ML20210N623

Florida Progress Corp Annual Rept 1985

ML20210N623
Person / Time
Site:	Crystal River
Issue date:	12/31/1985
From:	Hines A FLORIDA PROGRESS CORP.
To:
Shared Package
ML20210N608	List: 3F0486-19, Forwards 1985 Annual Financial Repts for Florida Power Corp & Participants,Except Alachua ML20210N623 ML20210N639
References
NUDOCS 8605050203
Download: ML20210N623 (40)

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"The primary cornerstone of our diversification strategy is the State of Florida."

Andrew H. Hines, Jr.

Florida Progress Corporation is a holding

i company which combines non-utility operations with its primary electric utility business.

This combination provides shareholders with a sound utility investment, along with the opportunity for earnings beyond the regulated utility business. Florida Power Corporation, the Company's largest subsidiary, is an electric utility that benefits from serving one of the fastest growing areas in the United States.

The Company's non-utility operations are conducted by four business groups: Energy and Technology, Financial Services, Development and Business Services.

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l Consolidated Financial Highlights j (in millions, except per share amounts) l l

l 1985 1984 Revenues increased 18.6% $1,653.1 $1,394.2 Earnings Were Up 38.9% $160.9 $115.8 Average Common Shares Outstanding Increased 68% 45.6 42.7 Earnings Per Share increased 303% $3.53 $2.71 Dividends on Common Stock-Up 58% $2.19 $2.07

! Return on Average Common Equity 16.8 % 13.6 %

Bock Value Per Share-Year End $21.63 $20.03 Stock Prce Range $23%-31 $18%-24%

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Contents 1 Consohdated Financial Highhghts 2 Letter to Shareholders 4 Utihty Group 10 Ener0y and Technology Group 12 Financial Services Group 14 Development Group 16 Business Services Group 18 Financial Review- Management's Discussion 20 Consolidated Financia! Statements 31 Report of Independent Certified Pubhc Accountants 32 Selected Consolidated Data 33 Ouarterly Financial and Common Stock Data 34 Selected Data of Florida Power Corporation 35 Shareholder Statistics 36 Directors and Officers I 37 Investor Information

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Dear Fellow Shareholder:

It is a genuine pleasure to report Electric Institute with a safety award continued significant growth in this to you on the results of your for low accident frequency. portion of the Company's earnings.

Company's operations in 1985. . .

We believe it is extremely Effective control of operating From a financial standpoint, this important for us to recognize reality was the most successful year in our expenses played a major role in the improved financial results. Higher and make our decisions in a timely history. Earnings per share were manner. For several years, we

$3.53, up by 82c from $2.71 in quality earnings and increased equity investment strengthened the funded a substantial program to 1984. For the 33rd consecutive develop coal-based alternative fuels year, dividends paid per share balance sheet for Florida Power.

Flonda Progress sold one million for direct substitution in oil and gas-increased. Your Board of Directors fired equipment. The program was shares of common stock in Apnl set a new annual rate of $2.28 per technically successful. Declining share at the November meeting.

and placed the net proceeds of

$25.1 million in the utility and its prices in the petroleum and gas The outstanding performance of markets have made it necessary for debt was reduced.

us b drastically curtail this program.

r cont ibu o to th se r uits Flonda Power met severe tests of As a rmit, at the end of 1985 we Florida Power set records in the system performance and employee response when separate hurricanes wrotcQf assets and accrued peak load met and in the earnings comm tments of $5.7 million and produced. The 1985 peak load was struck the Gulf Coast of Florida in susta; ed a one-time loss of 7c per exceeded on January 28,1986 early september and late share. We have " mothballed" this when cold weather and the adktion November. The dedicated service program because we do not expect of new customers dunng 1985 of our utility employees restored the happy day of lower oil prices to caused a peak of 5,977,000 electricity efficiently to thousands of continue indefinitely.

kilowatts. customers who lost service.

Outages affected more than I believe it is appropriate in this In 1985. Flonda Power was 170,000 customers during the report to discuss our perception of recognized as having the 10th most some of the major trends in the Labor Day storm, Hurricane Elena, efficient electric generating system economic climate and business nd 16.000 customers during out of 100 analyzed by Electnc amna.

ne e n Nomm t Heavy Light and Power magazine. It was winds, torrential rains and flood:ng We are attempting to be pro-I also recognized by the Edison created a major challenge. It was active with regard to these trends extremely heartening to see the rather than accepting whatever fate

. Earnings a response to this challenge at all may deal to us. In this regard, there levels The service motivation are three separate subjects which I l and ds vi s continues strong and it is our would like to discuss briefly.

O  % W objective to maintain this spirit.

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-- ,> 1. The Economy Eamm.gs .y g gg. Turning to our non-utility activities.

these continued at an accelerating We beileve tnat the overati C DMs f L. .

j pace. You will recall that SC per national economy will, in effect,

" slide sideways" - that is, there will share were earned in 1984. In 1985 be no drastic ups or downs, there this source added 15C per share to will be a heterogeneous collection the bottom line. We expect

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of pockets of depression and assets and risks. Such you have demonstrated in it. We l outstanding success. Heavy diversification must produce both plan to see that your faith is manufactunng will not disappear, short and long-term benefits to the fully justified.

but will be restructured. America shareholder. We cannot concentrate will not become solely a " service solely on the short-term. Our economy but the " knowledge

, strategy calls for acquiring assets l component" will continue to which will appreciate in value and '

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j increase. We believe the movement provide future earnings gains at p, . ,' d

• l toward a global economy is too such time as they are ' cashed in:'

, strong and has progressed too far This same concept supports our )

to arrest, nor would this be research and development activities i

i desirable. which are geared to building value The Sunbelt economy continues fer future payout. These programs l strong, and Flonda's continues are well underway. It is our belief stronger. The population growth of that diversification requires a high our state is such that Flonda can be degree of cauton and a hedging expected to be the third largest of risks.

state in the nation by the year 2000. In prepanng to cope with these i

The Flonda market is a large one trends, we have built a strong j and becoming larger every day- crganization and have established

! Capitalizing on that market is our the structure for our five business stock in trade. We are also steadely groups. The utility group is over 85 expanding our activities in the years old and doing very well. The M j

j Southeast, which we bel: eve has a very bnght future.

other groups are younger but are showing great promise. yq b [I> %

! 2. Deregulation This Annual Report provides P 4 Deregulation and uncerta:nty will some detail on the activities of the g become ever more significant vanous groups within Flonda factors in the e!ectric util.ty Progress Corporation. I urge you to i

business It will be increasingly spend a little time reviewing these necessary to be among the lower increasingly important activities.

i cost suppliers This means tight. This will help define the strategic 1 ef ficient operation. It means close plan which we are pursuing i control over capital expenditures At the senior management level, For the Board of Directors.

l through maximum use of load Mr Allen J. Keesler. Jt was named management and highly selective Group Vice President in early 1986

! marketing and sa'es decisions It Mr Wilmer W. Bassett, Jr, who has j also means being extremely atert to been a faithful and highly effective / ,

technological developments which Director since 1978, is retiring from offer both threat and promise to the electric utility business the Board in Apnl 1986. His wise counsel has been of great value

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I and will be missed.

s4 cation Charman of the Board On behalf of the Board of in an era of change in the and Resdent Directors. I wish to thank you for the economy it will become loyal support you have given to increasingly destrable to diversify uary 2L G86 your Company and the confidence i

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l Utility Group l

) Use of Energy commercial customers increased For 1985 Florida Power 58% during 1985.

I Corporation's energy sales Energy sales to industoal Kilowatt-Hour Sales m.cns)

) increased 3.3% compared to a , customers increased 5.9% for 1985.

) decrease of 5.4% in 1984. The This is the second cor,secutive year '

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improvement is due primanly to this category has shown  !

customer growth and an expanding an increase.

l , economy. Increased kilowatt hour

sales to residential, commercial and l

industnal customers offset the Hurricanes Elena and Kate

! reduction in wholesale kilowatt-hour sales to Seminole Electric Flonda Power's service area was Cooperative. Inc. when it began threatened by two major hurncanos generating power in February 1984. in 1985. Hurricane Elena hovered along the west coast of Florida I, Flonda's unusual weather dunng the Labor Day weekend.

conditions dunng the year, Over 170.000 customers were

, , s m s , including two humcanes and a without electnc service dunng the senes of record temperatures, did height of the storm. Employees of u n sa.WED) ~ not have a signif cant impact on Flonda Power and personnel relative bilkng degree days. Bilkng provided by The Southern degree day calculations indicated Company fully restored service to the winter penod had 20% less customers within 72 hours8.333333e-4 days <br />0.02 hours <br />1.190476e-4 weeks <br />2.7396e-5 months <br /> after the heating degree days and the long storm ended There was significant t summer season had 13% more damage to the distnbution system cooling degree days than the ten-in the affected beach areas.  !

year averaga Darnage to property and the cost of [

Residential customers used 7.3%

restonng service amounted to $2.6 more energy in 1985 compared to milkon. In addition, there were a few a 60% increase in 1984 The scattered transmission kne outages increase is due poncipally to a due to the storm bands spawned positive econoniic environment by the hurricane, but the knes were during the year and a longer air quickly repaircd and returned to conditioning season than in 1984 service with minimal damage and

• Residential customers increased expanse.

43%, while the average kilowatt-Hurricane Kate, however, caused hc ir use per customer was up extensive damage to transmission i 2.8% dunrg 19%

knes in the northwest area of Florida Commercial energy sales Powds system. The eye of the increased 12.3% for 1985, while t

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7"7 *@t ; Florida Power employees work Y efficiently and safely to restore service.

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hurricane came ashore on the transmission line is in its final stage. not purchasing emergency power evening of November 21st, just west Local residents have expressed were interrupted.

of the city of Port St. Joe. The concern regarding the route and Florida Power maintains sufficient hurricane's destructive force left safety of the line through their reserve capacity to provide reliable extensive damage in its path. All neighborhoods. A recommendation. service to customers. Planned

. three transmission lines serving the favorable to Florida Power, was reserves are in the range of 15% to city of Port St. Joe were damaged made to the Governor and his 20% over the peak demand. These and the city was without electric Cabinet and they are expected to reserves allow for scheduled service for nearly 40 hours4.62963e-4 days <br />0.0111 hours <br />6.613757e-5 weeks <br />1.522e-5 months <br />. Over make the final decision in early maintenance on generating units as 300 Florida Power employees 1986. The 44-mile line will run from well as for such uncertainties as worked on restoring service, and all the Kathleen substation near extreme weather conditions, distribution lines were repaired and Lakeland, Florida, to the Lake unexpected outages and in service by November 26th. Much Tarpon substation in northern unanticipated demand growth, of the damage was due to trees Pinellas County. These uncertainties traditionally being blown into the lines which cause the actual reserves to be required removal before the lines System Capacity lower than the planned reserves.

could be energized again. Damage Florida Power's system Even though a peak demand was

. to Florida Power's transmission generating capability at year end anticipated in January 1986, the system and the cost of restoring was 5,989,000 kilowatts. This reserves on the day of peak were service was under $2 million. consists of nineteen steam units only 3.5%. However, winter peaks A hurricane of Kate's force has not with a capability of 4,906.000 are usually only a couple of hours hit the Atlantic coastline and Gulf kilowatts, and nineteen combustion in duration.

Coast this late in the year in over turbine peaking units with a 50 years. capability of 1,083,000 kilowatts. Florida Public Service With a firm purchase power Commission Appointments agreement of 200,000 kilowatts and Florida's Governor Bob Graham System Operation 76,000 kilowatts of cogeneration appointed two new members to the Florida Power ranked tenth available, the total capability is five-member Florida Public Service

among the nation's 100 largest 6,265,000 kilowatts. This capability Commission in 1985. Michael investor-owned utilities in system does not include units placed in Wilson filled the vacancy created by

power plant efficiency for the extended cold shutdown in 1984 Susan Leisner in April. His term second consecutive year. The and 1985, totaling 662,000 ended on January 1,1986, but survey, based on heat rate kilowatts. Governor Graham reappointed Mr.

comparisons, was published by the A system peak demand for 1985 Wilson to a new four-year term. Mr.

Electric Light and Power magazine. of 5,813,000 kilowatts was recorded Wilson previously served as Deputy Heat rate is the amount of energy on January 22,1985. This was the Counselin the Office of the used to produce a kilowatt-hour of record high until January 28,1986, Public Counsel.

electricity. Florida Power also when customer demand reached Tom Herndon was appointed to ranked sixth in the fossil fuel 5,977,000 kilowatts. At the time of the Commission due to a vacancy category which includes coal and both peaks, interruptible customers created by the resignation of Joe oil-generating units Cresse. Mr. Herndon's term ends Florida Power's request for January 1,1987, after which he can parmission to build a 500 kilovolt 7

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Florida Power's transmission l

towers support over 4,000 miles l of transmission lines throughout

@lF/4 the service area.

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' #, . fM N' term. Mr. Herndon was formerly 7' Governor Graham's Chief of Staff.

YJ' Governor Graham also reappointed "d P  : .4 Chairman John Marks to an 7:.

, w additional four-year term.

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The oil embargoes of the 1970's made it clear that electric utilities g' should not depend on oil as a

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primary souce of fuel. Since that

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. , are supplied by Electric Fuels Corporation. Florida Power plans to continue its policy of firm fuel contracts with multiple suppliers for its other fuels. This allows Florida Power to maintain a reliable supply ,

15 % 204 18 % 21 % 17 % of fuels and competitive prices.

(V8TU Basts) Florida Power's fuel mix for 1985 was 61% coal,20% oil,13%

5 nuclear,4% natural gas and 2%

alternative fuels. For 1986, the fuel E oil mix is estimated to be 59% coal, E cosi 18% oil,21% nuclear and 2% gas.

O Nuciear The lower percentage of nuclear l E our gener tion in 1985 was due to the refueling outage.

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l Nuclear Unit modifications required by the a shaft failure dur;ng normal Nuclear Regulatory Commission. operation of one of the four reactor On August 20,1985, the Crystal in addition, it was discovered that coolant pumps. During an River nuclear unit returned to certain bolts holding pipe supports inspection of the pump, a crack service following a scheduled were below NRC stress standards was found in the shaft of a second maintenance and refueling outage. and had to be replaced. After pump. The unit's remaining two This outage, which lasted just over returning to service, the unit pumps were also inspected and 23 weeks, was the most operated at better than 710/o found to be without damage. The comprehensive outage ever capacity through year end. unit is expected to be out of service expenenced at the nuclear unit due untillate March or early April.

On January 1,1986, the nuclear primanly to the extensive unit tripped off line. This was due to f ,j}:$

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System Map ;Wi gj y m. i.6dN2M< g Fl:rida Power serves over 940,000 customers in more than 375 .

citi;n, towns and rural communities. The territory comprises ~$. aa 4 j:;E4 t h' ' $A ;j f .g t pproximately 20,000 square miles with a population of over 3,800,000, located in 32 of 67 Florida counties. In addition to the .

gen: rating plants indicated on the map, electric power can be 1 .

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7MGy ' Q Fl:rida and the Southeast.

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Energy and Technology Group The Energy and Technology 1985 with increased activity to Unit No.1, located near St.

Group continued to expand and South America and the Caribbean Petersburg, Florida. The coal-oil diversify its operations with Basin. mixture has been proven a viable increased sales and new source of alternative fuel. However, acquisitions during 1985. n ece@er N, R was Coal-Oll Mixture determined that the mixture was no Energy and Transportation COMCO of America, Inc., a longer economically feasible due to wholly-owned subsidiary of Electric the continued decline of oil prices.

Electric Fuels Corporation's Fuels, supplied Florida Power with a COMCO indefinitely suspended its deliveries to Florida Power coal-oil mixture deliveries to Florida coal-oil mixture as fuel for its Bartow Corporation increased by Power in accordance with the terms approximately 20% to 4.9 million 3 of its contract. Bartow Unit No.1 tons during 1985. The average will burn residual oil during the price decreased by 6.4%- suspension.

contributing to Florida Power's competitive position.

' " UY In December 1985 Electric Fuels acquired Kentucky May Coal '.f In October 1985, Progress Company, Inc. Kentucky May h(

'N Technologies Corporation was integrates wellinto Electric Fuels' formed to continue the coal supply network because it has D' development and high quahty coal reserves, access Y commercialization of a number of to rail, barge, and truck [ new technologies. Progress transportation, and an industrial 1 Technologies' major emphasis sales base. Kentucky May owns a ,

during 1985 was to complete the 60% interest in Hatfield Terminals, y development of an advanced inc., which operates a bulk .ag separation technology for the commodity transfer facility on the -

g continuous processing of chemical Ohio River and sells industrial and ,. ? ,t liquids and gases. Progress

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steam coal from facilities on the _' Technologies is also continuing Ohio and Kanawha Rivers.

9 jg technological investigation, International Marine Terminals is , development, and an Electric Fuels partnership which commercialization of certain waste operates a buL commodities  ; and ash disposal processes.

transfer facility south of New Orleans. During 1985, in excess of  !

5 million tons were transferred,  !, Through the use of a f .. y representing an increasing market -

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I l /i i ss !echn lo les has share in a highly competitive market. Electric Fuels' ocean-going

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Financial Services Group During 1985, Progress Financial year, Progress Financial Services The future of the leveraged Services Incorporated was actively continues to consider opportunities. equipment leasing business is engaged in seeking appropriate uncertain due to current tax lines of business to complement its Leveraged Leasing legislation proposed in the U.S.

existing activities. These activities Congress. However, Progress Progress Leasing Corporation, a Leasing is exploring the possibihty are in two areas - leveraged ..

leasing and the management of a joint undertaking between Progress of shifting its efforts to leveraged stock portfoho. While no additional Financial Services and Xerox Credit real estate leasing, and during Corporation, funded $159 million of 1985, the first real estate transaction businesses were added during the .

leases in 1985. This increased the was approved.

lease portfolio to $378 million of leases funded at year-end.

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South Port Square Port j t Charlotte Florida wilt

,  :[, d ,;; i provide a complete hfe-i  ! care community (d 4

, j p IR 2 including a medical

, complex and

" andependent hving

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f_ jet w. ., 4 s D [/

p' A warehouse managet_

takes inventory oi=

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,. 54 Progress C e"ter The .

U n: < e rs ', r,t F !o r'd a at RP%Parc o ard Ye( n n r,> ) O Q y Pa r k , A v n ,a F:or da ~

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Development Group -

g The Development Group agreement in December to Charlotte. The project's first phase, experienced significant expansion purchase Gorman Co., Inc., the the medical complex, is nearly in 1985 through the acquisitions state's second largest plumbing complete. The medical complex 1 and operations of Talquin wholesaler. The Jacksonville-based includes 100 assisted living units Corporation. company distributes plumbing, f

and a 120 bed skilled nursing 2 irrigation and swimming pool facility. Construction of the 240 supplies and has operations in Building Materials independent living apartments will 25 Florida cities. begin in the first quarter of 1986. 1 The Development Group entered -

Hunnicutt Equities, Inc., a real the building material industry in Construction estate development subsidiary, 1985. In June, Talquin acquired Crown Industries, Inc. located in D" Ta continued its redevelopment of the b compete the i t g at McNulty Station block in downtown I Progress Center, The University of St. Petersburg. The last remaining d s r but r of udg a erials. ]

Florida Research and Technology property in the block was acquired Crown was listed on the American in

. late November. In partnership 4

Stock. Exchange and in 1985, had Park in Alachua. The building contains 59,000 square feet of with The Wilson Company of sales of $115 million. Through its operations from Texas to Virginia, research area and executive office Tampa. Hunnicutt is developing ,

space. Several research Carillon, a 180 acre office park in Crown sells wooden doors g departments within the University's the Gateway area of St. Petersburg.

aluminum windows, extrusions and College of Engineering moved into Carillon received final approval and 4 accessories. A new 180000 square , g foot plant is being constructed in the building in October. was issued a development order to .=

proceed.

Tampa to increase production of In partnership with The Johnson '

aluminum windows. In er, Talqw.n mced. 5 Simmons Company, Ta! quin is To further strengthen its building constructing South Port Square, a ppr v i from the city of -

materials division, Talquin signed an 40 acre life-care community in Port P wth a

[e et an a key downtown block next to McNulty 7T "

Station. Talquin proposes to build a

,. major office and retail complex

$1 [ which willinclude a new corporate d headquarters for Florida Progress _

f _ Corporation. j

k

' . F , /, [~

Horticulture f /.  ; in 1985, Talquin's Indiantown j grove enjoyed its best production j

]

, year ever, yielding 900,000 bCxes of J -

//h/ , _u; oranges and grapefruit. Though -a

{

fj .,

/

citrus canker has been a major ]

/f<  ; concern in Florida during the year, -

. Talquin's grove remained r

'// + y I unaffected. Also, the grove -

,f -

managed to avoid ariy major j

,// damage during the freezes of 1984, i ill-1985 and 1962.

This operatoris using a chop saw to cut aluminum m for window and glass sliding door assembtles.

e 15 _

Business Services Group gj, c. v .) , . ....qc,.q y 3,.

Better Business Systems, Inc. is p .- 3. f. . . ? c ;.; . .. s -_. 7p 3.n.!u the nucleus for the Business

.; = .

- = Q. .. : x..77;ff M:.W., .g Services Group, providing a wide

. 0 . + p.

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variety of business products,

< ; ; ' $ .:w .. ;g . ,

f ..:.--f.}-4 supplies and services throughout

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1.0 6W the Southeast.

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. . . . , ~. ..; . :7E y Better Business Systems, through d

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3 manufacturing facilities, six warehouses, and thirteen sales

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%NA- offices in Florida, and additional

1. offices in Alabama, Georgia and  :

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,, South Carolina. Better Business =

i

. .:  % j;31,b.. Systems and its subsidiaries currently employ over 500

- ' ' p.; $.s. and had 1985 revenues of e

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c : i,;.c b$; .;. f ';. ' . . . - . ' D : e: .3, s .-* Business Forms and Supplies Modern laser graphic equipment enables Better Business Forms, Inc., the operators to initiate form design with precision previously unavailable within largest of the Better Business the industry. Systems subsidiaries, manufactures and sells custom and stock business forms and computer

.,~

supplies. In 1985 Better Business Forms installed laser graphic T"

• equipment which provides

. computerized design with a 35%

p-4 -

increase in composing productivity.

Expansion continued in 1985

-==" .

g . .

with the December acquisition of y the Dixie Data Processing Supplies division of National Computer Print, inc. in Birmingham, Alabama. Dixie s

Data provides a strong foundation

]  :. _

j for forms and computer supplies J

• sales growth in Alabama.

r

'[ ~ * .. Variable-head presses allow high

_W speed production of various size forms from a sing!e unit,

~

4 eliminating the necessity for

, , a .A costly additicnal equipment.

16

to fDW

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crc, ce oce'a' 'a eH ^ - '19 A die press produces I mm r e= 0raea c'o1c' >"S1 precision cut foam pieces for use as a cushion in '

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'ea'e g'eTe' " n' 0* high-technology packaging.

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Retail Computer Supplies State of the art label presses provide superior Com ze' 5 c:a M 4  : quality flexographic rp+ p. ,w, . ---< .g r . ,

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Financial Review-Management's Discussion LIQUIDITY AND CAPITAL During 1985, the Company construction requirements RESOURCES increased its common equity ratio remain low.

Florida Progress Corporation has I w red its long-term debt ratio to OPERATING RESULTS concentrated on improving its om n 8. s was capital structure and providing The Company's earnings per achieved through the above.

appropriate sources of liquidity for mentioned common stock sales, share for 1985 increased to $3.53 non-utility operations. External mproved earnings, and the from $2.71 in 1984 and $2.64 in sources of funds during 1985 1983. The return on average redemption and reclassification to included both common stock and common equity was 16.80/o in 1985, current liabilities of certain long-term debt financings. The Company compared to a range of 13.60/o -

debt. No outside financing will be received $41.2 million from the sale 13.70/o in 1984 and 1983. Although required in 1986 to meet current of its common stock through the better utility operating results in maturities of long-term debt.

dividend reinvestment plan and 1985 was the primary contributor to employee benefit plans. These During 1985. Florida Power refunded at par its $100 million this improvement, the Company's funds were used to repay short.

13%0/o First Mortgage Bonds due diversification effort into non-utility term debt incurred to finance non. industries is now beginning to show utility operations and acquisitions in 1987. This was funded by the equity contribution from Florida results - accounting for $.15 of the in addition $25.1 million received 1985 earnings per share. This was from the public sale of one million Progress and a $75 million 10.640/o three-year bank loan. Florida Power after absorbing wnte-offs and shares of common stock was also reduced its long-term debt by recognizing commitments totaling contributed to Florida Power to

$41.1 million through redemptions $08 per share in non-utility redeem high interest rate debt.

and a defeasance. In addition, the operations from suspending our Other long term non-utility debt interest rate on $108.6 million of coal-oil based alternative fuels increased $30.8 million in Pollution Control Annual Tender operation and the divestiture of 1985 primarily due to Bonds was reduced to 6.1250/o from Southeastern Computer business acquisitions.

7.50/o. These reductions will save the Corporation. The higher utility The Company increased its line earnings in 1985 include a full year Company approximately $7.3 million of credit arrangements with banks of retail and wholesale rate n interest expense during 1986 and during 1985 by $22.5 million t increases obtained in late 1984.

further improve interest

$180.5 million. These lines, along Also contributing to the improved coverage ratios.

with the Company's commercial earnings were residential and paper facilities, provide short-term For the second consecutive year, commercial customer growth, a financing flexibil:ty for both utility Florida Power's funds from internal longer than normal air-conditioning and non-utility operations. Unused operations were sufficient to pay for season and continued control of commercial paper and line of credit virtually all of its construction operating and maintenance facilities at the end of 1985 totaled expenditures, which totaled $194.1 expenses.

approximately $97.3 million. In million in 1985. This trend is addition, the Company owns a expected to continue for the next Revenues stock portfolio with a market several years while generation value at year-end of $308 million Revenues increased 18.60/o,1.5%

which could be a source of funds and 11.9% in the years 1985,1984 if needed. and 1983, respectively.

18

Utility revenues increased $168.2 Non-utility revenues increased to increases, respectively. Also million in 1985 and $149.3 million in $148.2 million in 1985, from $57.5 contributing to the 1984 increase 1983 and decreased $35.1 million million in 1984 and $1.9 million in was the cost of meeting Nuclear in 1984. Retail and wholesale base 1983. The acquisitions of Better Regulatory Commission rate increases of $138.9 million in Business Systems in September requirements and provisions for late 1982 and $102.4 million in late 1984 and Crown Industries in June scheduled maintenance and 1984 were the primary factors that 1985 provided revenues of $104.7 refueling at the Crystal River caused increases in utihty revenues. million in 1985 and $35.8 million nuclear plant.

An increase in customers of 4.5% in in 1984.

1985 and 4.6% in 1984 and The increase in depreciation increases in average residential expense for each year 1983 energy usage of 2.8% in 1985 and ""***

through 1985 and the significant 2.4% in 1984 also contributed to Fuel and purchased power decrease in the allowance for funds increases in utility revenues. The expenses, before cost recovery used during construction in 1985 decline in utility revenues in 1984 deferrals, increased $88.9 million in reflect the completion of the resulted from lower fuel revenues 1985 while 1984 decreased $135.4 extensive utility construction due to additional nuclear million. The decrease in 1984 program which ended when major generation and the loss of a resulted from additional nuclear generating units were placed into significant load from Florida Power's generation, a change in generation service in 1982 and 1984. In 1985, then largest wholesale customer, mix to one based on coal and the allowance for funds used during Sem;nole Electric Cooperative, Inc., reduced reliance on purchased construction represented 3.5% of when it placed its 620,000 kilowatt power due to added generating consolidated net income, down unit into service in February 1984. capacity. The increase in 1985 was from 25.2% in 1984 and 22.6%

due to the replacement of nuclear in 1983.

generation with more expensive Florida Power Corporation Construction Program On Mnons) fossil fueled generation during a Inflation scheduled nuclear refueling outage.

Because Florida Power recovers The effects of inflation on the substantially all fuel costs through a operations of the Company have Y fuel adjustment clause, these been estimated on the basis M g changes have little impact on prescribed by the Financial 1 net income. Accounting Standards Board. This A 3 '

Other operating and information is included in Note 9

., V h ", maintenance expenses increased to the Consolidated Financial b hW ij ., $76.5 million in 1985 and $68.6 Statements.

R P ,

million in 1984. A substantial portion

$/

iL th of the increase represents the f $L W ss additional cost of sales and "O

% ,i k -

operating expenses of Better 84

. Las Euh_ Business and Crown which ee 8a j accounted for $60.9 million and

$32.6 million of the 1985 and 1984 19

FLORIDA PROGRESS CORPORATION Consolidated Balance Sheets DECEMBER 31,1985 AND 1984 (In millions)

Assets 1985 1984 PROPERTY, PLANT AND EQUIPMENT:

Electric utility plant in service and held for future use $3,602.3 $3.430.8 Less-Accumulated depreciation 915.9 797.6 2,686.4 2.633.2 Construction work in progress 58.8 60.9 Nuclear fuel, net of amortization of $118.3 in 1985 and $104.8 in 1984 90.3 91.0 Net electric utility plant 2,835.5 2.785.1 Other property, net of depreciation of $19.0 in 1985 and $11.5 in 1984 154.7 99.3 2,990.2 2,884.4 CURRENT ASSETS:

Cash and temporary cash investments, including restricted deposits of $1.2 in 1985 and $37.8 in 1984 8.8 48.8 Accounts receivable, less reserve of $3.9 in 1985 and $2.2 in 1984 155.4 114.8 Inventories, primanly at average cost-Fuel 83.6 111.6 Materials, supplies and other 98.4 54.2 Underrecovery of fuel cost 37.1 -

Prepayments 8.7 3.9 392.0 333.3 OTHER ASSETS:

Investment in and advances to an unconsolidated subsidiary and partnerships 42.3 45.0 investments in marketable equity securities 24.2 23.3 Nuclear plant decommissioning fund 11.2 7.6 Other 34.4 21.7 112.1 97.6

$3,. 94.3 $3,315.3 The accompanying notes are an integral part of these financial statements.

20

Capitalization and Liabilities 1985 1984 l CAPITALIZATION:

Common stock equity $1,014.2 5 883.5 Florida Power Corporation cumulative preferred stock 265.1 268.2 Long-term debt 1,151.1 1,252.4 2,430.4 2.404.1 CURRENT LIABILITIES:

Accounts payable 76.6 60.9 Customers' deposits 41.3 37.9 income taxes-Currently payable 3.8 11.3 De' erred 36.7 .4 Accrued other taxes 8.4 7.9 Accrued interest 22.3 22.4 Nuclear fuel disposal contract 1.5 25.0 Overrecovery of fuel cost -

31.2 Other 26.4 21.2 217.0 218.2 Notes payable 86.2 46.8 Current portion of long-term debt and preferred stock 72.8 14.3 376.0 279.3 DEFERRED CREDITS AND OTHER LIABILITIES:

Deferred income taxes 473.3 418.4 Unamortized investment tax credits 190.4 182.4 Nuclear refuehng outage reserve 6.1 25.3 Other 18.1 5.8 687.9 631.9 COMMITMENTS AND CONTINGENCIES (Note 8)

$3,494.3 S3,315.3 21

FLOR'DA PROGRESS CORPORATION Consolidated Statements of Income FOR THE YEARS ENDED DECEMBER 31,1985,1984 AND 1983 (In mittlons, except per share amounts) 1985 1984 1983 REVENUES $1,653.1 $1,394.2 $1,373.7 EXPENSES:

Operations-Fuel and purchased power 586.8 570.6 636.6 Other 296.7 214.1 162.8 883.5 784.7 799.4 Maintenance 100.4 106.5 89.2 Depreciation 135.8 111.6 101.5 Taxes other than income taxes 87.6 76.7 71.1 1,207.3 1,079.5 1,061.2 INCOME FROM OPERATIONS 445.8 314.7 312.5 INTEREST EXPENSE AND OTHER:

Interest expense 121.4 122.0 119.3 Allowance for funds used during construction (7.1) (37.1) (29.8)

Preferred dividend requirements of Flonda Power Corporation 25.2 25.2 25.5 Other expense (income) 2.3 (8.1) .9 141.8 102.0 115.9 INCOME BEFORE INCOME TAXES 304.0 212.7 196.6 income taxes 143.1 96.9 92.7 NET INCOME $ 160.9 $ 115.8 $ 103.9 AVERAGE SHARES OF COMMON STOCK OUTSTANDING 45.6 42.7 39.3 EARNINGS PER AVERAGE COMMON SHARE $3.53 $2.71 $2.64 The accompanying notes are an integral part of these financial statements.

22

Consolidated Statements of Capitalization DECEMBER 31,1985 AND 1984 (In millions, except share amounts) 1985 1984 COMMON STOCK EOUlTY:

Common stock without par value, authonzed 90,000.000 shares, outstanding 46.882,982 shares in 1985 and 44,104,164 shares in 1984 S 554.8 $ 485.0 Retained earnings 459.4 398.5 1,014.2 883.5 CUMULATIVE PREFERRED STOCK:

Florida Poer Corporation, $100 par value. authorized 4,000.000 shares-Without sinking funds . 7.02% (a) 133.5 133.5 With sinking funds, less current sinking fund requirements .11.48% (a) 131.6 134.7 265.1 268.2 LONG-TERM DEBT:

Flonda Power Corporation-First mortgage bonds-Maturing through 1990-July 1,1986. . 3%o/o 9.6 10.0 Apnl 1,1987. 13%% -

100.0 July 1,1988. . 4%% 12.7 13.2 October 1,1990. .4%% 14.0 14.5 November 1.1990. .1330 % 100.0 100.0 Matunng 1991 through 2000. . 6.87%(a) 163.5 165.8 Matunng 2001 through 2006. 7.90%(a) 360.0 360.0 Matunng 2012. .13%% 100.0 100.0 Premium, being amortized over term of bonds 4.1 4.4 Par value of bonds reacquired to meet cash sinking fund requirements (3.7) (3.8) 760.2 864.1 Guarantee of pollut:on control revenue bonds- l Matunng 2000 through 2012. 934% (a) 132.8 138.6 Annual tender bonds matunng in 2012 and 2013. 6%% (a) 108.6 114.2 Variable rate bank term loans due December 15,1986. . 8.77% 50.0 75.0 Bank term loan due June 1,1988. 10.64 % 75.0 -

Other 1.1 9.3 Other subsidianes, debt maturing 1986 through 2008. 9.93% (a) 93.2 62.4 1,220.9 1,263.6 Less-Current portion of long-term debt 69.8 11.2 1,151.1 1,252.4

$2,430.4 $2.404.1 (a) Weighted average dividend or interest rate at December 31,1985.

The accompanying notes are an integral part of these financial statements.

23

FLORIDA PROGRESS CORPORATION Consolidated Statements of Changes in Financial Position FOR THE YEARS ENDED DECEMBER 31.1985,1984 AND 1983 (in minions) nas as4 1sn SOURCE OF AVAILABLE FUNDS:

Funds retained in the business-Net income $160.9 $115.8 $103.9 Add (deduct)-

Depreciation and amortization 159.4 143.8 126.9 Deferred income taxes and investment tax cred:ts. net 62.8 75.9 54.5 Allowance for funds used during construction (7.1) (37.1) (29.8)

Other (29.3) 26.0 (16.8)

Funds provided from operations 346.7 324.4 238.7 Less-Dividends on common stock 100.0 88.3 76.5 246.7 236.1 162.2 Other funds provided. net-Overrecovery (underrecovery) of fuel cost (68.3) 64.2 (50.9)

Other changes in working capital (excluding temporary cash investments and short-term debt) 15.3 (7.4) 54.1 Other 12.9 (4.6) 1.4 Internally generated funds 206.6 288.3 16&8 Funds provided by financing activities, net-Common stock 69.8 36.3 65.9 Long-term debt 86.9 64.9 106.5 Reduction in long-term debt and preferred stock (159.8) (21.3) (90.6)

Temporary cash investments 24.4 (3.8) 8.3 Short-term debt 29.7 (9.9) 19.4 51.0 66.2 109.5

$257.6 $354.5 $276.3 USE OF FUNDS:

Additions to electnc plant and nuclear fuel $201.2 $284.5 $285.8 Less-Allowance for funds used dunng construction 7.1 37.1 29.8 Net utility plant expenditures 194.1 247.4 256.0 Additions to other property, plant and equipment 23.3 57.0 25.8 Business acquisitions in 1985 -

Working capital 31.3 - -

Other property 44.8 - -

Other assets and liabilities-net. including goodwill 9.2 - -

Short term debt (9.7) - -

Long-term debt (28.1) - -

Investment in and advances to an unconsolidated subsidiary and partnerships (7.4) 26.8 (5.5)

Investment in marketable equity secunties .1 23.3 -

$257.6 $354.5 $276.3 The accompanying notes are an integral part of these financial statements.

24

. . . . .a

Consolidated Statements of Shareholders' Equity FOR THE YEARS ENDED DECEMBER 31,1985,1984 AND 1983 (Dollars in millions, except per share amounts)

Florida Power Corp.

Preferred Stock l Without With Common Retained Sinking Sinking Stock Earnings _ Funds Funds Balance, December 31,1982 $382.8 $342.2 $133 5 $142.4 i Net income 103.9 l 3.417.677 common shares issued 65.9 15.500 preferred shares redeemed (1.6)

Cash dividends on common stock ($1.95 per share) (76.5)

[ Ba!ance, December 31,1983 448.7 369.6 133.5 140.8 Net income 115.8 1,771,691 common shares issued 35.3 61,372 preferred shares redeemed or reclassified to current (6.1)

Company acquired for 613.637 common shares in a pooling of interests transaction 1.0 1.4 Cash dividends on common stock ($2.07 per share) (88.3)

Balance, December 31,198- 485.0 398.5 133.5 134.7 Net income 160.9 2.778,818 common shares issued 69.8 30.750 preferred shares redeemed or reclassified to current (3.1)

Cash dividends on common stock ($2.19 per share) (100.0) l Balance, December 31,1985 $554.8 $459.4 $133.5 $131.6 l

j The accompanying notes are an integral part of these financial statements.

Notes to Consolidated Financial Statements (1)

SUMMARY

OF SIGNIFICANT ACCOUNTING The Company is exempt from regulation as a regrstered POLICIES holding company under the Public Utility Holding Principles of Consolidation-The consolidated Company Act of 1935.

financial statements include the financial results of Electric Plant-Electnc plant is stated at the ong:nal Flonda Progress Corporation and all subsidianes other cost of construction which includes payroll and related than its leasing subsidiary. The Company's largest costs such as taxes, pensions and other fnnge benefits, subsid:ary. representing 90.7% of total assets, is Fionda general and administrative costs and an allowance for Power Corporation, an operating public utility engaged in the production, transmission. distnbution and safe of funds used dunng construction. Substantially all of the electnc energy within Florida.

ele plw s pe@ anollgem! W FloMa Pw's W e M.

All significant intercompany balances and intercompany transactions have been eliminated Utility Revenues, Fuel and Purchased Power l Certain reclassifications have been made to pnor year Expenses-Florida Power accrues the non-fuel portion amounts to conform with the current year presentation. of base revenues for services rendered but unbilled.

25

FLORIDA PROGRESS CORPORATION Notes to Consolidated Financial Statements Revenues include amounts resulting from fuel and The average rate used in computing the allowance conservation adjustment clauses which are designed to for funds was 1003% for 1985 and 1984, and 10.08%

permit full recovery of these costs. The adjustment for 1983.

factors are based on costs projected by Flonda Power Marketable Equity Securities-Marketable equity for a six-month penod. Revenues and expenses are secunttes are camed at the lower of aggregate cost or adjusted for differences between recoverable fuel and market value. At December 31,1985. the market value conservation costs and amounts included in current of the secunties was $30.8 milhon.

rates The cumulative fuel cost d.fference is shown in Pension Costs-The Company and certa,n of its the balance sheet as overrecovery or underrecovery of subsidianes have a retirement plan covenng fuel cost. Any overrecovery or underrecovery of costs substantially all of their employees. The total pension plus an interest factor are to be refunded or billed to costs under this plan for 1985,1984 and 1983 were customers dunng the subsequent six-month penod.

$9.6 milkon, $9.1 milhon and $6.9 milhon, respectively.

The cost of fossil fuel for electnc generation is charged The plan was amended, effective December 31,1983, to expense as burned The cost of nuclear fuqlis and again January 1,1985, to provide increased amortized to fuel expense based on the quantity of heat benefits. The total unfunded prior service cost at produced for the generation of electnc energy in January 1,1985 of $9.3 melkon, a*ter an increase in the relat;on to the quant.ty of heat expected to be produced inte<est rate assumption from 6W% to 7%, is being over the hfe of the nuclear fuel core funded by the Company over a 20-year penod.

Depreciation and Maintenance-The Company A compansen of plan net assets with the actuanal provides for depreciat:on of the ong;nal cost of present value of accumulated plan benefits based on propert es over the r est: mated useful hves pnmanly on an assumed rate of investment return of 8% a year is a stra ght-kne basis The annual provision for presented below:

deprec ation. expressed as a percentage of the average balances of depreciable electnc plant of Januaq 1 Flonda Power was 393%,3.73% and 368% for 1985. 1985 1984 1984 and 1983. respectively (Minions)

Flonda Power charges maintenance with the cost of Actuanal present value of repa,rs and minor renewals of property. the plant accumulated plan benefits; accounts with the cost of renewals and replacements of Vested $ 86.7 5 73.6 property un+ts and accumulated depreciation with cost, Nonvested 15.2 14.3 less net salvage, of property units retired Total $101.9 $ 87.9 Allowance for Funds-The allowance for funds used Net assets available for benefits $193.9 $177.2 dunng construction is a non-cash addition to income representrng the estimated cost of funds appkcable to utihty plant under construction. Recognition of this item The actuanal present value of accumulated plan as a cost of utity plant under construction is benefits does not recognize any improvements in appropnate because it constitutes an actual cost of benefits and ignores the effects of future compensation construct;on and, under estabhshed regulatory rate increases on the benefits participants will receive for practices, Flonda Power is permitted to earn a return on their past service. If this value is adjusted for projected these costs and to recover them in the rates charged compensation increases consistent vwth the assumed for utitty services while the plant is in service. rate of investment return, the adjusted actuanal present Similar treatment has been authonzed by the Flonda value of accumulated plan benefits would be Pubi:c Service Commission for the cost of 'unds approximately $158.2 milhon and $137.4 milhon for 1985 appbcable to certain exist ng generating units held for and 1984, respectively.

future use. However, in comphance with Federal Energy Dunng 1985, the Financial Accounting Standards Regulatory Commission requirements, the return Board issued new standards on employers' accounting accrued on these units of $34 milhon at December 31 for pensions. For U.S. plans, companies are required to 1985, is being deferred and will not be recognized as adopt the new expense and disclosure standards no income unt.l the units are returned to service- later than 1987. These new standards will be adopted 26

Notes to Consolidated Financial Statements proepectively, and thus the financial statements Employees become ehgible for these benef ts if they included herein will not be restated. Early adopt;on is reach normal retirement age while working for the mrmit'ed Company. The present value of retiree health care and The Company has not decided when it will implement hfe insurance benef,ts for current retirees is estimated at the new standards. However, based on a prehminary $69 milhon and is being recognized as an expense review under existing conditions the Company expects over a 5-year penod beginning January 1.1985.

that the new standards, when adopted, will result in income Taxes-Deferred income taxes are provided reduced provisions for pension costs. on all significant book-tax timing d,fferences.

I In add.tjon to provid.ng pension benefits, the Company Investment tax credits used to reduce current federal and certain of its subsidtanes provide certain health income taxes are deferred and amortized to income care and hfe insurance benefits for retired employees. over the hves of the related properties.

(2) INCOME TAX EXPENSE (In millions) 1985 1984 1983 Federal.

Payable currently $36.1 $55.1 $ .5 De' erred (a) 81.0 12 6 79 6 Investment tax cred:ts. net of amortization 8.2 17.4 2.0 125.3 85.1 82.1 State Payable currently 7.9 10.7 1.1 Deferred (a) 9.9 1.1 9.5 17.8 11.8 10.6 locome taxes $143.1 $96.9 $92.7 (a) The components of deferred income tax are as follows:

l Federal-Excess of accelerated over stra'ght-kne tax depreciation $50.0 $40.5 $38.9 Construction costs and other property related items deducted for tax purposes, net of book depreciation (3.4) 10 6 9.5 U nderrecovery (overrecovery) of fuel cost 29.9 (28.8) 22.2 Other 4.5 (9.7) 9.0

$81.0 $12.6 $79.6 State-Excess of accelerated over straight-kne tax depreciation S 5.9 $ 4.6 $ 4.3 Construction costs and other property related items deducted for tax purposes, net of book depreciation (.3) .8 1.6 Underrecovery (overrecovery) of fuel cost 3.8 (3 3) 2.6 Other .5 (1.0) 1.0

$ 9.9 $ 1.1 $ 9.5 21

l FLORIDA PROGRESS CORPORATION Notes to Consolidated Financial Statements The provision for income tax as a percent of income restoration costs which are presently estimated to be before taxes and preferred d:vidend requirements was $362 million in the year 2008.

less than the statutory federal income tax rate. The Ael Disposal Costs-Florida Power has entered into pnmary d.fferences between the statutory rates and the a contract wlth the Department of Energy (DOE) for the ef'ective income tax rates are detailed below: transportation and disposal of spent nuclear fuel.

1985 1984 1983 Disposal costs for nuc; ear fuel are being collected at a Federalincome tax cost of .1C per k!Iowatt-hour through the fuel adjustment statutory rates 46.0 % 46.0 % 46.0 % clause and paid to the DOE quarterly. Flonda Power is Amortization of investment currently stonng spent nuclear fuel on site and has tax cred.ts (2.8) (40) (3.3) sufficient storage capacity for fuel burned through the Allowance for equity funds (0.4) (3.7) (33) year 2006 State income tax, net of federalincome tax 2.9 2.7 2.6 Plant Refueling Outages-Flonda Power accrues a Other (2.2) (.3) (.3) reserve for maintenance and refueling expenses antcpated to be incurred dunng scheduled nuclear Et'ective income tax rates 43.5 % 40 7 % 41.7 % plant refueling outages. The 1985 outage, which included extensive modifications mandated by the Nuclear Regulatory Commission (NRC), lasted over 23 (3) BUSINESS ACQUISITIONS weeks and cost approximately $32 8 million. The next Several businesses were acquired in 1985 for cash and outage is scheduled for 1987 and is presently expected notes and have been accounted for as purchases. Had to cost approximately $24 million.

these businesses been purchased at the beginning of the current or pnor year, revenues and net earnings of PMWshW%leN the Company on a pro forma consolidated basis would liability of an owner of a nuclear power plant to $640 not have been matenally different from the amounts purchased the maximum available pnvate insurance of reported in 1984. Better Bus; ness Systems, Inc. was acquired in exchange for shares of common stock. This $160 million and the balance is provided by indemnity gmeents e N E In N mnt of a Mear transact.on has been accounted for on a pooling of incident Flonda Power could be assessed up to $5 interests basis. As the effect of restating data relating to this acqu:sition would not matenally af'ect previously issued financial statements, no restated or separate m em ssessant d W Mon h a yeat in a on o s haw inswance, Ronda h caMes ent.ty operating results are presented.

extra expense insurance with Nuclear Electnc Insurance, Ltd. (NEIL) to cover the cost of replacement (4) NUCLEAR OPERATIONS Jointly Ownea Plant-Flonda Power's 90% p wer during prolonged outages of the nuclear unit.

owrership share in the Crystal River nuclear unit as of Under this policy, Flonda Power is subject to a December 31,1985, amounted to $457.4 million of retrospective premium assessment of up to $59 million electnc plant in service, $34 7 million of construction in ny ye r in which losses exceed accumulated funds t work in progress, $903 million of unamortized nuclear vailable to NEIL.

fuel, and $1285 million of accumulated depreciation Flonda Power currently carnes approximately $1 billion which includes $239 million of accumulated provisions in property insurance provided by vanous underwnters for decommissioning costs. Each participant provides through several different policies. One of these for its own financing. Flonda Power's share of the us derwnters is NEIL, which provides $525 million of operating costs are included in the appropriate excess coverage. Under this policy, Flonda Power is expense captions in the statements of income. contingently liable to NEIL for a retrospective premium assessment of up to $69 million in any one policy year Plant Decommissioning Costs-Flonda Power's in the event NEll's excess property losses exceed nuclear plant depreciation rates include a provision for available funds.

future nuclear plant decommission costs which are recoverable through rates charged to customers. (5) PREFERRED AND PREFERENCE STOCK-The Flonda Power is placing its collections in a funded combined aggregate amount of minimum preferred reserve The combined recovery from customers plus stock redemption requirements for 1986, 1987, 1988, l interest earned on the funded amounts is expected to 1989 and 1990 are $30 million, $5.1 million, $15.1 provide for the future dismantling, removal and land million $15.1 million and $15.1 million, respectively. The 28 l 1

Notes to Consolidated Financial Statements Company has 10 mdhon shares of authonzed but (9) SUPPLEMENTARY INFORMATION TO unissued preferred stock w:thout par value. Flonda DISCLOSE THE EFFECTS OF CHANGING PRICES Power has one mdhon shares of authorized but (Unaudited) unissued preference stock, $100 par value, and five The following supplementary presentation is made mdhon shares of authorized but unissued cumulative consistent with Statement No. 33, as amended, of the preferred stock, without par value' Financial Accounting Standards Board and is intended to provide certain information regarding the effects of (6) LONG-TERM DEBT changing prices on the Company. It should be v ewed The interest rate on the Annual Tender Pollution Control as an estimate of the approximate effect of inflation, Revenue Bonds will be adjusted on December 1 of rather than as a precise measure.

! each year and the bondholders may elect to tender ther Bonds at that time. The Bonds are supported by a Current cost amounts reflect the changes in specific three-year kne of credit arrangement in the amount of prices of property, plant and equipment (plant) from the

$100 milkon. date the plant was acquired to the present. The current cost of utikty plant is determined by indexing surviving At December 31,1985. Flonda Power's convertib!e plant by the Handy-Whitman Index of Pubhc Utihty debentures in the outstanding pnncipal amount of $1.1 Construction Costs. Since the plant is not expected to mdkon are convertible into 56,198 shares of common be replaced precisely in kind, current cost does not stock of the Company.

necessanly represent the replacement cost of Flonda The combined aggregate matunties of long-term Power's productive capacity.

debt and cash sinking fund requirements for 1986, Amortization of nuclear fuel, an item included in 1987,1988,1989 and 1990 are $698 milhon, $12.5 operating and maintenance expense, and depreciation mdli on, $1040 mdhon, $9 2 mdhon and $1208 mdhon.

are determined by applying book amortization and respectively depreciation rates to the average indexed plant (7) SHORT TERM DEBT The Company and its conschdated subsidianes have Since only historical costs are deductible for income tax hnes of credit totahng $180.5 mdhon, of which $105 purposes, the income tax expense in the histoncal cost mdhon is used to support commercial paper programs. financial statements is not adjusted.

The amount outstanding at December 31,1985, and Under the rate-making prescobed by the regulatory 1984, thrcu;;h both commercial paper and direct commissions to which Flonda Power is subject, only the borrowings. totaled $86.2 mdhon and $468 mdkon, historical cost of plant is recoverable in revenues as respectively. Interest rates under hne of credit amortization and depreciation. Therefore, the excess of arrangements vary from sub-pnme or money market the cost of plant stated in terms of current cost that rates to the pnme rate. Banks providing knes of credit exceeds the historical cost of plant is not presently are compensated through balances or fees. Balance recoverable in rates as amortization or depreciation, requirements are based on terms acceptable to the and is reflected as a reduction to net recoverable cost.

banks and. where specified, are based on 10% of the To properly reflect the economics of rate regulation in hne or 15% of the amount borrowed, whichever is the statement of income, the reduction of Florida greater _ Comm:tment fees on hnes of credit vary Power's net plant should be offset by the gain from the between % and % of 1% decline in purchasing power of net amounts owed.

During a penod of inflation, holders of monetary assets (8) COMMITMENTS AND CONTINGENCIES suffer a loss of general purchasing power whde holders Construction Program-Substantial commitments of monetary liab!bties expenence a gain. The gain from have been made in connect;on with Flonda Power's the dechne in purchasing power of net amounts owed construction program which is presently estimated to is pnmanly attnbutable to the substantial amount of result in construction cvpenditures in 1986 of $2090 debt which has been used to finance plant. Since the mdhon for electnc plant and nuclear fuel. amortization and depreciation on this plant is hmited to Debt Guarantees-The Company has guaranteed the recovery of histoncal costs, Flonda Power does not debt of the unconsohdated subsidiary and certain have the opportunity to realize a holding gain on debt partnerships and joint ventures totahng $1269 milhon. nd is hmited to recovery only of the embedded cost of debt capital.

29

FLORIDA PROGRESS CORPORATION Notes to Consolidated Financial Statements CONSOLIDATED FIVE YEAR COMPARISON OF h5LECTED FINANCIAL DATA ADJUSTED FOR CHANGING PRICES (In millions, except per share amounts)

Years Ended December 31, 1985 1984 1983 1982 1981 Revenues As reported $1,653.1 $1,394.2 $1,373.7 $1,227.6 $1,302.6 Adjusted for generalinflation (a) 1,653.1 1,443 9 1,483.3 1,368.1 1.540.8 Earnings on common stock As reported 160.9 115.8 103.9 82.1 95.1 Adjusted for specific pnce changes (excluding adjustment to net recoverable cost) M) 80.7 22.1 14.7 (16 9) 16.9 Purchasing power gain from holding fixed money obligations (a) 69.6 80.1 73.4 77.8 137.8 Excess of increase in the general price level over increase in specific prices of assets (after adjustment to not recoverable cost)(a) 26.3 19.2 9.4 6.4 113.2 Common stock equity at year end at net recoverable cost As reported 1,014.2 883.5 818.3 725.0 681.2 Adjusted for specific pnce changes (a) 1,010.6 914.2 868.6 798.9 779.7 Per share information Earnings on common stock As reported 3.53 2.71 2.64 2.20 2.80 Adjusted for specific pnce changes (a) 1.77 .52 .37 (.45) .50 Common stock dividends As reported 2.19 2.07 1.95 1.83 1.68 Adjusted for generalinflation (a) 2.19 2.14 2.10 2.04 1.99 Market prce at year end As reported 30.75 23.75 20.25 19.00 15.63 Adjusted for generalinflation (a) 30.23 24.26 21.50 20.94 17.88 Average consumer price index 322.2 311.1 298.4 289.1 272.4 (a) In average 1985 dollars.

l D

Notes to Consolidated Financial Statements CONSOLIDATED STATEMENT OF INCOME ADJUSTED FOR CHANGING PRICES (In millions)

For the Year Ended December 31,1985 Hist ;rical Current Cost Cost in Average As Reported 1985 Dollars Revenues $ ?.6531 $1,6531 Operating and maintenance expense and taxes other than income taxes 1,071.5 1.072.5 Depreciation expense 135.8 215 0 Income tax expense 143 1 143.1 Interest expense and other 141.8 141.8 1,492.2 1,572.4 Earnings on common stcrk (excluding adjustment to net recoverable cost) $ 160.9 $ 80.7 Decrease in specific pnces (current cost) of plant held dunng the year $ (63 8)

Less effect of increase in general pnce level 161.7 Excess of increase (decrease) in specific pnces over general pnce level (225.5)

Adjustment to net recoverable cost 199.2 (26.3)

Ga:n from decline in purchasing power of net amounts owed 69 6 Net pnce level adjustment

$ 43 3 Report of Independent Certified Public Accountants To the Shareholders of Florida Progress Corporation:

We have examined the consolidated balance sheets and statements of capitalization of Flonda Progress Corporation (a Florida corporation) and subsidiaries as of December 31,1985 and 1984, and the related consolidated statements of income, shareholders' equity and changes in financial position for each of the three years in the period ended December 31 1985. Our examinations were made in accordance with generally accepted auditing standards and accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements refe.rred to above present fairly the financial position of Flonda Progress Corporation and subsid: aries as of December 31,1985 and 1984, and the results of their operations and the changes in their financial position for each of the three years in the period ended December 31,1985, in conformity with generally accepted accounting principles applied on a consistent basis.

ARTHUR ANDERSEN & CO.

Tampa Flonda January 27,1986.

31

I FLORIDA PROjRES5 CORPORATION Selected Consolidated Data 1981-1985 (Dollars in millions, except per share amounts) 1985 1984 1983 1982 1981 Revenues (a) $1,t53.1 $1,394.2 $1,373.7 $1,227.6 $1,302.6 Net income $160.9 $115.8 $103.9 $82.1 $35.1 Earnings per average common share $3.53 $2.71 $2.64 $2.20 $2.80 Dividends per common share $2.19 $2.07 $1.95 $1.83 $1.68 Total assets $3,494.3 $3.315.3 $3.114.1 $2,914.9 $2,589.2 Capitalization.

Long. term oebt $1,151.1 $1,252.4 $1,207.9 $1,195.1 $1.028.5 Preferred stock with sinking funds 131.6 134.7 140.8 142.4 94.0 1,282.7 1,387.1 1.348.7 1,337.5 1.122.5 Preferred stock without sinking funds 133.5 133.5 133.5 133.5 133.5 Common stock equity 1,014.2 883.5 818.3 725.0 681.2 Total capitalization $2,430.4 $2.404.1 $2.300.5 $2.196.0 $1,937.2 Capitahzation Ratios Long-term debt 47.4 % 52.1 % 525% 54.4 % 53.1 %

Preferred stock 10.9 11.2 11.9 12.6 11.7 Common tock equity 41.7 36.7 35 6 33.0 35.2 Number of employees 7,208 5,573 5.077 4,864 4,557 Nu,9ber of common shareholders 48,052 48.933 48.712 43.887 41.724 (a) Revenues for 1981-1984 have been restated to conform with 1985 reporting of scheduled interchange sales of

, , energy to other electnc utAties as revenues instead of as a reduction to fuel and purchased power expense.

.i w

4 32

Quarterly Financial Data (Unaudited)

(In millions, except per share amounts)

Three Months Ended <

March 31 June 30 September 30 December 31 1985 Revenues $378.1 $389.9 $472.0 $413.1

Net income $42.0 $39.7 $50.1 $29.1 Earnings per average common share $.95 $.87 $1.08 $.62 1984 Revenues $351.9 $320.9 $396.9 $324.5 _

Net income $33.4 $26.4 $32.5 $23.5 ,y Earnings per average common share $.80 $.62 $ 76 S.54 /

/

Earnings per average common share as presented above may not equal the annual amounts reported in the -

Conschdated Statements of Income as a result of issuing additional shares of common stock during the periods.

The business of the Company's largest subsidiary, Florida Power Corporation. is seasonal in nature and it is management's opinion that comparisons of earnings for the quarters do not give a true indication of overall trends and changes in the Company's operations. '

'~

l Common Stock Data Dividends Paid C:mposite Price of Common Stock Per Share 1985 1984 1985 1984 High Low High Low First Quarter $25% $23% $21% $18% $.54 S.51 Second Quarter 28% 25 % 20% 18% .54 .51 Third Quarter 29 % 24 22 % 19 .54 .51 Fourth Quarter 31 25 % 24 % 21 % .57 .54 f

l

FLORIDA PROGRESS CORPORATION Selected Data of Florida Power Corporation 1981-1985 1985 1984 1983 1982 1981 Electnc Sales (Milhons of KWH):

Residential 9,175.0 8.553.6 8.009.5 7.425.0 7,752.3 Commercial 5,106.6 4,547.7 4,118.6 3.895.2 3,735.2 Industnal 3,166.0 2,989.0 2.701.0 2.715.5 3.288.3 Sales for Resale (a) 2,556.4 3,317.3 5.802.0 4,739.3 4.322.2 Other 1,268.4 1,188.8 1.142.9 1.094.9 1.038.5 21,272.4 20.596.4 21.774.0 19.869.9 20,13G.5 Residential Service (Average Annual).

KWH sa!es per customer 10,940 10.638 10,388 9.964 10,758 Revenue per customer $883 $818 $783 $720 $763 l Revenue per KWH 8.07c 7.693 7.54c 7.23c 7.09c Capitalization Ratios:

Long-term debt 47.8 % 52.4 % 52.6 % 54.7% 53.0 %

Preferred stock 11.9 11.8 12.2 12.7 11.8 Common equity 40.3 35.8 35 2 32.6 35.2 Operating Data:

Net generating cacabaty (MW) 5,989 5,927 5,993 5,899 5,255 Net system peax[oad (MW) 5,813 4.858 4,913 5,347 5,088 BTU per KV'.H of net output 9,928 10.074 10,082 10.383 10,357 Constructol aad:tiors (milhons) $201.2 $284.5 $285.8 $385.3 $379.8 Percentage of construction expend.tures generated internally 100 % 99 % 66 % 39 % 45 %

Ratio of earnings to fixed charges 3.81 3 07 2.94 2.42 3.19 Fuel cost per milhon BTU $2.63 $2.36 $2.85 $2.78 $3.12 Average number of customers 940,976 900,799 861,548 829.810 802.787 Number of employees 5,215 5.070 4.923 4.829 4,533 (a) Electnc sales for 1981 1984 have been restated to conform with the 1985 reporting of scheduled interchange sa'es of energy as Sales for Resafe.

34

.i a h

Shareholder Statistics as of December 31,1985 Geographic Distribution Number of Number of Number of Location Shareholders Location Shareholders Location Shareholders Florida 15,443 Texas 803 Maine 340 New York 4,866 Georgia 748 Arizona 319 Illinois 2,420 Wisconsin 741 South Carolina 310 l New Jersey 2,300 Missouri 733 Kentucky 307 l

Cahfornia 1,959 North Carolina 528 Alabama 287 i Pennsylvania 1,949 Indiana 521 Louisiana 269 Michigan 1,913 West Virginia 465 Washington 237 Ohio 1,765 Minnesota 414 Colorado 226 Massachusetts 1,505 lowa 395 Kansas 200 Connecticut 1,417 Rhode Island 362 Other U.S. under l Maryland 1,198 Tennessee 346 200 shareholders 1,599 l Virginia 817 New Hampshire 342 Foreign 8 l Total Number of Shareholders 48,052 l Shareholder Ownership Number Number Categories of Holders  % of Shares  %

100 shares or under 18,668 38.9 1,189,490 2.5 101 to 1,000 shares 27,498 57.2 9,879,943 21.1 1,001 to 10.000 shares 1,843 3.8 3,656,673 7.8 Over 10,000 shares 43 .1 32,156,876 68.6 Total 48.052 100.0 46,882,982 100.0 l

Shareholder Classification l Number Number Categories of Holders  % of Shares  %

Individuals .

Men 12,088 25.1 3,765,038 8.0 Women 15,081 31.4 4,430,587 9.4 4 Joint 14,441 30.1 4,087,072 8.7 Fiduciary 5,001 10.4 1,909.068 4.1 Nominee 275 .6 25,484,059 54.4 Institutional. Broker & Other 1,166 2.4 7.207,158 15.4 Total 48.052 100.0 46.882,982 100.0

)

35

_L

M Directors George Ruppel Gus A. Stavros Vice President and Secretary Group Vice President Robert C. Allen Modern Tool & Die Florida Progress Corporation Vice President Company of Florida Chairman of the Board Walt Disney World Co. Pinellas Park, Florida Better Business Systems, Inc.

Lake Buena Vista Florida Lee H. Scott Billy L. Griffin Wilmer W. Bassett, Jr. Group Vice President Executive Vice President President Jean Giles Wittner Florida Power Corporation Bassett Brothers, Inc. President H.G. Wells Monticello, Florida Centerbanc President Andrew H. Hines, Jr. St. Petersburg, Florida Electric Fuels Corporation Chairman of the Board and President Executive Officers Other Officers of Frank M. Hubbard o a Pwss Consultant to Andrew H. Hines, Jr. Corporat, ion Hubbard Construction Company Chairman of the Board Orlando, Florida Florida Progress Corporation Jerry H. Joyce Florida Power Corporation Vice President and Treasurer Richard C. Johnson Partner Stanley A. Brandimore Thomas S. Krzesinski Johnson & Co. Executive Vice President and Vice President, Planning Seminole, Florida General Counsel and Development Flonda Progress Corporation P. Scott Linder President J'G* Lo*d*

Chairman of the Board Progress Equities incorporated Linder Industrial Ned B. Spake Machinery Corr.;;any Clarence W. McKee, Jr.

Vice President, Technology Lakeland, Florida Executive Vice President Floriaa Progress Corporation Dan R. Johnson Charles P. Lykes President Controller Chairman of the Board Progress Financial Services Joseph H. Richardson l Lykes Bros., Inc.

Incorporated Assistant Secretary and /

Allen J. Keester, Jr. Assistant General Counsel i

Clarence W. McKee, Jr. Group Vice President Executive Vice President Douglas M. Bagge Florida Progress Corporation Assistant Secretary Corneal B. Myers President Partner Ta! quin Corporation Y Peterson, Myers, Crai9. Assistant Secretary Lee H. Scott Crews, Brandon & Mann, PA. Group Vice President Cathleen P. Kortright Lake Wales, Florida Assistant Secretary Flonda Progress Corporation President L. John Lopez Flonda Power Corporation Assistant Treasurer 36

I INVESTOR INFORMATION Investor Services Department Common Stock Dividends All dividend checks, shareholder Record dates are normally on or about reports, proxy material and tax forms the 5th day of March, June, September are handled from our St. Petersburg and December. Quarterly dividends General Office. All correspondence are customarily mailed to reach concerning address changes, dividend shareholders en or about the 20th of checks and related matters should be March, June, September and directed to: December.

Florida Progress Corporabon Investor Services Department Common Stock Listed PO. Box 33042 New York Stock Exchange St. Petersburg, Florida 33733 Pacsfic Stock Exchange Phone 813-8954740 Ticker symbol: FPC Inquiries concerning the transfer of Newspaper listing: FlaPrg stock certificates should be directed to our New York transfer agents. Annual Reports on Form 10-K and Statistical Supplement Transfer Agents and Registrars Upon request, the Company will furnish its shareholders without charge Common Stock a copy of its 1985 Form 10-K, without Manufacturers Hanover Trust Company exhibits, as filed with the Securities and PO. Box 24935. Church Street Station Exchange Commission. A Florida New York, New York 10249 Power Corporation 1985 Form 10-K, Florida Power Corporation without exhibits, and a detailed Ten-Year Preferred Stock Statistical Report are also available.

Harris Trust Company of New York Requests should be addressed to the investor Services Department at the 110 William Street New York, New York 10038 address shown.

Dividend Reinvestment Plan Auditors The Company offers a Dividend Arthur Andersen & Co.

Tampa, Florida Reinvestment Plan for shareholders of record. At the end of 1985,42% of the Company's common shareholders Analysts' Contact Clarence W. McKee, Jr. 813-8951703 participated in the Company's Dividend Reinvestment and Stock Purchase Executive Vice President Plan. The price of shares purchased Jerry H. Joyce 813-895-1705 with reinvested dividends is at a 5% Vice President and Treasurer discount from the market price. Plan Richard R. Champion 813-895-1733 enrollments, withdrawals and other Director, Investor Relations correspondence should be directed to the Investor Services Department at the Corporate Offices address shown. 270 First Avenue South The dividend exclusion provided by the St. Petersburg, Florida 33701 Economic Recovery Tax Act of 1981 Telephone 813-895-1700 expired on December 31,1985.

4 9 I

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