ML20215L674
| ML20215L674 | |
| Person / Time | |
|---|---|
| Site: | Crystal River  |
| Issue date: | 12/31/1986 |
| From: | FLORIDA PROGRESS CORP. |
| To: | |
| Shared Package | |
| ML20215L605 | List: |
| References | |
| NUDOCS 8705120323 | |
| Download: ML20215L674 (40) | |
Text
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l..- . .. ADOCK 05000302 PDR 7, .. .- _ . . j- " :: . s. PDR . -> ; .-
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As represented by our Report cover, Florida Progress Corporation is a holding company which combinesits primary electric utility business with non-utility operations. Florida Power Corporation, the Company'slargest subsidiary, continues to build on a long history of quality service to one of the fastest growing areas in the country. Our philosophy for non-utility diversification has been to acquire or form entities in selected businesses and to develop these over time. This strategy emphasizes acommitmentto steady, long-term growth. Our focus for the future is to manage our businesses for increasing benefits to our shareholders.
1 Consolidated Financial Highlights (in miHlons, except per share amounts) 1986 1985 Revenues increased 13.4% $1,874.7 $1,653.1 Earnings Were Up 12.6% $181.2 $160.9 Average Common Shares Outstanding increased 7.2% 48.9 45.6 Earnings Per Share increased 5.1% $3.71 $3.53 Dividends Paid per Common Share-Up 5.5% $2.31 $2.19 Return on Average Ccmmon Equity 16.4% 16.8 % Book Value Per Share-Year End $23.26 $21.63 Common Stock Price Range $30%-47 $23% 31 Contents 1 Consolidated Financial Highlights 2 Letter to Shareholders 4 Highlights l 6 Utility l 14 Non-Utility l 20 Financial Review-Management's Discussion 23 Consolidated Financial Statements 33 Report of Independent Certified Public Accountants 33 Quarterly Financial Data 34 Selected Consolidated Data 34 Common Stock Data 35 Selected Data of Florida Power Corporation 36 Directors and Officers 37 InvestorInformation
3 Earnings and Dividends Per Share 1986
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1984 im 1% 1E.KM YWilM E Davidends E r. mines our management in competitive During the past year, a number i environments. of significant changes have been Our primary focus is on steady, made in management l long term growth and responsibilities. On April 17,1986, l development. We believe this is a Mr. Lee H. Scott was elected Chief , cautious and appropriate Executive Officer of Florida Power. I philosophy. We now have our Effective January 5,1987, Dr. Jack business groups in place and in B. Critchfield and Mr. Thomas S. recent years, they have grown Krzesinski were elected Group through acquisitions and new Vice Presidents of Florida starts. The year ahead wil1 be one Progress. Dr. Critchfield heads the l of consolidation as we concentrate Energy and Technology Group l on managing and deve oping our Mr. Krzesinski heads the Financial l businesses. We need to capitalize Services Group l on the efficiencies and integration In summing up a successful ! which is achievable. year, I express the deep For over 85 years, those who appreciation of the Board of have owned Florida Progress and Directors and management for the its predecessor companies have fine performance of the over 8,000 invested in Florida. It ha3 p oven to employees who make Florida be a good strategy. Throughout Progress run. Their war, depression, hurricane, accomplishments are recession, international crises and commendable. economic changes, the To you, our shareholders, I population of Florida has express our appreciation for your continued to grow. From a level of strong support and confidence. almost five million in 1960, the We will see that this confidence State reached a population of over remains justified. 11 mil' ion in 1986. Every credible projection shows Florida as third in For the Board of Directors, population in the United States in tne year 2000. At that time, it is expected to trail only California j and Texas. We are a major participant in the
/
- f Florida economy. The State has been the primary cornerstone of g ,
our strategy for growth. We will Chairman of the Board continue to focus on building on and President this strength as we invest in selected areas, specifically in February 20,1987 the Southeast.
2
The 1986 financial results Continent Life Insurance confirm that Florida Progress Companyin December 1986. This Corporation's strategic plan is on will strengthen our Financia! track. Earnings per share rose Services Group. Mid-Continent, from $3.53 to $3.71. Our non-utility headquartered in Oklahoma City, earnings per share increased to was founded in 1909 and has for 5', ' @ W
$.34 from $.15 in 1985 and $.05 in 1984. The balance sheet of the eight years maintained a rating of A+ (Superior) with A.M. Best g Company continued to improve. Company. The company is The equity portion strengthened licensed in 30 states, from Florida asthelong-termdebtratio to California. Mr. R.T. Stuart, Jr.,
l dropped to 45.7%. former chairman of Mid-Continent, For the 34th consecutive year, joined the Florida Progress Board dividends paid per share effective December 4,1986. increased. Your Board of Directors Details on other acquisitions are set a new annual rate of $2.40 per presented elsewhere in this report. , share at the November meeting. We do business today in a In financial terms, the year was an changing environment. outstand;ng success. International competition has It was a good year for our intensified. Uncertainty in the m electric customers alsat The price regulatory field increases. The
# trend toward deregulation in some 4
q per kilowatt hour sold was 3.3% x'
- lower than 1985. Indeed, it areas is countered by increasing reached the lowest level since regulation and delay in others. We 1983. Starting 1987, it is at an even have witnessed in the United lower level. Florida Power States the effect of governmental Corporation continues to benefit deregulation and activism in the from Florida's growth. The communications business. This customer growth rate was 4.2% in activity has removed old 1986. In fact, the Company landmarks and left an industry and reached the 1,000,000th customer its customers with neither chart milestone during the year. Florida nor compass. These same forces Power continues to work to are busy in the electric utility field.
strengthen the utility fundamentals It is necessary that we maintain while emphasizing customer and increase the strength of our service, improved performance utility business to cope with this and cost control. uncertainty and future change. In the non-utility sector, we Diversification is a vital part of broadened the base of the our strategy to deal with this future. Company through acquisition and We believe it spreads our risk and expansion. The most significant of increases our opportunities. j these was the addition of Mid- One important benefit is the development and strengthening of
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3 Earningsand Dividends Per Share 1985 1984 1983 1982 u-mm E Olvidends E Esmings our management in competitive During the past year, a number environments. of significant changes have been Our primary focus is on steady, made in management long-term growth and responsibilities. On April 17,1986, development. We believe this is a Mr. Lee H. Scott was elected Chief cautious and appropriate Executive Officer of Florida Power. philosophy. We now have our Effective January 5,1987, Dr. Jack business groups in place and in B. Critchfield and Mr. Thomas S. recent years, they have grown Krzesinski were elected Group through acquisitions and new Vice Presidents of Florida starts. The year ahead will be one Progress. Dr. Critchfield heads the of consolidation as we concentrate Energy and Technology Group. on managing and developing our Mr. Krzesinski heads the Financial businesses. We need to capitalize Services Group. on the efficiencies and integration in summing up a successful which is achievable. year, i express the deep For over 85 years, those who appreciation of the Board of have owned Florida Progress and Directors and management for the j fine performance of the over 8,000 its predecessor companies have invested in Florida. It has proven to employees who make Florida , be a good strategy. Throughout Progress run. Their 1 war, depression, hurricane, accomplishments are recessicn, international crises and commendable. , economic changes, the To you, our shareholders, I i population of Florida has express our appreciation for your l i continued to grow. From a level of strong support and confidence. l almost five million in 1960, the We will see that this confidence State reached a population of over remains justified. 11 million in 1986. Every credible projection shows Florida as third in For the Board of Directors, population in the United States in the year 2000. At that time, it is expected to trail only Cahfornia and Texas. We are a major participant in the f
- Florida economy. The State has been the primary cornerstone of J
- our strategy for growth. We will Chirman of the Board continue to focus on building on and President this strength as we invest in selected areas, specifically in February 20,1987 the Southeast
-- . ~ . - - - .
4 Highlights (In millions, except earnings per share and employees) Utility Non-Utility increase increase 1986 1985 (Decrease) 1986 1985 (Decrease) Revenues $1,530.5 $1,504.9 1.7% $344.2 $148.2 132.3 % Percent of Total 81.6 % 91.0 % 18.4 % 9.0% Earnings $164.6 $153.9 7.0 % $16.6 $7.0 137.1 % Percent of Total 90.8 % 95.6 % 9.2% 4.4% Earnings per Share $3.37 $3.38 (.3%) $.34 $.15 126.7 % Assets $3,138.5 $3,166.4 (.9%) $451.1 $327.9 37.6 % Common Equity as a Percent of Capital 42.7 % 40.3 % 6.0% 64.8 % 58.0 % 11.7 % Return on Average Common Equity 17.6 % 17.8 % (1.1%) 9.8% 7.7% 27.3 % Employees 5,323 5,215 2.1% 2,707 1,993 35.8 %
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.g : :m Utility Group
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i FLORIDA POWER , l CORPORATION A pubic utlityin the busness of generatng, transmittng, ' distnbutng, purchasng and . selhng electrc energy , incorporated in 1899, the company has a generating capability d approximately 6,000.000 kilowatts and serves 32 counties along the Gulf Coast andcentral ndge sector of Florida. , Energy and Business Services Technology Group Group BBS CORPORATION ELECTRIC FUELS Acquired in 1984, the CORPORATION company designs, ,, Organized in 1976, the manufactures and markets - company and its affiliates mine. continuous forms, enwlopes procure and transport oer and computer related W . seven million tons of high supplies; and manufactures qualitycoaltomajor utility and anddistnbutes packaging industnal customers. systems and matenals. PROGRESS FinancialServices fi TECHNOLOGIES CORPORATION Group Formedin 1985 the companyis PROGRESS FINANCIAL engagedin the development, SERVICESINCORPORATED - , -
-mm Icensng and marketing of Formedin 1983, the
- new technology company's actvities include i"
_ wMr ^ lemragedleasng of
,. _- equipment and real estate, and money management.
MIDCONTINENT LIFE L - INSURANCE COMPANY Acquired in 1986, the [ + company isIcensedin 30 p; states The pnmary productis - I,l a uniquelife policy with a fixed P- amount of protection and a verylow premium.
~ M" Development
'- y Group TALOUIN CORPORATION Organized in 1981, the company's operations arein realestate development and construction and the manufacture and distnbuton f building products G .. N ChlNC.
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Florida Power Corporation ' r continues its history of quality 4 m service to one of the fastest growing areas in the country. t Whether meeting the demand of a l3 growing population, the need for a energy management, or the challenge to improve productivity, QT r the emphasis is on service. 1 i During 1986, Florida Power l celebrated a significant milestone 1. Energy Management has in its 87-year history by passing Weather conditions play an introduced vanous pro-the 1,000,C00th customer mark. important role in energy usage. {amstdecno$v[ene"$Y The year was one of growth and The warm weather of the summer service to customers At the solid performance. extended into the fall of 1986. The end of 1986, the load management program average kilowatt-hour use per '" Customer Operations residential customer was 11,255 reI"de$Na custbmers S Energy sales ,n i 1986 were up kilowatt-hours,2.9% more than load management control 8.9% compared to 3.3% for 1985. 1985. This is the first year since devices installed on their Residential sales increased 70/o 1973 that the average residential C 7t$'ba"ter head e un while commercial sales were up use per customer has been over pool pumps 9.1%. These increases more than 11,000 kilowatt-hours. offset a decrease in industrial An electric utility is, in the most 2. The residential energy sales of 1.4%. Industrial sales audit is another program basic sense, a service company. were down due pnmarily to a Florida Power realizes that $rNat$niy softening of the phosphate market, success is not only measured by recommending energy-The average customer growth saving measures to growth rate and financial strength, rate for 1986 was 4.2%, down but by the quality of customer 'p N e $ $nefUc Iand slightly from the 4.5% in 1985. service. The employees of Florida cost-effective service Residential customersincreased Power are dedicated to meeting 4% during 1986, while commercial the needs of customers. This 3. Florida Power's new Sredi-customer growth was 5.5%. state system provides our dedication to quality is installation of new services is an demonstrated each working day fo*e*c((oYrNe7e$ric indicator of growth, both in energy while connecting over 200 new power surges Florida Power sales and in customers. Over has contracted with Pubfix services, handling thousands of s" k $ $ 54,000 new services were customer contacts, reading over urge suppressfng'"d$" connected throughout the service 50,000 meters using state-of-the- in over 270 stores through-areain 1986, the largest number out Florida. since 1973. Kilowatt-Hour Sales <whans)
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8 art electronic meter reading devices, and working through storms to restore power. The continuing commitment to service is also demonstrated by the new programs developed to address the special needs of our customers. Energy Management Formed in 1983, the Energy
- Management Department has grown and matured into an effective organization providing programs in load management, conservation, and marketing.
By achieving aggressive goals to manage electric usage, Energy Management has maintained a posture of leadership in the industry. The load management program continues to operate with success. During 1986, over 41,600 additional residential customers had load management radio-controlled devices installed in their homes. These devices, installed on major energy-using equipment, can be controlled during times of peak energy usage. The program J levels the demand for electricity and helps reduce the need for costly new generating facilities. The peak reduction capability through direct controlis projected to be between o% and 10% by the early 1990's, or the equivalent of one conventional generating unit. Through various conservation programs, Energy Management assists customers in using energy more efficiently. These programs include residential energy audits, home energy fixup and commercial energy inspections and audits.
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l The system Fleet services While an established outdoor plus the enthusiasm of employees e ont or g)aIp1 tot teams lighting program continued to and management have led to l developed several generate Customer interest, surge the formation of over 55 teams recommendations to suppression and lightning throughout the company. The pen [anNmprove tne protectior equipment were concept of employees joining safety related features of marketed to customers for the first with management to improve Flonda Fbwer bucket trucks time during 1986. Both the performance has proven commercial program, Stedi-State, successful both operationally c$tates cEnfia ce with the company's nord safety and the residential counterpart, and financially. stJndJrd for dieleCtnC FlashWARDEN, were established insulation and minimizes to meet the growing customer Fuel IbergYbEoYoftfY The effective planning of Florida need to safeguard electronic bucket trucks. caused by Power s generating capability has equipment. the intense ultra violet ran resulted in a mix of coal, oil and opNItwIcoa$s o In te PACE nuclear generation. The company l paint to the previously People Achieving Corporate has progressed from total clearcoated boom surface Excellence. PACE, is a program dependency on oil and gas ten designed to improve operations, years ago to an era of fuel n a$en$nce nYe$tends , flexibility. This mix provides the the boom's life productivity and the effective , otner improvements utilization of resources. The flexibility necessary to respond to l d "* changes in the fuel market. I ("uId d coeI[sg program is based on teams of wn<ch provide add:tional 6 to 10 employees. These team Due to the efficiency of the coal-protection from electnca' members have first hand fired generating units and
$cS$tes vsIa spNn knowledge and on-thegob competitive purchases on the spot l
and maintenance of the experience to identify areas markets, coal remains the primary cab:e while doubbng tne for improvement and make fuel. Electric Fuels Corporation ca sf continues to supply all of Florida g5 are only a recommendations. few of nundreds of PACE was started on a test Power s coal requirements. With oil recommendations basis in 1985 with just eight teams. pnces depressed throughout most r developed by PACE teams systemwide as part of the The innovative recommendations ongoing efforts to improve crerations and productivity j i
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11 System Map
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Three oil-fired generating 4 Division omces 5 oenerating Plant sites Plan 5 te n St. Rtersburg. Florida. Transmission system provide 457,000 kilowatts " 4h interconnectens WY WAL'
, of winter capabihty The ED company's oil-fired
, capabihty accounts for 50% e of the system generating CLEARWATER Capability Compared to a ST. PETERS 8uRG WE WAl total dep;ndence on oil and
$ '# '9 Florida Power serves approximately 1.000.000 customers in more than 375 cities towns and rural of the year, Florida Power was able communities The territory comprises approximately to soll oil-fired generating capacity 20.000 square miles with a i
to other utilities, population of 3.950,000, in 1986, Florida Power's fuel mix located in 32 of FlorldJs 67 was 60% coal,28% oil,11% counties in addition to the at i nuclear and 1% other. Florida 7 tn g oian ! Power's fuel mix for 1987 is can be suoohed from inter-estimated to be 56% coal,28% connected electric utiktv oil,14% nuclear and 2% other. 5$[tN
, SIutNeY i The lower percentage of nuclear generation in 1986 was due to unplanned outages.
days of power production. On Nuclear Unit November 12,1986, the unit was On June 20,1986, the Crystal taken out of service to replace a River nuclear unit returned to control rod drive assembly motor. service following a 24 week While bringing the unit back on outage which began on January line, leaks developed in two 1,1986. The outage was the letdown coolers. After the result of a crackin the shaft of replacementof theletdown a reactor coolant pump. During coolers, the unit operated for a the outage, the shafts of all four of brief period when a failure was the unit's reactor coolant pumps detected in one of the four reactor were replaced. coolant pump seals. The four After returning to service, the pump seals were replaced and unit operated for 145 consecutive the unit returned to service on January 23,1987. l
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,t j the community Recognfling these . .- I% , commitments Flonda l Power established the i AM INVOLVED program, to a p $ l organize volunteer F p opportunities for i _ employees A group Cf h employees from the Tarpon J D Spangs Engineenng and ; Operations Center built a recreational facility for the , Don and Girls Club of Pasco County They volunteered their time to build $ wings I
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O System Operations One of Florida Power's coal, oil or gas. One combined continuing objectives is to plan for cycle generating unit consists of sufficient generation to provide a two combustion turbines and a reliable source of energy in future heat recovery steam generator. years. At year end, the system This unit will add over 200,000 generating capability was kilowatts of capacity to the system. 5,961,000 kilowatts, with 4,878,000 kilowatts provided by nineteen i AM INVOLVED steam units. The balance, At Ficrida Power, community 1,083,000 kilowatts, was provided involvement and volunteer by nineteen combustion turbine activities are commitments the peaking units. With an additional employees have always taken 110,000 kilowatts of cogeneration seriously. Florida Power supports available, the total capability was these commitments through the 6,071,000 kilowatts. This total does l AM INVOLVED program, a not include 662,000 kilowatts ccrporate volunteer program placed in extended cold shutdown developed to organize volunteer in 1984 and 1985. opportunities and recognition for A system peak demand of employees. 5,977,000 kilowatts was recorded Throughout 1986, employees on January 23,1986. At the time volunteered over 50,000 hours of of the peak, the demand was met their time to a variety of worthwhile with current generating capacity, activities in their communities. purchased power, and by Their work was as varied as the controlling some interruptible needs of the communities in which customers and 180,000 kilowatts . they live. through load management. Individual employees became Annually, Electric Light and certified paramedics, servea as Power magazine publishes a volunteer fire fighters, and worked nationwide survey based on heat actively in United Way programs. rate comparisons, the amount of Many employees participated as energy used to produce a kilowatt. scoutleaders and youth sports hour of electricity. For the past coachet three years, Florida Power ranked Whether c' earing brush for a in the top 10 among the nation's new comm iity center or 100 largest investor-owned utilities improving non-profit health and in system power plant efficiency. child care facilities, the employees Reactivation of the 662,000 believe volunteer service is a kilowatts of cold standby capacity responsibility that positively is scheduled to begin in 1990, with influences the quality of life. the last unit reactivated around ' 1993. Current plans for additional generating capacity in the mid 1990's include combined cycle generation, capable of using
14 n armomwWG& -r.-- w 5$ ciws'k4d rek $ 1 ica c mp x, co B*#a%1 "Mtn SO#", "4 o'n'?Jf#Tt Charlotte Florida. avboro o r h gh and inte%faSJboet d Ms'r"o$e"$75"$*' ML#T#1"n"s% in with construction to
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guaranteed for anyindustry. - Florida Progress began a v" ;g k,,,. g ' * ' - - diversification program in 1982. ww. c o The phlosophy for this ' diversi0 cation has been to acquire or form entitiesin selected IM, g"J 5" E "nb
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i network for building products. building products and out by four business groups with c nstruction businesses Through its subsidiary, Crown : a total equityinvestment of $201.3 million at December 31,1986. industries, Inc., Talquin added to ts door manufacturing operations The equity in each group is $62.1 million in Development, $86.3 by acquiring the assets of Wes
. Dor, Inc., in Denver, Colorado million in Financial Services, w th a distribution outlet in Ogden'
$14.4 million in Business Services Utah. Crown also completed the and $38.5 million in Energy construction of a new and Technology.
manufacturing plant in Tampa, l Development Group Florida, significantly increasing t The Development Group the production capacity for aluminum windows and doors, expanded its building products business in 1986. In May, Talquin Through one ofits partnerships, > completed its acquisition of Talquin completed and opened Gorman Co., Inc., Florida's second the first phase of South Port largest plumbing wholesaler. Square, a life-care community ,n i i Port Charlotte, Florida. The Later in the year, Talquin formed Gorman Air Conditioning Co., Inc., 120 bed nursing center and when it became the distributor for 140-unit adult congregate living York air conditioning products for facility opened in June. most of peninsular Florida. With Construction also began on the these two additions, Talquin first of two 240-unit independent added 34 locations throughout living buildings. Late in 1986, work began on a second life-care
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, community, Lake Port Square, in Progress acquired Mid-Continent Company, an independent analyst Leesburg, Florida. Life Insurance Company, of theinsuranceindustry. l Carillon, a planned 180-acre headquartered in Oklahoma City, Progress Financial Services
- office park site in the Gateway Oklahoma. Mid-Continent began incorporated, as a result of its l area of St. Petersburg, Florida, is operations as a stock life interest in money management, being developed in partnership insurance company in 1909 and is established Progress Investment with The Wilson Company of licensed in 30 states. Its primary Management, Inc. in 1986. Its Tampa. During the year, two major product is a life policy with a fixed primary function will be to serve l corporations purchased sites and amount of protection and a very as the advisor providing j began constructing office low premium. The product is investment management and buildings. Construction also unique in that it focuses on research to three mutual funds started on an 80,000-square foot, providing death benefitlife which were organized in June.
multi-tenant office building. The insurance at a low premium, as The three funds are for common partnership purchased an opposed to building high cash stock, fixed income, and tax
- adjoining 252-acre tract for future surrender value. exempt investments, expansion of the park. With this Mid-Continent markets its Progress Leasing Corporation, a addition, the park now contains products through 13 branches joint undertaking between 432 acres. with regional directors who act as Progress Financial Services and liaisons to over 1900 independent Xerox Credit Corporation, Fin clal S es P general agents. For the last eight continued to expand the l
! 9 8 e F a ci ! years, the company has been leveraged leasing portfolio during i Se vic s Grou expanded its lines rated A+ (Superior) by A.M. Best 1986. Progress Leasing funded
$292 million of leases increasing insurance. In December, Florida the lease portfolio to ,
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approximately $670 million in asset Florida Power's coal-fired of various chemicals and gases on cost at year end. The majority of generating units, increased the a continuous basis and is the funding has been for utilization of coal as the primary presently being developed for sale equipment costing in the range of component of Florida Power's in the inorganic chemical,
$10 to $50 million each. At year fuel mix. wastewater treatment and strategic end, approximately 55% of the Approximately 20% of Electric metals recovery industries, portfolio's cost consisted of Fuels' coal sales were to in June, Progress Technologies commercial aircraft. unaffiliated customers in 1986. acquired a minority interest in This was the first full year of GelTech, Inc., a company involved Business Services Group operations for Kentucky May Coal in the low temperature production Company, Inc. as an Electric Fuels of various high value optical expanded its for s anu a urnG subsidiary. Its low sulfur coal, components (lenses, filters and business in 1986. BBS mirrors) from silicon based liquid which is strip-mined by contract Corporation acquired Wesley's, miners,is competitive even in the gels. This technology, referred inc., in October. Wesley's is a current depressed coal market. In to as *tol gel," was acquired forms manufacturer located near 1986, Hatfield Terminals, Inc., an by GelTech, Inc., from the Winston-Salem, North Carolina.
affiliate of Kentucky May, University of Florida, under the The company sells directly to constructed a barge-loading terms of an exclusive perpetual N h terminalin Charleston, West {]t na e 's
" h omplementsits worldwide licensa concentrates on specialty forms, i ac specifically continuous letterheads The marine operations of and envelopes. The electric utility industry has Electric Fuels handled increased passed the period when its Wesley's joins Better Business volumes during 1986. International Forms, Inc., the group's largest product had a declining unit cost.
Marine Terminals, an Electric The price of new generation and company, which manufactures Fuels partnership, which operates system maintenance has a bulk commodities transfer facility continued to rise, requiring a u ine or n F or Georgia south of New Orleans, transferred greater emphasis on energy and Alabama. n excess of six million tons of management, cost control, and in addition to its forms car 00 during 1986, an increase of productivity. The future outlook companies, the group 12.2% over 1985. Electric Fuels' indicates deregulation and manufactures specialty packaging ocean going fleet operated at increasing competition. through Progress Packaging capacity during 1986 including Investing in non utility o ratio and m s movements of grain to Africa and operations diversifies the risk and an ewims the Caribbean. increases the opportunity for the through Premier Bus.iness During its first year of Services, Inc. futura Balanced and controlled operations, Progress Technologies diversification enhances the Corporation, through its subsidiary, Company's earnings base and Energy and Technology Group Electric Fuels delivered nearly Advanced Separation offers the opportunity to develop 5.5 million tons of coal to Florida Jochnologies Incorporated, managerront in competitive Power durin01986, an increase of !ntroduced to the chemical environments. The combination 12% over 1985. The average price industry, an advanced separation of the utility and non utdity device and system called ISEP. businesses is important continued its downward trend The device permits the separation preparation for managin0 the decreasing by approximately 7% compared to 1985. Competitive Company's future in the changin0 purchases in the spot market, environment. combined with the efficiency of
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Financial Review - Management's Discussion LIQUIDITY AND This interest rate reduction, along The source of Florida Progress CAPITAL RESOURCES with the 1986 preferred stock equity funds to meet the Utility changes and repayment of requirements ofits subsidiaries is Durin01986, Florida Powert scheduled maturities of long-term the salo of common stock through internally generated funds were debt, will reduco Florida Power's the dividend reinvestment plan sufficient to fund its $189.4 million interest and preferred dividend and employee benefit plans. of construction expenditures and requirements for 1987 by During 1986, Florida Progress to meet tho $634 million of approximately $7.7 million. received $43.2 million from this scheduled maturities oflong-term Florida Power has no scheduled source and anticipates receiving a debt and preferred stock sinking maturities of long-term debt or similar amount in 1987. Effective fund requirements. Florida Pour preferred stock in 1987, and January 1,1987, the discount also used funds from operations expects to meet its bud 0cted allowed on shares purchased with for the early redemption of several constmetion expenditures of reinvested dividends was reduced series of its Cumulativo Preferred $2139 million without additional to 3% from 5%. Stock with sinking funds. Tho $10 lon0 term financing. However, it Florida Progress also issued 1.6 million of the 11% Series was wil! havo the opportunity, million shares of its common stock redeemedin February at par, and beginning on August 16,1987, to in 1986 for the acquisitions of redeem its $50 million 1332% in November, $26 million of the Gorman Ca and Mid-Continent 10% Series and $44 million of the Cumulativo Preferred Stock at Life Insuranco Company. The 10.50% Series were redeemed at $105.92 per shara Florida Power acquisition of Mid-Continent also
$105 per sharo and $108 por also has the n0ht to redeem its required the payment of $4.9
$100 million 13.125% First million in cash to former sharo, respectively' in November 1986 , to partially Mortgago Bonds duo 2012 at shareholders of Mid Continent, replace the funds from operations 100.72% beginning on October 1 During 1986, non-utility long-used for these redemptions, 1987, and to redeem at par, term debt increased $18.2 million.
Florida Power sold $50 million of beginnin0 on November 1,1987 Part of this increase was an $18 708% Cumulativo Preferred Stock, its $100 million 13.30% First million bank loan to Talquin through a publ,c offering. The Mort 0ago Bonds duo 1990. These Corporation secured by its 3.000 7.08% Series has an annual 5% optional redemptions will acro citrus Grova The proceeds sinking fund requirement mqwo mfinancing. fmm this loan were used to pay cfl bo0 inning in 1992. n x sting $10.4 million purchase Florida Power also received n Non* Utility . money mortgago loan and to o finamng mqwamnts of
$20 million equity contribution repay short term borrowings n n-utikty subsidiaries am driwn from Florida Pr ress in incurred to financo other Talquin pr m rWy by a needs wmWO December 198 Florida Power's projects The non utility common u! a o ! year end
- bo n n o . Capital app to on in expenditures for plant and f tion ariditslon0 term lon0 term debt durinD 1986 to take debt and preferred stock mtios fg$Un 10 an w ut advantago of lower interest rates.
p mtions. The financial needs D o r 98 o 1 u on d dI r 0 operations ar f nanced throu0h the infomally of Pro 0ress Leasing, two privato interest rato on Florida Powerb $1086 million Pollution Control 90053 U0 8 00 Y placements of debt totallinD $65 subsidiaries, thmu0h bmmwings A I Tender Bond million woro completed in 1986. fmm banks, and thmu0h eqwty oc t tod from 6.125 45%- Florida Progress supports this contributions and advances frorn debt through cash deficiency Florida Progress. a0rcements.
21 Florida Power Corporation Construction Program on unans) wano tm wmno m wmam M me m Florida Progress requires funds tax, and, in regard to Florida residential and commercial for the payment of dividends on its Power, the requirement to include customer usage and base rate outstanding common stock. These unbilled revenues in taxable increases obtained in late 1984. funds are provided by dividend incomo are the main provisions of Non-utility earnings per share of payments from its subsidiaries, the Act affecting the Company. $34 in 1986 were up significantly primanly Florida Power. It is The Company is continuing to from the $.15 per share reported in anticipated that the proportionato monitor the potentialimpact of the 1985. Contributing to the non-utility shara of dividends from non utility Act on not incomo, but any effect increase was continued growth in subsidiaries willincrease in other than the possible reduction incomo from leveraged leasing futura years. in incomo from leasing activities, is and the acquisitions of Mid-Florida Progress has a cash anticipated to be immaterial. Duo Continent Life insurance management program whereby it to alternative minimum tax Company and Gorman Co. in invests the excess cash balances considerations, Progress Leasing 1986 and Kentucky May Coat of its non-utility subsidiaries to may be limited as to the amount of Company in December 1985. optimizo the Company's overall tax based leverage lease retum. Through this program, transactions that it could profitably Utility funds are mado available to conclude. Utility revenues increased $25.6 subsidiaries that would otherwise The Act is expected to million in 1986 and $168.2 million borrow under their externallines of significantly reduce internally in 1985 and decreased $35.1 credit. Florida Progress has a $30 generated funds which will require million in 1984. Steady customer million commercial paper facility the Company to obtain additional growth combined with increases supporting the cash management external financing. For Florida in residential and commercial program. Power, it is estimated that internally usage of 3.5%,4.4% and 3.3% in generated funds could be 1986,1985 and 1984, respectively. The Tax Reform Act of 1986 reduced by as much as $200 contributed to utility revenue Tha recently enacted Tax million over the 19871991 period. increases in each year. A major Reform Act of 1986 (the Act) will portion of the increase in utility havo o substantialimpact on the OPERATING RESULTS revenues in 1985 resulted from Company. The reduction to 34% retail and wholesale base rato The Company's earnings per as of July 1,1987 of tho 46% top increases totaling $102.4 million charo for 1986 increased to $3.71 corporate tax rato, the repeal as of which became effectivo in lato from $3.53 in 1985 and $2.71 in Janu:ry 1,1986 of the investment 1984. The decline in utility 1984. Utility earnings have 13 credit, the modification of the continued to improve due in part revenues in 1984 resulted from current accelerated depreciation lower fuel revenues due to to a cuntomer growth rato ran0 i ng system, the alternativo minimum additional nuclear generation and from 4.2% to 4 6% during the past three years, increases in l
'O theloss of a significant load from $23.5 million in 1986 compared to Other non-utility operating and '
' Florida Power's then largest an increase of $9.2 million in 1985L maintenance expensesincreased wholesale customer, Seminole In 1986, $10.1 million of the $25.6 million in 1986 and $4.7 Electric Cooperative, Inc., when it increase was due to classifying the million in 1985. However, with the placedits 620.000 kilowatt unit monthly credits given to utility expansion of non-utility operations into service in February 1984, customers who participate in the through both acquisitions and Utility revenues are expected to load management program as an intemal growth,' these costs have drop in 1987 as Florida Power will expense rather than the past decreased as a percent of non-provide credits totaling $54 million practice of classification as a utility revenuesin each year.
to retail customers during 1987,in reduction in revenues. Utility compliance with a settlement operating and main'tenance Interest Expense and agreement between the utility and expenses were higher than normal Income Thxes the State Public Counsel's Office in 1984 due to the cost of meeting Interest expense and preferred which was approved by the Nuclear Regulatory Commission dividends decreased in 1985 and Florida Public Service requirements and additional 1986 due to early redemptions Commission. These credits are provisions for scheduled and refinancings at more favorable - intended to " pass through" the maintenance and refueling ratesin both years. The lower rates - impact of lower federalincome tax outages at the Crystal River will have an additional favorable rates resulting from the Tax Reform nuclear plant. impact on 1987 expenses as well. Act of 1986, lower capital costs The increase in depreciation As a result of the Tax Reform Act cnd the postponement of a expense and the significant of 1986, the effective federal planned increase in depreciation decrease in allowance for funds income tax rate for 1987 will be rates until 1988. used during construction in 1985 lower than previous years. Fuel and purchased power resulted from the completion of a However, the redaction in rates is cxpenses fluctuated during the coalgenerating unit, Crystal River expected to have little effect on years 1984 through 1986. These Unit No. 5, which was placed into net income. costs decreased $66 million in service in late 1984. 1984 as a result of increased impa tofinflation nuclear and coal generation and NOWihY Inflation reduces the purchasing 4 Nondty revenues increased power of the dollar and increases reduced reliance on oil and , purchased power. A scheduled the cost of replacing assets used mi on i . qu ston hich in the business. The utility is refueling and maintenance outage were not included in the prior year, subject to rate regulation and in 1985 and an unscheduled or only included for part of the mfntenance outage in 1986 income tax laws that are based on year, accounted for $183 million of the recovery of historical cost only. reduced the availability of nuclear the increase in 1986 and $633 Therefore, inflation creates an generation in those years. This m liion of the increase in 1985. economic loss because the resulted in an increase in the use income from leveraged leasing of fossa fueled generation in 1985 Company is recovering its cost of while fuel and purchased power smndn Mars mamaw expenses in 1986 returned to
$3 m Il n 9 less purchasing power.
The cost of non utility sales as a Conventional accounting for 1984 levels as fossil fuel prices percent of non utility revenue was historical cost does not recognize particularly oil, became more ' 73.6%,63% and 53.6% in 1986, economical. Because Florida this economic loss or the partially 1985 and 1984, respectively. offsetting gain that arises through Power recovers substantially all These increases were the result of financing facilities with fixed fuelcosts through a fuel acquisitions of wholesafe building adjurment clause, these changes money obligations, such as long-9 term debt and preferred stock. have little impact on net income. Other utility operating and (sne ses" c us rios that have low gross profit margins. mdntenance expenses increased
23 FLORtDA PROGRESS CORPORATION Consolidated Statements of Income FOR THE YEARS ENDED DECEMBER 31,1986.1985 AND 1984 (in millions, except per share amounts) 1986 1985 1984 REVENUES: Electric utility $1,530.5 $1,504.9 $1,336.7 Nornatility 344.2 148.2 57.5 1,874.7 1,653.1 1,394.2 EXPENSES: Operations-Fuel and purchased power 571.1 586.8 570.6 Cost of non-utility sales 253.4 93.4 30.8 Other 244.7 203.3 183.3 1,069.2 883.5 784.7 Maintenance 108.1 100.4 106.5 Depreciation 136.5 135.8 111.6 Taxes other than income taxes 97.2 87.6 76.7 1,411.0 1,207.3 1,079.5 INCOME FROM OPERATIONS 463.7 445.8 314.7 INTEREST EXPENSE AND OTHER: Interest expense . 113.0 121.4 122.0 Allowance for fundt used during construction (5.8) (7.1) (37.1) Preferred dividend requirements of Florida Power 23.2 25.2 25.2 Other expense (income) (4.6) 2.3 (8.1) 125.8 141.8 102.0 INCOME BEFORE INCCME TAXES 337.9 304.0 212.7 income taxes 156.7 143.1 96.9 NET INCOME $ 181.2 $ 160.9 $ 115.8 AVERAGE SHARES OF COMMON STOCK OUTSTANDING 48.9 45.6 42.7 EARNINGS PER AVERAGE COMMON SHARE $3.71 $3.53 $2.71 The accompanying notes are an integral part of these financial statements. l 1
O FLORIDA PROGRESS CORPORATION Consolidated Balance Sheets DECEMBER 31,1986 AND 1985 (In millions) Assets 1986 1985 PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and held for future use $3,744.2 $3,602.3 Less-Accumulated depreciation 1,028.8 915.9 2,715.4 2,686.4 Construction work in progress 48.1 58.8 Nuclear fuel, net of amortization of $1315 in 1986 and $1183 in 1985 107.9 90.3 Net electric utility plant 2,871.4 2,835.5 Other property, net of depreciation of $29.1 in 1986 and T19.0 in 1985 192.4 154.7 3,063.8 2,990.2 CURRENT ASSETS: Cash and temporary cash investments 2.7 8.8 Accounts receivable, less reserve of $4.2 in 1986 and $3.9 in 1985 161.3 155.4 inventories, primarily at average cost-Fuel 64.9 83.6 Utility materials and supplies 55.1 53.4 Non-utility materials and finished products 67.4 45.0 Underrecovery of fuel cost - 37.1 Prepayments 9.0 8.7 360.4 392.0 OTHER ASSETS: Investments and advances-Unconsolidated subsidiaries and partnerships 93.5 42.3 Mutual funds and marketable equity securities 33.7 24.2 Nuclear plant decommissioning fund 14.5 11.2 Other 23.7 34.4 165.4 112.1
$3,589.6 $3,494.3 The accompanying notes are an integral part of these financial statements.
O Capitalization and Liabilities 19e6 1oss CAPITAllZATION: Common stock equity $1,156.4 $1,014.2 Cumulative preferred stock of Florida Power 233.5 265.1 Long-term debt 1,168.2 1,151.1 2,558.1 2,430.4 CURRENT LIABILITIES: Accounts payable 84.0 78.1 Customers' deposits 49.3 41.3 Income taxes-Currently payable 23.1 3.8 Deferred 9.8 36.7 Accrued other taxes 8.3 8.4 Accrued interest 24.4 22.3 Overrecovery of fuel cost 11.5 - Other 30.5 26.4 240.9 217.0 Notes payable 43.5 86.2 Current portion of long-term debt and preferred stock 10.3 72.8 294.7 376.0 DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes 520.3 473.3 Unamortized investment tax credits 185.7 190.4 Nuclear refueling outage reserve 14.0 6.1 Other 16.8 18.1 736.8 687.9 COMMITMENTS AND CONTINGENCIES (Note 9)
$3,589.6 $3.494.3
r O FLORIDA PROGRESS CORPORATION Consolidated Statements of Changes in Financial Position FOR THE YEARS ENDED DECEMBER 31.1986,1985 AND 1984 (In miHions) SOURCE OF AVAILABLE FUNDS: Funds retained in the business-Net income . $181.2 $160.9 $115.8 Add (deduct)- Depreciation and amortization 155.8 159.4' 143.8 Deferred income taxes and investment tax credits, net 41.2 62.8 75.9 - Allowance for funds used during construction (5.8) (7.1) (37.1) Other (1.2) (29.3) 26.0 Funds provided from operations 371.2 346.7 324.4 Less-Dividends on common stock 111.2 100.0 ' 88.3 260.0 246.7 236.1 Other funds provided, net-Overrecovery (underrecovery) of fuel cost 48.6 (68.3) 64.2 Other changes in working capital (excluding temporary cash investments and short-term debt) 13.6 15.3 (7.4) Other 31.7 12.9 (4.6) Internally generated funds 353.9 206.6 288.3 Funds provided by financing activities, net-Common stock, including pooling transactions 77.0 69.8 36.3 Preferred stock 50.0 - - Long-term debt 46.7 86.9 64.9 Reduction in long-term debt and preferred stock (180.2) (159.8) (21.3) Temporary cash investments (.5) 24.4 (3.8) Short-term debt (42.7) 29.7 (9.9) (49.7) 51.0 66.2
$304.2 $257.6 $354.5 USE OF FUNDS:
Additions to electric plant and nuclear fuel $195.2 $201.2 $284.5 Less-Allowance for funds used during construction 5.8 7.1 37.1 Net utility plant expenditures 189.4 194.1 247.4 Additions to other property 42.6 23.3 57.0 Business acquisitions-Working capital 6.2 31.3 - Other property 11.5 44.8 - Other assets including goodwill, net of liabilities 1.3 9.2 - Short-term debt - (9.7) - Long-term debt (1.9) (28.1) Otherinvestments and advances-Unconsolidated subsiaiaries and partnerships 45.1 (7.4) 26.8 Mutual funds and marketable equity securities 10.0 .1 23.3
$304.2 $257.6 $354.5 The accompanying notes are an integral part of these f;nancial statements.
i.
27 Consolidated Statements of Capitalization DECEMBER 31,1986 AND 1985 l ' (in minions, except share amounts) 1986 1985-COMMON STOCK EQUITY: j Common stock without par value, authorized 90,000.000 shares, outstanding l 49,711,969 shares in 1986 and 46,882,982 shares in 1985 $ 600.6 $ 554.8 Retained earnings 555.8 459.4 1,156.4 1.014.2 CUMULATIVE PREFERRED STOCK OF FLORIDA POWER:
$100 par value, authorized 4.000,000 shares-Without sinking funds . .
.702% (a) 133.5 133.5 With sinking funds, less current sinking fund requirements . .10.2% (a) 100.0 131.6 233.5 265.1 LONG-TERM DEBT Florida Power Corporation-First mortgage bonds-Maturing through 1991-July 1,1986 .3%% -
9.6 July 1,1988. .4%% 12.2 12.7 October 1.1990 .4%% 13.6 14.0 November 1,1990 .1330 % 100.0 100.0 Maturing 1992 through 2001 .
. 7.08% (a) . 211.0 213.5 Maturing 2002 through 2006 . .
.7.92% (a) 310.0 310.0 Maturing 2012. . .13%% 100.0 100.0 Premium, being amortized over term of bonds 3.8 4.1 Par value of bonds reacquired to meet cash sinking fund requirements -
(3.7) 750.6 760.2 Guarantee of pollution control revenue bonds-Maturing 2000 through 2012 .934% (a) 132.9 132.9 Annual tender bonds maturing in 2012 and 2013 .4W% (a) 108.6 108.6 Bank term loan due June 1,1988 .10.64 % 75.0 75.0 Other - 51.0 Other subsidiaries, debt maturing 1987 through 2015 .8.28% (a) 111.4 93.2 1,178.5 1,220.9 Less-Current portion of long-term debt 10.3 69.8 1,168.2 1.151.1
$2,558.1 $2.430.4 (a) Weighted average dividend or interest rate at December 31,1986.
The accompanying notes are an integral part of these financial statements.
D FLORIDA PROGRESS CORPORATION - Consolidated Statements of Shareholders' Equity - FOR THE YEARS ENDED DECEMBER 31,1986,1985 AND 1984 (Dollars in millions, except per share amounts) Cumulative Preferred Stock of Florida Power Without With Common Retained Sinking Sinking Stock' Emmings Funds Funds Balance, 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) 613,637 common shares issued in a pooling of interests transaction 1.0 1.4 Cash dividends on common stock ($2.07 per share) (88.3) Balance, December 31,1984 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) Balance, December 31,1985 554.8 459.4 133.5 131.6 Net income 181.2 1,213,550 common shares issued 44.1 500,000 preferred shares issued - 7.08% series 50.0 815,307 preferred shares redeemed (.7) (4.1) (81.6) 1,615,437 common shares issued in pooling of interests transactions 2.4 30.5 Cash dividends on common stock ($231 per share) (111.2) Balance, December 31,1986 $600.6 $555.8 $133.5 $100.0 The accompanying notes are an integral part of these financial statements. Notes to Consolidated Financial Statements (1)
SUMMARY
OF SIGNIFICANT ACCOUNTING All significant intercompany balances and POLICIES intercompany transactions have been eliminated. Certain reclassifications have been made to prior year Principles of Consolidation-The consolidated am unts to conform with the current year presentation. financial statements combine the financial results of Florida Progress Corporation (the Company) and all The Company is exempt from regulation as a registered subsidiaries other than its leasing and insurance holding company under the Public Utahty Holding subsidiaries, which are included on the equity basis of Company Act of 1935. accounting. The Company's largest subsidiary, Electric Plant-Electric plant is stated at the original representing 87.4% of total assets, is Florida Power cost of construction which includes payroll and related Corporation (Florida Power), a public utihty engaged in costs such as taxes, pensions and other fringe benefits, the production, transmission, distribution and sale of general and administrative costs and an allowance for electnc energy within Florida. funds used during construction. Substantially all of the
I 1 O i Notes to Consolidated Financial Statements electnc plant is pledged as collateral for Florida Power's future usa However, in compliance with Federal Energy First Mortgage Bonds. Regulatory Commission requirements, the return Electric Revenues, Fuel and Purchased Power accrued on these units of $6.4 million at December 31, Expenses-Florida Power accrues the non-fuel portion 1986, is being deferred and will not be recognized as of base revenues for services rendered but unbilled. income until the units are returned to service 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 9.72% for 1986 and 10.03% for 1985 and permit full recovery of these costs. The adjustment 1984. factors are based on costs projected by Florida Power Mutual Funds and Marketable Equity Securities-for a six-month period. Revenues and expenses are Mutual funds are carried at market value. Marketable adjusted for differences between recoverable fuel and equity securities are carried at the lower of aggregate conservation costs and amounts included in current cost or market valua At December 31,1986, the market rates. The cumulative fuel cost difference is shown in value of the secunties exceeded cost by $12.9 million. the balance sheet as overrecovery or underrecovery of Pension Costs-The Company and certain of its fuel cost. Any overrecovery or underrecovery of costs subsidiaries have a non-contributory defined benefit plus an interest factor is to be refunded or billed to pension plan covering substantially all of their customers during the subsequent six-month period. employees. The benefits are based on years of service The cost of fossil fuel for electric generation is charged and the employee's compensation during the highest to expense as bumed. The cost of nuclear fuelis five of the last ten years of eraployment. The Company's amoritzed to fuel expense based on the quantity of heat policy is to contnbute annually to the plan the amount produced for the generation of electric energy in necessary to fund the retirement benefits provided relation to the quantity of heat expected to be produced under the plan. over the life of the nuclear fuel cora The Company plans to adopt the new Financial Depreciation and Maintenance-The Company Accounting Standards Board (FASB) Standard No. 87 provides for depreciation of the original cost of on accounting for pension costs in 1987. In preparing properties over their estimated useful lives primarily on for the change, the Company adopted the actuarial a straight-line basis. Florida Power's annual provision cost method required by the FASB and revised most of for depreciatton, including a provision for nuclear plant de actuarial assumptions for the 1986 plan valuation. decommissioning costs, expressed as a percentage of ltase changes reduced pension costs for 1986 by the average balances of depreciable electric plant was approximately $10.7 million and a further reduction is 38%, 3.9% and 3.7% for 1986,1985 and 1984, expected when the FASB standard is adopted in 1987. respectively. Total pension costs for the last three years included the OHow g componems: Florida Power charges maintenance expense with the cost of repairs and minor renewals of property, the 1986 1985 1984 plant accounts with the cost of renewals and (In millions) replacements of property units and accumulated Current service cost S 7.7 $ 8.7 $7.6 depreciation with cost, less net salvage, of property Amortization of past l units retired. service over costpeno a 20-year (credit)(7.7) d .9 1.5 Allowance for Funds-The allowance for funds used Total - $ 9.6 $ 9.1 during construction is a non-cash addition to income which represents the estimated cost of funds The following summarizes the funded status of the applicable to utility plant under construction. pension plan at January 1,1986 and 1985 based on Recognition of this item as a cost of utility plant under an assumed annual rate of investment return of 9% construction is appropriate because it constitutes an and 8%, respectively: actual cost of construction and, under established January 1, regulatory rate practices, Florida Power is permitted to 1986 1985 eam a return on these costs and to recover them in the On mHHons) rates charged for utility cervices while the plant is in A a u ated an nefits: servica Vested S 86.8 $ 86.7 Similar treatment has been authonzed by the Florida Non sted 1 2 Public Service Commission (FPSC) for the cost of funds applicable to certain existing generating units held for Net assets available for benefits $245.0 $193.9 _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ l
O FLORIDA PROGRESS CORPORATION Notes to Consolidated Financial Statements The actuarial present value of accumulated plan at $14.0 million and is being recognized as an expense benefits does not recognize any improvements in over a 5-year period beginning January 1,1985. benefits and ignores the effects of future compensation income Taxes-Deferred income taxes are provided increases on the benefits participants will receive for on all significant book tax timing differences. their past service. If this value is adjusted for projected investment tax credits used to reduce current federal compensation increases consistent with the assumed income taxes are deferred and amortized to income rate of investment return, the adjusted actuarial present over the lives of the related properties. value of accumulated plan benefits would be Florida Power did not provide deferred income taxes for approximately $137.6 million and $158.2 million for ~ certain timing differences during periods when 1986 and 1965, respectively-applicable regulatory authorities did not permit the in addition to providing pension benefits, the Company recovery of such income taxes through rates charged and certain of its subsidiaries provide certain health to customers. The cumulative net amount of income tax care and life insurance benefits for retired employees. timing differences for which deferred taxes have not Employees become eligible for these benefits if they been provided was approximately $115 million at reach normal retirement age while working for the December 31,1986. As allowed under current Company. The present value of retiree health care and regulatory practices, deferred taxes not previously life insurance benefits for current retirees is estimated provided are being collected in customers' rates as such taxes become payable.
. (2) INCOME TAXES (In millions) 1986 1985 1984 Federal:
Payable currently $124.5 $ 36.1 $55.1 Deferred (a) 16.9 81.0 12.6 Investment tax credits net of amortization (5.1) 8.2 17.4 136.3 125.3 85.1 State: Payable current!y 17.9 7.9 10.7 Deferred (a) 2.5 9.9 1.1 20.4 17.8 11.8 Income taxes $156.7 $143.1 $96.9 (a) The components of deferred income tax are as follows: Federal-Excess of accelerated over straight-line tax depreciation $ 46.6 $ 50.0 $40.5 Construction costs and other property related items deducted for tax purposes, net of book depreciation .7 (3.4) 10.6 Underrecovery (overrecovery) of fuel cost (20.8) 29.9 (28.8) Other (9.6) 4.5 (9.7)
$ 16.9 $ 81.0 $12.6 State-Excess of accelerated over straight-line tax depreciation $ 6.1 $ 5.9 $ 4.6 Construction costs and other property related items deducted for tax purposes, net of book depreciation .1 (.3) .8 Underrecovery (overrecovery) of fuel cost (2.6) 3.8 (3.3)
Other (1.1) .5 (1.0)
$ 2.5 $ 9.9 $ 1.1
31 Notes to Consolidated Financial Statements The provision for income taxes as a percent of income Plant Decommissioning Costs-Florida Power's before taxes and preferred dividend requirements was nuclear plant depreciation rates include a provision for less than the statutory federal income tax rate. The future nuclear plant decommissioning costs which are primary differences between the statutory rates and the recoverable through rates charged to customers. effective income tax rates are detailed below: Florida Power is placing its collections in a funded 1986 1985 1984 reserva The recovery from customers plus interest eamed on the funded amounts provides coverage Federalincome tax statutory rates 46.0 % 46.0 % 46.0 % toward the future dismantling, removal and land restoration costs. Florida Power has been providing for Amortization of investment
- tax credits (2,9) (2.8) (4.0) its share of the decommissioning costs based on a Allowance for equity funds ( 3) (.4) (3.7) 1980 study which anticipated decommissioning State income tax, net of beginning in the year 2008. In early 1987, Fic"da Power federalincome tax 3.1 2.9 2.7 completed a detailed decommissioning study which Other (2.5) (2.2) (.3) now contemplates decommissioning beginning in the Effective income year 2016. This study, which is currently pending before tax rates 43,4 % 43.5 % 40.7 % the FPSC, would result in an increase in annual depreciation expense from $5 million to $9.3 million The Tax Reform Act of 1986 will only have a minor beginning in 1987.
impact on net income in 1987 since the resulting Fuel Disposal Costs-Florida Power has entered into reduction in Florida Power's income taxes will b a contract with the Department of Energy (DOE) for the
" passed through" to ratepayers in the form of monthly sphW&WdW duM billing credits effective January 1.1987 as indicated in Disposal costs for nuclear fuel consumed are being Note 8' collected from customers at a rate of .1c per kilowatt-hour through the fuel adjustment clause and are paid (3) BUSINESS ACQUISITIONS to the DOE quarterly. Florida Power is currently storing The acquisitions of Mid-Continent Life insurance spent nuclear fuel on site and has sufficient storage Company and Gorman Co., Inc. in 1986 and BBS ,
capacity for fuel burned through the year 2006. Corporation in 1984 were accounted for on a pooling of , interests basis. As the effect of restating data relating to Plant Refueling Outages-Florida Power accrues a these acquisitions would not materially affect previously reserve for maintenance and refueling expenses issued financial statements, no restated prior year or anticipated to be incurred during scheduled nuclear separate entity operating results are presented. Several plant refueling outages. The next outage is scheduled businesses were acquired in 1986 and 1985 for cash for twelve weeks beginning in September 1987 and is and notes and have been accounted for as purchases. presently expected to cost approximately $21 million. Had these businesses been purchased at the Insurance-The Price. Anderson Act currently limits the beginning of the current or prior year, revenues and net liabihty of an owner of a nuclear power plant to $695 earnings of the Company on a pro forma consolidated million for a single nuclear incident. Florida Power has basis would not have been materially different from the purchased the maximum available private insurance of amounts reported. $160 million and the balance is provided by indemnity agreements with the Nuclear Regulatory Commission. (4) NUCLEAR OPERATIONS in the event of a nuclear incident, Florida Power could Jointly Owned Plant-Florida Power's 90% be assessed up to $5 milhon for the licensed reactor it ownership share in the Crystal River nuclear unit as of owns, with a maximum assessment of $10 million in a December 31,1986, amounted to $492.5 million of year. In addition to this liability insurance, Florida Power electric plant in service, $12.7 million of construction carries extra expense insurance with Nuclear Electric work in progress, $107.9 million of unamortized nuclear Insurance. Ltd. (NEIL) to cover the cost of replacement fuel, and $143.1 million of accumulated depreciation power during prolonged outages of the nuclear unit. which includes $30 million of accumulated provisions Under this pohey, Florida Power is subject to a for decommissioning costs. Each participant provides retrospective premium assessment of up to $2.9 million for its own financing. Florida Pcwer's share of the in any year in which losses exceed accumulated funds operating costs are included in the appropriate expense available to NEIL. captions in the consolidated statements of income. j l
\ FLORIDA PROGRESS CORPORATION ' Notes to Consolidated Financial Statements Florida Power currently carries approximately $1.1 rates to the prime rata Banks providing lines of credit billion in property insurance provided through several are compensated through balances or fees. Balance different policies. One of these policies which is requirements are based on terms acceptable to the
< underwritten by NEIL, provides $575 million of excess banks and, where specified, are based on 10% of the coveraga Under this policy Florida Power is line or 15% of the amount borrowed, whichever is -
contingently liable to NEIL for a retrospective premium greater. Commitment fees on lines of credit vary assessment of up to $8.2 million in any one policy year between % and % of 1%. in the event NEIL's excess property losses exceed available funds. (8) FLORIDA POWER SETTLEMENT AGREEMENT. For calendar year 1987, Florida Power's retail customers (5) PREFERRED AND PREFERENCE STOCK will receive billing credits totaling approximately $54 The Company has 10 million shares of authorized but million. The total credit is based on a " pass through" of unissued Preferred Stock without par valua Florida lower federal income tax rates resulting from the Tax Power has four million shares of authorized Cumulative Reform Act of 1986, lower capital costs and the Preferred Stock, $100 par value, of which 2.3 million postponement of a planned increase in depreciation shares are outstanding, one million shares of rates until 1988. Florida Power is providing the credit in authorized but unissued Preference Stock, $100 par compliance with a FPSC approved Settlement value, and five million shares of authorized but Agreement between Florida Power and the State Public unissued Cumulative Preferred Stock, without par Counsers Office. Florida Power plans to determine valua The combined amount of minimum during 1987 what adjustment will be necessary in order preferred stock redemption requirements over the next to continue " passing through" the impact of the lower five years is $10 million per year beginning in 198a federalincome tax rates. (6) LONG-TERM DEBT (9) COMMITMENTS AND CONTINGENCIES The interest rate on the Annual Tender Pollu* ion Control Revenue Bonds will be adjusted on December 1 of Construction Program-Substantial commitments have been made in connection with Florida Power's each year and the bondholders may elect to tender their Bonds at that tima The Bonds outstanding at any construction program which is presently estimated to result in constructica expenditures in 1987 of $213.9 point in time are supported by a three-year line of credit milli n for electric plant and nuclear fuel. arrangement in the amount of $100 million, I lorida Power's current construction program does not The combined aggregate matunties of long-term debt for 1987,1988,1989,1990 and 1991 are $10.3 include possible capital expenditures that could reach million, $954 million, $10.7 million, $126.2 million, and as high as $250 million in connection with an Environmental Protection Agency (EPA) proposed
$176 million respectively. In addition, all but one of requirement for the construction of additional cooling Florida Power's First Mortgage Bond issues have an towers at Florida Power's Crystal River facility.
annual 1% sinking fund requirement. These Management is vigorously opposing this action and requirements, which total $7.2 million for 1987 and 1988.
$7.0 million for 1989 and 1990, and $6.7 million for 1991, has proposed less costly alternatives to lessen the environmentalimpact of the heated water discharga are expected to be satisfied with property additions.
These alternatives are presently being considered by the EPA. (7) SHORT-TERM DEST The Company and its consolidated subsidiaries have Debt Support Agreements-The Company has lines of credit totaling $184.9 million, of which $105 agreed to support certain loan agreements of million is used to support commercial paper programs. partnerships and joint ventures and the debt of an The amount outstanding at December 31,1986, and unconsolidated subsidiary. The total amount of these 1985, through both commercial paper and direct support agreements is $183.7 million of which $159.2 borrowings, totaled $43.5 million and $86.2 million, million are cash deficiency agreements and $24.5 respectively. Interest rates under line of credit million are guarantees. arrangements vary from sub-prime or money market
~ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _
O 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 Florida Progress Corporation (a Florida corporation) and subsidiaries as of December 31,1986 and 1985, and the related consolidated statements of income, changes in financial position and shareholders' equity for each cf the three years in the period ended December 31,1986. 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 referred to above present fairly the financial position of Florida Progress Corporation and subsidiaries as of December 31,1986 and 1985, and the results of their operations and the changes in their financial position for each of the three years in the period ended December 31,1986, in conformity with generally accepted accounting principles applied on a consistent basis. ARTHUR ANDERSEN & CO. Tampa, Florida January 28,1987 Quarterly Financial Data (Unaudited) (in millions, except per share amounts) Three Months Ended March 31 June 30 September 30 December 31 1986 Revenues $429.6 $486.1 $532.2 $426.8 Income from operations $115.9 $108.1 $156.8 $82.9 Net income $45.5 $41.2 $63.6 $30.9 Eamings per average common share S.94 $.85 $1.29 S.63 1985 Revenues $378.1 $389.9 $472.0 $413.1 Income from operations $111.8 $110.1 $129.1 $94.8 Net income $42.0 $39.7 $50.1 $29.1 Earnings per average common share $.95 $.87 $1.08 $.62 Earnings per average common share as presented above may not equal the annual amounts reported in the Consolidated Statements of income as a result of issuing additional shares of common stock during the periods. The first three quarters of 1986 have been restated as a result of the pooling of Mid-Continent Life Insurance Company in December,1986. This restatement resulted in a decrease in previously reported earnings per share of $.01 for the first quarter and $.02 for the third quarter. See Note 3 of Notes to Consolidated Financial Statements. The business of the Company's largest subsidiary, Florida Power, is seasonal in nature and it is management's opinion that comparisons of earnings for the quarters do not give a true indication of overall trends and changes in the Companyt operations.
y FLORIDA PROGRESS CORPORATION Selected Consolidated Data 1982-1986 (Dollars in millions, except per share amounts) 1986 1985 1984 1983 1982-Revenues $1,874.7 $1.653.1 $1,394.2 $1,373.7 $1,227.6 Income from operations $463.7 $445.8 $314.7 $312.5 $224.7 Net income $181.2 $160.9 $115.8 $103.9 $82.1 Earnings per average common share $3.71 $3.53 $2.71 $2.64 $2.20 Dividends per common share $2.31 $2.19 $2.07 $1.95 $1.83 Total assets $3,589.6 $3,494.3 $3.315.3 $3.114.1 $2,914.9 Capitalization: Long-term debt $1,168.2 $1.151.1 $1,252.4 $1,207.9 $1,195.1 Preferred stock with sinking funds 100.0 131.6 134.7 140.8 142.4 1,268.2 1,282.7 1,387.1 1,348.7 1,337.5 Preferred stock without sinking funds 133.5 133.5 133.5 133.5 133.5 Common stock equity 1,156.4 1,014.2 883.5 818.3 725.0 Total Capitalization $2,558.1 $2.430.4 $2.404.1 $2.300.5 $2,196.0 Capitalization Ratios: Long-term debt 45.7 % 47.4 % 52.1 % 52.5 % 54.4% Preferred stock 9.1 10.9 11.2 11.9 12.6
' Common stock equity 45.2 41.7 36.7 35.6 33.0 Number of employees 8,030 7,208 5,573 5.077 4,864 Number of common shareholders 46,586 48.052 48.933 48,712 43.887 Common Stock Data Composite Price of Common Stock Dividends Paid Per Share 1986 1985 1986 1985 High Low High Low First Quarter $37% $30% $25% $23% S.57 $.54 Second Quarter 39 % 35 % 28 % 25% .57 .54 Third Quarter 47 35 % 29 % 24 .57 .54 Fourth Quarter 43 % 38 % 31 25% .60 .57
O Selected Data of Florida Power Corporation 1982-1986 1988 1985 1984 1983 1982 Electric Sales (Millions of KWH): Residential 9,819.2 9,175.0 8,553.6 8,009.5 7,425.0 Commercial 5,573.0 5,106.6 4,547,7 4,118.6 3,895.2 Industrial 3,122.3 3,166.0 2,989.0 2,701.0 2,715.5 Other 1,319.3 1,268.4 1,188.8 1,142.9 1,094.9 19,833.8 18,716.0 17,279.1 15,972.0 15,130.6 Sales for resale (a) 3,336.2 2,556.4 3.317.3 5,802.0 4,739.3 Total Electric Sales 23,170.0 21,272.4 20,596.4 21,774.0 19,869.9 Residential Service (Average Annual): KWH sales per customer 11,255 10,940 10,638 10,388 9,964 Revenue per customer $914 $883 $818 $783 $720 Revenue per KWH 8.128 8.07c 7.69e 7.54c 7.23e Capitalization: 1.ong-term debt $1,067.1 $1,067.4 $1,196.5 $1,180.2 $1,184.5 Preferred stock with sinking funds 100.0 131.6 134.7 140.8 142.3 1,167.1 1,199.0 1,331.2 1,321.0 1,326.8 Preferred stock without sinking funds 133.5 133.5 133.5 133.5 133.5 Common stock equity 971,0 899.3 816.9 789.5 705.2 Total Capitalization $2,271,6 52,231.8 $2.281.6 $2.244.0 $2.165.5 Capitahzation Ratios: Long-term debt 47.0 % 47.8 % 52.4 % 52.6% 54.7 % Preferred stock 10.3 11.9 11.8 12.2 12.7 Common stock equity 42.7 40.3 35.8 35.2 32.6 Operating Data: Net generating capabihty (MW) 5,961 5,989 5,927 5,993 5,899 Net system peak load (MW) 5,977 5,813 4,858 4,913 5,347 BTU per KWH of net output 9,865 9.928 10,074 10,082 10,383 Construction additions (millions) $195.2 $201.2 $284.5 $285.8 $385.3 Percentage of construction expenditures generated internally 100 % 100 % 99 % 66 % 39 % Ratio of earnings to fixed charges 4.29 3.81 3.07 2.94 2.42 Fuel cost per million BTU $2.14 $2.63 $2.36 $2.85 $2.78 Average number of customers 980,427 940,976 900,799 861,548 829,810 Number of employees 5,323 5.215 5,070 4,923 4,829 (a) The decline in sales for resale in 1984 is due primanly to Seminole Electric Cooperative placing its 620MW unit into service on February 1,1984.
C3 Flot'ida Profess Coipc edkxi Directors Robert C. Allen P. Scott Linder George Ruppel Vice President Chairman of the Bcard Vice President and Secretary Walt Disney World Co. Linder Industrial Modern Tool & Die Lake Buena Vista, Florida Machinery Company Company of Florida Lakeland, Florida Pinellas Park, Florida Andrew H. Hines, Jr. Chairman of the Board Charles P. Lykes Lee H. Scott and President Chairman of the Board Group Vice President Lykes Bros., Inc. President Frank M. Hubbard Tampa, Florida Florida Power Corporation Consultant to Hubbard Construction Company Clarence W. McKee, Jr. Robert T. Stuart, Jr. Orlando, Florida Executive Vice President Ranching and investments Richard C. Johnson Partner Corneal B. Myers Jean Giles Wittner The Johnson Simmons Company Partner President Seminole, Florida Peterson, Myers, Craig, Wittner Securities, Inc. Crews, Brandon & Mann, RA. St. Petersburg, Florida Lake Wales, Florida Executive Officers Andrew H. Hines, Jr. Stanley A. Brandimore Clarence W. McKee, Jr. Chairman of the Board Executive Vice President Executive Vice President and President and General Counsel and Chief Financial Officer Group Vice Presidents Jack B. Critchfield Thomas S. Krzesinski Gus A.Stavros Energy and Technology Group Financial Services Group Business Services Group Allen J. Keesler, Jr. Lee H. Scott Development Group Utility Group Other Officers Jerry H. Joyce Jay G. Loader Dan R. Johnson Vice President Vice President Controller and Treasurer and Secretary
- 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 , GeneralOffice. Allcorrespondence are customarily maded to reach conceming address changes, dividend shareholders on or about the 20th checks and related matters should be of March, June, September directed to: and Decembet Florida Progress Corporation Common Stock Listed Se ' New York Stock Exchange hnws g g3 2 Pacific Stock Exchange St. Petersburg, Florida 33733 Ticker symb& FPC Phone 813-8954740 Newspaper listing: FlaPrg inquiries concerning the transfer of stock certificates should be directed to Annual Reports on Form 10-K our New York transfer agents. and Statistical Supplement Upon request, the Company will Tiransfer Agents and Registrars _ furnish its shareholders without charge a copy of its 1986 Form 10-K, without Common Stock exhibits, as filed with the Securities and Manufacturers Hanover Trust Company Exchange Commission. A Florida RO. Box 24935, Church Street Station Power Corporation 1986 Form 10-K, New York, New York 10249 without exhibits, and a detailed Ten-Year Florida P6wer Corporation Statistical Report are'also available.
Preferred Stock Requests should be addressed to the Servces Department at the
- Harris Trust Company of New York r 110 William Street New York, New York 10038 Auditors Arthur Andersen & Ca Dividend Reinvestment Plan Tampa, Florida The Company offers a Dividend Reinvestment Plan for shareholders of Analysts' Contact record. At the end of 1986, Clarence W. McKee, Jt 813-895-1703 approximately 40% of the Company's Executive Vice President common shareholders participated in and Chief Financial Officer the Company's Dividend Reinvestment Jerry H. Joyce 813-895-1705 and Stock Purchase Plan. E//ective Vice President and Treasurer
~ January 1,198% the price of shares Richard R. Champion 813-895-1733
. purchased with reinvested dividends Director, Investor Relations is at a 3% discount from the market price. Plan enrollments, withdrawals Corporate Offices l and other correspondence should be 270 First Awnue South directed to the Investor Services St. Petersburg, Florida 33701 Department at the address shown. Telephone 813-895-1700 j l
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