X of the Securities and Exchange Commission as in effect on the date hereof (17 C.F.R. Part 210). "Subsidiary" means, with respect to any Person, any corporation or unincorporated entity of which more than 50% of the outstanding capital stock (or comparable interest) having ordinary voting power (irrespective of whether at the time capital stock (or comparable interest) of any other class or classes of such corporation or entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by said Person (whether directly or through one or more other Subsidiaries). "Synthetic Lease" means a lease transaction under which the parties intend that (i) the lease will be treated as an "operating lease" by the lessee pursuant to Statement of Financial Accounting Standards No. 13, as amended, and (ii) the lessee will be entitled to various tax and other benefits ordinarily available to owners (as opposed to lessees) of like property. 9 "Synthetic Lease Obligations" means, with respect to any Person, the sum of (i) all remaining rental obligations of such Person as lessee under Synthetic Leases that are attributable to principal and, without duplication, (ii) all rental and purchase price payment obligations of such Person under such Synthetic Leases assuming such Person exercises the option to purchase the lease property at the end of the lease term. "Termination Date" means, with respect to a Lender, the earlier to occur of (i) December 17, 2002 and (ii) the date of termination in whole of the Commitments pursuant to Section 2.04 or 6.01. "Termination Event" means (i) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation under such regulations), or (ii) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the Pension Benefit Guaranty Corporation, or (v) any other event or condition that might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Total Capitalization" means the sum of the value of the common stock, retained earnings, and preferred and preference stock of the Borrower (in each case, determined in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e)), plus Indebtedness of the Borrower. Section 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". Section 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e). ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances. (a) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time on any Business Day during the period from the date hereof to and including the Termination Date, in an aggregate amount outstanding not to 10 exceed at any time the amount set forth opposite such Lender's name on Schedule I hereto or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.04 (such Lender's "Commitment"). Each Borrowing shall be in an aggregate amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Until the Termination Date, within the limits of each Lender's Commitment, the Borrower may from time to time borrow, repay pursuant to Section 2.05 or prepay pursuant to Section 2.10(b) and reborrow under this Section 2.01. (b) Any Lender may request that any Advances made by it be evidenced by one or more promissory notes. In such event, the Borrower shall prepare, execute and deliver to such Lender one or more promissory notes payable to the order of such Lender (or, if requested by such Lender, to such Lender and its assignees) and in a form approved by the Administrative Agent. SECTION 2.02. Making the Advances. (a) Each Borrowing shall be made on notice, given not later than 10:00 A.M. (New York City time) on the day of such proposed Borrowing, in the case of a Borrowing comprised of Base Rate Advances, or on the third Business Day prior to the date of the proposed Borrowing, in the case of a Borrowing comprised of Eurodollar Rate Advances, by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telecopier, confirmed promptly in writing, in substantially the form of Exhibit A-1 hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing comprised of Eurodollar Rate Advances, the Interest Period for each such Advance. In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly notify each Lender of the applicable interest rate under Section 2.06(b). Each Lender shall, before 12:00 P.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent's aforesaid address. (b) Each Notice of Borrowing shall be irrevocable and binding on the Borrower and, in respect of any Borrowing comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss or expense incurred by such Lender as a result of any failure by the Borrower to fulfill on or before the date specified for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of anticipated profits) or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. 11 (c) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent (without duplication), forthwith on demand, such corresponding amount, together with interest thereon for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (x) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing and (y) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement. (d) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. (e) If, for any reason, a Borrowing is not made on the date specified in any Notice of Borrowing, the Administrative Agent hereby agrees to repay to each Lender the amount, if any, that such Lender has made available to the Administrative Agent as such Lender's ratable portion of such Borrowing, together with interest thereon for each day from the date such amount is made available to the Administrative Agent until the date such amount is repaid to such Lender, at the Federal Funds Rate. SECTION 2.03. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee on each Lender's Commitment, irrespective of usage, from the date hereof, in the case of each Bank, and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender, in the case of each other Lender, until the Termination Date at the rate per annum equal to the Facility Fee Percentage from time to time in effect. Such fee shall be calculated on the basis of actual number of days elapsed in a year of 365 or 366 days. Such fee shall be payable quarterly in arrears on the last day of each March, June, September and December during the term of such Lender's Commitment, and on the Termination Date. (b) The Borrower agrees to pay to the Administrative Agent an agency fee in such amounts and payable at such times, as shall be agreed to between them in writing. SECTION 2.04. Reduction of the Commitments. The Borrower shall have the right, upon at least three Business Days' notice to the Administrative Agent, irrevocably to terminate in whole or reduce ratably in part the unused 12 portions of the respective Commitments of the Lenders; provided that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount that is less than the aggregate principal amount of the Advances then outstanding; and provided, further, that each partial reduction of Commitments shall be in the aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof. Once terminated or reduced, the Commitments may not be reinstated. SECTION 2.05. Repayment of Advances. The Borrower shall repay the principal amount of each Advance made by each Lender on the Termination Date. SECTION 2.06. Interest on Advances. The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (a) Base Rate Advances. If such Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time, plus the Applicable Margin, payable quarterly in arrears on the last day of each March, June, September and December and on the date such Base Rate Advance shall be paid in full; provided, however, that if and for so long as an Event of Default has occurred and is continuing, interest on the unpaid principal amount of each Base Rate Advance shall be payable on demand. (b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of the Eurodollar Rate for such Interest Period, plus the Applicable Margin for such Eurodollar Rate Advance in effect from time to time, payable on the last day of such Interest Period and, if such Interest Period for such Advance has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period; provided, however, that if and for so long as an Event of Default has occurred and is continuing, interest on the unpaid amount of each Eurodollar Rate Advance shall be payable on demand. SECTION 2.07. Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to each Lender additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance. All claims for such additional interest shall be submitted by such Lender to the Borrower (with a copy to the Administrative Agent) as soon as is reasonably possible and in all events within 90 days after the first day of such Interest Period; provided, however, that if a claim is not submitted to the Borrower within such 90-day period, such Lender shall thereby waive its claim to such additional interest incurred during such 90-day period but not to any such additional interest incurred thereafter. A certificate as to the 13 amount of such additional interest, submitted to the Borrower (with a copy to the Administrative Agent) by such Lender, shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Administrative Agent timely information for the purpose of determining the Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Administrative Agent for determination of any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (b) The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.06(a) or (b), and the applicable rate, if any, furnished by each Reference Bank for determining the applicable interest rate under Section 2.06(b). (c) If fewer than two Reference Banks furnish timely information to the Administrative Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances, (i) the Administrative Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances, (ii) each such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and (iii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (e) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrower 14 and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances. (f) On the date on which the aggregate unpaid principal amount of Advances comprising any Borrowing shall be reduced, by prepayment or otherwise, to less than $20,000,000, such Advances shall, if they are Advances of a Type other than Base Rate Advances, automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such Advances into Advances of a Type other than Base Rate Advances shall terminate; provided, however, that if and so long as each such Advance shall be of the same Type and have the same Interest Period as Advances comprising another Borrowing or other Borrowings, and the aggregate unpaid principal amount of all such Advances shall equal or exceed $20,000,000, the Borrower shall have the right to continue all such Advances as, or to Convert all such Advances into, Advances of such Type having such Interest Period. (g) If an Event of Default has occurred and is continuing, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.09. Voluntary Conversion of Advances. The Borrower may, on any Business Day prior to the Termination Date, upon notice given to the Administrative Agent not later than 10:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion, in the case of any proposed Conversion into Eurodollar Rate Advances, and on the date of the proposed Conversion, in the case of any proposed Conversion into Base Rate Advances, and subject to the provisions of Sections 2.08 and 2.12, Convert all Advances of one Type comprising the same Borrowing into Advances of another Type; provided, however, that any Conversion of any Eurodollar Rate Advances into Advances of another Type shall be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Advances, except as otherwise provided in Section 2.12. Each such notice of a Conversion (a "Notice of Conversion") shall be by telecopier, confirmed promptly in writing, in substantially the form of Exhibit A-2 hereto and shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the aggregate amount of, Type of, and Interest Periods applicable to the Advances to be Converted, (iii) the Type of Advance to which such Advances (or portions thereof) are proposed to be Converted, and (iv) if such Conversion is into or with respect to Eurodollar Rate Advances, the duration of the Interest Period for each such Advance. SECTION 2.10. Prepayments of Advances. (a) The Borrower shall have no right to prepay any principal amount of any Advances other than as provided in subsection (b) below.(b) The Borrower may, upon notice given to the Administrative Agent at least two Business Days prior to the proposed prepayment, in the case of any Eurodollar Rate Advance, and on the date of the proposed prepayment, in the case of any Base Rate Advance, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the Advances 15 comprising the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the amount prepaid and, in the case of any Eurodollar Rate Advance, any amount payable pursuant to Section 8.04(b); provided, however, that (i) each partial prepayment shall be in an aggregate principal amount not less than $5,000,000 and in integral multiples of $1,000,000 in excess thereof and (ii) in the case of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(b) on the date of such prepayment. SECTION 2.11. Increased Costs. (a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of Eurodollar Rate Advances, included in the Eurodollar Rate Reserve Percentage), in or in the interpretation of any law or regulation, or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for account of such Lender additional amounts sufficient to reimburse such Lender for such increased cost. All claims for increased cost shall be submitted by such Lender to the Borrower (with a copy to the Administrative Agent) as soon as is reasonably possible and in all events within 90 days after such introduction, such change, or the beginning of such compliance, the occurrence of which resulted in such increased cost, and the Borrower shall make such payment within five Business Days after notice of such claim is received; provided, however, that if a claim is not submitted to the Borrower within such 90-day period, such Lender shall thereby waive its claim to such increased cost incurred during such 90-day period but not to any such increased cost incurred thereafter. A certificate as to the amount of such increased cost, submitted to the Borrower (with a copy to the Administrative Agent) by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. All claims for such additional amounts shall be submitted by such Lender (with a copy to the Administrative Agent) as soon as is reasonably possible and in all events within 90 days after such determination by such Lender, and the Borrower shall make such payment within five Business Days after notice of such claim is received; provided, however, that if a claim is not submitted to the Borrower within such 90-day period, such Lender shall thereby waive its claim to such additional amounts incurred during such 90-day period but not to any such additional amounts 16 incurred thereafter. A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.12. Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, (i) the obligation of the Lenders to make Eurodollar Rate Advances or to Convert Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and (ii) the Borrower shall forthwith prepay in full all Eurodollar Rate Advances of all Lenders then outstanding, together with interest accrued thereon, unless the Borrower, within five Business Days of notice from the Administrative Agent, Converts all Eurodollar Rate Advances of all Lenders then outstanding into Advances of another Type in accordance with Section 2.09. SECTION 2.13. Payments and Computations. (a) The Borrower shall make each payment hereunder, without condition or deduction for any counterclaim, defense, recoupment or setoff, not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at its address referred to in Section 8.02 in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees (other than pursuant to Section 2.02(c), 2.07 or 2.11) ratably to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on the base rate referred to in clause (i) of the definition of Base Rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or Federal Funds Rate or of fees payable hereunder shall be made by the Administrative Agent, and all computations of interest pursuant to Section 2.07 shall be made by a Lender, on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period of which such interest or fees are payable. Each determination by the Administrative Agent (or, in the case of Section 2.07, by a Lender) of an interest rate hereunder shall be conclusive and binding for all purposes. 17 (c) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender, together with interest thereon for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent at the Federal Funds Rate. SECTION 2.14. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it (other than pursuant to Section 2.02(c), 2.07 or 2.11) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participation in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Closing. The Commitments of the Lenders shall not become effective unless and until all fees due and payable by the Borrower in connection with this Agreement have been paid and the Administrative Agent shall have received the following: 18 (a) Promissory notes, in a form acceptable to the Administrative Agent, payable to the order of each Lender that has requested such a note. (b) Copies of the resolutions of the Board of Directors of the Borrower approving this Agreement and all documents evidencing other necessary corporate action, certified by the Secretary or an Assistant Secretary of the Borrower to be true and correct, and in full force and effect on and as of the date hereof. (c) A certificate of the Secretary or an Assistant Secretary of the Borrower, dated as of the date hereof, certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the other documents to be delivered hereunder. (d) A certificate of a Responsible Officer of the Borrower, dated as of the date hereof, certifying (i) the accuracy of the representations and warranties contained herein and (ii) that no event has occurred and is continuing that constitutes an Event of Default or that would constitute an Event of Default but for the requirement that notice be given or time elapse, or both. (e) Certified copies of all governmental approvals and authorizations required to be obtained in connection with the execution, delivery and performance by the Borrower of this Agreement. (f) Certified copies of the Restated Charter and By-Laws of the Borrower. (g) Favorable opinions of R. Alexander Glenn, Associate General Counsel of the Borrower, and of Hunton & Williams, counsel for the Borrower, substantially in the forms of Exhibit C-1 and C-2, respectively, hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request. (h) A favorable opinion of King & Spalding, counsel for the Arranger, substantially in the form of Exhibit D hereto. (i) Evidence that all outstanding obligations of the Borrower under the Existing Credit Facility have been paid in full and that the commitments of the lenders under the Existing Credit Facility have been terminated. SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation of each Lender to make an Advance on the occasion of each Borrowing (including the initial Borrowing) shall be subject to the further conditions precedent that (a) in the case of the making of an Advance, the Administrative Agent shall have received the written confirmatory Notice of Borrowing with respect thereto, (b) on the date of such Borrowing, the following statements shall be true (and the giving of the Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true): (i) The representations and warranties contained in Section 4.01 are true and correct on and as of the date of such Borrowing before and after giving effect to such 19 Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (ii) No event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, that constitutes an Event of Default or that would constitute an Event of Default but for the requirement that notice be given or time elapse, or both; and (c) the Administrative Agent shall have received such other approvals, opinions and documents as any Lender through the Administrative Agent may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) Each of the Borrower and each Significant Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and is duly qualified to do business in and is in good standing under the laws of each other jurisdiction where the nature of its business or the nature of property owned or used by it makes such qualification necessary (except where failure to so qualify would not have a material adverse affect on the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole). (b) The execution, delivery and performance by the Borrower of this Agreement are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Borrower's charter or by-laws or (ii) any law or contractual restriction binding on or affecting the Borrower or its properties. (c) No authorization or approval or other action by, and no notice to or filing with any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Agreement, other than the SEC Order and the FPSC Order, each of which has been duly issued and is in full force and effect. (d) This Agreement has been duly executed and delivered by the Borrower and is, and any promissory note when delivered pursuant to Section 2.01(b) will be, the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. (e) The Consolidated balance sheets of the Borrower and its Subsidiaries as at December 31, 2000, and the related Consolidated statements of income and retained earnings of the Borrower and its Subsidiaries for the fiscal year then ended, and the Consolidated balance sheets of the Borrower and its Subsidiaries as at June 30, 2001, and the related Consolidated statements of income and retained earnings of the Borrower and its Subsidiaries, copies of each of which have been furnished to each Lender, fairly present (subject, in the case of such financial 20 statements dated June 30, 2001, to year end adjustments) the financial condition of the Borrower and its Subsidiaries as at such dates and the results of the operations of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles consistently applied. Since December 31, 2000, there has been no material adverse change in the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole. (f) Except as described in the reports and registration statements that the Borrower and Parent have filed with the Securities and Exchange Commission prior to the date of this Agreement, there is no pending or threatened action or proceeding affecting the Borrower or any Subsidiary before any court, governmental agency or arbitrator, that may materially adversely affect the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole. (g) No proceeds of any Advance will be used to acquire any security in any transaction that is subject to Sections 13 and 14 of the Exchange Act. (h) The Borrower is not engaged in the business of extending credit for the purpose of buying or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to buy or carry any margin stock or to extend credit to others for the purpose of buying or carrying any margin stock. (i) Following application of the proceeds of each Advance, not more than 5% of the value of the assets (either of the Borrower only or of the Borrower and the Subsidiaries on a Consolidated basis) subject to the provisions of Section 5.02(a) or 5.02(e) will be margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). (j) No Termination Event has occurred or is reasonably expected to occur with respect to any Plan. (k) The Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (l) The Borrower is in substantial compliance with all applicable laws, rules, regulations and orders of any governmental authority, the noncompliance with which would materially and adversely affect the business or condition of the Borrower, such compliance to include, without limitation, substantial compliance with ERISA, Environmental Laws and paying before the same become delinquent all material taxes, assessments and governmental charges imposed upon it or upon its property, except to the extent compliance with any of the foregoing is then being contested in good faith by appropriate legal proceedings. (m) All written information furnished by the Borrower to the Agent and the Lenders in connection with this Agreement (the "Disclosed Information") was (and all information furnished in the future by the Borrower to the Agent and the Lenders will be) complete and correct in all respects material to the creditworthiness of the Borrower when delivered. As of the 21 date hereof, the Disclosed Information does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances under which made. ARTICLE V COVENANTS OF THE COMPANY SECTION 5.01. Affirmative Covenants. So long as any Advance or any other amount payable by the Borrower hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower shall, unless the Majority Lenders shall otherwise consent in writing: (a) Compliance with Laws, Etc. Except to the extent contested in good faith, comply, and cause each Subsidiary to comply, with all applicable laws, rules, regulations and orders (such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property), the non-compliance with which would materially adversely affect the Borrower's business or credit. (b) Preservation of Corporate Existence, Etc. Except as provided in Section 5.02 (d), preserve and maintain, and cause each Significant Subsidiary to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises. (c) Visitation Rights. At any reasonable time and from time to time, permit the Administrative Agent or any of the Lenders or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and any Subsidiary with any of their respective officers or directors. (d) Keeping of Books. Keep, and cause each Subsidiary to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and such Subsidiary in accordance with generally accepted accounting principles consistently applied. (e) Maintenance of Properties, Etc. Maintain and preserve, and cause each Subsidiary to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (f) Maintenance of Insurance. Maintain, and cause each Subsidiary to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates. (g) Taxes. File, and cause each Subsidiary to file, all tax returns (federal, state and local) required to be filed and paid and pay all taxes shown thereon to be due, including interest and penalties except, in the case of taxes, to the extent the Borrower or such Subsidiary is contesting 22 the same in good faith and by appropriate proceedings and has set aside adequate reserves for the payment thereof in accordance with generally accepted accounting principles. (h) Material Obligations. Pay, and cause each Subsidiary to pay, promptly as the same shall become due each material obligation of the Borrower or such Subsidiary. (i) Reporting Requirements. Furnish to the Lenders: (i) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a Consolidated balance sheet of the Borrower and the Subsidiaries as at the end of such quarter and Consolidated statements of income and retained earnings of the Borrower and the Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the treasurer or the chief financial officer of the Borrower, together with a certificate of the treasurer or chief financial officer of the Borrower, setting forth in reasonable detail the calculation of the Borrower's compliance with Section 5.01(j) and stating that no Event of Default and no event that, with the giving of notice or lapse of time or both, would constitute an Event of Default has occurred and is continuing, or if an Event of Default or such event has occurred and is continuing, a statement setting forth details of such Event of Default or event and the action that the Borrower has taken and proposes to take with respect thereto; (ii) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the annual report for such year for the Borrower and the Subsidiaries, containing Consolidated financial statements for such year certified by Deloitte & Touche or other independent public accountants acceptable to the Majority Lenders, together with a certificate of the treasurer or chief financial officer of the Borrower, substantially in the form of Exhibit E hereto, setting forth in reasonable detail the calculation of the Borrower's compliance with Section 5.01(j) and stating that no Event of Default and no event that, with the giving of notice or lapse of time or both, would constitute an Event of Default has occurred and is continuing, or if an Event of Default or such event has occurred and is continuing, a statement setting forth details of such Event of Default or event and the action that the Borrower has taken and proposes to take with respect thereto; (iii) promptly after the sending or filing thereof, copies of all reports that the Borrower sends to any of its security holders, and copies of all reports and registration statements that the Borrower or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange, to the extent not delivered by the Borrower pursuant to clause (i) or (ii) of this Section 5.01(i); (iv) immediately upon any Responsible Officer's obtaining knowledge of the occurrence of any Event of Default or any event that, with the giving of notice or lapse of time, or both, would constitute an Event of Default, a statement of the chief financial officer or treasurer of the Borrower setting forth details of such Event of Default or event and the action that the Borrower proposes to take with respect thereto; 23 (v) immediately upon obtaining knowledge thereof, notice of any change in either the Moody's Rating or the S&P Rating; (vi) as soon as possible and in any event within five days after the commencement thereof or any adverse determination or development therein, notice of all actions, suits and proceedings that may adversely affect the Borrower's ability to perform its obligations under this Agreement; (vii) as soon as possible and in any event within five days after the occurrence of a Termination Event, notice of such Termination Event; and (viii) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any Subsidiary as any Lender through the Administrative Agent may from time to time reasonably request. (j) Indebtedness to Total Capitalization. Maintain at all times a ratio of Consolidated Indebtedness of the Borrower and its Subsidiaries to Total Capitalization of not more than .65:1.0. (k) Use of Proceeds. Use the proceeds of each Advance solely for general corporate purposes (including, in each case, without limitation, as a commercial paper back-up). No proceeds of any Advance will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Exchange Act, or any security in any transaction that is subject to Sections 13 and 14 of the Exchange Act. SECTION 5.02. Negative Covenants. So long as any Advance or any other amount payable by the Borrower hereunder shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will not, without the written consent of the Majority Lenders: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any lien, security interest or other charge or encumbrance, or any other type of preferential arrangement, upon or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit any Subsidiary to assign, any right to receive income, in each case to secure any Indebtedness of any Person, other than (i) liens, mortgages and security interests created by the Florida Power Mortgage, (ii) liens and security interests against the fuel used by the Borrower in its power generating operations in favor of the suppliers thereof, and (iii) liens, mortgages and security interests securing other Indebtedness of the Borrower and its Subsidiaries not exceeding $100,000,000 in the aggregate. (b) Indebtedness. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Indebtedness other than (i) Indebtedness hereunder, (ii) Indebtedness secured by liens and security interests permitted pursuant to clauses (ii) and (iii) of subsection 5.02(a), (iii) Indebtedness evidenced by the Florida Power Mortgage Bonds, (iv) unsecured Indebtedness, including guarantees issued in connection with the financing of pollution control facilities operated by the Borrower, guarantees of Indebtedness incurred by any 24 wholly-owned Subsidiary and guarantees of debt securities issued by any financing Subsidiary established to secure debt financing in the offshore markets, and (v) other Indebtedness outstanding on the date of this Agreement, as described on Schedule II hereto. (c) Lease Obligations. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any obligations for the payment of rental for any property under leases or agreements to lease having a term of one year or more that would cause the direct or contingent Consolidated liabilities of the Borrower and its Subsidiaries in respect of all such obligations payable in any calendar year to exceed 10% of the Consolidated operating revenues of the Borrower and its Subsidiaries for the immediately preceding calendar year. (d) Mergers, Etc. Merge with or into or consolidate with or into, or acquire all or substantially all of the assets or securities of, any Person, unless, in each case, (i) immediately after giving effect thereto, no event shall occur and be continuing that constitutes an Event of Default or an event that with the giving of notice or lapse of time, or both, would constitute an Event of Default, and (ii) in the case of any such merger to which the Borrower is a party, such other Person is a utility company and the resulting or surviving corporation, if not the Borrower, (x) is organized and existing under the laws of the United States of America or any State thereof, (y) is a corporation satisfactory to the Majority Lenders, and (z) shall have expressly assumed, by an instrument satisfactory in form and substance to the Majority Lenders, the due and punctual payment of all amounts due under this Agreement and the performance of every covenant and undertaking of the Borrower contained in this Agreement. (e) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose of, or permit any Subsidiary to sell, lease, transfer or otherwise dispose of, any of its assets, other than the following sales: (i) sales of generating capacity to the wholesale customers of the Borrower and the Subsidiaries, (ii) sales of nuclear fuel, (iii) sales of accounts receivable, (iv) sales in connection with a transaction authorized by subsection (d) of this Section, (v) sales of investments in securities with a maturity of less than one year, or (vi) other sales not exceeding $150,000,000 in the aggregate in any fiscal year of the Borrower. (f) Margin Stock. Use any proceeds of any Advance to buy or carry margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). (g) Change in Nature of Business. Engage, or cause or permit CP&L to engage, in a material manner in businesses other than those in which they are engaged on the date hereof and businesses reasonably related thereto. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Advance when due, or shall fail to pay any interest on the principal amount of any Advance or any fees or other amount payable 25 hereunder within five Business Days after such interest or fees or other amount shall become due; or (b) Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) in any document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made or deemed made; or (c) The Borrower shall fail to perform or observe any other term, covenant or agreement contained in Section 5.01(b), 5.01(i)(iv), 5.01(j), 5.01(l) or 5.02 on its part to be performed or observed; or the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or (d) The Borrower or any Subsidiary shall fail to pay any amount in respect of any Indebtedness in excess of $10,000,000 (but excluding Indebtedness hereunder) of the Borrower or such Subsidiary (as the case may be), or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other default under any agreement or instrument relating to any such Indebtedness, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or (e) The Borrower or any Subsidiary shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property; or the Borrower or any Subsidiary shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) Any judgment or order for the payment of money in excess of $10,000,000 shall be rendered against the Borrower or any Subsidiary and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (g) Any Termination Event with respect to a Plan shall have occurred, and, 30 days after the occurrence thereof, (i) such Termination Event (if correctable) shall not have been corrected and (ii) the then present value of such Plan's vested benefits exceeds the then current value of assets accumulated in such Plan by more than the amount of $20,000,000 (or in the case of a 26 Termination Event involving the withdrawal of a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), the withdrawing employer's proportionate share of such excess shall exceed such amount); or (h) The Borrower or any of its Affiliates as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount exceeding $20,000,000; or (i) A Change of Control shall occur; then, and in any such event, the Administrative Agent shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, (i) declare the Commitments and the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) declare the principal amount of the Advances then outstanding, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon such principal amount, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower or any Subsidiary under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the principal amount of the Advances then outstanding, all such interest and all such other amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VII THE AGENT SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably provided for by this Agreement (including, without limitation, enforcement or collection of the Advances), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal liability or that is contrary to this Agreement or applicable law. SECTION 7.02. The Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by each or any of them under or in connection with this Agreement, except for their own gross negligence or willful misconduct. 27 Without limitation of the generality of the foregoing, the Administrative Agent: (i) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower; (iv) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (v) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy or e-mail) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. The Agent and its Affiliates. With respect to its Commitments and, the Advances made by it, the Administrative shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not an Administrative Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include each Agent in its individual capacity, as applicable. The Administrative Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any Subsidiary and any Person who may do business with or own securities of the Borrower or any Subsidiary, all as if the Administrative Agent were not the Administrative Agent and without any duty to account therefor to the Lenders. SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements referred to in Section 4.01(e) and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 7.05. Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Advances then held by each of them (or if no Advances are at the time outstanding, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement; provided that no Lender shall be liable 28 for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibility under, this Agreement, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower. SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, the Administrative Agent may appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. SECTION 7.07. Other Agents. Each party to this Agreement hereby agrees that the "syndication agent" so identified on the cover page of this Agreement shall have no right, power, obligation, liability, responsibility or duty under this Agreement and shall not have or be deemed to have any fiduciary relationship with any Lender. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders, in the case of any such amendment, waiver or consent of or in respect of this Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders, do 29 any of the following: (i) waive any of the conditions specified in Section 3.01 or 3.02, (ii) increase the Commitment of any Lender or subject any Lender to any additional obligations, (iii) reduce, or waive the payment of, the principal of, or interest on, the Advances or any fees or other amounts payable to the Lenders ratably hereunder, (iv) postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable to the Lenders ratably hereunder, (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Agreement, or (vi) amend, waive, or in any way modify or suspend any provision requiring the pro rata application of payments or of this Section 8.01; provided further, that no amendment, waiver or consent shall, unless in writing and signed by each Lender affected thereby, reduce, waive or postpone the date of payment of any amount payable to such Lender, other than any such amount payable to the Lenders ratably; and provided, further, that (A) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required hereinabove to take such action, affect the rights or duties of such Administrative Agent under this Agreement and (B) this Agreement may be amended and restated without the consent of any Lender or the Administrative Agent if, upon giving effect to such amendment and restatement, such Lender or Administrative Agent, as the case may be, shall no longer be a party to this Agreement (as so amended and restated) or have any Commitment or other obligation hereunder and shall have been paid in full all amounts payable hereunder to such Lender or Administrative Agent, as the case may be. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telegraphic communication) and mailed, telecopied, e-mailed or delivered, if to the Borrower, at its address c/o Progress Energy, Inc., 410 S. Wilmington Street, PEB 19A3, Raleigh, North Carolina 27601, Attention: Director of Financial Operations, Treasury Department, Facsimile no. (919) 546-7826, e-mail: charles.beuris@pgnmail.com; if -------------------------- to any Lender, at its Domestic Lending Office set forth opposite its name on Schedule I hereto; and if to the Administrative Agent, at its address at Bank of America, N.A., 901 Main Street, Dallas, Texas 75202, Attention: Jarrod Martin, Telephone: 214-209-1225, Facsimile no.: (214) 290-9404, e-mail: jarrod.martin@bankofamerica.com or, as to each party, at such other address as - ------------------------------- shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective when received by the addressee thereof. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 30 SECTION 8.04. Costs, Expenses, Taxes and Indemnification. (a) The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent (and as described in clause (iv) below, the Lenders) in connection with (i) the preparation, execution, negotiation, syndication and delivery of this Agreement and the other documents to be delivered hereunder, (ii) the first Borrowing under this Agreement, (iii) any modification, amendment or supplement to this Agreement and the other documents to be delivered hereunder and (iv) the enforcement of the rights and remedies of the Lenders and the Administrative Agent under this Agreement and the other documents to be delivered hereunder (whether through negotiations or legal proceedings), all the above costs and expenses to include, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent and each of the Lenders with respect thereto. In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and the other documents to be delivered hereunder, and agrees to save the Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. (b) If (i) due to payments made by the Borrower due to the acceleration of the maturity of the Advances pursuant to Section 6.01 or due to any other reason, any Lender receives payments of principal of any Eurodollar Rate Advance based upon the Eurodollar Rate other than on the last day of the Interest Period for such Advance, or (ii) due to any Conversion of Eurodollar Advance other than on the last day of an Interest Period pursuant to Section 2.12, the Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. In addition, if the Borrower fails to prepay any Advance on the date for which notice of prepayment has been given, the Borrower shall, upon demand by any Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any losses, costs or expenses (including loss of anticipated profits) that it may reasonably incur as a result of such prepayment not having been made on the date specified by the Borrower for such prepayment. (c) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including 31 deductions applicable to additional sums payable under this Section 8.04) such Lender or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (d) The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes (including, without limitation, any Taxes imposed by any jurisdiction on amounts payable under this Section 8.04) paid by such Lender or Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or Agent (as the case may be) makes written demand therefor. (e) Prior to the date of the initial Borrowing or on the date of the Assignment and Acceptance pursuant to which it became a Lender, in the case of each Lender that becomes a Lender by virtue of entering into an Assignment and Acceptance, and from time to time thereafter if requested by the Borrower or the Administrative Agent, each Lender organized under the laws of a jurisdiction outside the United States shall provide the Administrative Agent and the Borrower with the forms prescribed by the Internal Revenue Service of the United States certifying that such Lender is exempt from United States withholding taxes with respect to all payments to be made to such Lender hereunder. If for any reason during the term of this Agreement, any Lender becomes unable to submit the forms referred to above or the information or representations contained therein are no longer accurate in any material respect, such Lender shall notify the Administrative Agent and the Borrower in writing to that effect. Unless the Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder are not subject to United States withholding tax, the Borrower or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States. (f) Any Lender claiming any additional amounts payable pursuant to Section 8.04(c) or (d) shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) (i) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender and (ii) to otherwise minimize the amounts due, or to become due, under Sections 8.04(c) and (d). (g) If the Borrower makes any additional payment to any Lender pursuant to Sections 8.04(c) and (d) in respect of any Taxes, and such Lender determines that it has received (i) a refund of such Taxes or (ii) a credit against or relief or remission for, or a reduction in the amount of, any tax or other governmental charge solely as a result of any deduction or credit for any Taxes with respect to which it has received payments under Sections 8.04(c) and (d), such Lender shall, to the extent that it can do so without prejudice to the retention of such refund, credit, relief, remission or reduction, pay to the Borrower such amount as such Lender shall have determined to be attributable to the deduction or withholding of such Taxes. If such Lender later 32 determines that it was not entitled to such refund, credit, relief, remission or reduction to the full extent of any payment made pursuant to the first sentence of this Section 8.04(g), the Borrower shall upon demand of such Lender promptly repay the amount of such overpayment. Any determination made by such Lender pursuant to this Section 8.04(g) shall in the absence of bad faith or manifest error be conclusive, and nothing in this Section 8.04(g) shall be construed as requiring any Lender to conduct its business or to arrange or alter in any respect its tax or financial affairs so that it is entitled to receive such a refund, credit or reduction or as allowing any Person to inspect any records, including tax returns, of any Lender. (h) The Borrower hereby agrees to indemnify and hold harmless each Lender, the Administrative Agent, counsel to the Administrative Agent and their respective officers, directors, partners, employees, Affiliates and advisors (each, an "Indemnified Person") from and against any and all claims, damages, losses, liabilities, costs, or expenses (including reasonable attorney's fees and expenses, whether or not such Indemnified Person is named as a party to any proceeding or is otherwise subjected to judicial or legal process arising from any such proceeding), joint and several, that may be incurred by or asserted or awarded against any Indemnified Person (including, without limitation, in connection with any investigation, litigation or proceeding or the preparation of a defense in connection therewith) in each case by reason of or in connection with the execution, delivery, or performance of this Agreement, or the use by the Borrower of the proceeds of any Advance, except to the extent that such claims, damages, losses, liabilities, costs, or expenses are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted solely from the gross negligence or willful misconduct of the party seeking indemnification. (i) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 8.04 shall survive the payment in full of principal and interest hereunder and the termination of the Commitments. SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower now or hereafter existing under this Agreement, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. 33 SECTION 8.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of each Lender. SECTION 8.07. Assignments and Participations. (a) Each Lender may, with the consent of the Administrative Agent and the Borrower (such consent not to be unreasonably withheld or delayed and, in the case of the Borrower, such consent shall not be required if an Event of Default has occurred and is continuing), assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than the lesser of (A) $5,000,000 and (B) all of such Lender's rights and obligations and, if the preceding clause (A) is applicable, shall be an integral multiple of $1,000,000, (iii) each such assignment shall be to an Eligible Assignee, and (iv) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance and such parties (other than when Bank of America is an assigning party) shall also deliver to the Administrative Agent a processing and recordation fee of $3,500. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of 34 the financial statements referred to in Section 4.01(e) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (c) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance (and copies of the related consents of the Borrower and the Administrative Agent to such assignment) delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (e) Each Lender may assign to one or more banks or other entities any Advance made by it. (f) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any promissory note held pursuant to Section 2.01(b) for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) the holder of any such participation, other than an Affiliate of such Lender, shall not be entitled to require such Lender to take or omit to take any action hereunder, except action (A) extending the time for payment of interest on, or the final maturity of any portion of the principal amount of, the Advances or (B) reducing the principal amount of or the rate of interest payable on the Advances. Without limiting the generality of the foregoing: (i) 35 such participating banks or other entities shall be entitled to the cost protection provisions contained in Sections 2.08, 2.12 and 8.04(b) only if, and to the same extent, the Lender from which such participating banks or other entities acquired its participation would, at the time, be entitled to claim thereunder; and (ii) such participating banks or other entities shall also, to the fullest extent permitted by law, be entitled to exercise the rights of set-off contained in Section 8.05 as if such participating banks or other entities were Lenders hereunder. (g) If any Lender (or any bank, financial institution, or other entity to which such Lender has sold a participation) shall make any demand for payment under Section 2.11(b), then within 30 days after any such demand (if, but only if, such demanded payment has been made by the Borrower), the Borrower may, with the approval of the Administrative Agent (which approval shall not be unreasonably withheld) demand that such Lender assign in accordance with this Section 8.07 to one or more Eligible Assignees designated by the Borrower all (but not less than all) of such Lender's Commitment (if any) and the Advances owing to it within the period ending on the later to occur of such 30th day and the last day of the longest of the then current Interest Periods for such Advances, provided that (i) no Event of Default or event that, with the passage of time or the giving of notice, or both, would constitute an Event of Default shall then have occurred and be continuing, (ii) the Borrower shall have satisfied all its presently due obligations to such Lender under this Agreement, and (iii) if such Eligible Assignee designated by the Borrower is not an existing Lender on the date of such demand, the Borrower shall have delivered to the Administrative Agent an administrative fee of $3,500. If any such Eligible Assignee designated by the Borrower shall fail to consummate such assignment on terms acceptable to such Lender, or if the Borrower shall fail to designate any such Eligible Assignees for all or part of such Lender's Commitment or Advances, then such demand by the Borrower shall become ineffective; it being understood for purposes of this subsection (g) that such assignment shall be conclusively deemed to be on terms acceptable to such Lender, and such Lender shall be compelled to consummate such assignment to an Eligible Assignee designated by the Borrower, if such Eligible Assignee (i) shall agree to such assignment by entering into an Assignment and Acceptance in substantially the form of Exhibit B hereto with such Lender and (ii) shall offer compensation to such Lender in an amount equal to all amounts then owing by the Borrower to such Lender hereunder made by the Borrower to such Lender, whether for principal, interest, fees, costs or expenses (other than the demanded payment referred to above and payable by the Borrower as a condition to the Borrower's right to demand such assignment), or otherwise. (h) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Lender. (i) Anything in this Section 8.07 to the contrary notwithstanding, any Lender may (i) assign and pledge all or any portion of its Commitment and the Advances owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank; provided, that no such assignment shall release the assigning Lender from 36 its obligations hereunder; or (ii) assign its Commitments, Advances and other rights and obligations hereunder to any of its Affiliates upon notice to, but without the consent of, the Borrower and the Administrative Agent. (j) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC") of such Granting Lender identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Advance that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any such SPC to make any Advance, (ii) if such SPC elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the Granting Lender shall be obligated to make such Advance pursuant to the terms hereof and (iii) no SPC or Granting Lender shall be entitled to receive any greater amount pursuant to Section 2.07 or 2.11 than the Granting Lender would have been entitled to receive had the Granting Lender not otherwise granted such SPC the option to provide any Advance to the Borrower. The making of an Advance by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Advance were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would otherwise be liable so long as, and to the extent that, the related Granting Lender provides such indemnity or makes such payment. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against or join any other person in instituting against such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. Notwithstanding the foregoing, the Granting Lender unconditionally agrees to indemnify the Borrower, the Administrative Agent and each Lender against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be incurred by or asserted against the Borrower, the Administrative Agent or such Lender, as the case may be, in any way relating to or arising as a consequence of any such forbearance or delay in the initiation of any such proceeding against its SPC. Each party hereto hereby acknowledges and agrees that no SPC shall have the rights of a Lender hereunder, such rights being retained by the applicable Granting Lender. Accordingly, and without limiting the foregoing, each party hereby further acknowledges and agrees that no SPC shall have any voting rights hereunder and that the voting rights attributable to any Advance made by an SPC shall be exercised only by the relevant Granting Lender and that each Granting Lender shall serve as the administrative agent and attorney-in-fact for its SPC and shall on behalf of its SPC receive any and all payments made for the benefit of such SPC and take all actions hereunder to the extent, if any, such SPC shall have any rights hereunder. In addition, notwithstanding anything to the contrary contained in this Agreement any SPC may with notice to, but without the prior written consent of any other party hereto, assign all or a portion of its interest in any Advances to the Granting Lender. This Section may not be amended without the prior written consent of each Granting Lender, all or any part of whose Advance is being funded by an SPC at the time of such amendment. 37 SECTION 8.08. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. The Borrower (i) irrevocably submits to the non-exclusive jurisdiction of any New York State court or Federal court sitting in New York City in any action arising out of this Agreement, (ii) agrees that all claims in such action may be decided in such court, (iii) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum and (iv) consents to the service of process by mail. A final judgment in any such action shall be conclusive and may be enforced in other jurisdictions. Nothing herein shall affect the right of any party to serve legal process in any manner permitted by law or affect its right to bring any action in any other court. SECTION 8.09. Waiver of Jury Trial. THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY AND LAWFULLY DO SO, ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING TO THIS AGREEMENT IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR THEREUNDER. SECTION 8.10. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 8.11. Severability. Any provision of this Agreement that is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 8.12. Headings. SECTION headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 8.13. Entire Agreement. This Agreement constitutes the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement. Except as is expressly provided for herein, nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement. 38 S-1 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. FLORIDA POWER CORPORATION By ----------------------------------- Thomas R. Sullivan Treasurer 39 S-2 BANK OF AMERICA,N.A,as Administrative Agent and Lender By ----------------------------------- Name: Title: S-3 MERRILL LYNCH BANK USA By ----------------------------------- Name: Title: S-4 BANK ONE, NA By ----------------------------------- Name: Title: S-5 NORTHERN TRUST By ----------------------------------- Name: Title: S-6 SUNTRUST BANK By ----------------------------------- Name: Title: SCHEDULE I FLORIDA POWER CORPORATION List of Commitments and Applicable Lending Offices
Eurodollar Domestic Name of Bank Lending Office Lending Office Commitment ------------ -------------- -------------- ---------- Bank of America, N.A. 901 Main Street Same as Eurodollar $ 21,900,000 Dallas, Texas 75202 Lending Office Attention: Jarrod Martin Bank One, NA 1 Bank One Plaza, Suite 0363 Same as Eurodollar $ 17,800,000 Chicago, Illinois 60670-0363 Lending Office Attention: Madeleine Pember Merrill Lynch Bank USA 15 W. South Temple Same as Eurodollar $100,000,000 Suite 300 Lending Office Salt Lake City, UT 84101 Attention: Frank Stepan Northern Trust 50 S. LaSalle Same as Eurodollar $ 12,500,000 Chicago, IL 60675 Lending Office Attention: Chris McKean SunTrust Bank 200 South Orange Avenue Same as Eurodollar $ 17,800,000 Orlando, Florida 32801 Lending Office Attention: William Barr
SCHEDULE II Permitted Existing Indebtedness None. EXHIBIT A-1 NOTICE OF BORROWING [Date] Bank of America, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below [Address] Attention: ----------------- Ladies and Gentlemen: The undersigned, FLORIDA POWER CORPORATION refers to the Credit Agreement, dated as of December 18, 2001 (the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders from time to time parties thereto and BANK OF AMERICA, N.A., as Administrative Agent for the Lenders, and hereby gives you notice pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section 2.02(a) of the Credit Agreement: (i) The Business Day of the Proposed Borrowing is , 20 . ----------------------- ---- (ii) The Type of Advances comprising the Proposed Borrowing is [Base Rate Advances][Eurodollar Rate Advances]. (iii) The aggregate amount of the Proposed Borrowing is $ . ------- (iv) The Interest Period for each Eurodollar Rate Advance that is an Advance made as part of the Proposed Borrowing is months. ---------- The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing: (i) the representations and warranties contained in Section 4.01 of the Credit Agreement are true and correct, before and after giving effect to the Proposed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds therefrom, that constitutes A-1-1 an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. Very truly yours, FLORIDA POWER CORPORATION By ------------------------------ Name: Title: A-1-2 EXHIBIT A-2 NOTICE OF CONVERSION [Date] Bank of America, N.A., as Administrative Agent for the Lenders parties to the Credit Agreement referred to below [Address] Attention: --------------- Ladies and Gentlemen: The undersigned, FLORIDA POWER CORPORATION refers to the Credit Agreement, dated as of December 18, 2001 (the "Credit Agreement", the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders from time to time parties thereto and BANK OF AMERICA, N.A., as Administrative Agent for the Lenders, and hereby gives you notice pursuant to Section 2.09 of the Credit Agreement that the undersigned hereby requests a Conversion under the Credit Agreement, and in that connection sets forth the terms on which such Conversion (the "Proposed Conversion") is requested to be made: (i) The Business Day of the Proposed Conversion is , -------------- 20 . ---- (ii) The Type of, and Interest Period applicable to, the Advances (or portions thereof) proposed to be Converted: . ---------------- (iii) The Type of Advance to which such Advances (or portions thereof) are proposed to be Converted: . ------------------------ (iv) Except in the case of a Conversion to Base Rate Advances, the initial Interest Period to be applicable to the Advances resulting from such Conversion: . ------------------------------ (v) The aggregate amount of Advances (or portions thereof) proposed to be Converted is $ . --------------- A-2-1 The undersigned hereby certifies that, on the date hereof, and on the date of the Proposed Conversion, no event has occurred and is continuing, or would result from such Proposed Conversion, that constitutes an Event of Default. Very truly yours, FLORIDA POWER CORPORATION By ---------------------------------- Name: Title: A-2-2 EXHIBIT B ASSIGNMENT AND ACCEPTANCE Dated , 20 ---------------- --- Reference is made to the Credit Agreement, dated as of December 18, 2001 (as amended, modified and supplemented from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among FLORIDA POWER CORPORATION, certain Lenders (as defined in the Credit Agreement) from time to time parties thereto and BANK OF AMERICA, N.A., as Administrative Agent (the "Administrative Agent") for the Lenders. (the "Assignor") and (the "Assignee") agree --------------- ------------- as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the date hereof that represents the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement, including, without limitation, such interest in the Assignor's Commitment (to the extent it has not been terminated), the Advances owing to the Assignor. After giving effect to such sale and assignment, the Assignee's Commitment (if any) and the amount of the Advances owing to the Assignee will be as set forth in Section 2 of Schedule 1. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01(e) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of B-1 the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; [and] (vi) specifies as its Domestic Lending Office (and address for notices) and Eurodollar Lending Office the offices set forth beneath its name on the signature pages hereof [and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty]./1/ 4. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to the Administrative Agent for acceptance and recording by the Administrative Agent. The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Administrative Agent, unless otherwise specified on Schedule 1 hereto (the "Effective Date"). 5. Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Administrative Agent, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] - ---------- /1/ If the Assignee is organized under the laws of a jurisdiction outside the United States. B-2 IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective officers thereunto duly authorized, as of the date first above written, such execution being made on Schedule 1 hereto. [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By By --------------------------- --------------------------- Name: Name: Title: Title: Domestic Lending Office (and address for notices): [Address] Eurodollar Lending Office: [Address] Accepted this day ---- of , 20 ------------ -- BANK OF AMERICA, N.A., as Administrative Agent By --------------------------- Title: FLORIDA POWER CORPORATION/2/ By --------------------------- Title: - ---------- /2/ If required B-3 SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE Dated , 20 ---------------- ---- Section 1 - --------- Percentage Interest Assigned: % ------ Section 2 - --------- Assignee's Commitment: $ Aggregate Outstanding Principal Amount of Advances owing to Assignee: $ Section 3 - --------- Effective Date/3/ - ---------- /3/ This date should be no earlier than the date of acceptance by the Administrative Agent. EXHIBIT C-1 FORM OF OPINION OF ASSOCIATE GENERAL COUNSEL TO THE COMPANY [December , 2001] ---- To each of the Lenders parties to the Credit Agreement referred to below and to Bank of America, N.A., as Administrative Agent Re: Florida Power Corporation Ladies and Gentlemen: This opinion is furnished to you by me as Associate General Counsel to Florida Power Corporation (the "Borrower") pursuant to Section 3.01(g) of the Credit Agreement, dated as of December 18, 2001 (the "Credit Agreement", the terms defined therein being used herein as therein defined), among Florida Power Corporation, certain lenders named therein (the "Lenders") and Bank of America, N.A., as Administrative Agent for the Lenders. In connection with the preparation, execution and delivery of the Credit Agreement, I have examined: (1) The Credit Agreement. (2) The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement. (3) The Amended and Restated Articles of Incorporation of the Borrower (the "Charter"). (4) The By-Laws of the Borrower and all amendments thereto (the "By-Laws"). I have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as I have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, I have, when relevant facts were not independently established by me, relied upon certificates of the Borrower or its officers or of public officials. I have assumed the authenticity of all documents submitted to me as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of signatures (other than those of the Borrower), and the due execution and C-1-1 delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the Agent and the validity and binding effect thereof on such parties. For purposes of my opinions expressed in paragraph 1 below as to existence and good standing, I have relied as of their respective dates on certificates of public officials, copies of which are attached hereto as Exhibit A. Whenever the phrase "to my knowledge" is used in this opinion it refers to my actual knowledge and the actual knowledge of the attorneys who work under my supervision and who were involved in the representation of the Borrower in connection with the transactions contemplated by the Credit Agreement. I or attorneys working under my supervision are qualified to practice law in the States of North Carolina and Florida, and the opinions expressed herein are limited to the law of the States of North Carolina and Florida, the Federal law of the United States and, in reliance on a certificate issued by the Secretary of State of South Carolina and attached hereto as part of Exhibit A, the laws of the State of South Carolina for purposes of the first sentence of opinion paragraph 1 below. Based upon the foregoing and upon such investigation as I have deemed necessary, I am of the following opinion: 1. Each of the Borrower and its Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and is duly qualified to do business in and is in good standing under the laws of each other jurisdiction where the nature of its business or the nature of property owned or used by it makes such qualification necessary. The Borrower has the corporate power and authority to enter into the transactions contemplated by the Credit Agreement. 2. The execution, delivery and performance of the Credit Agreement by the Borrower have been duly authorized by all necessary corporate action on the part of the Borrower and the Credit Agreement has been duly executed and delivered by the Borrower. 3. The execution, delivery and performance of the Credit Agreement by the Borrower will not (i) violate the Charter or the By-Laws or any law, rule or regulation applicable to the Borrower (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or (ii) result in a breach of, or constitute a default under, any judgment, decree or order binding on the Borrower, or any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. 4. No authorization, approval or other action by, and no notice to or filing with any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of the Credit Agreement, other than the SEC Order and the FPSC Order, which has been duly issued and is in full force and effect. 5. To my knowledge, except as described in the reports and registration statements that the Borrower and the Parent have filed with the Securities and Exchange Commission, there are no pending or overtly threatened actions or proceedings against the Borrower or any of its C-1-2 Subsidiaries before any court, governmental agency or arbitrator, that may materially adversely affect the financial condition, operations or properties of the Borrower and its Subsidiaries, taken as a whole. The opinions set forth above are subject to the qualification that no opinion is expressed herein as to the enforceability of the Credit Agreement or any other document. The foregoing opinions are solely for your benefit and may not be relied upon by any other Person other than (i) any other Person that may become a Lender under the Credit Agreement after the date hereof and (ii) Hunton & Williams and King & Spalding, in connection with their respective opinions delivered on the date hereof under Section 3.01 of the Credit Agreement. Very truly yours, C-1-3 EXHIBIT C-2 FORM OF OPINION OF SPECIAL COUNSEL FOR THE COMPANY [December , 2001] ---- To each of the Lenders parties to the Credit Agreement referred to below and to Bank of America, N.A., as Administrative Agent Re: Florida Power Corporation Ladies and Gentlemen: This opinion is furnished to you by us as counsel for Florida Power Corporation (the "Borrower") pursuant to Section 3.01(g) of the Credit Agreement, dated as of December 18, 2001 (the "Credit Agreement", the terms defined therein being used herein as therein defined), among the Borrower, certain lenders named therein (the "Lenders") and Bank of America, N.A., as Administrative Agent for the Lenders. In connection with the preparation, execution and delivery of the Credit Agreement, we have examined: (1) The Credit Agreement. (2) The documents furnished by the Borrower pursuant to Section 3.01 of the Credit Agreement. (3) The opinion letter of even date herewith, addressed to you by , General Counsel to the Company and delivered in connection with - ------------- the transactions contemplated by the Credit Agreement (the "Company Opinion Letter"). We have also examined the originals, or copies of such other corporate records of the Borrower, certificates of public officials and of officers of the Borrower and agreements, instruments and other documents as we have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, we have, when relevant facts were not independently established by us, relied upon certificates of the Borrower or its officers or of public officials. We have assumed the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted as certified or photostatic copies and the authenticity of the originals (other than those of the Borrower), and the due execution and delivery, pursuant to due authorization, of the Credit Agreement by the Lenders and the C-2-1 Agent and the validity and binding effect thereof on such parties. Whenever the phrase "to our knowledge" is used in this opinion it refers to the actual knowledge of the attorneys of this firm involved in the representation of the Borrower without independent investigation. We are qualified to practice law in the States of North Carolina, Florida and New York, and the opinions expressed herein are limited to the law of the States of North Carolina, Florida and New York and the federal law of the United States. To the extent that our opinions expressed herein depend upon opinions expressed in paragraphs 1 through 4 of the Company Opinion Letter, we have relied without independent investigation on the accuracy of the opinions expressed in the Company Opinion Letter, subject to the assumptions, qualifications and limitations set forth in the Company Opinion Letter. Based upon the foregoing and upon such investigation as we have deemed necessary, we are of the opinion that the Credit Agreement constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms except as enforcement may be limited or otherwise affected by (a) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting the rights of creditors generally and (b) principles of equity, whether considered at law or in equity. The opinion set forth above is subject to the following qualifications: (a) In addition to the application of equitable principles described above, courts have imposed an obligation on contracting parties to act reasonably and in good faith in the exercise of their contractual rights and remedies, and may also apply public policy considerations in limiting the right of parties seeking to obtain indemnification under circumstances where the conduct of such parties is determined to have constituted negligence. (b) No opinion is expressed herein as to (i) Section 8.05 of the Credit Agreement, (ii) the enforceability of provisions purporting to grant to a party conclusive rights of determination, (iii) the availability of specific performance or other equitable remedies, (iv) the enforceability of rights to indemnity under federal or state securities laws or (v) the enforceability of waivers by parties of their respective rights and remedies under law. (c) No opinion is expressed herein as to provisions, if any, in the Credit Agreement, which (A) purport to excuse, release or exculpate a party for liability for or indemnify a party against the consequences of its own acts, (B) purport to make void any act done in contravention thereof, (C) purport to authorize a party to make binding determinations in its sole discretion, (D) relate to the effects of laws which may be enacted in the future, (E) require waivers, consents or amendments to be made only in writing, (F) purport to waive rights of offset or to create rights of set off other than as provided by statute, or (G) purport to permit acceleration of indebtedness and the exercise of remedies by reason of the occurrence of an immaterial breach of the Credit Agreement or any related document. Further, we express no opinion as to the necessity for any Lender, by reason of such Lender's particular circumstances, to qualify to transact business in the State of New York or as to any Lender's liability for taxes in any jurisdiction. The foregoing opinion is solely for your benefit and may not be relied upon by any other Person other than (i) any other Person that may become a Lender under the Credit Agreement C-2-2 after the date hereof in accordance with the provisions thereof and (ii) King & Spalding, in connection with their opinion delivered on the date hereof under Section 3.01 of the Credit Agreement. Very truly yours, C-2-3 EXHIBIT D FORM OF OPINION OF COUNSEL TO THE ARRANGER [DATE] To Bank of America, N.A. ("Bank of America"), as Administrative Agent for the Lenders referred to below, and to the Arranger and Lenders parties to the Credit Agreement referred to below Re: Florida Power Corporation Ladies and Gentlemen: We have acted as counsel to the Arranger in connection with the preparation, execution and delivery of the Credit Agreement, dated as of December 18, 2001 (the "Credit Agreement", the terms defined therein being used herein as therein defined), among Florida Power Corporation, certain Lenders from time to time parties thereto and Bank of America, as Administrative Agent for the Lenders. In this connection, we have examined the following documents: 1. a counterpart of the Credit Agreement, executed by the parties thereto; 2. the documents furnished by or on behalf of the Borrower pursuant to subsections (b) through (g) of Section 3.01 of the Credit Agreement, including, without limitation, the opinion of R. Alexander Glenn, Associate General Counsel to the Borrower, and the opinion of Hunton & Williams, special counsel to the Borrower (collectively, the "Borrower Opinions"). In our examination of the documents referred to above, we have assumed the authenticity of all such documents submitted to us as originals, the genuineness of all signatures, the due authority of the parties executing such documents and the conformity to the originals of all such documents submitted to us as copies. We have also assumed that you have independently evaluated, and are satisfied with, the creditworthiness of the Borrower and the business terms reflected in the Credit Agreement. We have relied, as to factual matters, on the documents we have examined. To the extent that our opinions expressed below involve conclusions as to matters governed by law other than the law of the State of New York, we have relied upon the Borrower Opinions and have assumed without independent investigation the correctness of the matters set D-1 forth therein, our opinions expressed below being subject to the assumptions, qualifications and limitations set forth in the Borrower Opinions. Based upon and subject to the foregoing, and subject to the qualifications set forth below, we are of the opinion that the Credit Agreement is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms. Our opinion is subject to the following qualifications: (a) The enforceability of the Borrower's obligations under the Credit Agreement is subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar law affecting creditors' rights generally. (b) The enforceability of the Borrower's obligations under the Credit Agreement is subject to the effect of general principles of equity, including (without limitation) concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). Such principles of equity are of general application, and, in applying such principles, a court, among other things, might not allow a contracting party to exercise remedies in respect of a default deemed immaterial, or might decline to order an obligor to perform covenants. (c) We note further that, in addition to the application of equitable principles described above, courts have imposed an obligation on contracting parties to act reasonably and in good faith in the exercise of their contractual rights and remedies, and may also apply public policy considerations in limiting the right of parties seeking to obtain indemnification under circumstances where the conduct of such parties is determined to have constituted negligence. (d) We express no opinion herein as to (i) the enforceability of Section 8.05 of the Credit Agreement, (ii) the enforceability of provisions purporting to grant to a party conclusive rights of determination, (iii) the availability of specific performance or other equitable remedies, (iv) the enforceability of rights to indemnity under federal or state securities laws, or (v) the enforceability of waivers by parties of their respective rights and remedies under law. (e) Our opinions expressed above are limited to the law of the State of New York, and we do not express any opinion herein concerning any other law. The foregoing opinion is solely for your benefit and may not be relied upon by any other Person other than a Person that becomes a Lender under the Credit Agreement after the date hereof. Very truly yours, D-2 EXHIBIT E FORM OF COMPLIANCE CERTIFICATE [Letterhead of Florida Power Corporation] [Date] To the Lenders party to the Credit Agreement referred to below and to Bank of America, N.A. as Administrative Agent Florida Power Corporation ------------------------- Ladies and Gentlemen: This compliance certificate is furnished to you pursuant to Section 5.01(i)(ii) of the Credit Agreement, dated as of December 18, 2001 (the "Credit Agreement"), among Florida Power Corporation, a Florida corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks") and Bank of America, N.A. ("Bank of America"), as administrative agent (the "Administrative Agent"), for the Lenders (as hereinafter defined). Terms defined in the Credit Agreement are used herein as therein defined. 1. As of [ ], 2001, the ratio of Consolidated Indebtedness of the Borrower ------- and its Subsidiaries to Total Capitalization was to 1.0, calculated, in ----- accordance with Section 5.01(j) of the Credit Agreement, as follows: A. Indebtedness as of such date was $ , calculated as follows: -------- Current Indebtedness: Amount ------ [List all forms of current Debt] ---------------------------------- $ ---------------------------------- ---------------------------------- ---------------------------------- ----------- Total current Indebtedness $ ----------- Long-term Indebtedness : Amount ------ [list all forms of long-term Indebtedness] ---------------------------------- $ ---------------------------------- E-1 ---------------------------------- ---------------------------------- Total long-term Indebtedness $ ----------- Total Indebtedness (current Indebtedness plus long-term $ ---- ----------- Indebtedness) B. Total Capitalization as of such date was $ , calculated as follows: ----- Consolidated Indebtedness $ Preferred Stock $ Common Stock $ Retained Earnings $ ----------- 2. As of [ ], 2001, and as of the date hereof, no Event of Default and no ------- event that, with the giving of notice or lapse of time or both, will constitute an Event of Default, has occurred and in continuing. I hereby certify that the calculations set forth in paragraph 1 hereof were prepared in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e) of the Credit Agreement. Very truly yours, FLORIDA POWER CORPORATION By: ------------------------------- Name: Title: E-2 EX-12 6 dex12.txt STATEMENT OF COMPUTATION OF RATIOS Exhibit 12a FLORIDA PROGRESS CORPORATION Statement of Computation of Ratios (Dollars In Millions) Ratio of Earnings to Fixed Charges:
2001 2000 1999 1998 1997 ------- ------- ------ ------ ------ Income from continuing operations $ 265.4 $ 135.3 $304.2 $271.4 $ 48.4 Add: Operating Income Taxes (172.7) (124.7) 84.9 142.3 63.1 ------- ------- ------ ------ ------ Income Before Taxes 92.7 10.6 389.1 413.7 111.5 Total Interest Charges 194.8 229.0 201.0 196.3 170.3 Preferred Dividend Requirements of Subsidiary 1.5 1.5 1.5 1.5 1.5 ------- ------- ------ ------ ------ Total Earnings (A) $ 289.0 $ 241.1 $591.6 $611.5 $283.3 ------- ------- ------ ------ ------ Fixed Charges including Preferred Stock Dividends (B) 197.2 231.6 203.3 198.6 172.6 ------- ------- ------ ------ ------ Ratio of Earnings to Fixed Charges (A/B) 1.47 1.04 2.91 3.08 1.64 ======= ======= ====== ====== ======
Exhibit 12b FLORIDA POWER CORPORATION Statement of Computation of Ratios (Dollars In Millions) Ratio of Earnings to Fixed Charges: 2001 2000 1999 1998 1997 ------ ------ ------ ------ ------ Net Income $311.1 $211.8 $267.0 $250.1 $135.9 Income Taxes 182.6 150.5 151.3 141.0 69.9 ------ ------ ------ ------ ------ Income Before Taxes 493.7 362.3 418.3 391.1 205.8 Total Interest Charges 114.8 128.5 124.0 136.5 117.3 ------ ------ ------ ------ ------ Total Earnings (A) $608.5 $490.8 $542.3 $527.6 $323.1 ------ ------ ------ ------ ------ Fixed Charges (B) $114.8 $128.5 $124.0 $136.5 $117.3 ------ ------ ------ ------ ------ Preferred Dividends grossed up for effective tax rate 2.4 2.6 2.3 2.3 2.3 Total Fixed Charges plus Preferred Dividends (C) 117.2 131.1 126.3 138.8 119.6 ------ ------ ------ ------ ------ Ratio of Earnings to Fixed Charges (A/B) 5.30 3.82 4.37 3.87 2.75 ====== ====== ====== ====== ====== Ratio of Earnings to Fixed Charges and Preferred Dividends (A/C) 5.19 3.74 4.29 3.80 2.70 ====== ====== ====== ====== ====== EX-21 7 dex21.txt SUBSIDIARIES OF FLORIDA PROGRESS Exhibit 21 Subsidiaries of Florida Progress Corporation December 31, 2001 Name of Subsidiary * State of Incorporation - ---------------------------------------- ------------------------------------ Utility segment: Florida Power Corporation Florida Diversified segment: Progress Capital Holdings, Inc. Florida Progress Fuels Corporation Florida Progress Rail Services Corporation Alabama Progress Telecommunications Corporation Florida - ----------------------------------------------------- * Each subsidiary does business under its own name. EX-23.(A) 8 dex23a.txt CONSENT OF DELOITTE & TOUCHE LLP Exhibit 23.(a) We consent to the incorporation by reference in Registration Statement No. 33-53939 on Form S-8, Registration Statement No. 33-54972 on Form S-8, Registration Statement No. 333-02169 on Form S-8, Registration Statement No. 333-19037 on Form S-8, Registration Statement No. 333-75373 on Form S-8, Registration Statement No. 333-39232 on Form S-3, Registration Statement No. 33-51573 on Form S-3, Registration Statement No. 33-47623 on Form S-8, Registration Statement No. 2-93111 on Form S-3, Registration Statement No. 333-94143 on Form S-8, Registration Statement No. 333-66161 on Form S-8, and Registration Statement No. 333-07853 on Form S-3 of Florida Progress Corporation of our report dated February 15, 2002, appearing in this annual report on Form 10-K of Florida Progress Corporation. We consent to the incorporation by reference in Registration Statement No. 33-55273 on Form S-3, and Registration Statement No. 333-29897 on Form S-3 and Registration Statement No. 333-63204 on Form S-3 of Florida Power Corporation of our report dated February 15, 2002, appearing in this annual report on Form 8-10 of Florida Power Corporation. /s/ Deloitte & Touche LLP Raleigh, North Carolina March 27, 2002 EX-23.(B) 9 dex23b.txt CONSENT OF KPMG LLP Exhibit 23.(b) INDEPENDENT AUDITORS' CONSENT Board of Directors Florida Progress Corporation: We consent to incorporation by reference in the registration statements No. 33-53939 on Form S-8, No. 33-54972 on Form S-8, No. 333-02169 on Form S-8, No. 333-19037 on Form S-8, No. 333-75373 on Form S-8, No. 333-39232 on Form S-3, No. 33-51573 on Form S-3, No. 33-47623 on Form S-8, No. 2-93111 on Form S-3, No. 333-94143 on Form S-8, No. 333-66161 on Form S-8, and No. 333-07853 on Form S-3 of Florida Progress Corporation of our report dated February 15, 2001 relating to the consolidated balance sheets and consolidated schedules of capitalization of Florida Progress Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, cash flows and common equity and comprehensive income for the years then ended, which report appears in the December 31, 2001 annual report on Form 10-K of Florida Progress Corporation. /s/ KPMG LLP - ----------------------- KPMG LLP St. Petersburg, Florida March 25,2002 EX-23.(C) 10 dex23c.txt CONSENT OF KPMG LLP Exhibit 23.(c) INDEPENDENT AUDITORS' CONSENT Board of Directors Florida Power Corporation: We consent to incorporation by reference in the registration statements No. 33-55273 on Form S-3, No. 333-29897 and No. 333-63204 on Form S-3 of Florida Power Corporation of our report dated February 15, 2001, relating to the balance sheets and schedules of capitalization of Florida Power Corporation as of December 31, 2000 and 1999, and the related statements of income, cash flows and common equity for the years then ended, which report appears in the December 31, 2001 annual report on Form 10-K of Florida Power Corporation. /s/ KPMG LLP - ------------------------ KPMG LLP St. Petersburg, Florida March 25, 2002 -----END PRIVACY-ENHANCED MESSAGE-----