ML20217J067: Difference between revisions
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Compliance As part of obtaining reasonable assurance about whether the City's general-purpose financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. l The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. l Internal Control Over Financial Reporting ; | Compliance As part of obtaining reasonable assurance about whether the City's general-purpose financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. l The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. l Internal Control Over Financial Reporting ; | ||
In planning and performing our audit, we considered the City's internal control over financial reportmg in order to determine our auditing procedures for the purpose of expressing our opinion on the general-financial statements and not to provide assurance on the internal control over financial reporting. | In planning and performing our audit, we considered the City's internal control over financial reportmg in order to determine our auditing procedures for the purpose of expressing our opinion on the general-financial statements and not to provide assurance on the internal control over financial reporting. | ||
Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the genera-purpose financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions, We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that we have reported to the City Council in a separate letter dated December 23, 1997. | Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the genera-purpose financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions, We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that we have reported to the City Council in a separate {{letter dated|date=December 23, 1997|text=letter dated December 23, 1997}}. | ||
Certified PubilC Accountants P.O. Box 23999 e 222 N E.1st Street e Gainesville, Florida 32602 (352) 378-2461 FAX (352) 378-2505 Laurel Ridge Professional Center . 2347 S.E.17th Street . OCala. Florida 34471 (352) 732-3872 e FAX (352) 732-0542 443 East College Avenue | Certified PubilC Accountants P.O. Box 23999 e 222 N E.1st Street e Gainesville, Florida 32602 (352) 378-2461 FAX (352) 378-2505 Laurel Ridge Professional Center . 2347 S.E.17th Street . OCala. Florida 34471 (352) 732-3872 e FAX (352) 732-0542 443 East College Avenue | ||
* Tallahassee, Florida 32301 * (850) 224-7144 FAX (850) 224-1762 2831 Ringling Boulevard, Unit 106-B e Sarasota, Florida 34236 (941) 365-3774 | * Tallahassee, Florida 32301 * (850) 224-7144 FAX (850) 224-1762 2831 Ringling Boulevard, Unit 106-B e Sarasota, Florida 34236 (941) 365-3774 | ||
| Line 4,132: | Line 4,132: | ||
Purvis Gray & | Purvis Gray & | ||
Company INDEPENDENT' AUDITORS' REPORT ON EXAh11 NATION OF MANAGEnfENT'S ASSERTION ABOUT COMPLIANCE WITII SPECIFIED REQUIREMENTS Honorable Mayor and Council Members City of Bushnell Bushnell, Florida We have examined management's assertion included in its representation letter dated December 23,1997, that the City of Bushnell, Florida complied with the allowable cost requirements of the grants and aids appropriations identified in the schedule of state financial assistance, for the year ended September 30, 1997. Management is responsible for the City of Bushnell, Florida's compliance with those requirements. | Company INDEPENDENT' AUDITORS' REPORT ON EXAh11 NATION OF MANAGEnfENT'S ASSERTION ABOUT COMPLIANCE WITII SPECIFIED REQUIREMENTS Honorable Mayor and Council Members City of Bushnell Bushnell, Florida We have examined management's assertion included in its representation {{letter dated|date=December 23, 1997|text=letter dated December 23,1997}}, that the City of Bushnell, Florida complied with the allowable cost requirements of the grants and aids appropriations identified in the schedule of state financial assistance, for the year ended September 30, 1997. Management is responsible for the City of Bushnell, Florida's compliance with those requirements. | ||
Our responsibility is to express an opinion on management's assertion about the City's compliance based on our examination. | Our responsibility is to express an opinion on management's assertion about the City's compliance based on our examination. | ||
Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the City's compliance with specified requirements. | Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the City's compliance with specified requirements. | ||
Latest revision as of 23:56, 20 March 2021
| ML20217J067 | |
| Person / Time | |
|---|---|
| Site: | Crystal River  |
| Issue date: | 12/31/1997 |
| From: | Critchfield J, Korpan R FLORIDA POWER CORP. |
| To: | |
| Shared Package | |
| ML20217J034 | List: |
| References | |
| NUDOCS 9804300164 | |
| Download: ML20217J067 (368) | |
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Pionda Pmpues Corpnessima is a dheseded sismic eGly hateley , company based in St. Petersburg, Pladda, h supersed WWF 869 ant ser f . enues in excess of $3 billion and asects of ,, " $5.8 4 M ask
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7J- I " N D.-- Corporation, an electric utility kicated in one of'the fastest grM" _ areas in the country, and Electric Fuels Corporation, a diversified . energy and transportation company.
. Florida Progress today is expanding customer horizons, a,, s yM building on nearly 100 years of providing customers with superior electric service, and leveraging two decades of expe-
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.kI@ $ Net .intomel 54.3 224.4 (75.8) (2 0. 9)
EDATA PER SHARE Earnings: Utility bef ore nonrecurring item 52.48 52.40 3.3 -45 _ Diversified continuing j before nonrecurring items .14 21 (33 3) (2 6) - Nonrecurring items. net and discontinued operations (2.06) (.29) C o n s olid a t e d .56 2 32 (75.9) (22 9) , - Dividends Book value 2.10 18.30 2.06 19.84 19 (7 8) 2.0 (1.6) M [ j g' k'<jEM
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Closing stock prne 39% 32% 21.7 3.8 > Stock price range 27% 39% 31% - 36% FIN ANCIAL POSITION AT DECEMBER'31;, 'E' - v Asrets .... .
'I,Y- , 55,348.4 7.7 3.0 ~
Total capitalization L '. Capitalization' structure: .. .. g(M $ 5' 760.0 . 1
*4,417.3 3.773.6 17.1 3.2 l
' Short term debt, i.ncluding . . , l
-'turrent matur;tlesi 5.2% ' 1.0 % !
Long* term debt- %g . 753,8g, 4, r,9 7,1 ;W Preferred stock - Nh .8 g .
' Common stock equity 1 ~ .L 4 0.2 ' 4 51.0 .-
r OTHER STATISTICS - P- - . Return on common equity- f 2.9 {~ "# 10;9% Dividend yleid .. /5.4 % 6.4 % Average common shares &~) ' outstanding -(in millions) 97.1 96.8 .3 26 ' ' > <.
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Interestest? CaII for a consultation. Surprises have no place in the manufacturing process. That's where Equipoise from Florida Power Corporation's Energy Solutions'" can help. Equipoise can provide your facility with a guaranteed level of power quality service. Our Energy Solutions * < consultants can sit down with you and create a customized electric supply system that can reduce or eliminate power fluctuations and costly downtime. After all, who needs that kind of excitement? Call today . . . . . . . . . . . . . . . . . . . to set up a consultation. Equipoise: It's just the ENERGYSolutions-type of product you'd expect from Florida Power. Florida Po_we_r (8 1 3 ) 51 9 ~24 85 w.mwm..,
L9 Progress 0"!"U FLORIDA PROGRESS CORPOR ATION 1997 ANNUAL REPORT Irtter to Our Shareholders BOARD OF DIRECTORS 1997- A Darof' Transitions D R. J ACK B. C RATCH FIELD Chairman of the Board of Horida Progress W. D. " B IL L' E R E D E R IC E, J R. FEATURES
' "~ '~
! Citrus Grower and Investor M IC H A E L P. G R A N E, Partner in the law firm of Simpson, lhacher & I?artlett 6 RICH ARD RORPAN Expanding Customer Horizons President and Chief Enccutive Othcer of Florkla Progress Chairman of the Board of Florida fower L FRANK C, LOG AN 8 Artorney with the law firm of Ilarper, Kynes, Geller. Watson & Buford Customers Hold the Key CLA N E N C E V. MCREE Chairman and Chief Executive Officer of McKec Communications,Inc.
VINCENT J. NAIMOLI 12 Chairman, Prendent and Chief Executive Otlicer of Anchor industnes International. Inc.
! Managing General Partner and Chicf Executive Othcr of the Tampa Bay Devil Rays, Ltd. Marching to the Customer s 11 cat i
RICH A RD A. N U NIS Chairman of Walt Ihaney Attractions 15 CH ARLE S B. R E ED
- Chancellor of the State University System of Cahtbrnia lhe Customer Within JO AN D. RU FFIE R General Partner in Sunshine Cafes, lad.
jh RO B E RT T. 87U A RT, j R. Retired Chairman and Chief Executive Officer of Mui Continent Life Insurance Company Iklan.onships Are What Count JE AN GILE 5 WITTN ER President of Wittner & Co., Wittner Securitics,Inc. aml Wittner & Associates, Inc. p p OFFICERS CH AIRM AN OF THE BOARD Dr. lack B. Critchfickl Management's Discussion and Analysis PRESIDENT AND CHIEF EXECt!TIVE OPPICER Richard Korpan EXECUTIVE VICE FRESIDENT Stanley 1. Garnett 11 l GROUP VICE FRESIDENT Consolidated Financial Statements PRESIDENY AND CHIEF EXECUTIVE OFFICER FLORID A FOWER CORPORAT3DN loseph Il. Richardum FRESIDEN AN CHREF EXE IVE OFFICER NotCS to ConsolidJted Financial Statements E LEC'I R E C F U E L S CORFO R ATIO N Richard D. Keller h SENIOR VICE FRE BIDENT AND CHIE F FIN ANCI AL OFFICER leffrey R. Heinicka Quarterly H.nancial Data VICE PRESIDENT AN D GENER AL COUN8EL Kenneth E. Armstrong VICE PRE sIDENT AND CONTROLLER John Scardino, Jr. Reports from Management and Auditors VICE PR E 51DE NT AN D TREASURE R James V. Smallwood VICE PRh AIDENT William G. Kctley 46 Selected Data 1992-1997 YlCE PRESIDENT Peter E. Toomey
.FCRE m ,
Kathleen M. Ilatey 48
*1% apsm at at 29% Amalknboldm benyt Investor Information PROGRESS 1
I I I II K 4(> (> lek 4 11 A R I il 4 > 1 D 1 R % AR snons t
.. ineteen ninety-seven was a pivotal year for Florida Progress a year ofimportant transitions that has set the stage for our future growth.
hianagement fi>rcefully addressed hiid-Continent, which had been placed G R O.WT H ST R AT E G Y major challenges - in particular, issues in receivership, and accrued fi>r addi- Florida Progress' plans for fliture surrounding our Crystal IUver nuclear tional legal costs. As a consequence of growth have provided important impetus plant and hiid Continent Life Insurance these charges, which totaled $2.06 per to investor confidence. These plans Company. The marketplace responded share and are further discussed later in fi>cus on three primary goals designed with strong support, as is reflected in this letter, we reported earnings of to ensure a prominent national role fi>r our total return fi>r the year which $54.3 million, S.56 per share compared Florida Progress: exceeded the total return fi>r the S&P with $2.32 per share the prior year.
- Developing a national retail energy Electrics. By addressing those issues, we begin business that provides access to at least In addressing those two situations, we clearing the way fi>r Florida Progress to 10 million customers. By applying the incurred charges and costs that seriously move fi>rward, focusing on the solid market insights and expertise gained impacted earnings. First, we faced strategy that we have to expand our from serving the predominantly retail substantial costs fi>r expenses from the businesses and preparing fi>r the coming customer base in our home market, v -
prior year's shutdown of the Crystal evolution of the electric utility markets, believe Florida Progress can play a River nuclear plant, including invest- looking ahead, we can see that our leading role in expanding the national ments in extensive modifications that growth into the next century will be retail energy sector over the next five were required to prepare the unit fi>r fi>unded on customer growth, achieved years. return to productive service. Second, we by doing more for our current cus-
- hiaximizing the opportunities that provided for a loss of our investment in romers and adding new customers. This economic growth in Florida and the strategy is reflected in the theme of our report to you fi>r this year," Expanding Customer Horizons. - g g In part, that growth will be driven ~A-
, by the continued strong economic perfi>rmance of our home state of
. Flonda - which remains a national , ,
,7 leader in population, new home, and utility customer growth. j
~- Growth will also come from new r I territories beyond our familiar borders as we further expand our reach through ventures like the Cadence national k energy services marketing alliance we
. formed in 1997 and the continued .' -
4 expansion of Electric Fuels Corporation, our energy and transportation Dr. Jack B. Critchfield subsidiary. Richard Korpan
southeastern United ' hates ofTers fir. shutdown and modifications on 1997 ums and ordered the Conunissioner to l expanding revenues and earnings from carnings: $100 million in additional present a rehabilitation plan. The court the generation, transmission and distri- nuclear operation and maintenance also ruled that the company remain in bution of electricity. In 1997 alone, we expenses, and 573 million ihr unrecov- receivership. Alid Continent's appeal of added over 22,000 electric customers in crable fuel-replacement costs. While that decision to the Oklahoma Supreme Florida, a growth of nearly 2 percent. most of the operation and maintenance Court is pending. In the closing days of
- Continuing to support doubic-digit costs were necessary to fhily address 1997, the Oklahoma Commissioner filed earnings growth at Electric Fucts. safety system design issues, Florida a lawsuit against Florida Progress in the Collectively, these growth initiatives Power also peribrmed work that should District Court, sccking damages related drive the overall program of expanding enable the plant to be a prainctive asset to the Alid Continent matter.
customer horizons that is the fbundation in the future. These charges totaled The actions of the Oklahoma Conunis-of Florida Progress' future. 51.10 per share fbr 1997, sioner have significantly impaired the
- E A R Nj N_G S Preparations for Crystal River's return value of our investment in Alid-Examining our 1997 perfbrmance to service and the investments that Continent. Florida Progress believes )
provides a sound basis fbr confidence in have now been made in its facilitics and that the claims are without merit and {
- fhture growth. Florida Progress'icported operations pave the way fbr solid contri- will vigorously defend itself against the )
carnings fell to $54.3 million. However, butions to thture performance. Aggres- lawsuit. excluding the one-time charges noted sively sohing this problem ranks as onc _, __ M[L E ST O N E S_ previously, our 1997 consolidated of our most significant accomplishments in addition to developments men-carnings from continuing operations of1997. tioned above, Florida Progress mile-were 5254.3 million. These figures M l.D- C O N T I N E N T stones in 1997 included: compare favorably with $252.4 million The other key impact on carnings
- Key management changes that in 1996 and $238.9 million in 1995. was the provision Ihr loss of our invest- ensure the company has the leadership At the operating level, excluding the ment in Alid-Continent and the accrual to take it into the next century. As part impact of the one-time nuclear related oflegal costs totahng S.96 per share. of the planned transition, Richard Korpan costs, our electric utility, Florida Power Florida Progress took these actions after was promoted to CEO of Florida Corporation, experienced an earnings concluding that we were unlikely to Progress, a position that chairman Dr.
per share growth of 3.3 percent and recmcr our investment in Alid-Continent. Jack Critchfield had held since 1990. contributed $2.48 a share in operating As noted in last year's Annual Report, Also, Joseph Richardson was named earnings. This performance reflected Alid Continent does not fit Florida CEO of our principal operating sub-continuing revenue growth at Florida Progress' long-term business objectives. sidiary, Florida Power. Joined by Power,2.3 percent over 1996 revenues, Florida Progress acquired Alid- Electric Fuels CEO Richard Keller primarily due to customer growth and Continent in 1986, at which time it sold and Florida Progress executive vice improvement in the economy. Electric a popular death benetit insurance policy. president Stanley Garnett, this team is Fuels Corporation earnings per sharc In 1996, Alid-Continent replaced this ready to steer Progress fbrward on a grew 18 percent to S.33 a share. policy with a new product after it was strong growth track.
)
CRYSTAL RIVER determined that premiums on that
- The buy-out of Tiger llay purchased i The nuclear plant has been out of policy would have to be raised. Alid- power contracts - part of our aggres-
~ service fbr maintenance and repairs Continent began discussions in 1996 sive strategy to reduce our long-term since September 1996. This work was with the Insurance Commissions in purchased power contract commitments, ,
g necessary to restore operating margins Texas and Oklahoma, where most Alid- a move that is expected to save our l as required by the Nuc! car Regulatory Continent policy holders reside, to customers 52 billion over the next 30 Commission. The costs associated with increase premiums and lower dividends years. the shutdown of Florida Power's Crystal on those policies.
- Electric Fuels' contribution of S.33 River nuclear plant during 1997 had a Itut in April 1997, the Oklahoma to earnings per share - a product of significant negative impact on this year's Commissioner obtained Oklahoma ongoing, double digit carnings growth, carnings. However, compkuun of the District Court approval to temporarily befbre nonrecurring items, that has maintenance and repairs should prepare seire control of Alid Continent, claiming boosted that unit's perfbrmance a fidt the unit fbr a successful restart and both that the insurer's reserves were 21.6 percent annually over the last five lhture operation as a world-class nuclear understated and that it could not raise years.
facility. premiums.
- The ongoing transition to a There were two principal components The court later agreed that Alid- Strategic Business Unit (SilU) structure of the impact of the Crystal River Continent had the right to raise premi- at Florida Power, first announced in PROGRESS 3
)
1996, moved thrward. Redefining nuclear plant back online and investing ensure that both the dividend payout Florida Power along functional lines in improvements for its fiiture. During and dividend rate are appropriate, given by dividing the organization into three the second half of 1997, renewed the industry outlook fbr utilities, our SITUS enables our electric generation, investor confidence led to an impressive business plan and projected carnings transmission and distribution, and recovery that raised Florida Progress growth. marketing operations to more closely shares to 539% on December 31, Our current five-year business plan fbcus their attention on the needs of contributing to a total annual return threcasts sustained earnings growth of their respective future customers while of 30 percent. 4 to 5 percent annually, and confidence still meeting today's needs. On a longer-term basis, over the past in earnings growth remains a key factor
- During 1997, the evolution to the five years Florida Progress stock has in determining dindend policy.
SilU structure was complemented by the outperformed the S&P Electrics Index. UTILITY OPER ATIONS : start of a corporate-wide management In addition, we're pleased to report that Florida Power took key steps in 1997 ! cffbrt called Reinvention. Reinvention the share price of Echelon International that position it to successfblly compete - Ibcuses on redefining work procedures Corporation, which was spun otTto share- in the increasingly competitive energy and improving processes to be more cost holders in December 1996, has increased marketplace that is developing in the efTective, while pursuing new opportunities almost 70 percent in 1997. United States. . to increase profits. Working from both ANNU AL DIVIDEND _ Preparing our Crystal River nuclear directions, Reinvention willimprove our As we expanded customer horizons in plant fbr a return to service was a ability to serve customers cfliciently and 1997, we also increased the dividend we commitment to customers and sharc-compete effectively in the evolving energy pay our shareholders. While that con- holders that was successthily fulfilled markets of the future. tinued a history of dividend growth, through the dedication and hard work 1997 STOCK PRICE PERFORM ANCE the board has increasingly focused its of Crystal River employees. An important measure for share- attention on our dividend payout ratio - Florida Power's three SIlUs each holders is the perfbrmance of our stock which at 80 percent (on a recurring refined their individual business in the marketplace. Florida Progress' carnings basis)is significantly below approaches in 1997. share price in the opening months of peak levels reached several years ago. At Florida Power's Energy Solutions"', 1997 reflected market concerns about The Florida Progress board will con- the primary retail interface with resi-the costs of bringing our Crystal River tinue to examine the dividend policy to dential and business customers, the
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focus is on developing flexible and Florida's newest high-efliciency fbssil. alter our fbcus - to truly expand our i creative solutions to customers' energy fueled power station. Through cost horizons. Clearly, corporate growth in needs. Projects in 1997 ranged from reduction initiatives like the Tiger llay a competitive emironment will require customer convenience senices, such as buy-out, Florida Power is imprming its expanding our customer base and developing ATAl-style electronic competitive position. Customer fbcus, expanding the ways in which we serve terminals where customers will be able efficiency, and the active pursuit of our current customers. That is why we to pay their bills, to beginning the opportunities will be hallmarks of believe the best report we can provide rollout of new services,like lightning success in that future marketplace. to our shareholders is a report that surge protection for an entire home, ELECTRIC FUEL 5 CORPOR ATION . fbcuses on our customers - on their and experiments with advanced two-way The multiple operations of our Electric needs and expectations. We hope you energy metering and control technology. Fuels subsidiary contributed significantly will find this annual report as accessible Energy Supply, our power plant and to earnings momentum in 1997. and infbrmative as any report in the pages y generation business unit, underwent Acquisitions and business expansions of your favorite business magazinc. major organizational change in 1997. by Progress Rail Services Corporation PASSING THE B ATON The previously separate nuclear and were a major driver of Electric Fucis' This is the last letter to shareholders fbssil.fiici divisions were combined growth. Already one of the country's that we jointly sign - the respon-under a single management - largest integrated providers of services to sibilities of the chairman's position will ! improving overall management efliciency the railroad industry, serving customers soon pass between us. Ilut as we both and providing fbr increased strategic that include the country's leading rail- hx>k back on the transitions and coordination of Florida Power's total roads, Progress Rail continues to aggres- successes of 1997, we can see the firm energy output. Additionally, the internal sively explore opportunities fbr growth foundation fbr future expansion. operations and reporting structures of in the consolidating rail senices sector. Energy Supply were reorganized to A1EAICO Ilarge Line, Inc. (A1EAICO), cnable managers and employees to our inland barging company, took vital expand their fbcus to achieve com- steps to recoup from the impact of l mercial as well as operational excellence. record th>oding on the Ohio and _ l These strategies equip Energy Supply to Alississippi Rivers early in the year and _ l meet the challenges of achieving com- up pace with customer demand. petitive generating costs. About 200 new barges were added to Dr. Jack H. Critchfield i The Energy Delivery business unit, A1EAICO's flect in 1997. With plans Chairman ofthc Board which already operates the most etlicient to add another 200 barges in 1998, electric distribution network in the state, A1EA1CO will further cement its position continued to invest in improvements to of owning the youngest dry cargo flect - l maintain the high levels of reliable on the Inland Water System. ! senice that Florida Power customers At our coal operations, current pro-have come to expect. At the same time, jections indicate a continuation of l Energy Delivery moved to utilize its relatively flat sales. We are, however, Richard Korpan i
, core expertise in new entrepreneurial exploring opportunities in coal bed nysident and ChiefEverutive Officer initiatives - winning construction methane and natural gas. Alcanwhile, contracts to build electric transmission we retain a reserve of high-quality, low-a facilities outside Florida Power's senice sulfur coal, which is valued by customers territory, and 'eveloping telecom- thr use in specialty industrial applications February 5,1998 munications facilities fbr lease to others as well as fbr energy generation. l
- that expand the horizons ofits EXPANDING CUSTOMER HORIZONS '
operations and people. This year of transition has set the Throughout the year, Florida Power stage fbr Florida Progress to advance j continued its multi faceted drive to aggressively into our future, it has i prepare fbr the increasingly competitive required great efibrt on the part of ; energy marketplace that is deseloping the employees throughout our organi- I in the United States. Anticipating the zations, cfibrt which we as senior opportunitics presented by Florida's managers recognize and appreciate. The growth, the company is constructing the fbture calls on all of us, management Hines Energy Complex, which will be and employees, to lift our sights and i PROGRESS 5
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xpanding customer horizons. It's more than just a Florida Progress of one simple idea - without customers catchy theme fbr our cover story. As this report there simply is no business. , demonstrates in detail, cxpanding customer horizons That might seem so basic an idea that it appears almost reflects a philosophy that lies at the very core of Florida fbolish to report it in print. But i: is a notion that utility Progress' strategy fbr growing into the future. companics, operating historically as protected monopolies, . These horizons are both practical and conceptual. There were viewed as ignoring by some critics. Instead,it was are the horizons of geography, which are expanding as more claimed, utilitics at times operated as though they believed Florida Progress businesses broaden their customer bases they could take their customers fbr granted. outside the company's long-time Florida home. There are the This report shows that this claim can't be directed against horizons ofinnovation that Florida Progress must push to today's Florida Progress. Florida Progress and its two create new categories of products and services fbr new and principal operating subsidiaries, Florida Power and Electric existing customers. There are the horizons of customer Fuels, each demonstrate, through their day-to-day perception that must also be expanded in order for that key management and in their business planning, that their Ibcus audience to begin sccing Florida Progress in new and is on customers, current and prospective. This Ibcus is on different ways. building customer relationships, learning how best to satisfy But all these future horizons inevitably bring us back to one and retain customers, and how to continue serving them core concept - customers. And it reficcts the appreciation at reliably and efficiently.
- - . - ~ _ - _ . . . .-
6 PROGRESS '
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That customer fi>cus is why Florida Power divided its Fuels by expanding its operations to serve more customers.
, operations into three Strategic Ilusiness Units (SilUs)- That growth will invohe gaining new customers and Energy Supply, Energy Delivery and Energy Solutions * - serving current customers in new ways. It will mean in order to get their management and stafrout into the field, leveraging " core competencies," taking the essential skills , bringing them " closer to the customer." that make Florida Progress successful today and applying At the corporate level, Florida Progress CEO Richard them in new ways to create new products and services for L>rpan and his senior managers have set three primary goals new customers. Above all, it will mean listening to cus-for the company in very customer-focused terms. First, tomers, understanding and anticipating their aceds and Korpan says that over the next five years the company intends wants.
to expand its retail customer base, the number of residences Thus, the story of Florida Progress' future will be the story and businesses with which it has customer relationships, from ofits customers. That's why we've styled this report in a 1.3 million to 10 million. " magazine" ii>rmat, and tilled its pages with accounts of just The two other goals are also customer-based: how customers see the array of pn> ducts and services available
- Expanding Florida Power's generation, transmission and from Florida Progress today and what they are hioking for in distribution operations as the base of energy customers the fiirure, throughout its region grows. These stories show how expanding customer horizons will
- Continuing double digit earnings growth at Eh.ctric determine the future progress of this company.
PROGRES5 7
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7
lor most Florida Power customers, the single most important thing about electricity is that the power is there when they flip the switch. Providing reliable and safe energy in an energy-intensive environment is what 9""P ,' PTT T N ' P '" they have come to expect from Florida {3>
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Power in nearly 100 years of excellent ,
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service. a [ [ . As one Florida resident, Mrs. i: 1 '4 llrockway, puts it," Florida Pourcr has come through ain ay>...through storms (' i . y _}
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f " ' ' and all, there's never bccn anything u ith
; s our clectricity that strayedfrom the path ":
Y , f ' ofcomfort ' i. The perspectives of two other energy g. o customers mirror the range orchal-lenges and opportunities that the [ b ?^ ' kj 9(7 { Energy Solutions"' business unit of ...
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Florida Power Corporation faces as it y
<)* M' prepares to expand the horizons ofits 4 '-
business into an era ofincreased s ie competition. +',
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' Q n orth looking into - drycnding on the \
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' charpefor serrict. Cutting don n on I .\ ,
s (cncrpy) costs is rcry important to us,' l s l 'ph says Joe Saavedra.
" Competition should cut prices...but I
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.f 1 the chcapcst price isn 't abrays the best < tt,, -
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alternatire - it's often n orth paying lltttIIj; ' more toget the best scrrice,'according .- s ; ; to George Andras. tjr Electric customers like Mrs. Ilrockway, . () .. %, ' Joe saavedra, and George Andras have , m>- seen other essential service providers, like telephone companics, offer an an increasingly greater range of services . and choice, sometime in the future, teticia and Joe saavedra PROGRESS 9
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QMhj{ "] mns already are being stretched in k customers' minds. According to a recent L gbU'h@Ay ' N 4 [p% jgsurvey, morehave than 60 percent of Florida
.xp Power customers switched their
[ '.;U1:.; NNbh]p. hgf once. In such market segments, con-
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e t i . ]3j(yf:{j] 7 . q-. sumers d choiceare getting
-in both servicesused to greater and senice
. yy- f .W.IM providers. Florida Power is stepping up j .
4 . ; to the plate to meet those expanding
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/;- T. 1 ' . ' . customer horizons.
7 g'j s ,1 One example is automatic lightning -
# surge protection that can safeguard an f ..
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' l.j entire home. With a senice territory that Q, '( , covers an area called "The 1.ightning -
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. Capital of the USA," this is the kind of 9
practical and valuable service that expands Florida Power's business and customer
> horizons at the same time.
Florida Power's approach doesn't stop with just electric senice. Creating and selling new and innovative offerings for
. home and business also are in the cards as part of an expanded vision of the broader role an energy company can play beyond simply selling a commodity.
That matches a vision George Andras 4 volunteered "It would be aprcat idea to be able topo to one companyfirr a packapc ofservices, likepctring home m an m a ' security and clectricityfrom the same
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placc. I'dyct to know onc person, like _ aw se em.- .
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John, our scrrice repfrom Florida Power,
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p a,d who would handic these thingsjhr me. Beth and Gwre Andras ,ng ,gn,( ;,m aircady a customcr, i consumers willlikely find more choice Privileges program - providing a large imaginc.I'dyct a hrrak on the price of coming to the electric market as well. range of senices including the PowerPay other scrricts. " , How will Florida Power respond! flexible duc-date option that allows There's good news in all this evo-From a customer perspective, the customers to change their payment date lution fi>r Florida Power and the news is good. Even as Florida Power to more closely match their income flow, shareholders of corporate parent Florida , maintains its long standing fi>cus on and large-print and braille bills fi>r the Progress. Research shows that nearly 75 meeting today's customer need for visually impaired. percent of current customers say they reliable and safe electricity,it is devel- Manin and Gladys Goldstein took would be inclined to purchase new oping the programs and senices that advantage of another service - the products or senices from Florida will make it a fi>rmidable player in the free Home Energy Check, designed Power. more competitive marketplace of the to measure the efficiency of their Florida Power already has an enviable future. home and their energy use: "It was track record making innovative energy-Building on a solid reputation among rcry infhrmatire and rcry candid. 'lhe related services work fbr the customer its customers for reliability and senice, young womnn who did the inspection and Ibr the company. In fact, Florida Florida Power has developed service fhund we could use additionalinsu- Power operates the country's largest packages targeted to the needs of dis- lation. Florida Power crcn provided Energy Management program. More tinct market segments. One is the Senior names ofpcople to call and pricing. " than half of Florida Power's residential 10 PROGRE55 l
customers have signed up to participate '
'in this program that can provide them
~
with significant cost savings by allowing # - ' Florida Power to interrupt service to selected appliances during periods of peak demand. I h " ni i l m i i i e.n m i h po ispi < i s .n c to,u.ibic 1lu h, o v , ,n s The llrockway and Andras families t'" < n s t "n n i e o m i h .n i < s p.u n hn y i.isa i ni n s h< nn si n < i h.ni both participate in Energy Management. " " "'nalk I In' *1i ori h n b n c n In iin < nenu . .t I h o nirs o ,h n si Mrs. Ilrockway is an enthusiastic 'on"nu no m ih s"nu n Ihny u.n nin s supporter: "I n. anted to conscrre encrpy - it's an important part of , ,,,. crcrybody's life." Moving on trom an Energy Management experience they say Economic Growth has been " great," the Andrases have .'o nu 4 es l l l joined a new Florida Power experiment aa'm~' aa 'l l { i sw at Hunters Creek, a large residential Population Growth community south of Orlando, Florida.
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They are participating in a two-way communication link that allows fbr *^"""^' ' ' " ' " remote meter reading, outage detection, - Employmen t Growth and enhanced time-of-day pricing.
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llased on its Energy Management -
,u n o ~ . , .u. . 2 sw experience, Florida Power is confident it can install, operate, manage and deliver
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the kinds of service programs that I h, nop+ i t. " I h " ni ' l'< m . i n "n on - < o o h I "" ' a m i h produce clear customer benefits and New Resident nil ( ustomer s 2.1 % offer new business opportunities in the -"" m u r. s expanding energy environment. n . y .. 4 I..1-, , -
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PROGRES5 11
ff R m a retailer - where does it say Pnl supposed to be an expert on power costs?"That's the reality that confronts Service Merchandise assistant vice president, utilities and energy management, Bill Nickerson, as he faces the separate electric bills and power ' requirements of 358 Service Aler- who know how to listen. chandise stores in 38 states. Ilut now, For a start, Cadence will coor-Nickerson has fbund a partner in , dinate the monthly billing fbr 90 Cadence Network 1.1.C, a new service Alerchandisc stores in 11 energy services company in which states. This includes not only l i Florida Progress is a key player. . f collecting their bills, but also Why did Nickerson select g(\h' analyzing the energy usage Cadence" over the other 30-odd . patterns and efficiency oppor-competitors that have knocked on j 7 tunities fbr cach location. Among his door! " Cadence said, 'Tdi mc #.E ; the services it offers customers aboutyour necds, let us understand morr about your bustness.' 7 hey didn 't A }Y( ~
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(where regulations allow) Cadence will use its knowledge of the o v V , ^ Inpc or promisegnaranters - ther said, 'We'll work with you to off?r the . f - energy market to negotiate with local power companics to secure best possible products, the bcst possible - the best encryy rates available ou scrrice. '" behalf ofits national clients. With a stated goal ofincreasing its Cadence provides a package of retail customer access from a base of energy services that responds 1.3 million in 1997 to 10 million, directly to unmet needs of speci-Florida Progress would appear to fic customers in the marketplace, face a fbrmidable challenge. That It is a brand commitment . growth objective won't be achieved retlected in the name Cadence -- Smice hchanchus NH Mchnon through expansion within its home meaning a steady, predictable beat state alone. Ilut the story of Cadence do business in diverse kications, manage - a commitment built on consistently , shows how Florida Progress intends to their energy costs. delivering results. succeed in building a national retail service Alerchandise exemplifies the Bill Nickerson is already impressed: energy services platfbrm by identifying new kinds of business opportunities the "In thefirst 30 days, they're attacked new customer opporttmities and serving changing energy markets will provide fbr issues efficiently and rapidly. 7 hey're their unique needs. Florida Progress. With its own pressing doing a darn goodjob ofenforcing, Three innovative energy companies, need to manage all costs fbr maximum policing and running it smoothly. " Florida Progress, Cinergy and New efficiency in a tight-margin retail business, Nickerson's experience demonstrates Century Energies, established Cadence managing the energy needs and usage that success is all about listening to in september 1997 as a new marketing ofits individual locations has been a customers - existing and potential. It is and service entity. Cadence's mission high priority fbr Service Aicrchandise's about finding out what they need, and is to help customers like service Aler- Bill Nickerson. And customer need expanding your horizons to be able to chandise,large national companies that drives business opportunity fbr those serve those needs, or expanding the 12 PROGRES$ 1 _ _ _ _ _ .
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INTRODUCING A NEW ENERGY COMPANY THAT MARCHES TO THE BEAT OF A DIFFERENT DRUMMER. We are like no other energy company in the that is backed by three of the finest energy companies l world.We are brand new, yet we have decades of in the country: Cinergy Corporation. Florida Progress experience. We will provide national service, yet we Corporation and New Century Energies (a company possess regional expertise.We want to sell you our formed from the merger of Public Service Company product.yet save you money. At Cadence.we deliver of Colorado and Southwestern Public Service a wide variety of products and services including full Company). Together these three companies give service energy management, state-of-the-art billing. Cadence the power to deliver on our promises. At information services, and commodity procurement Cadence,we move to a faster pace.lf this is the kind to multi-site commercial customers. To a changing of partnership you'd like. call us at I-888-227-1551. industry,we bring you the peace of mind that comes from knowing that you are working with a company CadellCe_ Conssstently Dehrenng livsults www. cadence. net
customer's own horizons to appreciate
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how the products and services that are ;- . v . . .. offered can be of practical value. It is N[ , precisely the kind of customer-fbcused N O . .. outlook that si necessary fbr success in a D $
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M[ll!n .-er:b%.=d. comPCtitive emironment, and Ihr which -a u,i 'e*. many traditional utilities are criticized as =; . lacking. 7 M@ ,3y ;
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And the opportunity is great. I arge, multi-site commercial customers like s ; t' ,. t-g3 Q' .h , 3 . Service Merchandisc represent an energy # j,',f .g g - 8 market in excess of $60 billion. _. 1 r j ; e- i From the Florida Progress perspective, C. P - 8 Q g - in addition to its customer advantages, the Ladence venture has given each of
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local reach. This afliliation has estab-Shopping at Service Merchandise flagship store fished a working relan.onslu.p among three regional companies whose explore fbr additional opportunities. expanding the customer horizons, combined customer base is more than Acting with a combination ofinno- growing beyond the borders of Florida 4.3 million customers, a relationship vation and aggressiveness, Florida and the Southeast,is an achievable that these companies intend to Progress is showing that dramatically goal.
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E i l 14 PROGRES5 ____ A
I I R never really thought of anyselfas a custoiner befin c. Note that Putpoing to be a custainci; Fil be sccing it frans both sides and knoir schat it's like to tralk in a custaincr's
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shots. 7 hat n'i# hrly me toJbcus H According to Ehrtric 1.iaht and bettcr on mcrting customers' nuds,"
) Pan cr, Florida Power's Crystal says Danny Douglas, plant man- ~ ,
Oi River 1 & 2 consistemly rank in ager of Florid.: Power's Crystal , 1 the top 25 among the thousands River 1 & 2 power plants. of such plants in the country. As Florida Power's business #
; llut the wholesale market fi>r units prepare fi>r the future, a 4 k' ' %
electricity is swility changing. transti>rmation is sweeping through the company - a trans-
' / Large-scale customers like mumcipal utilities, power coop-fi>rmation that will have impor~ tr cratives, and a new class of cus-tant implications fi>r all of Florida '
Power's customers. S. {9 s tomers called power marketers, are able to shop around ihr power, George Marks headed the 4 free to buy the basic commodity redesign efibrts at Energy Supply, , : from anywhere in the country if the business unit responsible thr y the base cost plus transmission fees making the commodity - are attractive. That ups the ante
, electricity - that Florida Power s . ti>r Douglas and other managers sells. He explains: "7hr thrust of % 9P '
of Energy Supply's 56-unit gener-this organi:.ational res sian is to ating flect who must make sure
, prepare usfor a moro .mpctitive their plants can compete in a future. Thgrt ready, our n ay of market increasingly based on price.
operating poircr plants n in bc They'll need to do more than just F1 rida Power's Danny Douglas diffirent. Our managers ni# focus operate well-run plants solely to I I notjust on opcraticual excr#rncc, but on commercial serve the requirements of Florida Power's dispatch operators. excruence as n r#, running rach plant as a business. II'r Lmn> llut the internal redesign at Energy Supply now gives we harr to reduce the cost ofour product to succred in a Douglas an important new tool to use to meet that task - the l competitive markrt. By structuring oursclers interna #y as freedom as a customer to exercise choice in contracting thr the rendors and customers, we win better manage our business, maintenance servicer he needs. The Encryy Supply Services rentrol our costs, and improrr scrrict to our external Group, the unit that maintains Florida Power's plants and customers. " generating equipment, has in turn been expanding its outside Danny Douglas already runs two power plants that are among contracting business to ensure it is competitive and can l the nation's most etlicient coal-fired generating stations, continue selling its ser ices ta Douglas. PROGRES5 15 l
and, ofcourse,for low cost. 7hc market is Florida Power's Energy Supply orga- . nization is expanding customer horizons changingfast, and with this increased not just outward, but inward as well. - uncertainty custamcrs arc looking at Introducing expanded customer choice - purchased power options with shorter terms.
A 'long-term' purchase arrangement used inside the company is a key to keeping ,
internal costs down, and thus better -
- to mcan 20ycars. Now it is more in the serving external customers. . ranyt offire to ten."
The importance of adapting to that , As those timeframes shrink, and the new environment can't be made clearer ,
= !
industry moves steadily toward a more than by listening to one of those whole- . instantaneous " spot" market for elec-saic customers talk about needs. Tim - l tricity, Florida Power Energy Supply has Woodbury heads up power purchasing '., developed its own wholesale Power
'- Marketing group as the sales organ-for Florida Power's largest wholesale ,
customer, Tampa-based Seminole Electric - ization to serve customers like Cooperative: "We look forfkxibility in . Seminole. Power Marketing also operates negotiating powcr supply contracts, for . within Florida Power as the agent for . optionality - the ability to adjust making sure Energy Supply meets the Seminole Electries Tim Woodbury and Mark Daley contracts as market conditions changt - of Florida Power's Power Marketing Team power needs of the company's own retail
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business unit, Energy Solutions *, From either perspective, Power Marketing's , l job is to find the most elficient sources P) i ' # i - ..' - of power, whether from Energy Supply's '
- own generation fleet or on the open market. To accomplish that, the group i,o go pu - m m,mnms mes,m ,oin a,po ,1 e in,u uses a state-of-the-art facility, the 3 n , o u g, a s & , , ys , , g . , g & yn non . . ,1 m , y Trading Center, to track available .una, .
.u i t u s o<!n.c
, . mo , , ,o # m c h m - wo a.m tu a generating resources, market oppor- n u ,s, h,n m i- .. unw to o m. .' n..unoo :. am o n+
tunities and pricing, transmission capabih. .nes, and other factors on a real-hn e ns ' ...nu m o o. ' mu a r amn o e s m a .o no i n. : . l'I""""""'~ """4" ^ """ "P"' time basis to make the most efficient ' " " " ' ' buy / sell decisions possible. '" ' ' " ' ' ' " F ' "' " " l k" M ' ' " ' " " " ' ' b " " + " "'
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Establishing a Power Marketing group ""l"4"" '""an ' o l i" " '""'h""' w' ' ' " 4 + " " i was a customer-oriented concept that is "4"""""yN"y 1A+a' a"- * 'o "a "o " '
+ an important step thrward, Seminole's m in s i ' o n h.o o ia ya ou,i- U. m o a e, oi 1 . .~ -
Woodbury says, "7hargroup has provided s oso n ns o. u n a hh s 4 s u , u o o a n h aa m oe .o ou o a rencsredfocus seithin Florida Posrcr, a < , ,g m, n ; o w ~ w , o ; ~ drar cffort on trying to be more rrsponsive
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to the posrcr supply nerds ofits scholesalc custonars.1heproup's ability to bc , responsive to our nads is cridenced Ig the ,1 f _ _ fact that two ofour most reunt power . fN l'
\Y supply contracts hare ban awarded to b '
Florida Power." N ! '[' r For all the customers of Florida \ ~ Power, from large wholesalers like \t Seminole to a retired couple in a 1 l.f Clearwater condo, Energy Supply's sl. [l
- p-1 redesign will mean a company more focused on customer needs and 1 determined to ensure cflicient power fbr theii future.
Energy Supply Services, Ihr example, is successfully bidding on external work - and has carned a reputation ihr being one of the best in our marketplace at
.comI, lex tasks such as boiler and turbinc repairs; winning utility and industrial contracts in Horida and even interna- b ,tionally. As one example,in conjunction j/
with Energy Supply's sale of a gas l turbine unit that no longer fit Florida (
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'" "'""I"O Power's generating mix, Energy Supply Services handled the set-up and ' d ' a r " A " " ' " " " "i " > " ' " " ' " " " " i " " l " ' " ' ""*""' i'" ""Ph '"
recommissioning of the unit fbr the -l"" d " ' ' " " P " " " " '
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customer, Bahamas Electric Corporation. ,
\ " " " " " " ' ' " H" I b " ' ' " " '" ' " ' " "l " ' " ' " '""" ""' " ' ' " ' " '
."L""""Ph" d"'"*'""'N""L'"'"""'"'""'""*d'""a Spreading its costs over a larger customer '"
i base and winning bids externally, Energy a M" " ' ' * " " ' " I " t r ^ " " " "" " ' " " ' I " ' #" " " " " ' " " " ' L" ' ' ' " ' ' - - I Supply Services is able to give key 1" M Wunno.nu, .u m o u - Io nu inno< 1lu '+n'un" ' t"'"nL'""u" customers like Danny Douglas at Crystal 1" a d " " W " ' d " ' ' " " " " '" "r " " " ' " ' " ' " d"' " " " ' " " ' ' " " ' " " """' River 1 & 2 the best possible price on h"'""'"*""'" . service, PROGRESS 17
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4 1 y - A n E E by would one of the country's lagest railroads make a longterm commitment to purchase the output of a start-up operation like Progress Rail's brand new Decoursey trackworksfacility? It allpors back -------- current customers. Today, Progress Rail is to the kind of'rclationship mc'rc -
,_g one of the country's largest integrated dcrcloped in snorc than loyears of working with Progress Rail and its
=_Q providers of senices to the railroad
.~ industry. It is a growing force in a consol ,
prcsident, Billy Ainsworth. As the . idating industry. Ilut it's no surprise that business hasprown, our relationship ' growth is really built around long-tcrm
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hasprown untilit's unore a partnership . customer relationships. Typical are the , than a business relationship. . Trust relationships Progress Rail has with two comes into it - we belicred in them ~-~
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Icading U.S. railroads - CSX based on ourpast experience,"says i Transportation and Illinois Central. John llasso, vice president, supply / Take Progress Rail's state-of-the-art and services management, CSX Decoursey trackworks facility, which Transportation. opened in 1996. That facility is already Solid customer relationships are the key selling more than $30 million a year to expanding customer horizons in the worth of track components - turnouts, future. The fastest-growing business switches and other key rail items, with within the Electric Fuels portfolio, .. the bulk ofits output dedicated to Progress Rail,is taking on new customers supplying the needs of the nation's along with finding more ways to serve John sasso of csx Transportation largest railroads. 18 PROGRESS
"lllinois Central has an intensefbcus on T ~ .
auct utilization," explains the railroad's ;.' president and CEO, E. Hunter liarrison. . Ei
'A keypart of that ef]brt is managing our , -
supply chainfbr maximum efficiency. We rely ,' , on rcndors who arcjlexible, innorative and ^ k- ' rho can create added valuc. From our perspective as a customer, that's a definition , i'
.f ofPropra Rail. " L i h- o m ho o .n M . l m as amaan Progress Ibil built Decoursey's success ,. ..;$- , , , , m ,, , u m , g.
on past wurk perfbrmed fbr Illinois . j6 - i c e a pa ,, . p, # 3 Central and CSX. Iloth relationships go ,, . 1L,ou i o< 1 s I h, yu (
~ - back more than a decade. Starting in ,*"m hoom 1986, Progress Rail began handling scrap ,. *ah"m"""'""ht materials from various operations at CSX. ""'" '"'t "' " " ' "
Ever since, their relationship has been a '" 'O"""' *' constant process of expanding horizons, f
# '(( ] [{ l both for the customer and ihr Pror ss
((. [I Rail. Progress Ibil went from handong '"""'""*"""'"""""" i scrap to refurbishing freight car com- < en mit , i n .n . m ....n. ponents fbr CSX, and later moved into . 1Lom lL h+u - rethrbishing key elements of the railroad's - W4"hm h"J"' trackwork. I h '" 9 " h '" ' ' ' ' ' ' The history is similar at Illinois Central, .
) ileftn<tueis < nstonl where director, materials management,
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Dan Drier stresses the flexibility and will-ingness to try innovative new approaches g . that characterize the Progress Ibil rela- - s tionship. He cites the example of Progress Rail's solution to a leasing dilemma that i "
. e faced his railroad. Illinois Central had an option to purchase 1,700 well-used rail cars it had on lease, but needed only 1,000.
Progress Rail created a program to refhr- , bish the cars at its Decoursey Ibil Car - Repair facility, deliver the 1,000 Illinois Dan Drier of HHnois Central Central required, and use its resources panics in Califbrnia and up the West
, and contacts to place third-party leases on Coast into Canada. In addition, Progress the remainder. "7 hat was a min-rin all Rail finalized a long-term contract to Iu.ou 1n<,r ... e around - one that matched our corporate provide integrated services to TFA1, a
, , p.u . J , o s o o n. , h.oi..
, objectivesfor asser utili ation," Drier says. recently-privatiicd railroad in northeast According to Ilasso of CSX Trans- Alexico that is a joint venture whose
,_ggn,,
ns omnu s s ,s,.,3, portation, the railroad played a key role in members include TA1A1 and Kansas City . .u + n s o n .n a op, m o suggesting to Progress Rail that it use its Southern. All that growth is Ibunded on Nnhhn e n< u aon' experience in rethrbishing trackwork to the basis of the reputation ihr quality work pa n' h" e ' m o e ' .*'< expand into supplying new trackwork, and and quality customer relationships that d"'""""h"" ' to invest in a new facility - Decoursey - Progress Rail has established wherever it 'P"""'- ""J'" to handle the job. That's the kind of sug- has operated. gestion that only a truly satisfied customer ' " ' ' " ' " ' ' ' " " i' [n' " ' si r s u i ,ahime~ w Today, the entrepreneurial spirit that ,,g s gy,y can make, i guides Progress Rail's customer fbcus n ,, % n n m nm , in Now, Progress luil is expanding it- is infusing the rest of Florida Progress A cy n g a_nh me horizons into new markets and new and h;lping the company expand all n uih m I% territories by acquiring rail services com- its horizons. PI
IIVAfUAL Iff 0RMATI01 - M A N A(, i Al f N Q % Dl%< l %% ION & ANAlYNI% . OPER ATIIllC RESULTS million of disalloived replacement power costs. (See Extended Nuclear Outage Costs on page 22.)
' Florida Progress' 1997 consolidated earnings from continuing In April 1997, Mid-Continent Life Insurance Company was
. operations were $54.3 million. This compares to $250.7 million in ,
' 1996 and $238.9 million in 1995. Florida Progress' 1997, - placed in receivership over allegations that its policy reserves were operating results were negatively impacted by the extended outage . . inadequate. While Mid-Continent has appealed an Olda of Florida Power's Crystal River nudcar plant and the provision for court judge's ruling to keep Mid-Continent in receivership, Florida loss on its investment in Mid-Continent Life Insurance Company. Pmgress has recorded a prmision for the loss on its investment in These two events reduced Florida Progress' 1997 eamings by $200 Mid-Continent as well as an accrual for legal fees for pending litigation. This resulted in a $.96 after-tax charge to 1997 earnings. *
! million or $2.06 per share. . (See Mid-Continent life Insurance Company on page 24.) Excluding these one-time charges, Florida Progress' 1997 .. In 1996, Florida Progress divested Echelon Intemational consolidated camings from continuing operations were 5254.3 million. This compares with $252.4 million in 1996 and $238.9 Corporation, formerly Progress Credit Corporation, through a tax-free stock dividend. This resulted in a $26.3-million charge to million in 1995. Morida Power carned $240.9 million in 1997 before nudear outage costs, compared with $232.6 million in earnings for the write-down ofcertain assets of Echelon and other costs. Also in 1996, Borida Progress sold its 80-percent interest in 1996 and $217.3 million in 1995. Eamings from recurring Advanced Separation Technologies, Inc. for $56 million and diversified operations were $13.4 million in 1997, compared with realized an after-tax gain of$23.5 million, or $.24 per share.
$19.8 million in 1996 and $21.6 million in 1995. "
EARNINGS PER SHARE 1996 earnings to establish a prmision for kiss on its unprofitable 1991 . 3 92 19 % coal properties, now available for sale. The provision was necessary Florida Power Corporation $2.48 . $2.40 . $2.27 because management did not consider the unfavorable market Electric Fuels Corporation .33 .28 . .25 conditions for low-sulfur coal to be temporary. Mid-Continent Life Ins.Co. - .02 .07 While significant, the one-time charges incurred in 1997 and (.09) 1996 should not affect the future camings prospects of Florida Other . (.19) (.09)
.14 .21 .23 Pmgress. Florida Power's growing customer base and good cost Diversified c ntrol combined with the expanding operations of Electric Fuels Continuing operations before are the fundamental drivers of earnings growth for Florida nonrecurring items 2.62. 2.61 - 2.50 Progress. The growth of these core businesses is forecasted to
. Nudear outage costs (1.10) "#
- E * *** "8' E * B " " E ' " """"*
Loss related to for Florida Progress over the next fhe years. Mid-Continent Life Ins. Co. (.96) The financial return on Florida Power's common equity was 13 Provision forloss on percert in 1997 before considering nonrecurring items, compared
- coal properties l -
(.26) - with 12.9 percent in 1996 and 12.7 percent in 1995. Florida Gain on sale of business .
.24 -
. Power's above average customer growth and continued control Total continuing operations .56 2.59 2.50 over operating and maintenance costs should enable Florida Power Discontinued operations .- (.27) - to maintain its return on equity and continue its earnings growth
$ .56 $2.32 $2.50 while pursuing strategic initiatives designed to prepare the utility for Consolidated a more competitive emironment. Return on equity from the Exduding nudcar outage costs, Florida Power's 1997 earnings energy and transportation subsidiary was 17.3 percent in 1997,14 per share were up 3.3 percent over 1996, primarily due to strong percent in 1996 before its prmision fbr loss on coal pmperties and customer growth. During 1997, Florida Power added more than 13.8 percent in 1995.
22,000 customers. Customer growth among residential and
. commercial customers averaged about 2 percent in 1997 and 1996. FL0RIDA POWER CORPORATION Florida Power's Crystal River nuclear plant was out of
- vice Industry Restructurig during 1997 to address design issues related to the plant's safety The electric utility industry is undergoing changes designed to systems. As a result of the outage, Florida Power's carnings were increase con. petition in an industry that, since inception, has been reduced by $1.10 per share, This resulted from $100 million in . considered a natural monopoly. Starting with the Public Utilities Regulatory Policies Act of 1978 (PURPA) and the Energy Policy j additional nudcar operating and maintenance expenees and $73 20 PROGRESS j
. M A N A (. I M i N I % DIN ( l ' n, S i t ) N & ANAL) %I$
' Act of1992'(EPA of 1992), competition in the wholesale electric
. While it may be several years before retail choice exists in
- generation market has greatly increased, especially from non-utility - Florida, Florida Progress believes that retail choice will eventually
, generators ofelectricity. . .
crist in escry state. The Company has developed a comrate In 1996, the Federal Energy Regulatory Commission (FERC) strategy to compete in a more competitive marketplace. Florida issued new rules on transmission senice to facilitate competition in Progress is focused on establishing a national retail energy wholesale generation on a nationwide basis. The rules give greater senices business to efliciently develop new products and senices
. flexibility and more choices to wholesale pourr customers / for its customers. .
l He efibet of these changes on the wholesale generation market has . . To be successfulin this market, a retai'senices company will
; been significant. In the last far years, power supplied by non-utility _ . likely need a sizeable number ofcustomers in order to realize the generaton has increased a tr 100 pertent. From 1990 thmugh 1995,. economics of scale necessary to keep the cosi of such produ:ts noniutility gene ation capacity grew at a rate of47 percent, compared and senices competitive. Horida Progress has set a goal of to utility generation capacity which grew at a rate of two percent. achieving a customer base of at least 10 million and will pursue
' Electricity in Horida is supplied largely through existing ~ - this goal through joint ventures, alliances, mergers, acquisitions
. generation capacity k>cated in the state. Florida's peninsular shape or some combination thereof. In September 1997, Florida
*and limited transmission access into the state set Florida apart fmm Progress entered into a joint venture with two other utilities, other regions of the country. Cinergy Corp. and New Century Energies. The joint venture, De amount ofelectricity that pirsently can be imported into l named Cadence *,is a marketing alliance aimed at prmiding
. Morida fmm adjoining states is limited to about ten percent of the national chain account customers with a variety of energy total daily demand for electriciy in Florida. Most of the demand for management senices and products.
electricity is in the southem portion of the state, wtiich increases the An important'and frequently contentious issue surrounding amount of transmission line kisses when importing electricity fmm a industry restructuring is the recovery of"standed costs." Stranded generating source outside the state. costs include the generation assets of utilities whose value in a These two unique characteristics of Florida make it diflicult to competitive marketplace would be less than their current took compete in the Florida wholesale generation market witimut access value as well as above-market purchased power commitments to to generation resources within the state. _ qualifying facilities. States that have passed legislation for industry The regulatory changes described atxwe relate to the wholesale restructuring have provided fbr utilities to recover some pirtion of market for electricity which is regulated by federal law. The sale of their stranded costs. electricity to residential, commercial and industrial customers is ' Assessing the amount of stranded costs for a utility requires governed by the states. To date, several states have adopted various assumptions about future market conditions induding the legislation that would give retail customers the right to choose their future price of electricity. For Florida Power, the single largest electricity provider (retail choice) and many other states are stranded cost issue lies with its commitments to qualifying facilities.
. considering the issue. Florida Power is continuing to seek ways to mitigate the impact Califomia, Pennsylvania and some states in the New England ofescalating payments from contracts it was obligated to sign region, where legislation to allow retail choice has passed, have - under provisions of the federal Public Utilities Regulatory Policies rates that are well above the national average. In states where Act of1978.
electricity rates are more competitive, such as Florida, there has In 1997 Florida Power reduced its purchased p)wer commitments
' been less incentive to push forward legislative proposals concerning . by over 20 percent through the buy-out of the Tiger Bay purchased , retail choice, power contracts.
In addition to restructuring activity in various states, there have
' been severalindustry restructuring bills introduced in Congress. A UtilI#7.Rmnun and Salu key issue conceming the passage of any industry restructuring Fk)rida Power's operating revenues were $2.4 billion in 1997 and
- legislation by federal lawmaken is whether the federal gmernment 1996, compared to $2.3 billion in 1995.
has the authority to mandate legislation by the states. Several of the - The utility's retail kilowatt-hour sales were essentially lesel in federal bills being considered require states to implement retail 1997 when compared to 1996. The lack of sales growth was due
' choice between 2000 and 2003. .
primarily to milder weather in 1997 than 1996. Kikiwatt-hour sales
.The changes taking place in the industry today have caused many. in 1996 were up 2.9 percent when compared to 1995. - companies to devek>p new corporate strategies. Some of these : Normally, Florida Power's revenues are heavily influenced by corporate strategies include alliances, mergers with or acquisitions weather, especially among residential customers. However in 1995, - of other electric or gas utilities or other types of senice providers Florida Power, as ordered by the Florida Public Senice including home security and telecommunications companies. Commission, began a three-year test of residential rnenue During the last five yean there have been 30 mergers or decoupling. This ratemaking concept is designed to eliminate the acquisitions ofimestor-owned utilities announced, ofwhich 11 direct link between kikiwatt hour sales and revenues. Under , have been completed and the others are either pending regulatory revenue decoupling, abnormal weather does not impact camings - approval or have been withdrawn. from residential sales, which represents the single-largest customer PROGRESS 21
\1 A N A ( , 1 Mi Nl 'N IP l N ( l' N $ l () N & ANAi ) %)%
group fikHorida Parr. A change in ~ customer usage due to ? . system average cost for generation in 1997 and 1996, and this trend extreme heating or cooling conditions would not have a material is expected to continue based on the contracts currently in place and efTect on Florida Power's carnings, whereas customer growth and the escalating payment schedules associated with each contract.
' higher usage due to nonweather-related factors can affect earnings. Florida Power will continue its effort to mitigate the impact of
- Over the three-year period, the camings impact ofresidential ' escalating payments from its purchased power contracts. Under the
. revenue decoupling was not material. As of December 31,1997,- provisions of PURI%, Horida Power was obligated to sign ~
the cumulative adjustment to revenues was a reduction ofless than ' contracts with those qualifying facilities.
$.5 million. Florida Power does not intend to seek approval to use Florida Power's present strategy is to punue opportunities to residential revenue decoupling beyond 1997. The termination of buy-down or buy-out those contracts whose prices are projected to residential revenue decoupling will likely result in Florida Power's - be above future market prices.
earnings being subject to greater fluctuation due to changes in While this strategy requires paying higher amounts in the short-weather. (See Note 1 on page 32.). . term, the long-term benefit to customers can be significant. . E '"" ' ' ' "'" "'" E "Y~ ' IFueland Purrhased Pwer - Tiger Bay purchased power contracts are estimated to be more
, Fuel and purdiased power costs are recovend primarily through than $2 billion over the next 30 years.
- an adjustment recovery clause established by state and federal 1 regulators. Fluctuations in these costs have little impact year to year .
* #N""
Utility peran n and maintenance expenses increased by $8.9 Lon net income, but could become incmasingly important in a more mHlim m 1997 exdusive ofnudear outage costs. The increase was
- competitive emironment. (See Extended Nudcar Outage Costs due primarily to costs associated with planned fossil plant ourages and
' bdod for discussion ofreplacement power costs not recovered expenditures designed to improve reliability and customer senice.
through the adjustment recovery dause.) In 1996, operadm and maintenance expenses increased by $19.7
. Factors influencing fuel and purchased power costs include - .
- nulli n when compared with the predous year,primarily due to
' demand for electricity, the availability of generating plants and adhnal costs associaed with 6e mtage of the mdear plant as wtH
- the price ofelectricity purchased from qualifying facilities and as expenses rdated to impmdng senice and n liability.
- other utilities.
Cost mntml is a primary focus ofeach strategic business unit at Total fuel and purchased power expenses for 1997, induding Flo ida Power as each looks for ways to efliciently meet its amounts incurred as a result of the nudear outage, were up $80.7 customers' needs. %is has resulted in Horida Power's recuning e million over 1996 due largely to the extended outage of Florida peration and maintenance costs gmwing at an annual rate below
' Power's Crystal Rher nuclear' plant. The <sutage forced Florida Power to replace nudear generation with other, higher-cost I"II'li " "I"" I994-
, replacement power. (See Extended Nudcar Outage Costs below.) . It is one of management's goals to continue to limit increases - m operation and maintenance costs to less than the national [ t In 1996, fuel and purchased power expenses increased $73.5
- 0 "I " *-
- million compared to 1995. This was due to increased purchased .
(
- f. ' power costs and higher system requirements.
Recoverable energy conservation program costs increased by
$4.4 milli n in 1997 over 1996. In 1996 these costs decreased by L eThe nudear plant is not scheduled to be taken out ofsenice .
$21.4 million from the previous year due to a reduction in the I until 1999, which will be fbr refueling. Having the nudear plant in credits paid to customers who participated in the company's load
[ , senice for most of1998 should help lower Florida Power's fuel m nagement pmgram.
' ' and purchased power costs for 1998 when compared to 1997c The change had no significant impact on earnings because i As mentioned above, a key factor influencing Florida Power's -
F orida Power recoven substantially all of these costs through a purchased power costs are the prices paid to qualifying facilities for dause in electric rates similar to the fuel adjustment danse. Florida dcctricity. Currently, Florida Power receives 830 megawatts of . 0 1 ;) total capacity from qualifying facilities This amount is down 220. Power does not expect the level of energy conservation costs to megawatts fmm 1996 d6e io the buy-out of the Tiger Bay purchased vary mate i4 in the future from the 1997 expenditure level since - p little growth is forecast for this program. power contracts. (See Impact ofTiger Bay Buy-Out on page 23.) In 1997, Florida Power wrote-off approximately $20 million of 2 In addition to the Tiger Bay buy-out, the Florida Public Senice e dCommission (FPSC) approved Florida Power's buy-out of the last c ntract termination costs related to the Tiger Bay buy-out. In 1996, Florida Power amortized approximately $31 million related ( i our f years a'nd seven months of a cogeneration contract between f i Fk>rida Power and Pasco Cogen Ltd. Florida Power has one other petition before the FPSC that involves the buy-out of purchased t tw oil-find power plants and a canceled transmission line. Er+rnded Nur/rar Outage Costs
- power commitments.' .
In September 1996, Florida Power's Crystal River nuclear plant 1 In 1997, the company spent $233.6 million for purchased power was taken out ofsenice to fix an oil pressure problem in the main
. under all cogeneration contracts. His represented approximately 23 turbine. When the repairs were completed in October 1996,
, percent ofsystem fuel and purchased pourr expenses for the year. Florida Power decided to keep the plant shut down to address
' Costs associated with those contracts raised Florida Power's - certain backup safety system design issues.
C 2 2n P R 0 G R E 5, $T
, . . . . . . . . . . . ~ . . . . . . - .. . . ._ __ _ _ _ _ . _
E i I M A N T (. i ut si s oisi issi<>s a ANA ssis The Nuclear Regulatory Conunission (NRC) had been critical of than 20-percent of the company's total capacity received from
- the plant's owrall perfonnance in 1996 and in January 1997 qualifying facilities. The purchase was funded primarily through the placed the nuclear plant on its " Watch List" as a plant whose issuance ofmedium-term notes with maturities ranging from two operations would be monitored ck)sely until Florida Power .
to 10 years at interest rates between six and sewn percent. demonstrates a pedod ofimproved performance. In Alarch 199.7, The FPSC-approved purchase allowed Florida Power to record a i the NRC outlined necessary actions Florida Power must complete regulatory asset of approximatdy $350 million for contract j before arturning the nudcar plant to senice.' _ termination costs and add $75 'million to its electric plant. ! In late January 1998, Florida Power notified the NRC that it . FlorMa Power continues to collect from customers an amount .
, had completed all of the requirements and was subsequently. equal to what it would have been allowed to recover fbr capacity ' l granted permission to restart the plant. Florida Power's Crystal and energy payments made in accordance with the original Tiger River nudcar plant is expected to be returned to senice in Bay purchased power contract. Based on the contract's capacity - , February 1998. . _ _
payment schedule, Florida Power should recover enough rewnues I Florida Power's operating restdts for 1997 were significantly by the year 2008 to fully amortize the regulatog asset and related t impacted by the costs associated with the extended outage. These interest chargesc i j costs induded $100 million in additional operation and The Tiger Bay expenses induding operation and maintenance, ,
= maintenance expenses and approximately $173'million in depreciation, interest and property taxes are expected to be !
- replacement power costs. Capital expenditures related to the absorbed through Florida Power's growing base revenues. ncse !
outage were $42 million in 1997. _ additional expenses are expected to be about $20 million annually. j
- In June 1997, the FPSC approved a settlement agreement He utility's base revenues increase largely from the addition ofnew ;
l between Horida Power and several parties who objected to Florida retail customers, particularly residential customers. l
~
- Power recovering replacement power costs resulting from the j i
extended outage. DIVERSIFIED OPERATIONS
. The settlement allows Florida Power to recover, through rates In 1997, Florida Progress established a provision for loss on its charged to customers, approximately $38 million of $174 million $87 million imrstment in Alid-Continent Life Insurance
' ofreplacement power costs incurred from September 1996 Company and accrued for litigation costs. (See Alid-Continent i through December 1997. Florida Power can begin recovering the life Insurance Company on page 24.) In 1996, Florida Progress
]
$38 million once the plant has been operating at 100-percent made two restructuring decisions that had a significant impact on i
- power for 14 consecutive days. Of the remaining $136 million, earnings from diversified operations. He spin-off of Echelon i
$63 million was recorded as a regulatory asset and is being resulted in a $26.3-million after-tax charge to carnings while the amortized over four years. The remauung $73 million was sale ofAdvanced Separation Technologies contributed an after-expensed in 1997 and, along with the $100 million of additional tax gain of $23.5 million. Another item that affected 1996 j operation and maintenance costs, is classified as " Extended Nuclear diversified earnings was the provision for kiss on unprofitable coal Outage Costs" on the consolidated statements ofincome. He properties owned by Electric Fuels. This resulted in an after-tax l
, amortization of the $63-million regtdatory asset is being recovered charge of $25.2 million.
by the suspension of an annual accrual for fossil plant disman. The actions taken to restructure its diversified oixrations reflect
' tiement costs for a period of up to four years. management's commitment to establishing a diversi6ed group of Act tal replacement power costs incurred in 1998 prior to the businesses more ck>sely aligned to its core utility operations, nudcar plant's return to senice will be expensed as incurred.
ELECTRIC FUEL 5 CORPOR ATION
. ; ; The settlement agreement also provided that, for purposes of L monitoring Florida Power's camings, the FPSC would exclude the Electric Fuels, Florida Progress' energy and transportation ;
- ; ; nudear outage costs when assessing Morida Power's regulatory subsidiary, has three principal business units
- energy and related !
l j return on equity. Florida Power is currently allowed to earn senices, inland marine transportation, and rail senices. Florida
between 11 and 13 percent on its common equity. By excluding Prugress continues to build on Electric Fuels' existing operations !
. L these outage costs, Florida Power's future carnings capacity will not through intemal expansion and by pursuing new market opportu-be penalized for the one-time charge for outage costs. nities, primarily with its inland marine transportation and rail
*5 ""I
Impact ofTiger Bay Buy-Out . Over the last five years Electric Fuels has grown significantly:
~ In July 1997, Florida Power bought-out the purchased power contracts related to a 220-megawatt cogeneration facihty (Tiger Bay).
- In addition to buying-out the purchased power contracts, Florida g g g
, ,mo g g g Power acquired the 220-megawatt facility. Costs associated with Revenues $581 $784 $ 844 $881 $1,037 17.4 %
the termination of the purchased power contracts and the Earnings $14.9 $22.6 $24.0 $27.1* $ 32.1 21.6 % l
. acquisition of the facility totaled $445 million. Tiger Bay w~as Assets $ 397 $ 489 $ 574 $ 620 $ 799 19.4%
Florida Power's largest cogeneration supplier, representing more ,g,g, ,, gg i l PROGRESS 23 I L
MTN \t.) Mi N l % 1) ]s( l %%I(>N & ANAI ) sis
, Most of the growth of Electric Fuch has come from acquisitions business units. Acquisitions and higher production at a
' in its rail senices business unit and expansion of the inland marine ' trackworks facility contributed to the improved results at
' barge fleet. .
Progress Rail. Increased coal deliveries to Florida Power's During 1997 and 1996, Progress Rail Senices expanded its , Crystal River coal units resulted in higher volumes of coal
- operations through acquisitions of railcar repair shops, railcar - ' transported by the energy and related senices division.
leasing and metal recycling operations. Over this period Progress - The higher volume was due largely to increased coal Rail's acquisitions totaled nearly $71 million. - requirements of Florida Power's coal-fired plants. The lack of Today, Progress Rail is one of the largest integrated suppliers of . availability ofits nuclear plant in 1997 forced Florida Power to
- rail services in the United States, with locations in.16 states. increase the generation ofits coal plants.
Rcvenues from rail senices in 1997 were $476.3 million, an
' increase of $122.6 million or 35 percent over 1996. The increase MID-CONTINENT LlFE INSURANCE COMPANY reflects the expansion of these operations as well as an incn ase in . When Mid-Continent was acquired in 1986,it sold a popular, .
demand for rail senices as railroads continue outsourcing much of low-priced death-benefit insurance policy. In 1996, Mid-Continent their senice and repair needs. .. replaced this policy with a new product after it was determined that Expansion ofMEMCO, Electric Fuels' inland marine - premiums on the old policy would have to be raised. , transportation unit, has been achieved primarily through the; . Mid-Continent was hoping to rebuild market share and achieve purchase of river barges. MEMCO's flect of barges, which hauls increased profitability with the new product, but sales did not meet coal, agricultural products and other dry bulk products along the management's expectations. In December 1996, Mid-Continent Ohio and lower Mississippi rivers, totaled approximately 900 at reduced its work force in an effort to compete on a more fbcused the end of 1997. Dming 1997 and 1996 MEMCO added and cost-eflicient basis and was devek> ping a plan to raise premiums
- approximately 300 new high-capacity river barges to its flect and : on its prior low-priced death benefit policy.
plans to purchase 200 additional barges and two new towboats The business plan would increase premiums and lower dhidends
. in 1998. ,
so that a projected reserve shortfall in 2020 could be avoided. Mid-Further expansion of the barge flect depends largely on the Continent discussed the outline ofits plan with the Insurance future demand for barge capacity and MEMCO's ability to Commissions of bothTexas and Oklahoma, states where the
; secure long-term contracts with guaranteed volumes for hauling. majority of Mid-Continent's policyholders reside.
MEMCO's objective is to maintain at least 70 percent ofits On April 14,1997, the Oklahoma Commissioner obtained barge capacity under long-term contracts. The remaining approval from the Oklahoma County District Court to temporarily capacity is used to take advantage of new market opportunities seize control of the operations ofMid-Continent. The
- as they arise. - Commissioner claimed that Mid-Continent's policy resen es were Electric Fuels' energy and related senices business unit currently understated and that the company could not raise includes coal operations, river terminal senices and ofr-shore premiums to address this issue.
marine transportation. Annual sales of coal average about 12 During hearings on this matter, the Commissioner's actuary million tons of which five to six million tons are sold to Florida conceded that if Mid-Continent could raise premiums, it was not Power. In 1997, increased tonnage of coal transported by Electric . insolvent. Although the judge agreed with Mid-Continent that it Fuels' energy and related business unit resulted in improved had the right to raise premiums,in May he ordered the company earnings compared to 1996. In December 1996, Electric Fuels - to remain in receivership. established a provision for loss on certain coal properties after it On June 18,1997, Mid Continent appealed this decision to the determined that depressed market conditions for low-sulfur coal Oklahoma Supreme Court. . were not temporary. The impact of the write-down was a one- The actions taken by the Commissioner since April significantly time after-tax charge to earnings of $25.2 million. impacted M!d-Continent's business plan for addressing its Electric Fuch' business plan for its coal operations includes _ projected reserve deficiency. Since the court's decision in May, the , j- supplying Florida Power with high-quality, competitively-priced probability of Florida Progress recovering any ofits investment has l coal and increasing output from company-operated mines which become unlikely.
- can be directed to more profitable niche markets. _
_ 'Ihis is due in part to the Commissioner's failing to file a plan of Earnings fmm Electric Fuels in 1997 were $32.1 million, up $5 rehabilitation for Mid-Continent as ordered by the court. In million over 1996 earnings before the provision fbr loss on unprof- addition, the Commissioner filed a lawsuit in December 1997
'itable coal properties. Although Electric Fuch' camings continued against Florida Progress and several other defendants.
to grow at a double-digit rate,1997 camings were lower than the The suit claims that, because of the level of control exerted by
. company's target for the year because ofMarch fkuds along the Florida Progress over Mid-Continent, the assets of Florida L Ohio and Mississippi rivers that temporarily disrupted barge traffic . Progress should be made available to Mid-Continent to satisfy and terminal senices. policyholder and creditor claims. Florida Progress believes that Partially offsetting the impact of the floods were increased the Commissioner's lawsuit is without merit and that Florida earnings from rail senices and the energy and related senices Progress has been a very responsible paxnt of Mid-Continent.
1 1 J4PROGRES5; I
r u r s A <.t u t s r s ois<essiosa ANA vsrs !' Horida Progress intends to sigorously defend itselfand other Horida Progress' capital structure as of December 31,1997, was defendants against these charges. 40.2 perrent common equity,59 percent debt and .8 percent preferred - Based on these e ents, Florida Pmgress recorded a prmision for stock ofHorida Power. On Ikccmber 31,1996, Horida Progress' the k>ss on its investment in Mid Continent and accrued for capital structure was 51 percent common equity,48.1 percent debt estimated legal costs. His reduced 1997 carnings by $.96 a share. and .9 percent prefentd stock. He increase in debt in 1997 mer 1996 is due pnmarily to the buy-out (Ithe ' liger Bay purchased I mtr OTHER contracts. Fknida Pmgress' current goal is to maintain capital structures Florida Progress does not ant' j irring significant costs fbr its utility and dhrnified operatims at levds that will enable its related to modifications of the Con, 'nformation systems to subsidiaries to preserve their current credit ratings. prepare for the year 2000. In addition, oe Company expects to CREDIT RATINGS complete the modifications on time. DUFF & -
,- Florida Progress has adopted several new accounting standards sTANDA.RD apoogs uocoys engtps du:ing the last three years. (See Note 1 on page 32.) Florida Power Corporation
- Florida Power and a former company subsidiary have been First mortgage bonds . AA- Aa3 AA'
; notified by the U.S. Emironmental Pmtection Agency that each is Medium-term notes A+ A1 A+
. or may be a potentially responsible party for the cleanup costs of . Commercial paper A-1 + P-1 D-1+
severd contaminated sites. (See Note 11 on page 43.) Progress Capital Holdings,Inc. Morida Progress has oft-balance sheet risk related to debt of Medium-term notes A A2 unconsolidated partnenhips. (See Note 11 on page 42.) Horida Commercial paper A-1 P-1 Power entered into a single forward treasury lock agreement in 1997 to efTectively fix the treasury rate component of an anticipated FLORIDA POWER CORPORATION issuance ofmedium-term notes. (See Note 2 on page 35.)
' Horida Progress is imulved in other litigation as described in H rida Power's construction expenditures in 1997 totaled about j
$387 million. Th% was primarily for distribution lines related to
_ Note 11 on page 43.= the utility's growing customer base and the construction of a new Even though the inflation rate has been relatively low during the 470-megawatt power plant scheduled to begin commercial last three years, inflation continucs to afTect Horida Progress by opuation in the fall of 1998. Florida Power's five-year construction reducing the purchasing power of the dollar and increasing the cost ofreplacing assets used in the business. This has a negative effect pmgram s m e 2 nrem puM lt mdudes planned expenditures of $294 million, $263 million, $210 on Horida Power because regulators generally do not consider this million, $268 million and $204 million fbr 1998 through 2002. n emic kiss when setting utility rates. Howeser, such losses are Hodda Power expects these construction expenditures will be p.u @ offset by the economic gains that result from the repayment financed primarily with internally generated funds. oflong-term debt with inflated dollars. In July 1997, Florida Power issued $450 million of medium- I term notes primarily to finance the buy-out of purchased power l LICUiDITY AND CAPITAL RE5OURCE5 contracts associated with the 220-megawatt Tiger Bay cogeneration j Cash from operations has been the primary soun e ofcapital for facility. (See Impact ofTiger Bay Buy-Out on page 23.) j Horida. Progrrss. Other somres ofcapital mer the last three years Amendments to the Clean Air Act in 1990 require electric utilities .I indude proceeds from the sales ofproperties and businesses, debt to reduce sulfur dioxide emissions. Horida Powrr is meeting these
. financing, issuance ofcommon stock and the orderly withdrawal from requirements with minimal capital expenditures.
; the company's lending and leasing and real estate portfolio. In 1997, Morida Pm er's net cash fknv to capital expenditures ;
Fknida Progress has issued new equity in recent 3 cars primarily to fund was 76 percent. In addition to funding its construction
- c Fkrida Pmtr's construction program. Fkuida Power is fcurcastmg kmtr commitments with cash from operations, Fk rida Power receives constrtxtion expenditmts in the years ahead. Ec utility does not expect equity from Horida Progress and accesses the capital markets construction to require any significant increase in equity or debt arr the through the issuance of commercial paixr, medium-term notes and ;
. next five >vars. Because of the arduced equity trquirements, the disidend first mortgage bonds. ,
~ irirnestment plan began purchasing shares in the open market instead of Horida Power has a medium-tenn note program, prosiding for the )
' issuing new shares beginning in July 1996. issuance ofeither fixed or floating interest rate notes, witlunaturities l For the fust half of 1996 and for all of 1995 approximately $57 that may range from nine months to 30 years. Horida Power has
'million of new equity was issued through the Company's dhidend available fbr issuance $400 million of medium-term notes. ;
reinvestment plan. _ Horida Power's interim financing needs are funded primarily ; Fkuida Pmgn:ss contributed $12.5 million in 1996 and $50 million through its commercial paper program. The utility has a $300
- in 1995 to Fknida linver fium the proceeds of the dividend million,364-day revohing bank credit facility and a $200 milSon i reimtstment plan, %ese funds weir used to fiuther strengthen Fkxida five-year facility, which are used to back up commercial paper. (See !
Pmer's financial position. Note 6 on page 37.) j l PROGRESS 25
1 i M A N A (. l Ml Nl N 1) l N ( l %' S l ( ) N & TNAl) %i% l In 1997,' debt levels increased at Florida Power largely due to the ' F0RWARD LOOKINC STATEMENTS ' costs associated with the extended nuclear outage and the buy-out In this report, Florida Progress has projected sustained camings of the 'Dger ILty purchased power contracre. Florida Power used per share growth of 4 to 5 percent annually over the next five additional cash generated by operations to redeem $105 million of years, indicated that confidence in earnings growth remains a key
. preferred stock in 1996 and reduced total debt levels by about factor in determining dhidend policy, and established a goal to
$145 million in 1995. develop a national retail energy business that provides access to at Horida Power's embedded cost oflong-term debt was 7 percent . least 10 million customers. Florida Progress has indicated that it j as of December 31,1997 and 7.2 percent as ofDecember 31,1996. belisves that retail choice eventually will exist in every state, and DIVERSIFIED OPERATlON5 en H Ma Powers ake average customer gmd and continued control over operating and maintenance costs should Pmgress Capital Holdings, hic., the downstiram holding company enable it to maintain its return on equity and continue its earnings
. of Florida Progress, consolidates the collective financial surngth of
' gmd while pursuing strategic initiath es designed to prepare the -
Florida Progress' diversified operations and, with the benefit ofa . utility for a more competithr emironment. Florida Pmgress also guaranty and support agreement with Horida Progress, helps to kwer has pmjected expansion of Electric Fuels, and indicated that it w the cost ofcapital ofthe divenified businesses. Progress Capital funds vigorously defend itself against a lawsuit related to Mid-Continent, .
" diversified operations primarily thivugh the issuance ofmnunemal which Florida Progress believes is without merit.
paper and medium-tenn notes. (See Note 6 on page 37.) Progress Capital has a medium-term note program for the . R15K FACTORS issuance of either fixed or floating interest rate notes, with These statements, and any other statements contained in this maturities that may range from nine months to 30 years. In 1997 report that are not historical facts, are fbrward-looking and 1996, Progress Capitalissued $35 million and $178 million - - statements that are based on a series ofprojections and estimates ofmedium-term notes, respectively, with maturities ranging from regarding the economy, the electric utility industry and the five to 10 years, leaving $87 million ofmedium-term notes Company's other businesses in general, and on key factors which
- available for issuance. ne proceeds were primarily used to repay impact the Company directly. The projections and estimates maturing medium-term notes and for other corporate purposes. relate to the pricing of senices, the actions ofregulatory bodies, Progress Capital also has two revohing bank credit facilities: a the success of new products and senices, and the effects of 364-day, $100-million facility and a five-year, $300-million facility. competition.
nese facilities are used to back up commercial paper. (See Note 6 Key factors that have a direct bearing on the Company's on page 37.) . ability to attain these projections include continued annual in 1997, total diversified capital expenditures were about $120 growth in customers, successful cost containment efforts and the million, primarily for operations at Electric Fuels. During 1997, efficient operation of the Company's existing and future
$50 million was for the purchase of barges and $23.3 million for . generating units. Also,in developing its forward-looking
= acquisitions by Progress Rail. In 1996, Progress Capital received ' statements, the Company has made certain assumptions relating net proceeds of $53 million from the sale ofAdvanced Separation to producthity improvements and the favorable outcome of
. Technologies and expended $54 million related to acquisitions various commercial, legal and regulatory proceedings, and the made by Electric Fuels or its aflitiates. -
lack ofdisruption to its markets. In'1998, diversified capital expenditures are expected to be If the Company's projections and estimates regarding the
;$125 million and are designated for operations of Electric Fuels. economy, the electric utility industry and key factors differ The inland marine transportation unit plans to add appmximately materially from what actually occurs, or ifvarious proceedings .
. 200 new barges in 1998 'as it continues to take advantage of - have unfavorable outcomes, the Company's actual results could
- market opportunities to expand its business. vary significantly from the performance projected.
L Electric Fuels' rail senices unit is expected to continue to grow by expanding geographically into the Midwest and westem twkets; These expenditures are expected to be funded thmugh
- b . i generated internally and from outside financing sources.
DIVIDEND POLICY-Florida Progress evaluates its dividend policy on an annual ): basis to ensure that the dhidend payout and dhidend rate are -
- f. appropriate given the business plan, projected earnings growth l_ and outlook for the electric utility industry. Florida Progress' five-year business plan forecasts sustained earnings growth of 4 to 5 percent annually, a key factor in determining dhidend !
pohey. l l [ 36 PROGRES5 r
I t t)N s()l I l} A I I il l I N A N (' IAi s 'l A 'l l' N1 l N I s f Consolidated Statements ofIncome l FORTIIE YEAR $ ENDED DECEMBI.R 31,1997,1996 AND 1995 (IN Mill!ONS, EXCEIT PER SHARE AMOUNI5) 1997 1996 1995 REVENUES: Electric utility $2,448.4 $2,393.6 $2,271.7
. Diversified . 867.2 764.3 736.1 3,315.6 3,157.9 3,007.8
" EXPENSES:
. ~ Electric utility:
Fuel : 4583' 409.7 '431.3 Purchased power. 490.6 531.6 436.5
;,. . Energy conservation cost 67.0 62.6 84.0 !
Operation and maintenance 422.3 413.4 393.7 ) Extended nuclear outage - .{' 0&M and replacement power costs 173.3 - Depreciation- 325.9 324.2 293.7 Taxes other than income taxes 193.6 183.6 176.2 2,130.8 1,925.1 1,815.4 - Diversified: _ , Cost of sales. . . 753.9 642.9 624.6 Provision for loss on coal properties - 40.9 --
.l Loss related to life insurance subsidiary 97.6 - - 1 I
Other 60.7 66.6 58.9 912.2 750.4 683.5
-lNCOME FROM OPERATIONS 272.6 482.4 508.9 INTEREST EXPENSE AND OTHER:
Interest expense 158.7- 135.9 '139.4 Allowance for funds used during construction (9.7) (7.5) (7.3) l Preferred dividend requirements of Florida Power 1.5 5.8 9.7 . (Gain) on sale of business - (44.2) - Other expense (income), net 1.4 (4.2) (9.9) 151.9 85.8 131.9 f^ INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXE5 120.7 396.6 377.0 l*'
' Income taxes 66.4 145.9 138.1 INCOME FROM CONTINUING ~ 0PERATIONS 54.3 250.7 238.9 DISCONTINUED OPERATIONS, NET OF INCOME TAXE5 -
(26.3) - NET INCOME $ 54.3 $ 224.4 - $ 238.9 AVERAGE SHARES OF COMMON STOCK OUTSTANDING 97.1 96.8 95.7 EARNINGS PER AVERAGE COMMON SHARE: Continuing operations $ .56 $ 2.59 $ 2.50
. Discontinued operations -
(.27) -
$ .56 $ 2.32 $ 2.50
.THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL. STATEMENTS.
t 1 PROGRESS 27 l
( () N s ( > 1. I D A 's E D L I N A N C i A 1. % i A T l- M P N 'l S Consolidated Balance Sheets DECEMBER 31,1997 AND 1996 (DOLLARS IN MILLIONS) 1997 1996 ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and held for future use $6,166.8 $5,965.6 Less: Accumulated depreciation 2,511.0 2,335.8 Accumulated decommissioning for nuclear plant 223.7 193.3 Accumulated dismantlement for fossil plants 128.5 119.6
^
3,303.6 3,316.9 Construction work in progress 279.4 140.3 Nuclear fuel, net of amortization of $356.7 in 1997 and 1996 66.5 59.9 . Net electric utility plant 3,649.5 3,517.1 Other property, net of depreciation of $219.3 in 1997 and $173.8 in 1996 437.7 309.3 4,087.2 3,826.4 CURRENT ASSETS: Cash and equivalents 3.1 5.2 Accounts receivable, net 373.7 265.0
- Inventories, primarily at average cost:
Fuel 77.6 67.1 Utility materials and supplies 91.9 95.4 Diversified materials 126.8 125.5 (. Underrecovery of fuel costs 34.5 82.6 income taxes receivable 16.8 - Other 50.9 48.2 775.3 689.0 OTHER ASSETS: Investments: Loans receivable, net 24.0 68.1 Marketable securities - 217.9 Nuclear plant decommissioning fund 266.7 207.8 Joint ventures and partnerships 54.6 41.9 Deferred insurance policy acquisition costs - 120.9 Deferred purchased power contract termination costs 348.2 - Other. 204.0 176.4 897.5- 833.0
$5,760.0 $5,348.4 Tile ACCOMPANYING NOTES ARE AN INTEGRAL PART OF TilESE FINANCIAL STATEMENTS.
28 PROGRESS
( (INS (ll l l> A I i l) i INAN( l A I. %iAIiMiNIN I (Dol.LARS IN MILLIONS) 1997 1996 CAPITAL'AND LIABILITIES COMMON. STOCK EQUITY: Common stock without par value,250,000,000 shares authorized, 97,062,954 shares outstanding in 1997 and 97,007,182 in 1996 $1,209.0 $1,208.3
' Retained earnings _ 567.0 716.5 j Unrealized loss on securities available for sale - -
(.6)
~
1,776.0 1,924.2 CUMULATIVE PREFERRED STOCK OF FLORIDA POWER: 'l Without sinking funds 33.5 ._ 33.5 l LONG TERM DEBT 2,377.8 1,776.9 TOTAL CAPlTAL 4,187.3 3,734.6 CURRENT LIABILITIES-
' Accounts payable 253.2 193.2 Customers'. deposits 97.1 81.8 Taxes payable
]
12.0 41.2 { Accrued interest 56.8 48.3 -! Other 74.8 - 78.5' 493.9 443.0' Notes payable - 214.8 4.1 Current portion of long-term debt 15.2 34.9 ! 723.9 482.0 l DEFERRED CREDITS AND OTHER LIABILITIE5* i Deferred income taxes - 471.2 475.4 i Unamortized investment tax credits 85.7 93.5 l 1 Insurance policy benefit reserves - - 325.3 ' Other postretirement benefit costs 107.4 100.0 .1 Other 184.5 137.6 848.8 1,131.8 COMMITMENTS AND CONTINGENCIES (NOTE 11)
$5,760.0 $5,348.4 ,
TIIE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF TIIESF FINANCIAL STATEMENTS. PROGREs5 b
( () N % (i f i t) A I i l} lINAN4 1Al %iAIiM) NIs Consolidated Statements of Cash Flows
- FOR Tile YEARS ENDED DECEMBER 31,1997.1996 AND 1995 (DOLIARS IN MIIIIONS) 1997 1996 1995 OPERATING ACTIVITIES:
Income from continuing operations 5 54.3 $250.7 $238.9 Adjustments for noncash items: Depreciation and amortization 364.2 366.7. 352.7 Extended nuclear outage - replacement power cost 73.3 - - Provision for loss on investment in life insurance subsidiary 86.9 - - Gain on sale of business (44.2) -
. Provision for loss on coal properties .
- 40.9 -
Deferred income taxes and investment tax credits, net (30.7) ' (56.6) (38.0) Increase in accrued post-employment benefit costs 8.6 15.5 16.8 Net change in deferred insurance policy acquisition costs (1.7) (14.5) ' (14.5)
. Net change in insurance policy benefit reserves 52.7 60.3 42.5 ,
Changes in working capital, net of effects from acquisition , or sale of businesses: Accounts receivable (108.3) 35.4 (35.2) Inventories 2.2 (10.9) (29.1) Overrecovery (underrecovery) of fuel cost (33.1) (82.3) 1.5 Accounts payable 58.3 21.6 16.4 Taxes payable (47.1) 21.0 (7.6) Other 1.2 (13.5) 29.0 Other operating activities (38.2) (19.2) 7.3 g Cash provided by continuing operations - 442.6 570.9 580.7 [ (8.9) (17.6) Cash used by discontinued operations - 442.6 562.0 563.1 INVESTING ACTIVITIES: Property additions (including allowance for borrowed funds used during construction) (513.6) (264.0) (331.4) Purchase of loans and securities, net (11.0) (70.4) (28.9) Acquisition of businesses (32.7) (53.8) (9.2) Cogeneration facility acquisition and contract termination costs (445.0) - Proceeds from sales of properties and businesses 24.3 61.1 13.1 Investing activities of discontinued operations - 56.5 69.8 Other investing activities (52.7) (37.0) (15.0) (1,030.7) (307.6) (301.6) FINANCING ACTIVITIES: Issuance of long-term debt 482.8 178.0 - Repayment of long-term debt (34.9) (190.4) (45.8) - Increase (decrease) in commercial paper with long-term support 130.6 (15.3) 1.0 Redemption of prefe.rred stock (106.4) (5.0)
- 18.5 38.4 Sale of common stock Equity contributions to discontinued operations -- (23.7) -
Dividends paid on common stock (203.8) (199.5) (193.4) 210.8 4.1 (55.3) increase (decrease) in short-term debt 85.2 (9.7)' Financing activities of discontinued operations - Other financing activities .5 (4.0) (1.2) 586.0 (253.5) (271.0) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (2.1) .9 (9.5) Beginning cash and equivalents 5.2 4.3 13.8
.ENDING CASH AND EQUIVALENTS $ 3.1 $ 5.2 $ 4.3
' SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for: Interest (net of amount capitalized) , $142.7 $128.7 $135.5 income taxes (net of refunds) $141.7 $189.3 $214.7 , THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE l'INANCI AL STATEMENTS. jo -P R O G R E s su (
( tl N s til I l'I A 1 i () lINANa iAl slAiiMl Nis Consolidated Statements ofShareholders' Equity FOR111E YEAR 5 ENDED Diff.MBER 31,1997,lW6 AND 1995 (dollars IN MllLIONS, EXCirr Pl:R f41ARE AMOLST15) UNREAH2ED 1 K OF F ORIDA PO W R COMMON RETAINED ON MARKETABLE i ING - St (NG STOCK EARN:NGS SECURiflEl FUNDS FUNDS
' Balance,' December 31,1994 $1,148.1 ' 842.9
$ $(6.6) $113.5 $30.0
' N;t income 238.9 i Common stock issued - 1245 267 shares .
, , 39.5 l Ccsh dividends on common stock ($2.02 per share)
Unr;alized gain on marketable securities (193.4) ) 8.7 j -
- Pref;rred stock redeemed - 50,000 shares ' '
(5.0) j Balance December 31,~ 199 5 ' . 1,187.6 888.4 2.1 113.5 25.0 1
- N;t income 224.4 Common stock issued - 586,555 shares 20.7' Ech;lon international stock dividend (194.5) 1 Cash dividends on common stock ($2.06 per share) - (199.5) j Unr:clized loss on marketable securities (2.7) 1 Prr.f;rred stock redeemed - 1,050,000 shares (2.3) (80.0) (25.0): !
BalanceiDecember 31,1996- 1,208.3 ' 716.5 ' (.6) 33.5 - i
' Nit income 54.3 Common stock issued - 55,772 shares .7 ;
C:sh dividends on common stock ($2.10 per share) (203.8) l R;v;rsal of unrealized loss on marketable securities ' due to deconsolidation .6 Balance, December 31,1997 $1,209.0 $567.0 $- $ 33.5 . $-
' TiiE ACCOMPANYlNG NOTES ARE AN INTEGRAL. PART OF TilESE flNANCIAL STATEMENTS.
O i l
.a -
P R O G R E s s 31
N()I i % i() ( ()N N(li ll) A i F D Fl N A N( IAl %'l A 11 M F N & N NOTE 1 The utility expects to fully recover these assets and refund the
- 5'TMM ARY OF ~ SIGNIFICANT ACCOUNTING POLICIES liabilities through customer rates under current regulatory General - Florida Progress Corporation (the Company) practice.
is an exempt holding company under the Public Utility If Florida Power no longer applied FAS No. 71 due to Holding Company Act of1935. Its largest subsidiary, competition, regulatory changes or other reasons, the utility representing 85% of total assets,is Florida Power would make certain adjustments. These adjustments could Corporation (Florida Power), a public utility engaged in the include the write-off of all or a portion ofits regulatory generation, purchase, transmission, distribution and sale of assets and liabilities, the evaluation of utility plant, contracts electric energy primarily within Florida, and commitments and the recognition,if necessary, of any The consolidated financial statements include the financial losses to reflect market conditions. results of the Company and its majority-owned operations. Utility Plant - Utility plant is stated at the original cost All significant intercompany balances and transactions have of construction, which includes payroll and related costs such , been climinated. Investments in 20& to 5050wned joint as taxes, pensions and other flinge benefits, general and admuus-ventures are accounted for using the equity method. trative costs, and an allowance for funds used during _ Effective December 31,1997, the Company deconsolidated construction. Substantially all of the utility plant is pledged as " c
, the financial statements of Mid Continent. Florida Progress' collateral for Florida Power's first mortgage bonds.
investment in Mid-Continent will prospectively be accounted The allowance for funds used during construction for under the cost method. The deconsolidation has not been represents the estimated cost of equity and debt for utility l reflected in the financial statements of prior periods, plant under construction. Florida Power is permitted to carn The preparation of financial statements in conformity with . a return on these costs and recover them in the rates charged
' generally accepted accounting principles requires for utility senices while the plant is in senice. The average management to make estimates and assumptions. This could rate used in computing the allowance for funds was 7.8%
afTect the reported amounts of assets and liabilities, disclosure ' Utility Revenues, Fuel and Purchased Power Expenses - of contingent assets and liabilities at the date of the financial Revenues include amounts resulting from fuel, purchned power statements and the reported amounts of revenues and and energy conservation adjustment clauses, which are designed expenses during the reported period. These estimates involve to permit full recovery of these costs. The adjustment factors are judgments with respect to various items including various based on projected costs for a 6 or 12-month period. The future economic factors which are diflicult to predict and are cumulative ditTerence between actual and billed costs is included beyond the control of the Company. Therefore actual results on the balance sheet as a current regulatory asset or liability. Any could differ from these estimates. difhnce is billed or refunded to customers during the Regulation - Florida Power is regulated by the Florida subsequent period. Public Service Commission (FPSC) and the Federal Energy In December 1997, Florida Power ended the three-year
~ Regulatory Commission (FERC). The utility follows the test period for residential revenue decoupling which was accounting practices set forth in Financial Accounting ordered by the FPSC and began in January 1995.
Standard (FAS) No. 71, " Accounting fbr the Effects of Decoupling eliminates the direct link between kilowatt-hour Certain Types of Regulation." This standard allows utilities sales and revenues. A nonfuel revenue target is determined to capitalize or defer certain costs or revenues based on by multiplying a revenue per customer amount by the total s regulatory approval and management's ongoing assessment number of residential customers. Differences between target that it is probable these items will be recovered through the revenues and actual revenues are included as a regulatory . ratemaking process. asset or liability on the balance sheet. The regulatory asset at Florida Power has total regulatory assets (liabilities) at December 31,1997 will be collected from customers
- December 31,1997 and 1996 as detailed below: beginning April 1998 through the energy conservation cost ,
recovery clause as directed by the FPSC decoupling order. W 1996 Florida Power accrues the nonfuel portion of base revenues M UONS for Senices acndered but unbilled. The cost of nuclear fuel is amortized to expense based on ontr m at ts $348.2 $ - the q'uantity of heat produced for the generation of electric Replacement fuel (extended nudear outage) 55.0
- energy in relation to the quantity of heat expected to be Underrecovery of fuel costs 34.5' 82.6 produced over the life of the nuclear fuel core.
Revenue decoupling - 21.8 (3.6) Income Taxes - Deferred income taxes are pro ided on Unamortizedloss on reacquired debt 16.8 18.4 all significant temporary differences between the financial and tax basis of assets and liabilities using presently enacted Other regulatory assets, net 25.2 24.6 tax rates in acc rdance with FAS No.109, " Accounting for
' Net regulatory assets $501.5 $122.0 Income Taxes. .
I 1 3 2. P R 0 G R E s s; t _
c N(li t s 1() ( (IN s(>l I D A I L D i I N A N( l Al. $ f A IMENIN
' Deferred investment tax credits, subject to regulatory business. Although these assumptions are the Company's accounting practices, are amortized to income over the lives best estimate of the future experience, actual results may vary of the related properties. .
in either direction and could significantly impact income in
- Depreciation and Maintenance -The Company the period of change, prosides for depreciation of the cost of properties over their Accounting for Certain Investments - The Company estimated useful lives primarily on a straight-line basis, considers all highly liquid debt instruments purchased v,ith a Florida Power's annual provision for depreciation, including maturity of three months or less to be cash equivalents. The a provision for nuclear plant decommissioning costs and fossil Company's investments in debt and equity securities are plant dismantlement costs, expressed as a percentage of the classified and accounted for as follows:
. average balances of depreciable utility plant, was 4.8% for Type of Security Accounting Treatment 1997,4.9% for 1996 and 5% for 1995.
Debt securities held to maturity Amortized cost
. c The Financial Accounting Standards Board (FASB) is in Trading securities Fair market value with
-the process of modifying its project addressing the
- unrealized gains and losses
' accounting for obligations related to the decommissioning includedin earnings
, of nuclear power plants.
The fossil plant dismantlement accrual has been suspended SeMtimiWe W hiMet WM unrealized gains and losses,
- for a period of four years, beginning July 1,1997. (See Note net of taxes, reported .,
9 on page 40.) Fle ida Power charges maintenance expense with the cost separately in shareholders' ofrepairs and minor renewals of property. The plant sty ' accounts are charged with the cost of renewals and See Note 2 on page 35 for securities held to maturity or replacements of property units. Accumulated depreciation is available for sale. The Company had no investments in assets charged with the cost,less the net salvage, of property units classified as trading securities at December 31,1996 and only "i retired.~ held securities classified as available for sale at December 31, Florida Power accrues a reserve for maintenance and 1997. A decline in the market value of any security available-refueling expenses anticipated to be incurred during for-sale or held-to-maturity that falls below cost results in a scheduled nuclear plant outages. reduction in carrying amount to fair value if the decline is not Insurance Premiums, Policy Acquisition Costs and considered temporary. The impairment is charged to earnings Benefit Reserves - Accounting policies governing the and a new cost basis for the security is established. Premiums ; recognition ofincome and expense for the life insurance' and discounts are amortized or accreted over the life of the ! subsidiary were in efTect until December 31,1997. related held to-maturity security as an adjustment to yield
. Due to the deconsohdation of the financial results of Mid- using the efkctive interest method. Dividend and interest -
- Continent in the Florida Progress' consolidated financial income are recognized when carned, statements, accounting policies relating to the balance sheet Accounting for long-Lived Assets - Long-lived assers were in'effect only for amounts presented in the 1996 and certain identifiable intangibles subject to the provisions of i Florida Progress Consolidated Balance Sheet. FAS No.121, " Accounting for the Impairment of Long-Lived !
Life insurance premiums are recognized as revenues over Assets and for long-lived Assets to Be Disposed Of," are ) the premium-paying periods of the policies. reviewed for impairment whenever events or changes in l
. The Company defers recoverable costs in its insurance circumstances indicate that the carrying amount of an asset !
operations that directly relate to the production of new may not be recoverable. FAS No.121 also amends FAS No. business. These costs are amortized over the expected 71, " Accounting for the Effects of Certain Types of
, premium-paying period. Benefit reserves are established out Regulation," to require that regulatory assets, which include !
of each premium payment to provide for the present value of certain deferred charges, be charged to earnings if such assets ! future insurance policy benefits. The Company reviews the are no longer considered probable of recovery. Recoverability adequacy and recoverability of the deferred acquisition costs of assets to be held and used is measured by a comparison of ' and the benefit reserves based on a gross premium reserve _ ht e carryi ng amount of an asset to undiscounted future net analysis of the in-force business. . cash flows expected to be generated by the asset. If such assets Significant assumptions used in this analysis include are considered to be impaired, the impairment to be estimates of future premium increases, mortality rates, recognized is measured by the amount by which the carrying withdrawal rates, expense rates, and investment yield. The amount of the assets exceed the fair value of the assets. Assets tssumptions are based on the Company's actual experience to be disposed of are reported at the lower of the carrying
- adjusted for the effect of future actions affecting the in-force amount or fair value less costs to sell.
PROGRESS 33
N(ll i s its( () N M )l 'i l) A'l l 1) 1 IN A N( lAl $ 1 A 1 i- M i N i s Stock-Based Compensation - Under its Long-Term statement did not have an impact on canungs per share, therefore Incentive Plan (LTIP), the Company grants selected no restatement was necessary for prior periods. executives performance shares, which upon achievement of Also in February 1997, the FASB issued FAS No.129, performance criteria for a three-year performance cycle can " Disclosure ofInformation about Capital Structure," which result in the award of shares of common stock of Florida designates certain disclosure requirements for public and Progress or cash if certain stock ownership requirements are nonpublic entities. The Company adopted this statement for met. The Company accounts for its LTIP in accordance fmancial statements issued for the period ended December . with the provisions of Accounting Principles Board (APB) 31,1997. As the Company already disclosed the information Opinion No. 25, " Accounting for Stock Issued to required by FAS No.129, adoption of this statement did not Employees," as allowed under FAS No.123, " Accounting have any efTect on the financial disclosures of the Company, for Stock-Based Compensation." In June 1997, the FASB issued FAS No.130," Reporting Environmental- The Company adopted the American Comprehensive Income" which establishes standards for . ' Institute of Certified Public Accountants Statement of- reporting comprehensive income. The standard defines Position (SOP) 96-1, "Emironmental Remediation comprehensive income as all changes in equity of an Liabilities" on January 1,1997. The SOP requires, among enterprise during a period except those resulting from , other things, emironmental remediation liabilities to be shareholder transactions. All components of comprehensive accrued when the criteria of FAS No. 5, " Accounting for income are required to be reported in a financial statement Contingencies," have been met. The SOP also provides that is displayed with equal prominence as existing financial guidance with respect to the measurement of remediation statements. The Company will be required to adopt this liabilities. Emironmental expenditures are expensed or statement January 1,1998. As the standard addresses capitalized depending on their future economic benefit. reporting and presentation issues only, there will be no Expenditures that relate to an existing condition caused by . impact on earnings from the adoption of this standard. past operations and that have no future economic benefits' . Also in June 1997, the FASB issued FAS No.131, are expensed. Liabilities for expenditures of a noncapital " Disclosures about Segments of an Enterprise and Related nature are recorded when environmental assessment and/or Information" which establishes standards for additional . remediation is probable, and the costs can be reasonably disclosure about operating segments for interim and annual estimated. Such accounting is consistent with the financial statements. The standard requires financial and Company's current method of accounting for environ- ' descripsve information be disclosed for segments meeting mental remediation costs and, therefore, adoption of this certain materiality criteria whose operating results are new statement did not have a material impact on the reviewed for decisions on resource allocation and for which
. Company's financial position, results of operations or discrete financial information is available. It also establishes liquidity, standards for related disclosures about products and senices, New Accounting Standards - In June 1996, the geographic areas, and major customers. The Company will be FASB issued FAS No.125, " Accounting for Transfers and required to adopt this statement for financial statements for Senicing of Financial Assets and Extinguishments of the fiscal year ending December 31,1998 and for interim Liabilities." FAS No.125 provides accounting and reporting periods thereafter. As the standard addresses reporting and standards effective for transfers and senicing of financial disclosure issues only, there will be no impact on earnings assets and extinguishments ofliabilities occurring after from the adoption of this standard.
December 3(,1996 and is to be applied prospectively. There In January 1998, the FASB issued FAS No.132, . was no material effect on net income as a result of adopting " Employers' Disclosures about Pensions and Other Post-
. this standar'd. retirement Benefits" which revises current note disclosure In February 1997, the FASB issued FAS No.128, " Earnings requirements for employers' pensions and other retiree .
per Share," (EPS). It replaces the standards for computing EPS benefits. The Company will lx required to adopt this under APB Opinion No.' 15, " Earnings per Share," and makes statement for financial statements for the year ending the computations comparable to international EPS standards. The December 31,1998. The standard addresses reporting and Company adopted this statement for financial statements issued disclosure issues only, and there w41 be no impact on earnings for the period ended December 31,1997. Adoption of this from the adoption of this standard. 34 PROGRill,
N()! l % 1() ( (IN %()I li(A l i il llN A N( lAl S I AJ E M F N 1 % NOTE 2 _ NOTE 3 FICANCIAL INSTRUMENTS INCOME TAXES Estimated fair value amounts have been determined by the Company using available market information and discounted UN MMoN9 M7 N M95 Components ofincome tax expense: cash flow analysis. Judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates may be different than the anmunts that the Company Payabl ntly:
]
State 10.5 23.0 18.8 could realize in a current market exchange. 97 1 202.7 176 1 The Company's exposure to market risk for changes in Deferred, net: interest rates relates primarily to the Company's marketable Federal (22.4) (41.9) (27.5) securities and long-term debt obligations. State (.5) (6.9) (2.0)
. At December 31,1997, Florida power held a single forward (22.9) (48.8) (29.5) treasury lock agreement to efTectively fix the treasury rate Amortization of investment component of an anticipated issuance of $150 million of- tax credits, net ' (7.8) '(8.0) (8.5) 3
. medium-term notes in February 1998. The fmancial impact of
$66.4 $145.9 $138.1 1 this contract,'which will result in either a cash payment or !
receipt, will be deferred and recognized as an adjustment t The primary difTerences between the statutory rates and interest expense over the life of the new notes. The Company the effective income tax rates are detailed below: had no derivative financial instruments outstanding at i December 31,1996. 1997 19 % :1995 { At December 31,1997 and 1996, the Company had the : Federal statutory income tax rate 35.0% 35.0 % 35.0 % i following financial instrumenta with estimated fair values and State income tax, net of federal carrying amounts: income tax benefits . 5.4 2.6 2.8 1997 Amortization of investment tax credits (6.4) (2.0) (2.2) 1996 Provision for loss on ir, vestment CARRYING FAIR CARRYING FAIR (IN MILLloNs) AMOUNT VALUE AMOUNT VALUE in life insurance subsidiary 24.9 - - - ASSETS: Other (4.5) .6 .1 Loans receivable: Effective income tax rates 54.4 % 36.2 % 35.7 % Echelon Intemational $ -
$ 32.9 $ 32.9 Life insurance business: The following summarizes the components of deferred tax Loans secured by realestate - -
4.1 4.4 liabilities and assets at December 31,1997 and 1996: Policyloans - - 11.0 10.1 (IN MILUONs) 1997 19 %
$ 48.0 $ 47.4 .
Deferred tax liabilities: Marketable securities: Difference in tax basis of property, ! Available for sale: l lant and equipment $539.0 $544.1 Life insurance business $ -
$ 144.6 $ 144.6 Deferred acquisition costs -
35.9 Nucleardecommis-Investmentin partnerships 19.7 20.1 sioning fund 266.7 266.7 207.8 207.8 Deferred book expenses 34.1 12.7
. ' Held to maturity - -
73.3 76.8 Other 29.7 22.9 I CAPITAL AND LIABILITIES: Total deferred tax liabilities $622.5 $635.7 Long-term debt: Deferred tax assets:
- Florida Power Corporation $1,746.9 $1,801.1 $1,317.7 $1,335.3 Loss reserves not currently deductible $ 17.0 $ 69.5 Progress Capital Holdings ' 646.1 656.5 494.1 497.1 Accrued book expenses 110.8 i
90.6 Unbilled revenues 17.6 17.6
= The December 31,1997 balances reflect the deconsolidation Other 11.7 18.2 i of Mid-Continent Life's financial statements from the Total deferred tax assets $157.1 $195.9 Company's consolidated financial statements. (See Note 11 on page 42). At December 31,1997 and 1996, Florida Progress had net noncurrent deferred tax liabilities of $471.2 million and
$475.4 million and net current deferred tax assets of $5.8 million and $35.6 million, respectively. The Company expects the results of future operations will generate sufTicient taxable income to allow for the utilization of deferred tax assets.
PROGRESS 35
. NOTE 4 customers through the fuel adjustment clause at a rate of - CUCLE AR OPERATIONS 5.001 per net nudear kilowatt-hour sold and are paid to the Florida Power's Crystcl River nuclear plant began an DOE quarterly Florida Power currently is storing spent extended outage in September 1996, which caused Florida nuclear fuel on-site and has sufficient storage capacity in place
- Power to incur $100 million in additional operation and for fuel consumed through the year 2010.
~ maintenance expenses in 1997. The plant was placed on the Nuclear Regulatory Commission's (NRC) " Watch List" in January 1997, as a plant whose operations will be dosely NOTE 5 monitored smtil Florida Power demonstrates a period of PREFERRED AND PREFERENCE 51OCK AND 5H AREHOLDER R1GHT5 improved performance. In January 1998, the NRC granted The authorized capital stock of the Company includes 10 Florida Power permission to restart the plant. (See Note 9 million shares ofpreferred stock, without par value, including , on page 40.)
. Jointly Owned Plant - The following information relates 2 million shares designated as Series A Junior Participating Preferred Stock. No shares of the Company's preferred stock to Florida Power's 90.4% proportionate share of the nuclear are issued and outstanding. However, under the Company's ,
plant at December 31,1997 and 1996: Shareholder Rights Agreement, each share of common stock
. ON MILUONS) 1997 1996 has associated with it approximately two-thirds of one right to Utility plant in service $673.8 $643.6 purchase one one-hundredth of a share of Series A Junior Construction work in progress 49.3 14.8 Participating Preferred Stock, subject to adjustment, which is Unamortized nuclear fuel 66.5 59.9 exercisable in the event ofcertain attempted business Accumulated depreciation 341.0 309.5 combinations. If exercised, the rights would cause substantial Accumulated decommissioning 223.7 193.3 dilution of ownership, thus adversely affecting any attempt to acquire the Company on terms not approved by the Net capital additions /(ret irements) for Florida Power were Company's Board of Directors. The rights have no voting or $64.7 million in 1997 and $(16.5) million in 1996. dividend rights and expire in December 2001, unless redeemed . Depreciation expense, exclusive of nudear decommissioning, earlier by the Company.
was $29 million in 1997 and $28.3 million in 1996. Each co- The authorized capital stock of Florida Power includes owner provides for its own financing. Florida Power's share three classes ofpreferred stock: 4 million shares of of the asset balances and operating costs is induded in the Cumulative Preferred Stock, $100 par value; 5 million shares appropriate consolidated financial statements. Amounts of Cumulative Preferred Stock, without par value; and 1 exdude any allocation of costs related to common facilities. million shares of Preference Stock, $100 par value. No shares Decommissioning Costs - Florida Power's nuclear plant of Florida Power's Cumulative Preferred Stock, without par depreciation expenses include a provision for future value, or Preference Stock are issued and outstanding. A total decommissioning costs, which are recoverable through rates of 334,967 shares, of the 335,000 authorized, of Cumulative charged to customers. Florida Power is placing amounts Preferred Stock, $100 par value, were issued and outstanding at collected in an extemally managed trust fund. The recovery December 31,1997 and 1996. fiom customers, plus income earned on the trust fund,is Florida Power redeemed 1,050,000 shares ofits Cumulative intended to be sufficient to cover Florida Power's share of the Preferred Stockin 1996 and 50,000 shares in 1995. future dismantlement, removal and land restoration costs. Cumulative Preferred Stock for Florida Power is detailed , Florida Power has a license to operate the nudear unit below: through December 3,2016, and contemplates decommis- Current Outstanding at siomng beginning e , + time. Dividend Redemption Shares December 31, ,
- In November Ik . FPSC approved a new site- Rate Price Outstanding 1997 & 1996 specific study that ewnated total future decommissioning (IN Mll.UONs) costs at approximately $2 billion, which corresponds to ' 4.00 % $104.25 39,980 $ 4.0 1 $453.8 million in 1997 dollars. Florida Power's share of 4.40% $102.00 75,000 7.5 the retail portion of annual decommissioning expense is 4.58 % $101.00 99,990 10.0
$20.5 nullion. Florida Power's annual expense for the 4.60 % $103.25 39,997 4.0
( wholesale portion is $1.2 million. 4.75 % $102.00 80,000 8.0 Fuel Disposal Costs - Florida Power has entered into a contract with the U.S. Department of Energy (DOE) for the 334 967 $33.5 , transportation and disposal of spent nuclear fuel. Disposal All Cumulative Preferred Stock series are without sinking cc ts for nuclear fuel consumed are being collected from funds and are not subject to mandatory redemption.
'36 PROG R Ess
.~
m N(I t i % 1 () ( (IN S( pl ll) A l'l in L I N A N( IAI NIAllMt&l% NOTE 6
. DEST- h The Company's long-term debt at December 31,1997 and 1996,is scheduled to mature as follows: ]
1 Interest Rate 1997 19 % i FLORIDA POWER CORPORATION (IN MlluoNs) First mortgage bonds:: Maturing in 1999. 6.50 % $ 75.0 $ 75.0
. Maturing 2002 and 2003 6.50%(a) 280.0 280.0 Maturing 2008 6.88 % 80.0 80.0 l
Maturing 2021 through 2023 7.98%(a) ~ 400.0 400.0 ! Pollution control revenue bonds: I Maturing 2014 through 2027 6.59%(a) 240.9 240.9 Notes maturing 1997 1998 6.67 % 1.5 22.8-
. 1999-2008 - 6.60%(a) 474.5 24.5 3
Commercial paper, supported by revolver maturing November 30,2002 5.85%(a) '200.0 200.0 Discount, net of premium, being amortized over term of bonds (5.0) (5.5) 1,746.9 1,317.7' '! PROGRESS CAPITAL HOLDINGS. ; Notes maturing: i 1997-1998 9.90 % 10.0 20.0
)
1999-2008 6.90%(a) 329.0 294.0 Commercial paper, supported by revolver maturing November 30,2002 5.92%(a) 300.0 169.4 Other debt, maturing through 2006 6.78%(a) 7.1 10.7-2,393.0 1,811.8 Less: Current portion of long-term debt - 15.2 34.9 j
$2,377.8 ' $1,776.9 (a)EElGHTED AVERAGE INTEREST RATE AT DECEMBER 31.1997.
The Company's consolidated subsidiaries have lines of classified as short-term debt. l credit totaling $900 million, which are used to support Flonda Power has a public medium-term note program j commercial paper. The lines of credit were not drawn on as providing for the issuance of either fixed or floating interest rate
. of December 31,1997. Interest rate options under the line notes. These notes have maturities ranging from nine months to of credit arrangements vary from subprime or money market 30 yean. A balance of S400 million is available for issuance. l rates to the prime rate. Banks providing lines of credit are Florida Power has registered $370 million of fint mortgage compensated through fees. Commitment fees on lines ofcredit bonds which are unissued and available for issuance. j vary between .06 and .10 ofIE Progress Capital has a private medium-term note program ;
The lines of credit consist of four revohing bank credit providing for the issuance of either fixed or floating interest ,
.y facilities, two each for Florida Power and Progress Capital rate notes, with maturities ranging from nine months to 30 i Holdings, Inc. The Florida Power facilities consist of $300 years. A balance of $87million is available for issuance under i million with a 364-day term and $200 million with a five- this program. !
, year term. The Progress Capital facilities consist of $100 The combined aggregate maturities oflong-term debt for million with a 364-day term and $300 million with a five- 1998 through 2002 are $15.2 million, $143.6 million, $77.6
. year term. In 1997, both 364-day facilities were extended to million, $183.0 million and $632.2 million, respectively. In November 1998. In addition, both five-year facilities were addition, about 12% of Florida Power's outstanding first extended to November 2002. Based on the duration of the mortgage bonds have an annual 1% sinking fund requirement.
underlying backup credit facilities, $500 million of These requirements, which total $1 million annually for 1998 outstanding commercial paper at December 31,1997, and through 2002, are expected to be satisfied with property -
$369.4 million of outstanding commercial paper at additions.
December 31,1996, are classified as long-term debt. Flonda Progress has unconditionally guaranteed the payment
- Additionally, as of December 31,1997 Florida Power and of Progress Capital's debt as defined in an amended and Progress Capital Holdings had S179,8 million and $35.0 restated support agreement.
million, respectively of outstanding commercial paper PRoGRfss37
N(ll i s 1() ( (I N s t i l i, D A l 1- D l I N A N t IAI $ I A l I M i.N I %
' NOTE 7 Due to changes in interest rates, the Company used a CETIREMENT IBENEFIT PLANS .
discount rate of 7.25% to calculate the pension plan's 1997 Pension Benefits - The Company and certain ofits year-end funded status. The change in the discount rate from subsidiaries have a noncontributory defined benefit pension 7.5% at December 31,1996, to 7.25% at December 31, plan covering most employees. The benefits are based on 1997, increased the projected benefit obligation by $17.4 length of service, compensation and Social Security benefits. million and is expected to increase the annual pension costs The participating companies make annual contributions to . by $1.8 million, beginning in 1998. the plan based on an actuarial determination and consid- In 1997 the Board of Directors approved a restructuring cration of tax regulations and funding requirements under .of the Plan, effective January 1,1998. The existing plan will federal law. Based on actuarial calculations and the fLmded be split into two separate plans, one covering eligible
. status of the pension plan, the Company was not required to bargaining unit employees and the other covering all other contribute to the plan for 1997,1996 or 1995. eligible employees. Plan assets will be allocated to each plan -
Shown below are the components of the net pension in accordance with applicable law. The restructuring is expense calculations for those years: expected to have a minimal effect on funded status and
. (IN MlWONs) 1997 19 % 1995 periodic pension costs. .
. Service cost $ 15.3 $ 16.2 $ 13.4 Other Post-retirement Benefits - The Company and j interest cost 33.4 31 3 30.1 s me ofits subsidiaries provide certain health care and life j Actualeamings on plan assets (131.6) (88.0) (124.4) insurance benefits for retired employees. Employees become cligible for these benefits when they reach retirement age Net amortization and deferral '64.0 29.5 77.7 -
while working for the Company. Netpension benefit recognized $ (18.9) $(11.0) $ (3.2) The net post-retirement benefit costs for 1997,1996 and 1995 are detailed below: The following weighted average actuarial assumpn.ons at January 1'were used in the calculation of pension expense: (IN MituoNs) 1997 19 % 1995 Service cost $ 3.2 $ 5.3 $ 5.1 1997 19 % 1995 Interest cost 10.4 12.4 13.5 Discount rate 7.50 % 7.25 % 8.25 % Amortization of unrecognized Expected long-term rate of return 9.00 % 9.00 % 9.00 % transition obligation 3.4 6.1 6.1 Rate of compensation increase 4.50% 4.50 % 5.00 % Actual earnings on plan assets (.4) (.3) (.3) The following summarizes the funded status of the $16.6 $23.5 $24T pension plan at December 31,1997 and 1996: 1997 19 % The following summarizes the plan's status, reconciled (IN MlluoNS) Accumulated benefit obligation: with amounts recognized in the Company's balance sheet at Vested $359.3 $326.1 December 31,1997 and 1996: Nonvested 40.8 31.5 (IN MILUoNs) 1997 1996 400.1 357.6 Accumulated post-retirement benefit obligation: Effect of projected compensation increases 100.1 94.4 Retirees $ 92.7 $100.4 Projected benefit obligation 500.2 452.0 .. Fully eligible act.ive plan participants 1.2 3.1 Plan assets at market value, primarily listed Other active plan part,cipants i 59.3 81.2 - stocks and bonds 769.0 655.0 Plan assets at fair value, Plan assets in excess of projected benefit obligation $268.8 $203.0 primarily municipal securities (6.4) (4.7) 146.8 180.0 . Consisting of the following components: Unrecognized transition asset $ 25.5 5 30.4 Unrecognized transition obligation (55.0) (97.2) Enrecognized prior service cost (63) Unrecognized net gains 15.6 17.2 (14.7) Unrecognized net actuarial gains 236.7 176.4 Accrued post-retirement benefit cost $107.4 $100.0 Prepaid pension costs 21.3 2.5
$268.8 $203.0 l
3 8 P RoG Riss L l l _ s
N () i i $ It) ( f D N s (11 11) A 1 l l>11 NAN ( lAI %lAilM1NI% The following weighted average actuarial assumptions were The Company's business segment information for 1997, used in the calculation of the year-end status of other post- 1996 and 1995 is summarized below. No single customer retirement benefits: accounted for 10% or more of unatTiliated revenues; M7 1996 ON EuoNs) 1997- 1996 1995 Discount rate 7.25 % 7.50 % Revenues:
- Rate of compensation increase 4.50 % 4.50 %
Utility $2,448.4 $2,393.6 $2,271.7 Health care cost trend rates: Diversified: Pre-Medicare 9.00 %-5.00 % 9.5045.25% Electric Fuels combined: Post-Medicare 7.25 %-4.75 % 7.50W5.00% Coal sales to electric utility 285.1 272.1 236.8
'ne transition obligation is being accrued through 2012. A . Sales to extemal customers 751.4 609.0 607.0
, one-percentage point increase in the assumed health care cost Other 115.8 1553 129.1
- trend rate for each future year would have increased the 1997 3,600.7 .3,430.0 3,244.6 current senice and interest cost by approximately S.8 million and Eliminations - (285.1) (272.1) (236.8)
Revenues from extemalcustomers $3,315.6 $3,157.9 $ 3,007.8 -
, the accumulated post-retirement benefit obligation as of
' December 31,1997, by almut $9.6 million. The change in the income from operations:
. discount rate from 7.5% at December 31,1996, to 7.25% at Utility $ 317.6 $ .468.5 $ 4563 December 31,1997, increased the projected benefit obligation Diversified:
by $4.4 'million and is expected to increase annual post- Electric Fuels rccuning, combined 71.5 61.4 52.1 retirement benefit costs by S.3 million, beginning in 1998. Electric Fuels loss provision - (40.9) - Due to different retail and wholesale regulatory rate requirements, lasrelatedtolifeinsurancesubsidiary (97.6) Florida Power began making quarterly contributions in 1995 to Other diversified (18.9) (6.6) .5 an irrevocable external trust fund for wholesale ratemaking, while 272.6 482.4. 508.9 continuing to accrue postretirement benefit costs to an unfunded Interest and other expense 151.9 85.8 131.9 reserve for retail ratemaking. Florida Power contributed approxi- Income from continuing operations mately $1.3 million in both 1997 and 1996, to the trust fund. beforeincome taxes $ 120.7 $ ' 396.6 ' $ 377.0 Identifiable assets: NOTE 8 Utility $4,887.0 $4,263.7 $4,284.7 BUSINESS SEGMENTS Diversified: The Company's principal business segments are utility and Electric Fuels combined 799.1 619.8 - 573.6 diversified operations. The utility is engaged in the Other diversified ' 73.9 464.9 692.1 l generation, purchase, transmission, distribution and sale of $5,760.0 $5,348.4 $ 5,550.4 electric energy. Electric Fuels Corporation's (Electric Fuels) Depreciation and amortintion: operations include energy and related senices, inland marine Utility $ 333.8 $ 341.1 $ 329.7 i transportation and rail services. Other diversified operations Diversified: include ownership of a life insurance subsidiary. Electric Fuels combined 27.4 23.5 21.2 Other diversified 3.0 2.1 1.8
$ 364.2 $ 366.7 $ 352.7 j + Capital additions: .
Utility $ 395.0 $ 222.9 $ 289.2 ; Diversified: )
- Electric Fuels combined 117.5 40.6 40.5
' ~
j Other diversified 1.1 .5 1.7
$ 513.6 $ 264.0 $ 331.4 1
In December 1997, Florida Progress recorded a provision for loss on its investment in Mid-Continent Life and accrued ! for related legal costs, totaling $97.6 million. (See Note 11 on page 42.) In December 1996, Electric Fuels revised its assessment that low-sulfur coal market prices were depressed temporarily. Electric Fuels decided to close and dispose ofits unprofitable I coal operations and recorded a provision for loss of $40.9 million, as shown above. l PRoGRE$s39
soi n s s o < os soi s o^ ii d s iNaw i At siAsimiNis ETE 9 NOTE 10 CATES DISCONTINUED OPER ATIONS Florida Power's retail rates are set by the FPSC. Florida On November 21,1996, the Company's Board of Directors Power's last general rate case was approved in 1992 and dedared a spin-offdistdbution to common shareholders ofreconi al owed a 12% regulatory return on equity with an allowed on December 5,1996, of the common shares of Echelon range between 11% and 13%. International Corporation (Echelon), which comprised the Extended Nuclear Outage -In June 1997, a settlement Company's lending, leasing and real estate operations. Common agreement between Florida Power and all parties who shares were distnbuted on the basis ofone share ofEchelon intervened in Florida Power's request to collect replacement common stock for every 15 shares ofthe Company's common stock. fuel and purchased power costs resulting from the extended In connection with the spin-offin 1996, the Company has outage ofits nudear plant was approved by the FPSC. The presented Echelon as a discontinued operation in the plant has been offline since September 1996 to address accompan>ing Consolidated Statements ofIncome. As of the = - certain design issues related to its safety systems. date of the spin-ofr, the net assets of Echelon were S194.5 Florida Power incurred $174 million in total system million. This amount has been charged against the Company's replacement power costs through the end of 1997. In retained earnings in the accompanying December 31,1996 , accordance with the settlement agreement, Florida Power Consolidated Balance Sheet to reflect the distribution of recorded a charge of approximately $73 million for retail Echelon common shares on December 18,1996. A summary replacement power costs incurred that will not be recovered of net assets distributed is as follows: through its fuel adjustment clause. Of the remaining $101 million, Florida Power will recover approximately $38 million tiu uituoNS) through its fuel adjustment clause. The remaining $63 million Cash and equivalents $ 53.8 of replacement power costs was recorded as a regulatory asset Assets held for sale 26.8
- i. and is being amortized for a period of up to four years. The Leases and loans receivable, net 272.0
! amortization of the regulatory asset is being recovered by the Property and equipment, net 126.0 L suspension of fossil plant dismantlement accruals during the Other assets 39.9 amortization period. Actual replacement power costs incurred Total assets 518.5 prior to the nuclear unit's return to service in excess of the Totalliabilities (324.0)
$174 million, will be expensed as incurred. Net assets distributed $ 194.5 The parties to the settlement agreement have agreed not to seek or support any increase or reduction in Florida Power's Summarized income statement information rdating to base rates or the authorized range ofits return on equity Echelon's results of operations (as reported in discontinued during the four year amortization period. The settlement operations)is as follows:
agreement also provided that for purposes of monitoring Year ended December 31, Florida Power's future earnings, the FPSC will exclude the (N MituoNs) 1996 1995 nudcar outage costs when assessing Florida Power's Sales and revenues $63.2 $50.0 regulatory return on equity. The agreement resolves all Loss fmm operations (net of income tax) - - present and future disputed issues between the parties Provision for loss on disposition of assets regarding the extended outage of the nuclear plant. Tiger Bay Buy-out - In 1997, Florida Power bought out (net ofincome tax benefits of $11.3) (18.0) . the Tiger Bay purchased power contracts for $370 million Spin-off transaction costs (net and acquired the cogeneration facility for $75 million, for a ofincome tax benefits of $1.8) (8.3) - total of $445 million. Of the $370 million of contract Total discontinued operations $(26.3) $- , termination costs,5350 million was recorded as a regulatory asser and the remaining $20 million was written off. Florida Fiscal year 1996 indudes results of operations through Power recorded $75 million as electric plant. December 18,1996. Results of operations include allocated l The regulatory asset is being recovered pursuant to a . interest expense of $8.7 million and $11.7 million for 1996 stipulation agreement between Florida Power and several and 1993 respectively.
- intervening parties which was approved by the FPSC in June
~ 1997. The amortization of the regulatory asset is calculated
- using revenues collected under the fuel adjustment clause as if the purchase power agreements related to the facility were
. still in efTect, less the actual fuel costs and the related debt lL interest expense. This will continue until the regulatory asset j is fully amortized. Florida Power has the option to accelerate the amortization.
4 0.P R o G R f s s a
l l ONNOMD A i1 D H N A M i Ai slAIrW NIN lOu s 1O ( MTE 11- of each of the facilities. Of the 946 megawatts under contract, CIJITMENTS AND CONTINGENCIES approximately 830 megawatts currently are available to Florida Fuel, Coal and Purchased Power Commitments - Power. All commitments have been approved by the FPSC. Florida Power has entered into various long-term contracts Florida Power does not plan to increase the level of to proside the fossil and nuclear fuel requirements ofits purchased power currently under contract.
. generating plants and to reserve pipeline capacity for natural The FPSC allows the capacity payments to be recovered gas. In most cases, such contracts contain provisions for price through a capacity cost recovery clause, which is similar escalation, minimum purchase levels and other financial to, and works in conjunction with, energy payments
- commitments. Estimated annual payments, based on current recovered through the fuel adjustment clause.
market prices, for Florida Power's firm commitments for fuel Through the buy-out of the Tiger Bay purchaso power purchases and transportation costs, excluding delivered coal contracts for $370 million, Florida Power reduced its
; and purchased power, a e $40 million,546 million, $47 fong-term purchased power commitments by 20 percent.
mi!!;on,547 million and $48.million for 1998 through Florida Power recorded $350 million of the contract j f 2002, respectively, and $464 million in total thereafter. termination costs as a regulatory asset and wrote off $20
- i Additional commitments will be required in the million of the contract termination costs in 1997. (See future to supply Florida Power's fuel needs. Note 9 on page 40.)
Electric Fuels has entered into several contracts with Florida Power incurred purchased power capacity costs
- outside parties for the purchase of coal. Electric Fuels also totaling $292.3 million in 1997,$284 million in 1996 has entered into several operating leases, and rental or and $260.1 million in 1995. The following table shows royalty agreements, relating to transportation equipment minimum eyected future capacity payments for and coal procurement and processing. The annual purchased power commitments, Because the purchased obligations under these contracts and leases, including
~
power commitments have relatively long durations, the
- transportation costs, are $163.1 million, $82.0 million, total present value of these payments using a 10% discount
$50.2 million, $45.7 million and $32.2 million for 1998 rate also is presented. These amounts assume that all through 2002, respectively, and $64.1 million in total units are brought into service as contracted and meet thereafter. The total cost incurred for these commitments contract performance requirements:
; was $219.6 million in 1997, $221.4 million in 1996 and Purchased Power Capacity Payments
$235.2 million in 1995. ou MUONS) ' Utilities Cogenerators Total Florida Power has long-term contracts for about 460 $ 206-1998 $ 59 $ 265 megawatts of purchased power with other utilities, including 1999 60 215 275 a contract with The Southern Company for approximately 2000 60 223 283 400 megawatts of purchased power annually through 2010. 2001 33 230 263 This represents 4.5% of Florida Power's total current 2002 32 236 268 installed system capacity. Florida Power has an option t 2003 2025 248 5,802 6,050 lower these Southern purchases to approximately 200 Total $492 $6.912 $ 7,404 megawatts annually with a three-year notice. The purchased Total net present value $ 2,573 power from Southern is supplied by generating units with a capacity of approximately 3,500 megawatts and is ne pun-hased power contracts with qualifying facilities empk>y guaranteed by Southern's entire system, totaling more than separate pricing methodologies for capacity payments and 30,000 megawatts. energy payments. Florida Power has interpreted the pricing
. As of December 31,1997, Florida Power had entered into prosision in these contracts to allow it to pay an as-available
.' purchased power contracts with certain qualifying facilities energy price rather than a higher firm energy price when the for 946 megawatts of capacity with expiration dates ranging avoided unit upon which the applicable contract is based would from 2002 to 2025. The purchased power contracts provide not have been operated.
for capacity and energy payments. Energy payments are based Four qualifying facilities filed suit against Florida Power on the actual power taken under these contracts. Capacity over the contract payment terms. Florida Power entered into i payments are subject to the qualifying facilities meeting settlement agreements with three of the four qualifying certain contract performance obligations. In most cases, facilities. Two of those agreements have been approved by
- these contracts account for 100% of the generating capacity the FPSC and the litigation has been dismissed. In September
,- P R o G R E $ s 41 I l t _ _ _
a N ( 11 1: % I t) ( (>N G)l.I D A l i D l I N A Nt IAI SIAliMININ 1997, the FPSC reversed its original decision and voted to deny receivership, agents were reluctant to sell the new policy. Florida Power's request to approve the third settlement . This also prompted insurance commissioners in several states agreement; As a result ef the FPSC denial, the settlement expired to enter cease and desist orders prohibiting Mid Continent by its own terms in October 1997. In December 1997, the state from writing new policies.
- court action with the third cogenerator was set for trial in late As a result of the Oklahoma Commissioner's efrorts to block 1998. Florida Power's dispute with the fourth cogenerator has Mid-Continent from raising insurance premiums, his failure to been set for trial in federal court for late 1998, but no trial date ofter any formal plan to eliminate the projected reserve has been set for a parallel contract dispute in state court. deficiency, the legal proceedings, and the cease and desist i Management does not expect that the results of these legal actions orders, Florida Progress now believes the full amount ofits will have a material impact on Florida Power's fmancial position, 586.9 million investment in Mid-Continent at December 31, operations or liquidity. 1997 is impaired. Therefore, the Company recorded a Mid Continent Life Insurance Company (Mid- provision for loss on investment of $86.9 million in 1997. In ,
Continent) - A series of events in 1997 have significantly addition, tax benefits of approximately $11 million related to jeopardized Mid-Continent's ability to implement a plan to the excess of the tax basis over the book value in the
.. climinate a projected reserve deficiency resulting in the investment in Mid-Continent as of December 31,1997, were ,
impairment of Florida Progress' investment in Mid- not recorded because of uncertainties associated with the Continent, its wholly owned life insurance subsidiary. timing of a tax deduction. Florida Progress also recorded an
- On April 14,1997, the Insurance Commissioner of the accrual at December 31,1997 for legal fees associated with
. State of Oklahoma (the Insurance Commissioner) received defending its position in current Mid Continent legal legal approval to temporarily seize control of the operations proceedings.
'of Mid Continent, and in May 1997, the Oklahoma County Mid-Continent's financial statements have been deconsol-
. District Court granted the Insurance Commissioner's idated effective December 31,1997. The investment will application to place Mid-Continent into receivership. The prospectively be accounted for under the cost method.
Insurance Commissioner had alleged that Mid-Continent's Advanced Separation Technologies (Advanced reserves were understated by more than $125 million, thus Separation) - Florida Progress sold its 80% interest in causing Mid-Continent to be statutorily impaired. The Advanced Separation Technologies to Calgon Carbon Corp. Insurance Commissioner further alleged that Mid-Continent (CsJgon)in December 1996 for $56 million in cash. Calgon had violated Oklahoma law relating to deceptive trade filed a lawsuit in January 1998 alleging misstatement of practices in connection with the sale ofits " Extra life" Advanced Separation's 1996 revenues, assets and liabilities, insurance policies and was not entitled to raise premiums, a seeking damages and granting Calgon the right to rescind key element te Mid-Continent's plan to address the the sale. The lawsuit also accuses Florida Progress of failing projected reserve deficiency. While sustaining the to disclose flaws in Advanced Separation's manufacturing receivership, the court also ruled that premiums could be process and a lack of quality control. No projection of an
- raised. I oth sides have appealed the decision to the outcome or estimate of a potential liability,if any, can be Oklahoma Supreme Court. In December 1997, the determined at the date ofissuance of these financial
. Insurance Commisioner filed a lawsuit against Florida statements. Florida Progress intends to vigorously defend ' Progress and certain directors and of11cers making a number itself against this lawsuit.
of allegations and seeking access to Florida Progress' assets Construction Program - Substantial commitments have to satisfy policyholder and creditor claims. Florida Progress been made in connection with the Company's construction .
. believes that the Commissioner's lawsuit is without merit program. In 1998, Florida Power has projected construction and intends to vigorously defend itself and the other expenditures of $294 million, primarily for electric plant and . defendants against these charges. The ultimate outcome of nuclear fuel. Electric Fuels has projected capital additions of . 4 the matter cannot presently be determined. Accordingly, the $125 million in 1998, primarily for barges and towboats. - Company has made no provision for any loss. Off-Balance Sheet Risk - Several of the Company's Another element of Mid-Continent's plan to climinate the subsidiaries are general partners in unconsolidated ! projected reserve deficiency was to offer a new life insurance partnerships and joint ventures. The Company or product.110 wever, as a result of the Commissioner's subsidiaries have agreed to support certain loan agreements
- actions, which resulted in Mid-Continent being placed in of the partnerships and joint ventures. These credit risks are k
i 42 PROGRESS
Ntlil s it) t ()N st)I ll> A ll o l IN A N( IAI % I Ni l M i N 'I N not material to the fmancial statements and the Company _ to regulation with respect to the environmental impact ofits considers these credit risks to be minimal, baved upon the operations. The Company's disposal of hazardous waste asset values supporting the partnership liabilitics, through third-party vendors can result in costs to clean up
- Insurance - Florida Progress and its subsidiaries utilize facilities ibund to be contaminated. Federal and state statutes various risk management techniques to protect assets from authorize governmental agencies to compel responsible - risk ofloss, including the purchase ofinsurance. Risk parties to pay for cleanup of these hazardous waste sites, avoidance, risk transfer and self-insurance techniques are Florida Power and former subsidiaries of the Company, utilized depending on the Company's ability to assume risk, ' whose properties were sold in prior years, have been the relative cost and availability _of methods fbr transferring identified by the U.S. Emironmental Protection Agency risk to third parties, and the requirements of applicable (EPA) as potentially responsible parties (PRPs) at certain regulatory bodies. sites, including a coal gasification plant site in Sanford,
,, Florida Power self-insures its transmission and distribution Florida (Sanfbrd site) that Florida Power previously owned - lines against loss due to storm damage and other natural and operated. There are five parties, including Florida Power,
' disasters. Pursuant to a regulatory order, Florida Power is that have been identified as PRPs at the Sanford site.
4 accruing $6 million annually to a storm damage reserve and Liability fbr the cleanup costs of Wese sites is joint and may defer any losses in excess of the reserve. . several. Under the provisions of the Price Anderson Act, which Negotiations are underway wit i the EPA to define the limits liability for accidents at nuclear power plants, Florida extent of contamination that may be attributable to the Power, as an owner of a nuclear plant, can be assessed fbr a Company's previous operation at the site. The discussions portion of any third-party liability claims arising from an and resolution ofliability fbr cleanup costs could cause accident at any commercial nuclear power plant in the United Florida Power to increase its estimate ofits liability fbr
! States. If total third party claims relating to a single nuclear cleanup costs. Although estimates of any additional costs are incident exceed $200 million (the amount of currently not currently available, the outcome is not expected to have available commercial liability insurance), Florida Power could a material efTect on the Company's fmancial position, results be assessed up to $79.3 million per incident, with a maximum of operations or liquidity.
assessment of $10 million per year. In addition to these designated sites, there are other sites
. Fhirida Power is a member of the Nuclear Electric where afliliates may be responsible for additional emiron-Insurance, Ltd. (NEIL), an industry mutual insurer, which mental cleanup. . provides business interruption and extra expense coverage in The Company believes that its subsidiaries will not be the event of a major accidental outage at a covered nuclear required to pay a disproportionate share of the costs fbr power plant. Florida Power is subject to a retroactive cleanup of any of these sites. The Company's best estimates premium assessment by NEIL under this policy in the event indicate that its proportionate share ofliability for cleaning ,
i loss experience exceeds NEIL's available surplus. Florida up all sites ranges from $2.5 million to $7.5 million. It has Power's present maximum share of any such retroactive reserved $4.7 million against these potential costs. assessment is $2.7 million per policy year. Age Discrimination Suit - Florida Power and Flo ida { Florida Power also maintains nuclear property damage ~ Progress have been served with an age discrimination 1 insurance and decontamination and decommissioning lawsuit invohing 116 former Florida Power employees liability insurance totaling $2.1 billion. The first layer of and one current employee. While no dollar amount was . $500 million is purchased in the commercial insurance requested in the lawsuit, each plaintiff reeks back pay, market with the remaining excess coverage purchased from reinstatement or front pay through their projected dates of , NEIL Florida Power is self-insured for any losses that are in normal retirement, costs and attorneys' fees. In October j
, excess of this coverage. Under the terms of the NEIL policy, 1996, the court approved an agreement between parties to - Florida Power could be assessed up to a maximum of $9.5 provisionally certify this case as a class action suit under the million in any policy year iflosses in excess of NEIL's Age Discrimination in Employment Act. Estimates of the available surplus are incurred. potential liability associated with this lawsuit, if any, remain i Florida Power has never been assessed under these nuclear pending until the final decision on whether to certify the indemnities or insurance policies. .
case as a class action suit has been made. A decision Contaminated Site Cleanup - The Company is subject regarding the class action status is expected in 1998. PROGRE$s43
M G l ' A R I 1. K l i lINAN( l A l. I)AIA i l' N A l' !) I i i l) , THREE MONTHS ENDED UN MWONS, EXCEFT PER S11ARE AMOUNTS) MARCH 31 JUNE 30 SEPT.30 DEC 31 1997 OPERATING RESULTS Revenues $747.5 $797.3 $922.5 $848.3 Income (loss) from operations 95.0 (34.6) 199.0 13.2 Net income (loss) 42.0 (38.2) 102.0 (51.5) DATA PER SHARE Earnings (loss) per common share 0.43 (0.39) 1.05 (0.53) Dividends per common share .525 .525 .525 .525. Common stock price per share: , High 32 % 31 % 33sm 39 % Low 29 % 27 % 31 % 31 % 1996 , OPERATING RESULTS Revenues $730.4 $773.6 $879.0 $774.9 income from operations 107.2 125.0 189.3 60.9 Net income from continuing operations 48.3 58.7 98.1 45.6 Loss from discontinued operations' (25.0) - (1.3) Net income 48.3 33.7 98.1 44.3 DATA PER SH ARE Earnings: Continuing operations .50 .61 1.01 .47 Discontinued operations - (.26) - (.01)
. Consolidated .50 .35 1.01 .46 Dividends per common share .515 .515 .515 .515 Common stock price per share:
High 36 % 34 % 35 % 34 % Low 33 32 % 33 % 3154 - l 71x busines ofFlodda 1%rcr is scasonalin naturr and comparisons ofearnirgsfor tlx quarters do notgive a true indication oforcrall
- l. trrnds and charges in tlx Companfs operations. Effective December 31,1997, tlx Company deconsolidated thefinancialstatemenn ofMid-Continent life Insurance Company and established a provisionfor losfor thefull amount ofin investment. 71x deconsolidation has not been trflected in the consolidated)inancialstatements ofpriorperiods. In 1996, tix direstituir ofEchelon International Corporation is trflected in the losfrom discontinued operations.
e 44 PROGREs1
l R I l'() R I N I K () M M A N A (, i min 1 AND A l' 111 1 O K h Management's Report independent Auditors' Report
~ To Our Sharcholders: To the Shareholders ofFlorida Progress Corporarion:
)
i Management is responsible for the integrity and objectidty We have audited the accompanying consolidated balance of the fmancial and operating information contained in < sheets of Florida Progress Corporation and subsidiaries as of
. consolidated fmancial statements and other sections of this December 31,1997 and 1996, and the related consolidated Annual Report. These statements were prepared in statements ofincome, cash flows, and shareholders' equity
^
accordance with generally accepted accounting principles and for each of the years in the three-year period ended l I , necessarily include amounts that are based on judgments and December 31,1997. These financial statements are the
, estimates by management. responsibility of Florida Progress Corporation's Florida Progress Corporation maintains internal control management. Our responsibility is to express an opinion on systems and related policies and procedures designed to these financial statements based on our audits.
I rovide p reasonable assurance that assets are safe-guarded, We conducted our audits in accordance with generally that transactions are executed as authorized and are properly accepted auditing standards. Those standards require that recorded, and that accounting records may be relied upon we plan and perform the audit to obtain reasonable for the preparation of consolidated financial statements and assurance about whether the fmancial statements are free of other financial information. These policies and procedures material misstatement. An audit includes examining, on a include a Code of Conduct program intended to ensure test basis, evidence supporting the amounts and disclosures employees adhere to the highest standards of personal and in the financial statements. An audit also includes assessing professional integrity. The design, monitoring and revision the accounting principles used and significant estimates made ofinternal control systems involve, among other things, by management, as well as evaluating the overall financial management's judgment with respect to the relative cost and statement presentaten. We beliac that our audits provide a expected benefits of specific control measures. The company - reasonable basis for our opinion.
~
- also maintains an internal auditing function that evaluates In our opinion, the financial statements referred to above and formally reports on the adequacy and effectiveness of present fairly, in all material respects, the financial position of internal controls, policies and procedures. Florida Progress Corporation and subsidiaries as of H i
in addition, the audit committee of the board of directors, December 31,1997 and 1996, and the results of their ! consisting solely of outside directors, meets periodically with operations and their cash flows for each of the years in the management, the internal auditors and the independent three-year period ended December 31,1997,in conformity l auditors to review matters related to internal controls, audit with generally accepted accounting principles. results, financial statements and financial reporting.
. Annually, the audit committee recommends to the board of directors the selection ofindependent auditors. Both the g g p' [ g_p iridependent auditors and the internal auditors periodically St. Pctersburg, Florida meet alone with'the audit committee and have free access to January 26,1998 the committee at any time.
( ; For Management,
'fl Jeffrey R. Heinicka Senior Vice President and ChiefFinancial Officer PROGRE5s45 t-
sF1.E< l I; 11 11A1A Ivv2 Ivv-Annual Growth Rates (in percent) 1992-1997 ,1997 1996 FLORIDA PROGRESS CORPOR ATION ~ Summary of operations (in millions): 6.7 $2,448.4 $2,393.6 Utility revenues . Diversified revenues (continuing) 25.3 867.2 764.3 Income from continuing operations before nonrecurring items 6.7 254.3 252.4 income from continuing operations (21.6) 54.3 250.7 income (loss) from discontinued operations and change in accounting (26.3) Net income (20.9) 54.3 224.4 Balince sheet data (in millions): 3.0 $5,760.0 $5,348.4 _ l E Total assets Capitalization: Short-term capital 5.3 $ 230.0 $ 39.0 Long-term debt 7.6 2,377.8 1,776.9 , Preferred stock (31.1) 33.5 33.5
.4 1,776.0 1,924.2 Common stock equity _
Total capitalization 3.2 $4,417.3 $3,773.6 _ _ F Common stock data: Average shares outstanding (in millions) 2.6 97.1 96.8 Earnings per share: Utility before nonrecurring item 4.5 $2.48 $2.40 Diversified continuing before nonrecurring items (2.6) .14 .21 Consolidated continuing before nonrecurring items 4.0 2.62 2.61 Consolidated continuing (23.6) .56 2.59 f Discontinued operations and change in accounting - (.27) Consolidated (22.9) 0.56 2.?2 Dividends per common share 2.0 2.10 2.06 Dividend payout 375.3 % 88.9 % Dividend yield 5.4%' 6.4% Book value per share of common stock (1.6) $18.30 $19.84 Return on common equity 2.9 % 10.9 % Commori stock price per share: Hige 39h 36h 3 Low 27/4 31% Close 3.8 39h 32h Price earnings ratio (year-end) 70.1 13.9 FLORIDA POWER CORPORATION El:ctric sales billed (millions of KWH): Residential 3.3 15,079.8 15,481.4 . Commercial 4.2 9,257.3 8,848.0 5.2 - 4,187.8 4,223.7 Industrial 4.0 30,850.3 30,784.8 Total retail sales 4.0 33,289.9 33,492.5
- Total electric sales Rtsidential service (average annual):
KWH sales per customer 1.2 12,993 13,560 Revenue per customer 4.8 $1,115 $1,138 R:tio of earnings to fixed charges (SEC method) - 2.75 4.80 Embedded cost of long-term debt (1.4) 7.0% 7.2% Embedded cost of preferred stock (8.8) 4.6% 4.6% Operating data: Net system capability (MW) 2.0 7,717 7,341 Net system peak load (MW) 2.9 8,066 8,807 Construction expenditures (in millions) (3.9) $387.2 $217.3 { Net cash flow to capital expenditures 7.9 76 % 175 % j Average number of customers 2.1 1,314,508 1,292,075 d Number of full-time employees (3.7) 4,799 4,629 i 46 PROGRESS
1995 1994 1993 1992- .. PROTf0T
$2,271.7 $2,080.5 $1,957.0 $1,774.1 736.1 644.8 430.3 281.1 238.9-- 212.0 196.0 183.8
~ 238.9 212.0 196.0 183.8
.6 (8.1) 238.9 212.0 196.6 175.7 -
$5,550.4 $5,453.1 $5,338.0 $4,978.8 . s -
$ 173.7
.$ 99.9 $ 195.2 $ 177.6 i.[ ~ ' .
1,835.2 1,840.5 1,651.3
$,662.3 - /
~ ~ ' ' " " ~
~ 138.5 143.5 148.5 216.0 2,078.1 1,984.4 1,820.5 1,737.6 .
~..
$4,052.6 $4,063.0 $4,004.7 $3,782.5 95.7 93.0 88.3 85.4 - -
'/
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+
81.0% - 87.7 % 87.6 % 93.0 % A- - "w ~ . , 5.7% 6.7% 5.9 % 5.9% :j .,f -
$21.55 $20.85 $20.40 $19.85 8 T .
11.8 %
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G* 14.2- 13.2 15.1 15.8 - p '
- c. ,6 16,938.0 13,863.4 13,372.6 12,825.8 SllRGf PROTfCTION NOW AVAllABlf 8,612.1 8,252.1 7,884.8 7,544.1 2 ,' 2 2 8. 2 .
3 ,402.6- 30,014.6 28,647.8 27,375.5 gis ing them the best surge protection package available. One that includes 13,282 12,597 12,420 12,214
"" "'"#'"""" """'"""^"*"'" # I"' "^"
91,114 $1,038 $983 $884 ****************** our trained electricians ensure that the 4.41 3.90 3.83 3.84 ENERGYSo{,utions~ ,, , _ 7.2% 7.1% 6.8% 7.5% ('..gv) riorida 6.8% 6.8% 6.8% 7.3 % I;$4 $" surge protection. Because you care. l l 7,347 L 7,295 7,563 6,998
$ '83 $!'19 $'62 $ '72 All T0ll-fRff I-888-999-8856 f0R MORf IHf0RMAll0N.
125% 103 % 63 % 52 % 9,271,784 1,243,891 1,214,653 1,182,170 ONLY AVAllABlf T0 fl0EA M 00M10N 0lf>T01E 4,658 4,972 5,807 5,806 ~~'""""""~~"'~""'""~*"*""~'*~'"""""~ PROGRES$ 47
INESTORIUDIMIATIO\ s Stock Plan Common Stock Listed ) The Company ofTers the Progress Plus Stock Plan New York Stock Exchange as an economical, convenient and flexible way to Pacific Stock Exchange purchase shares of Florida Progress common stock. Ticker symbol: FPC Plan participants can purchase stock directly from Newspaper listing: FlaPrg the Company and reinvest all or a portion of their ! quarterly dividends without paying typical 1997 5EC Form 10 K brokerage fees. Those eligible for the plan are: Copies of the Company's 1997 SEC Form 10-K, y
- Registered shareholders of Florida Progress. without exhibits, will be supplied to shareholders
- Nonshareholders who are Florida residents. without charge by directing requests to:
- Employees of the Company and its subsidiaries. Investor Services ,
The plan is ofTered only by means of a Florida Progress Corporation l prospectus, which can be obtained by cont:.cting P. O. Box 14042 (A3C) the Company's transfer agent and registrar. St. Petersburg, FL 33733 , Correspondence and inquiries concerning the (800)937-2640 l plan, dividend checks, address changes, financial l publications and the transfer of common stock Auditors certificates of Florida Progress or preferred stock KPAIG Peat Alarwick LLP certificates of Florida Power should be directed to St. Petersburg, FL l the Company's transfer agent and registrar: BankBoston, N.A. Analysts' Contact c/o Boston EquiSerre Greg Beuris Mail Stop 45-02-64 Investor Relations P O. Box 8040 Boston, MA 02266-8040 (8Ib) Ebb'A041 (S00) 352-1121 Fax (813)86b'4986 PROGRE55PLUS NIS0000000Eillililllilillli l l C m oeat. ou\c.. 57txx nAv Flon.da Progress Corporation l Barnett Tower j One Progress Plaza , St. Petersburg, FL 33701 Common Stock Dividends Record dates are normally on or about the fifth i INTERNET Address: www.f pc.com I day of Alarch, June, September and December. The Florida Progress home page on the { Quarterly dividend checks are mailed to reach shareholders on or about the 20th day of Alarch, Internet's World Wide Web has information about j the holdmg company and its subsidiaries; the ( June, September and December. company stock price, which is updated everv 15 ! minutes; SEC filings, including the 1997 Annual j Report; news releases and market performance. ; I 48 PROGRE($ i s
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working hard to deliver reIlable and eHicient power. Our customers have been able to rely on Florida Power Corporation for over 99 years. Probably has a lot to do with the experience and expertise of our people, not to mention our constant, dependable stream of affordable power. A stream that flows from more than 50 power plants. Quite a number Flon,da considering some power companies only have one. And what :* happens if that plant goes down? Darkness. Whatever that is. $9eEE http:llu'u'tefpc.com
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FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORTS CITY OF BUSHNELL, FLORIDA SEPTEMBER 30,1997 l I' I i i.1 , -
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORTS CITY OF BUSIINELL, FLORIDA SEPTEMBER 30,1997 CONTENTS Page City Council and Officials 1 Independent Auditors' Report 2 General-Purpose Financial Statements Combined Balance Sheet - All Fund Types and Account Groups 3-4 Combined Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Fund Types 5 Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - All Governmental Fund Types 6 Combined Statement of Revenues, Expenses and Changes in Retained Earnings / Fund Balances - Proprietary Fund Types and Similar Trust Funds 7 Combining Statement of Additions, Deletions and Changes in Net Plan Assets 8 Combined Statement of Cash Flows - Proprietary Fund Type - Enterprise Funds 9 Notes to Financial Statements 10-29 Required Supplementary Information - Pension Funds Schedules of Contributions From Employer 30 Schedules of Funding Progress 31 Accompanying Information - Combining and Individual Fund Statements and Schedules General Fund Balance Sheet 32 Statement of Revenues, Expenditures and Changes in Fund Balance 33 1 Statement of Revenues, Expenditures and Changes in Fund Balance - I Budget and Actual 34 Statement of Revenues - Budget and Actual 35-36 Statement of Expenditures - Budget and Actual 37-38 Special Revenue Funds Combining Balance Sheet 39 Combining Statement of Revenues, Expenditures and Changes in Fund Balances . 40 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - CDBG 41
l l l l . FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORTS l l CITY OF BUSHNELL, FLORIDA l SEPTEMBER 30,1997 CONTENTS (Continued) Page Accompanying Information - Combining and Individual Fund Statements and Schedules (Concluded) l Enterprise Funds Combining Balance Sheet 42-43 Combining Statement of Revenues, Expenses and Changes in Retained Earnings 44 Schedule of Revenues, Expenses and Changes in Retained Earnings - Budget and Actual - Electric Utility Fund 45 Schedule of Revenues, Expenses and Changes in Retained Earnings - Budget and Actual - Water Utility Fund 46 Schedule of Revenues, Expenses and Changes in Retained Earnings - Budget and Actual - Sanitation Fund 47 Pension Trust and Agency Funds Statement of Plan Net Assets 48 Statement of Changes in Assets and Liabilities - Agency
' Funds 49 Schedule of State Financial Assistance 50 Independent Auditors' Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of General-Purpose Financial Statements in Accordance With Government Auditing Standards 51-52 Independent Auditors' Report on Examination of Management's Assertion About Compliance With Specified Requirements 53 )
Management Letter 54-55 Management Letter Conunents $6-57 Management Response 58-60 l I l I i
I l' i i-i I t CITY COUNCIL AND OFFICIALS CITY OF BUSHNELL, FLORIDA' SEFFEMBER 30,1997 Mayor-Councilman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joseph P. Strickland, Jr. Vice-Mayor-Councilwoman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. . . . Margaret Theis
' Counc ilman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dale Swain Council man . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Billy Williams Councilman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ronald E. (Ron) Morris City Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vi cente Ruano
. City Clerk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joy Coleman City Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J ames E . Wade, III 1
a Purvis Gray & Comoany INDEPENDENT AUDITORS' REPORT Honorable Mayor and Council Members City of Bushnell Bushnell, Florida We have audited the accompanyin6 general-purpose financial statements of the City of Bushnell, Florida as of and for the year ended September 30, 1997, as listed in the table of contents. These general-purpose financial statements are the responsibility of the City of Bushnell, Florida's management. Our responsibility is to express an opinion on these general-purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general-purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general-purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the general-purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Bushnell, Florida as of September 30,1997, and the results of its operations and changes in cash flows of its proprietary fund types for the year then ended H conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated December 23, 1997, on our consideration of the City of Bushnell, Florida's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Our audit was made for the purpose of forming an opinion on the general-purpose financial statements taken as a whole. The combining and individual fund and account group statements and schedules listed as accompanying information in the table of contents are presented for purposes of additional analysis and are not a required part of the general-purpose financial statements of the City of Bushnell, Florida. Such information has been subjected to the auditing procedures applied in the audit of the general-purpose financial statements and, in our opinion, is fairly presented in all material respects in relation to the general-purpose financial statements taken as a whole. 1 December 23,1997 - Ocala, Florida M/ Certified PubilC ACCo Jntants P.O. Box 23999 e 222 N.E.1st Street e Gainesville, Marida 32602 e (352) 378-2461 e FAX (352) 378-2505 Laurel Ridge Professional Center
- 2347 S E.17th Street . OCala. Florida 34471 (352) 732-3872 e FAX (352) 732-0542 443 East College Avenue Tallahassee, Florida 32301 (850) 224-7144 FAX (850) 224-1762 2831 Ringting Boulevard, Unit 106-B e Sarasota, Florida 34236 (941) 365-3774 FAX (941) 365-0238 l MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBUC ACCOUNTANTS
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I COh1BlNED STATEnfENT OF REVENUES, EXPENDITURES AND CIIANGES IN FUND BALANCES ALL GOVERNh! ENTAL FUND TYPES FOR TIIE YEAR ENDED SEPTEnfBER 30,1997 CITY OF BUSIINELL, FLORIDA Governmental Fund Types Totals Special (Memorandum Only) General Revenue 1997 1996 g Revenues g Taxes $ 577,880 $ 0$ 577,880 $ 536,217 Licenses and Permits 14,891 0 14,891 21,940 Intergovernmental 385,963 0 385,963 387,764 Grant Revenue 24,297 209,387 233,684 119,076 Charges For Services 3,074 0 3,074 750 Fines and Forfeitures 34,834 0 34,834 37,014 g > Interest and Miscellanu;us $9,979 52,398 112,377 __ 150,006 g Total Revenues 1,100,918 261,785 , 1,362,703 1,252,767 Expenditures Curn'nt: General Government 279,604 0 279,604 317,049 PuMic Safety 469,726 0 469,726 439,703 15,810 242,299 258,109 62,017 l su Physical Environment Transportation 201,320 0 201,520 208,376 Economic Environment 13,000 0 23,000 12,250 g Culture and Recreation 289,541 0 289,541 225,620 g (Total Expenditures) (1,269,201) (242,299) (1,511,500) (1,265,015) (Deficiency) Excess of Revenues (Under) Over Expenditures (168,283) 19,486 (148,797) (12,248) Other Financing Sources Operating Transfers in 222,000 0 222,000 217,000 Excess of Revenues and Other g Financing Sources Over Expenditures 53,717 19,486 73,203 204,752 E Fund Balances Beginning of Year 718,807 343,299 1,062,106 857,354 Fund Balances, End of Year S 772,524 $ 362,785 S 1,135,309 $ 1,062,106 I I I See accompanying notes. 5
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1 I COMBINED STATEMENT OF REVENUES, EXPENSES AND gI CIIANGES IN RETAINED EARNINGS / FUND BALANCES E PROPRIETARY FUND TYPES - ENTERPRISE FOR TIIE YEAR ENDED SEPTEMBER 30,1997 CITY OF BUSIINELL, FLORIDA Totals (As Adjusted) 1997 1996 Operating Revenues Charges For Services $ 2,372,418 $ 2,257,950 Operating Expenses Demand and Energy Charges 964,716 908,187 CR-3 Operations and Maintenance 75,358 74,180 Salaries 215,449 218,573 Employee Benefits 88,083 -99,984 ' Professional Services - 45,378 67,571 Operating Supplies 36,231 41,664 Other Current Charges 96,169 81,554 Depreciation 190,996 182,300 Landfill 108,432 108,672 (Total Operating Expenses) (1,820,812) (1,782,685) Operating Income 551,606 475,265 l Nonoperating Revenues (Expenses) Interest Income 33,809 26,289 Interest Expense . (33,153) (34,492) g Total Nonoperating Revenues E (Expenses) 656 (8,203) Net Income Before Transfers 552,262 467,062 Other Financing (Uses) Operating Transfers Out (222,000) (217,000) Net Income 330,262 250,062 1 Retained Earningr/ Fund Balances, Beginning of Year 1,965,361 1,733,325 I l Retained Earnings / Fund Balances, End of Year $ 2,295,623 $ 1,983,387 l I See accompanying notes. I 7 I
COMBINING STATEMENT OF ADDITIONS, DELETIONS AND CIIANGES IN NET PLAN ASSETS PENSION TRUST FUNDS FOR TIIE YEAR ENDED SEPTEMBER 30,1997
- CITY OF BUSHNELL, FLORIDA General Police Employees' OIYicers' Totals <
Retirement Retirement (Memorandum Only) l Fund - Fund 1997 1996 Additions , Contributions: l Employer $ 3,303 $ 5,650 $ 8,953 $ 3,316 { Employee 0 220 220 0 l State 0 8,422 8,422 0 l Misec11aneous 30 55 85 0 1 Total Additions 3,333 14.347 17,680 3,316 Deletions Pension Benefit Payments 0 0 0 0 General and Administrative 0 0 0 0 (Total Deletions) 0 0 0 0 Net Increase 3,333 14,347 17,680 3,316 Net Assets Held in Trust For Pension Benefits: October 1,1996 879 2,437 3,316 0 September 30,1997 5 4,212 5 16,784 $ 20,996 $ 3,316
)
l l i See accompanying notes. 8
I COMBINED STATEMENT OF CASII FLOWS PROPRIETARY FUND TYPE - ENTERPRISE FUNDS FOR TIIE YEAR ENDED SEPTEMBER 30,1997 CITY OF BUSIINELL, FLORIDA Total (Memorandum g Only) g 1997 1996 Cash Flows From Operating Activities Operating Income $ 551,606 $ 457,239 Adjustments to Reconcile Operating income to i@t Cash Provided By Operating Activities: Depreciation of Plant and Amortization 190,996 182,300 g Change in Current Assets - (Increase) Decterse: 3 Accounts Receivable and Unbilled Revenue (102,004) (49,648) Due From Other Funds (20,440) 828 g Other Assets 1,865 817 g Inventory (37,712) (22,770) Change in Current Liabilities - Increase (Decrease): Accounts Payable and Other Accrued Expenses 14,189 (489) l Other Accrued Expenses 4,235 2,721 W Due to Other Funds 28,066 (5,161) Accrued Compensated Absences 7,256 7,078 g Deferred Credit (12,143) 527 g Customer Deposits 2,250 5,013 Net Cash Provided By Operating Activities 628,164 578,455 Cash Flows From Noncapital Financing Activities Operating Transfers Out to Other Funds (222,000) (217,000) i Cash Flows From Capital and Related Financing Actisities Acquisition and Construction of Capital Assets (315,637) (118,264) Principal Payments and Bonds (95,612) (133,724) g l Interest Paid (34,613) (35,770) 1,187 g l Contributed Capital 0 Net Cash (Used In) Capital and Related Financing Activities (445,862) (286,571) l Cash Flows From Investing Activities W l Interest Received 33,809 26,289 l Net (Decrease) Increase in Cash and Cash Equivalents (5,889) - 101,173 Cash and Cash Equivalents, Beginning of Year 1,023,075 921,902 Cash and Cash Equivalents, End of Year $ 1,017,186 5 1,023,075 Presented in the Accompanying General-Purpose Financial Statements as: Unrestricted Cash $ 508,769 $ 544,039 l Restricted Cash 508,417 479,036 E Total Cash $ 1,017,186 $ 1,023,075 I Se.a - a. - g 9 I
1 NOTES TO FINANCIAL STATEMENTS (- CITY OF BUSIINELL, FLORIDA Note 1 - Summary of Significant Accounting Policies The City of Bushnell, Florida (the City) was incorporated in 1911. The City operates under , a council-manager form of government and provMes services to its residents in many areas, l including public safety (police and fire), highways and streets, utilities, sanitation, culture and ! recreation, public improvements, and general administrative services. i. The financial statements of the City have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standnd-setting body for establishing i' ! governmental accounting and financial reporting princip!cs. The more significant 'of the City's accounting principles are described below: l Reporting Entity , In evaluating how to define the City for financial reporting purposes, management has ! considered all potential component units. The decision to include a potential component unit i in the reporting entity was made by applying the criteria set forth in GASB Statement No.14, j The FinancialReporting Entity. The definition of the reporting entity is based primarily on l the concept of financial accountability. The City is financially accountable for the j
- organizations that make up its legal entity. It is also financially accountable for legally )
- separate organizations if its officials appoint a voting majority of the organization's governing i body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific fm' ancial benefits to, or to impose specific financial burdens on, the City. The City may also be financially accountable for governmental organizations ;
that are fiscally dependent upon the City. Based upon the application for these criteria, the ] Evergreen Cemetery was considered a component unit of the City. l e Evergreen Cemetery Fund I A Board of Trustees was created by City ordinance and is appointed by the City Council ; to administer the affairs of Evergreen Cemetery. One member of the City Council must be on the Board of Trustees. The Board of Trustees is authorized to sell cemetery lots i and to invest proceeds which are legally restricted by ordinance. The principal is not subject to expenditure and the interest can be used only for operations, maintenance and improvement of the cemetery. The Evergreen Cemetery is a blended component unit and is included in the City's reporting entity as a special revenue fund. Fund Accounting The City uses funds and account groups to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid ! financial management by segregating transactions related to certain government functions or activities. l I A fund is a separate accounting entity with a self-balancing set of accounts. Funds are classified into three categories: governmental, proprietary and fiduciary. Each category, in turn, is divided into separate " fund types." 10 l l
NOTES TO FINANCIAL STATEMENTS g CITY OF DUSIINELL, FLORIDA E (Continued) Note 1 - Sununary of Significant Accounting Policies (Continued)' Fund Accounting (Concluded) Governmental funds are used to account for all or most of a government's general activities. Governmental funds of the City are as follows: a General Fund - The general fund is the general operating fund of the City. It is used to account for all financial resources, except those required to be accounted for in au ther fund. a Special Revenue Funds - The special revenue funds are used to accoum for the proceeds I of specific revenue sources (other than expendable trusts, or for major capital projects) that are legally restricted to expenditures for specific purposes. The City operates two special revenue funds (the Evergreen Cemetery and Community Development Block Grant funds). Proprietary funds are used to account for activities similar to those found in the private sector, where the determination of net income is necessary or useful to sound finan:ial administration. Proprietary funds of the City are as follows: i a Enterprise Funds - The enterprise funds are used to account for activities that are l operated in a manner similar to private businesses where the cost of providing goods and g l services are primarily recorded through user charges. The City coerates electric, water 3 and sanitation enterprise funds. l Fiduciary funds are used to account for assets held on behalf of outside parties, including other governments, or on behalf of other funds within the government. m Agency Fund - The agency fund generally is used to account for assets that the government holds on behalf of others as their agent. The City operates a deferred compensation agency fund. e Trust Funds - The City operates a separate trust fund for both the general employees' and police officers' retirement funds. An account group, unlike a fund, is a financial reporting device designed to provide I accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect net expendable available financial resources. Account groups maintained by the City are as follows: u General Fixed Assets - Account for property and equipment not used in proprietary fund type operations or accounted for in trust funds. m General Long-Term Debt - Accounts for umnatured principal of long-term general g obligation indebtedness that is not a specific liability of a proprietary or fiduciary fund 5 type. 11 I
l NOTES TO FINANCIAL STATEMENTS i CITY OF BUSIINELL, FLORIDA l (Continued) l I Note 1 - Summary of Significant Accounting Policies (Continued) Basis of Accounting and Measurement Focus l The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current l liabilities generally are included on the balance sheet. Operating statements of these funds
. present increases (i.e., revenues and other financing sources) and decreases (i.e., expenses and other fm' ancing uses) in net current assets.
All proprietary fund types are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the balance sheet. Fund equity (i.e., net total assets) is segregated into contributed capital and retained earnings components. Proprietary fund type operating statements present increases (e.g., revenues) and decreases (e.g., expenses) in net total assets. 1 The modified accrual basis of accounting is used by all governmental fund types and agency { funds. Under the modified accrual basis of accounting, revenues are recognized when l susceptible to accrual (i.e., when they become both measurable and available). " Measurable" I means the amount of the transaction can be determined and "available" means collectible j within the current period or soon enough thereafter to be used to pay liabilities of the current j period. l The following revenues are considered to be susceptible to accrual: ! Cigarette Tax Property Taxes State Revenue Sharing Proceeds Franchise Taxes Mobile Home License Tax Utility Service Taxes Alcoholic Beverage License Tax Interest Revenue Half-Cent Sales Tax 1 I Expenditures are recorded when the related fund liability is incurred. Principal and interest ; on general long-term debt are recorded as fund liabilities when due. I i The accrual basis of accounting is utilized by proprietary fund types. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Pursuant to GASB Statement No. 20, the City has elected not to apply all Financial Accounting Standards Board (FASB) Statements and Interpretations issued after November 30, 1989, for proprietary fund type activities. Billing cycles of the proprietary funds which ! overlap September 30 are prorated based upon meter reading dates. The City reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meet both the " measurable" and "available" criteria for recognition in the current period. Deferred revenues also arise when resources are received 12 lL
i I l NOTES TO FINANCIAL STATEMENTS CITY OF BUSIINELL, FLORIDA (Continued) Note 1 - Summary of Significant Accounting Policies (Continued) m Basis of Accounting and Measurement Focus (Concluded) g by the government before it has a legal claim to them, as when grant monies are received 3 prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the government has a legal claim to the resources, the 3 liability for deferred revenue is removed from the combined balance sheet and revenue is E recognized.
'gets ets are adopted on a basis consistent with generally accepted accounting principles, t that the provision for depreciation expense is not included in the budget of the poprietary funds. Annual appropriated budgets are adopted for the general fund. Annual appropriations lapse at fiscal year end. The 1997 annual operating budget was prepared for all funds, except the following:
a Evergreen Cemetery Fund - This fund was not budgeted for in 1997 by the City Council. I m Pension Trust and Agency Funds - These funds were not budgeted for in 1997 by the City Council. l Encumbrance accounting, under which purchase orders, contracts, and other commitments are E recorded as expenditures in order to reserve that portion of the applicable appropriation, is 5 not employed by the City for budgetary purposes. Cash and Cash Equivalents Cash includes amounts in demand deposits, as well as short-term investments with a maturity date within three months of the date acquired by the City. mm g1 Short-Term Interfund Receivables /Payables During the course of operations, numerous transactions occur between individual funds for g goods provided or services rendered. These receivables and payables are classified as "due to/from other funds" on the balance sheet. 3' Inventory Inventories held by the enterprise funds are stated at cost or market, whichever is lower. Prepaid Items Payments made to vendors for service that will benefit periods beyond September 30,1997, are recorded as prepaid items. Property, Plant and Equipment Property, plant and equipment used in governmental fund type operations are accounted for in the general fixed assets account group, rather than in governmental furids. No depreciation has been provided on such property, plant and equipment. 13
NOTES TO FINANCIAL STATEMENTS CITY OF BUSilNELL, FLORIDA (Continued) Note 1 - Sununary of Significant Accounting Policies (Continued) Property, Plant and Equipment (Concluded) All property, plant and equipment are valued at historical cost or estimated historical cost, if actual historical cost is not available. Donated property, plant and equipment are valued at their estimated fair value on the date donated. The City has adopted the accounting policy of not capitalizing " infrastructure" general fixed assets (road, bridges, curbs and gutter, streets and sidewalks, drainage system, lighting systems and similar assets that are immovable and of value only to the City). Depreciation is provided in the enterprise funds in amounts sufficient to relate the cost of the depreciable assets to operations over their estimated service lives on the straight-line basis. The service lives by type of asset are as follows: Useful Lives In Years Electric Utility Fund Distribution Plant 25-40 Years Structures and Improvements 32 Years Equipment 6-12 Years Investment in Crystal River #3 Nuclear Plant 28 Years Water Utility Fund Distribution Plant 25-101 Years Building 50 Years Equipment 25 Years Sanitation Fund Equipment 7 Years Bond Discounts and Issuance Costs Bond discounts and issuance costs for proprietary fund types are deferred and amortized over the term of the bonds using the straight-line amortization method which produces a result not significantly different from the interest method. Bond discounts are presented as a reduction of the face amount of bonds payable, whereas issuance costs are recorded as deferred charges. Compensated Absences Vested or accumulated vacation leave that is expected to be liquidated with expendable available financial resources is reported as an expenditure and a fund liability of the governmental fund that will pay it. Amounts of vested or accumulated vacation leave that are not expected to be liquidated with expendable available financial resources are reported in the general long-term debt account group. No expenditure is reported for these amounts. Vested or accumulated vacation leave of proprietary funds is recorded as an expense and liability of those funds as the benefits accrue to employees. In accordance with the provision of Statement of Financial Accounting Standards (SFAS) No. 43, Accountingfor Compensated 14
I NOTES TO FINANCIAL STATEMENTS CITY OF BUSHNELL, FLORIDA (Continued) l Note 1 - Summary of Significant Accounting Policies (Concluded) Compensated Absences (Concluded) g Absences, no liability is recorded for nonvesting accumulating rights to receive sick pay E benefits. However, a liability is recognized for that portion of accumulating sick leave benefits that is estimated will be taken as " terminal leave" prior to retirement. Interfund Transactions l Quasi-external transactions are accounted for as revenues, expenditures or expenses. l Transactions that constitute reimbursements to a fund for expenditures / expenses initially made from it that are properly applicable to another fund, are recorded as expenditures / expenses ! in the reimbursing fund and as reductions of expenditures / expenses in the fund that is ! reimbursed. l All other interfund transactions, except quasi-external transactions and reimbursements, are l reported as transfers. Nonrecurring or nonroutine permanent transfers of equity are reported l as residual equity transfers. All other interfund transfers are reported as operating transfers. l Grants - Proprietary Funds g Unrestricted grants, entitlements or shared revenues received are reported as nonoperating W revenues. Such resources externally restricted for capital acquisitions or construction are reported as contributed capital. Operating expenses include depreciation on all depreciable g fixed assets (including those financed by grants). 3 Water Line Extension Charges g Water line extension charges are made to customers to cover the full cost of the addition. E Such charges are recorded as an equity contribution. Costs of the extension are reported as property and equipment and depreciated over the estimated useful life of the asset. Fund Equity Contributed capital is recorded in proprietary funds that have received capital grants or contributions from developers, customers or other funds. Reserves represent those portions of fund equity not appropriable for expenditures or legally segregated for a specific future use. Tval Columns on Combined Statements - Overview I Totai columns on the combined statements - overview are captioned " Totals (Memorandum Only)" te indicate they are presented only to facilitate financial analysis. Data in these columns tre not comparable to a consolidation. Interfund transactions are not eliminated. Comparasive Data Comparative total data for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the City's financial position and operations. However, comparative data have not been presented in all statements because g their inclusion would make certain statements unduly complex and difficult to understand. 5 15
l NOTES TO FINANCIAL STATEMENTS i CITY OF BUSIINELL, FLORIDA (Continued) Note 2 - Legal Compliance - Budgets Prior to October 1, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing on October 1. The operating budget includes proposed expenditures and the means of financing them. After submission of the proposed operating budget, workshops are held and public hearings are conducted to obtain taxpayer comments. Prior to October 1, the budget is legally enacted through passage of a resolution. Any transfers of budgeted amounts between departments within any fund and any revisions that alter the total expenditures of any fund must be approved by the City Council. Budgeted amounts presented agree with the original adopted budget as amended during the year by the City Council. I Note 3 - Prior Period Adjustment - Water Utility Fund The 1996 totals and beginning 1997 retained earnings were restated in the water utility fund I through a prior period adjustment. This adjustment, caused by an accounting misposting, reduced net income by $18,026 in the prior year. Note 4 - Deposits and Investments Deposits l At year end, the carrying amount of the City's cash deposits was $1,795,781 and the bank balance was $1,961,140. All cash deposits were held in qualified public depositories and were covered by federal depository insurance or by a state collateral insurance pool in I accordance with Chapter 280, Florida Statutes. Investments I Governmental investments are generally required to be categorized as either: (1) insured or registered for which the securities are held by the City or its agent in the City's name; (2) uninsured and unregistered for which the securities are held by the broker's or dealer's trust I department or agent in the City's name; or (3) uninsured and unregistered for which the securities are held by the broker or dealer, or by its trust department or agent, but not in the City's name. Investments in the deferred compensation plan and external investment pools are not required to be classified as to credit risk. All other City investments are limited to certificates of deposit and are classified as cash deposits, as discussed in the preceding paragraph. I Note 5 - Property Taxes Under Florida law, the assessment of all properties and the collection of all county, municipal and school board property taxes are consolidated in the offices of the County Property Appraiser and the County Tax Collector. The laws of the state regulating tax assessment are also designed to assure a consistent property valuation method statewide. Florida Statutes permit municipalities to levy property taxes at a rate of up to 10 mills. The millage rate assessed by the City for the fiscal year ended September 30,1997, was 2.352. I 16 m f
~
- f. 1 NOTES TO FINANCIAL STATEMENTS I j
' CITY OF BUSIINELL, FLORIDA (Continued) Note 5 - Property Taxes (Concluded) 5 l All property is assessed according to its fair market value on January 1 of each year. Each 3 ! assessment roll is submitted to the Executive Director of the Florida Department of Revenue E i for review to determine if the rolls meet all of the appropriate requirements of Florida Statutes. The current year taxes for the fiscal year, beginning October 1, are billed in the month of November and are due no later than March 31. On April 1, all unpaid amounts become g delinquent and are subject to interest and penalties. Discounts are allowed for early payment g as follows: November 4% December 3% January 2%
~ February 1%
March 0% l Delinquent taxes on real property bear interest of 18% per year. On or prior to June 1 of the I following tax year, certificates are sold for all delinquent taxes on real property. After sale, g l tax certificates bear interest of 18% per year or at any lower rate bid by the buyer. 5 Application for a tax deed on any unredeemed tax certificates may be made by the certificate holder after a period of two years. Delinquent taxes on personal property bear interest of 18% per year until the tax is satisfied either by seizure and sale of the property or by the five-year statute of limitations. The amount of delinquent or uncollected property taxes at year end was immaterial. The City's tax calendar is as follows: Valuation Date: January 1 Levy Date: November 1 Due Date: March 31, Succeeding Year Lien Date: April 1, Succeeding Year Note 6 - Bond Service Requirements / Restricted Assets , Nuclear Decommissioning The Florida Public Service Commission requires utilities to set aside monies to pay the estimated future cost of dismantling or decommissioning nuclear power plants. The City has set aside such monies in the custody account with a third party trustee. 17 I L_
{ NOTES TO FINANCIAL STATEMENTS
, CITY OF BUSHNELL, FLORIDA (Continued)
Note 6 - Bond Service Requirements / Restricted Assets (Concluded) Utilities System Revenue Bonds, Series 1976 As of September 30, 1997, bond service requirements are current. The following is a summary of the restricted assets related to the Utilities System Revenue Bonds, Series 1976: a Revenue Bonds Debt Service - The City deposits cash monthly into a separate account to fund upcoming principal and interest payments in accordance with the bond resolu,'on. Such cash and investments are ,eported as restricted assets, a Renewal and Replacement - T1 e bond resolution requires a monthly deposit for renewal and replacement (extensions, enlargements or additions to,' or the replacement of capital assets of the facilities and emerp,ency repairs thereto or unusual costs of operation and maintenance). The required mor thly contribution is computed at one-twelfth of 9% of the prior year's gross revenue; however, no further deposits are required when the balance on hand equals 10% of the outstanding principal balance of the revenue bonds. t Customer Deposits Customer deposits have been restricted to indicate the amount is not available for the financing of current utility operations. t Note 7 - Property, Plant and Equipment l A summary of changes in general fixed assets follows: Balance Balance 10/1/96 Additions (Disposals) 9/30/97 Land S 486,786 S 0$ (616) S 486,170 l Buildings 173,247 101,383 0 274,630 ; Improvements 405,026 68,844 0 473,870 i Machinery and Equipment 711,905 66,486 .(28,168) 750,223 Total S 1,776,964 5 236,713 S (28,784) $ 1,984,893 i A summary of proprietary fund type property and equipment at September 30,1997, follows: Electric Water Utility Utility Sanitation Fund Fund Fund Total Land $ 2,300 $ 18,090 $ 0$ 20,390 Distribution Plant 1,290,296 1,012,212 0 2,302,508 l Buildings 217,044 439,541 0 656,585 288,081 485,996 209,960 984,037 ( Equipment Crystal River III investment 336,148 0 0 336,148 2,133,869 1,955,839 209,960 4,299,668 (Accumulated Depreciation) (804,122) (606,945) (153,038) (1,564,105) Total $ 1,329,747 $ 1,348,894 5 56,922 $ 2,735,563 18 l
l l I l NOTES TO FINANCIAL STATEMENTS CITY OF BUSIINELL, FLORIDA (Continued) Note 8 - Long-Term Debt The following is a summary of the bonds payable and general long-term debt: Proprietary Fund Long-Term Debt a Utility System Revenue Bonds, Series 1976 - $500,000 The 1976 bonds are coupon bonds in denominations of $5,000 each and are collateralized by a pledge of the gross revenues of the utilities system. The bond liability is recorded according to use of the original proceeds as follows: Electric Utility Fund 86 % Water Utility Fund 14 % I Combined bond maturities and interest rates are as follows: Electric Water Total Maturity Coupon Utility Utility Principal April 1, Rate Fund Fund Amount g Total Principal Balance g Outstanding - Term Bonds 1998 7.3 % $ 81,700 $ 13,300 $ 95,000 (Unamortized Discount (1,648) l
=
and Issue Cuts) (1,418) (230) Total $ 80,282 $ 13,070 $ 93,352 Total Remaining Interest S 6,121 $ 997 5 7,118 Subsequent to fiscal year 1996-97, the City paid the remaining balance owed on the term bonds prior to their original maturity dates. m Water Fund - Florida Municipal Power Agency (FMPA) -Initial Pooled Loan Project i The City has entered into a financing agreement with the FMPA. Interest is payable monthly at a variable rate (currently 4.0% plus a 1.15 % administration fee) and principal is due as follows: I I 19 I
l 1 NOTES TO FINANCIAL STATEMENTS f CITY OF BUSHNELL, FLORIDA (Continued) Note 8 - ' Long-Term Debt (Continued) Proprietary Fund Long-Term Debt (Continued) a Water Fund - Florida Municipal Power Agency (FMPA) -Initial Pooled Loan Project (Concluded) Electric Water Year Ending Utility Utility Total 9/30 Fund Fund Principal 1998 $ 26,205 $ 13,795 5 40,000 3 1999 26,205 18,795 45,000 l 2000 30,573 19,427 50,000 l 2001 30,572 19,428 50,000 ] 2002 15,000 15,000 2003 15,000 15,000 2004 20,000 20,000 2005 20,000 20,000 2006 20,000 20,000 2007 20,000 20,000 2008 25,000 25,000 2009 25,000 25,000 2010 25,000 25,000 2011 26,000 26,000 Total $ t 13,555 $ 282,445 $ 396,000 m Water Fund Note Payable - AmSouth Bank of Florida During the 1994-95 fiscal year, the City borrowed $150,000 from AmSouth Bank of Florida to finance construction of 5,800 feet of water main extension along State Road 48. This note is uncollateralized with monthly payments of principal and interest beginning on j July 2,1995, and ending on June 2,2005 (120 payments). The interest rate on the note j is fixed at 5.98% per annum, with total monthly payments being $1,663.82. The City I made a $50,000 early payment on the note principal in March 1996. Annual requirements for the note are as follows: i Principal Interest Total 1998 $ 14,922 $ 3,380 S 18,302 1999 17,263 2,703 19,966 2000 18,324 1,642 19,966 2001 17,446 518 17,964 Total $ 67,955 $ 8,243 $ 76,198 i i I 20
I NOTES TO FINANCIAL STATEMENTS CITY OF BUSIINELL, FLORIDA (Continued) Note 8 - Long-Term Debt (Continued) Proprietary Fund long-Term Debt (Concluded) a Sanitation Fund Loan - First Union National Bank During the 1993-94 fiscal year, the City borrowed $40,000 from First Union National E Bank to purchase a garbage truck. This loan is collateralized by the garbage truck and has E a fixed interest rate of 4.33 % per annum. Monthly payments of $751.74 began on May 8, 1993, and end on April 8,1998 (60 payments). Annual requirements for the loan are as g follows: g Principal Interest Total 1998 $ 4,544 $ 63 $ 4,607 I General Long-Term Debt Principal Balance 9/30/97 Note Payable - Bank, Unsecured, Due in Monthly Payments of $1,597 Including Interest at 5% $ 109,291 Accumulated Unpaid Vacation and Sick Pay Accrual 66,920 Capital Lease Obligation, Collateralized By a Fire Truck (With a Cost Carrying Value of $123,000), Due in Semiannual Installments of $8,771 Which g Includes Interest at 7.2% 72,576 g Total General Long-Term Debt $ 248,787 During the year ended September 30,1997, the following changes occurred in the liability reported in the general long-term debt account group: I I Balance Balance 10/1/96 Additions (Reductions) 9/30/97 Note Payable $ 123,422 $ 0$ (14,131) $ 109,291 Accumulated Unpaid Vacation and Sick Pay Accrual 59,375 7,545 0 66,920 Capitalized Lease Obligation 84,257 0 (11,681) 72,576 i Total $ 267,054 $ 7,545 $ (25,812) $ 248,787 l I 21 I I
NOTES TO FINANCIAL STATEMENTS CITY OF BUSHNELL, FLORIDA (Continued) Note 8 - Long-Term Debt (Concluded) General Long-Term Debt (Concluded) The following is a schedule of the maturity of the note payable - bank: Year Ending Total 9/30 Principal Interest Payments 1998 $ 13,971 $ 5,187 $. ^19,158 1999 14,686 4,472 19,158 2000 15,437 3,721 19,158 2001 16,227 2,931 19,158 2002 17,057 2,101 19,158 2003 17,930 1,228 19,158 2004 13,983 325 14,308 Total $ 109,291 $ 19,965 $ 129,256 The following is a schedule of maturity of the capital lease obligation entered into by the City: Year Ending Total 9/30 Principal Interest Payments 1998 $ 12,538 $ 5,003 $ 17,541 ; 1999 13,456 4,085 17,541 ) 2000 14,443 3,098 17,541 ! I 2001 15,501' 2,040 17,541 2002 16,638 903 17,541 Total $ 72,576 $ 15,129 $ 87,705 Note 9 - ' Compensated Absences Accumulated unpaid vacation and sick pay benefits are accrued when incurred in proprietary funds. Such amounts are not accrued in governmental funds. At September 30,1997, the general long-term debt group of accounts included $66,920 vacation and sick pay. Accumulated unpaid vacation and sick pay in enterprise funds are as follows at September 30: 1997 _ 1996 Electric Utility Fund $ 26,866 $ 23,277 Water Utility Fund 19,119 16,689 l Sanitation Fund 5,230 3,992 Total $ 51,215 $ 43,958 ( l 22
I NOTES TO FINANCIAL STATEMENTS g CITY OF BUSIINELL, FLORIDA e (Continued) Note 9 - Compensated Absences (Concluded) City policy as of September 30,1997, is to vest up to a maximum accumulation of 1,040 g hours of sick leave. Upon voluntary termination,50% of the accumulated hours are paid to g the employee (75% for long-term employees with twenty or more years of full-time service). The City accrues 100% of unpaid vacation pay and 50% of accumulated unpaid sick pay at the employee's current pay rate. Note 10 - Electric Power Agreements Crystal River Power Unit #3 Participation Agreement The City is a participant in an agreement with Florida Power Corporation, which was entered into on July 31, 1975. Under terms of the agreement, the City acquired a 0.0388% ownership interest and generation entitlement share in the nuclear steam electric generating unit. Participants are entitled to energy output of the unit based upon their respective ~ generation entitlement share. Florida Municipal Power Agency (FMPA) l The City is a member of the FMPA, which is a joint action agency formed by a number of B Florida municipalities for the purpose of providing electric power alternatives for its members. FMPA is a nonprofit, joint action agency formed pursuant to Florida Statutes. FMPA has the authority to undertake joint power supply projects and to issue tax-exempt bonds or other obligations to finance or refinance the costs of such projects. Due to the diverse needs of Florida's municipal electric systems, FMPA was established as g a project-oriented agency. Under this structure, each member has the option whether or not g to participate in a project. Members may choose to participate in more than one project; however, each of the FMPA's five projects is independent from the other, and no revenues or funds available from one project can be used to pay the costs of any other project. The City has elected to participate in the " All Requirements Project," which supplies all the j City's power requirements, in addition, the City has elected participation in the " Pooled Loan Project" in which FMPA issues debt, then loans the money to individual systems to finance utility related projects. I Note 11 - Defined Benefit Pension Plans Florida State Retirement System All full-time employees of the City hired prior to January 1,1996, participate in the Florida State Retirement System (the System). This System was created by the Florida Legislature 23
NOTES TO FINANCIAL STATEMENTS CITY OF BUSIINELL, FLORIDA (Continued) Note 11 - Defined Benefit Pension Plans (Continued) Florida State Retirement System (Continued) and is a cost-sharing, multiple-employer defined benefit public retirement plan available to governmental units within the state of Florida. The System issued a publicly available financial report that includes financial statements and required supplementary information for I the System. That report may be obtained by writing to the Florida Retirement System, Division of Retirement, 2639-C North Monroe Street, Tallahassee, Florida 32399-1560, or by calling (850) 488-5706. I All full-time employees of the City hired prior to January 1,1996, are eligible to participate in the System. Special risk employees who retire at or after age 55, with ten years of I creditable service; and all other employees who retire at or after age 62, with ten years of creditable service; are entitled to a retirement benefit, payable monthly for life, equal to the product of: 1) average monthly compensation in the highest five years of creditable service;
- 2) creditable service during the appropriate period; and 3) the appropriate benefit percentage.
I Benefits fully vest on reaching ten years of service. Vested employees may retire after ten years of creditable service and receive reduced retirement benefits. The System also provides death benefits, disability benefits and annual cost-of-living adjustments. Benefits are established by Florida Statute. The funding methods and the determination of benefits payable are provided in various acts I of the Florida Legislature. These acts provide that employers, such as the City, are required to contribute 17,43% of the compensation for regular members,27.10% for special risk, and 22.24% for senior management. The City's contributions to the System for the years ended I September 30,1997,1996, and 1995, were as follows, equal to the required contributions for each year. I Year Amount 1997 $ 113,744 1996 $ 115,281 1995 $ 116,914 I Florida State Retirement System Opt-Out In December 1995, the City Council approved opting out of the Florida State Retirement System effective with all new employees hired after January 1,1996. City employees covered I under the System at December 31,1995, will continue to participate in the state System and the City will continue to make contributions on their behalf. I I 24 1 L w
I NOTES TO FINANCIAL STATF31ENTS CITY OF BUSIINELL, FLORIDA (Continued) Note 11 - Defined Benefit Pension Plans (Continued) Pension Trust Funds g a Plan Description W In January 1996, the City adopted two separate single-employer pension plans, one for police officers and a general employees' retirement plan that covers substantially all full- g time City employees employed after January 1,1996, pursuant to the City's opt out of the g Florida Retirement System. These plans are maintained as pension trust funds and included as part of the City's reporting entity. City ordinance and state law requires E contributions to be determined by actuarial studies every three years. Both plans had g actuarial studies performed on a pro forma basis imrrediately prior to plan adoption, but not since then. Stand-alone financial reports are not issued. The general employees' retirement plan covers all full-time employees, except for police I officers. The plan is noncontributory, and the City provides the full contribution to fund the plan. The annual pension cost related to the plan includes amortization, over a thirty-year period, of a prior service cost established October 13, 1995. The police officers' retirement plan covers all full-time police officers. The plan is contributory and requires participante to contribute 1% of their salary to the plan. The City provides the balance of contributions required after the participants' contributions. In addition, state funds collected under Florida Statutes Chapter 175 and 185 are E contributed to the plan. The pension cost of the Police Officers' Retirement Plan includes 5 the amortization, over a thirty-year period, of prior service costs established October 13, 1995. Substantially all full-time City employees hired on or after January 1,1996, are eligible to participate in their respective plans. Benefits vest after ten years of credited service for all employees. In 1995, an actuarial study was performed before the plan began, which analyzed estimated payroll and premium tax receipts in order to provide an estimated contribution for the subsequent three fiscal years. A consulting actuary estimates the actuarial present value of accumulated plan benefits. This is the liability that results from applying actuarial j assumptions to adjust the accumulated benefits earned by the participants to reflect the time I value of money (through discounts for interest) and the probability of payment (by means of decrements such as for death, disability, withdrawal or retirement) between the j valuation date and the expected date of payrnent. Significant actuarial assumptions used to compute the pension benefit obligations follow: 25 1
NOTES TO FINANCIAL STATEMENTS CITY OF BUSIINELL, FLORIDA (Continued) l l l Note 11 - Defined Benefit Pension Plans (Continued) Pension Trust Ftmds (Continued) ] a Plan Description (Concluded) Actuarial Assumptions Used in Valuation General Eriployees Police Officers Interest to Be Eamed 8% Compounded Annually 8% Compounded Annually 1 By Fund Salary increase Factors 6% Per Year 6% Per Year (Actuarial Report Does I Not Distinguish Between Inflation, Merit and Seniority) Loading None Service Retirement Liabilities are Loaded By 1% to Account I For Unused Sick Leave These actuarial assumptions are based on the presumption that the plans will continue. If the plans were to terminate, different actuarial assumptions and other factors might be applicable in determining the actuarial present value of accumulated plan benefits. e Current Year Activity I For the year ended September 30,1997, the general employees' retirement plan had three nonvested participants and the police officers' retirement plan had two nonvested participants. There are no retired or terminated employees that have ever participated in I these plans. The City is obligated to contribute to the plans pursuant to the City Code Section 184. I The amount of the contributions are certified by the consulting actuary. During fiscal year 1996-97, the City contributed $3,303 to the general employees' retirement plan and $5,650 to the police officers' plan. i a Plan Assets Plan assets are invested in bank deposit accounts. Investment decisions are made by the trustee with direction from the Board of Trustees. Net assets available for benefits at l market value for the general employees' and police officers' pension plans at September 30,1997, were $4,212 and $16,784, respectively. s Funding Status and Progress According to Florida Statutes, Chapters 175,185 and 112, an actuarial valuation is required once every three years. An actuarial valuation determines the funding necessary l l 26
I l I l NOTES TO FINANCIAL STATEMENTS g i CITY OF BUSIINELL, FLORIDA E (Continued) Note 11 - Defined Benefit Pension Plans (Concluded) Pension Trust Funds (Concluded) g a Funding Status and Progress (Concluded) g to keep the plan solvent. Because the effective date of the City's plan was January 1, l 1996, an actuarial valuation has not yet been completed and is not required until the plan a year ending September 30,1998. In the interim, the City makes contributions based on g the estimated actuarial study as noted above. Consequently, certain disclosures required by Government Accounting Standards are not available. a Trend Information I l The supplemental schedules section contains the required historical trend information which provides further information about progress being made in accumulating assets to pay benefits when due. Certain of the required schedules are presented for the years for which the pension benefit obligation is currently available. These schedules will expand in comparable years as more information becomes available. Deferred Compensation Fund The City offers its employees a deferred compensation plan created in accordance with g Internal Revenue Code Section 457. The plan, available to all City employees, permits E deferral of a portion of their salary until future years. A number of investment options (common stock balanced with corporate bonds and government securities, guaranteed interest, or a combination) are available to employees. The deferred compensation is not available to employees until termination, retirement, death or an unforeseen nonreimbursed emergency. The City matches 10% of employee contributions for all employees. Total City and employee g contributions to the plan were $3,311 and $31,811, respectively, for the year ended l September 30,1997. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property, or rights are (until paid l or made available to the employee or other beneficiary) solely the property and rights of the l City (without being restricted to the provisions of benefits under the plan), subject only to the claims of the City's general creditors. Participants' rights under the plan are equal to those of general creditors of the City in an amount equal to the fair market value of the deferred account for each participant. The deferred compensation fund is classified as an agency fund. The assets are stated at market value. It is the opinion of the City Attorney that the City has no liability for losses under the plan. ! City management believes that it is unlikely that assets will be used to satisfy the claims of general creditors in the future. Note 12 - Retirement Benefits The City allows retired employees to participate in the City's health insurance plan. These g retirees are responsible for their premium payments. Currently, there are three retirees 3 participating. 27 I
l I NOTES TO FINANCIAL STATEMENTS CITY OF BUSIINELL, FLORIDA (Continued) Note 13 - Other Disclosures Segment Information For Enterprise Funds The City maintains three enterprise funds which provide electric, water and sanitation services. Segment information as of September 30,1997, is as follows: Electric Water Utility Utility Sanitation Fund Fund Fund Total Operating Revenues $ 1,784,613 $ 333,100 $ 254,705 $ 2,372,418 Depreciation 110,372 63,433 17,191 190,996 Operating income 416,065 99,953 35,588 551,606 Operating Transfers (Out) (187,000) (25,000) (10,000) (222,000) Net income 242,708 59,086 28,468 330,262 Current Year Capital Contributions 0 0 0 0
-Total Assets 2,594,400 1,640,954 221,762 4,457,116 Net Working Capital 534,815 226,990 140,649 902,454 Bonds Payable - Long-Term Portion 0 0 0 0 Notes Payable - teng-Term 162,247 335,478 0 497,725 Total Equity 2,043,955 1,246,254 197,571 3,487,780 Total Retained Earnings 1,867,048 260,453 168,122 2,295,623 Interfund Receivables and Payables Interfund receivables and payables at September 30,1997, are as follows:
Interfund Interfund Receivables Payables Sanitation Fund $ 15 $ 0 Water Utility Fund 37,207 0 Electric Utility Fund 0 37,222 General Employees' Retirement Fund 0 1,091 Police Officers' Retirement Fund 1,091 0 Total Interfund Receivables and Payables $ 38,313 $ 38,313 Interfund Transfers In (Out) Interfund transfers in (out) at September 30,1997, are as follows: Interfund Interfund Transfers Transfers In (Out) General Fund $ 222,000 $ 0 Electric Utility Fund 0 187,000 Water Utility Fund 0 25,000 Sanitation Fund 0 10,000 Total Interfund Transfers In (Out) $ 222,000 $ 222,000 28
I NOTES TO FINANCIAL STATEMENTS CITY OF BUSIINELL, FLORIDA (Concluded) Note 13 - Other Disclosures (Concluded) E Allowances For Doubtful Accounts g Allowances for doubtful accounts at September 30,1997, are as follows: 3 Electric Utility Fund $ 1,000 Water Utility Fund 500 Sanitation Fund 500 Total Allowances For Doubtful Accounts $ 2,000 - Excess of Operating Expenses Over Budgeted Operating Expenses in Individual Funds Excess of operating expenses over appropriations in individual funds are as follows at September 30,1997: Operating Expenses in Excess of Budgeted Budget Actual Operating Expenses Electric Utility Fund $ 1.300,037 $ 1,368,548 $ (68,511) Water Utility Fund $ 176,616 $ 233,147 $ (56,531) Sanitation Fund $ 213,471 $ 219,117 $ (5,646) Note 14 - Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters. The City transfers risk of loss through the purchase of commercial insurance from the Florida League of Cities, Inc. and independent agencies. Insurance against losscs are provided for the following types of risk: m Workers' Compensation and Employer's Liability E a Employees' Health Insurance 3 m General and Automobile Liability a Real and Personal Property Damage g a Public Officials Liability g n Accidental Death and Disability The City's coverage for workers' compensatbn is under a retrospectively rated policy. Premiums are accrued based on the ultimate cost to date of the City's experience for this type of risk. I 29 I
I' [ REQUIRED SUPPLEMENTARY INFORMATION - SUPPLEMENTAL SCHEDULES [ GENERAL EMPLOYEES' AND POLICE RETIREMENT PLANS [ The following supplemental schedules present trend information regarding the retirement plans for the City's general employees and police. This information is necessary for a fair presentation in conformity ( with generally accepted accounting principles. [ [ [ ) [ [ l [ Y ____________m_ _ _
REQUIRED SUPPLEhfENTARY INFORhfATION CITY OF BUSIINELL, FLORIDA SCIIEDULES OF CONTRIBUTIONS FROh! Eh1PLOYER Police General Employees' Retirement Plan (GERP) I (1) Retirement Plan (PRP) (2) Annual Annual Required Required I Year Ended Contribution Percentage Contribution Percentage 9/30 (ARC) Contributed (ARC) Contributed 1997 $ 3,303 5,650 i 1996 880 100 % 100 % 2,436 100 % 100 % (1) Includes only required employer contributions. (2) Includes required contributions by employees and excise tax on certain insurance policies collected by the State of Florida. The City is required to contribute to the balance of the ARC. The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation follows: GERD PRD Valuatlon Date October 13, 1995 October 13,1995 Actuarial Cost Method Aggregate Actuarial Cost Method Aggregate Actuarial Cost Method Amortization Method Not Specified Not Specified Remaining Amortization Period Not Specified Not Specified b Asset Valuation Method Market Value of Assets Market Value Actuarial Assumptions: Investment Rate of Return 8.0 % 8.0% Projected Salary Increases 6.0 % 6.0 % [ Cost-of-Living Adjustments 3% 3% [ r h [ 30 W
I' REQUIRED SUPPLEMENTARY INFORMATION CITY OF BUSIINELL, FLORIDA SCIIEDULES OF FUNDING PROGRESS General Employees' Retirement Plan (7) (2) (3) (4) (5) (6) UAAL as (1) Actuarial Entry Age Norrnal Unfunded Actuarial Funded Annual Percentage Valuation Value of Actuarial Accrued Accrued Liability Ratio Covered of Payroll Date Assets (AVA) Liability (AAL) (UAAL) (3)-(2) (2)/(3) Payroll (4)/(6) 10/15/95 Police Retirement Plan (7) (2) (3) (4) (5) (6) UAAL as (1) Actuarial Entry Age Normal Unfunded Actuarial Funded Annual Percentage Valuation Value of Actuarial Accrued Accrued Liabaity Ratio Covered of Payroll Date Assets (AVA) Liability (AAL) (UAAL) (3)-(2) (2)/(3) Payroll (4)/(6) 10/15/95~
- The October 15, 1995, actuarial valuation was prepared on a " proforma" basis to assist the City in deciding whether or not to opt out of the Florida Retirement System and did not include this information. These schedules will be updated as future actuarial reports are prepared.
l I l 1 l 31 I
[ [ { { { { l { l ACCOMPANYING INFORMATION l l l ( (
COMBINING AND INDIVIDUAL FUND 1 STATEMENTS AND SCHEDULES i l l 1 i l i 1 i 1 l
t GENERAL FUND The general fund is used to account for resources traditionally associated with governments which are not required to be accounted for in another fund. The general fund receives a greater variety and number of taxes than any other fund. The City of Bushnell, Florida's general fund directly services general long-term debt.'
.l l
'l
~I p .
l' BALANCE SHEET I l GENERAL FUht SEPTEMBER 30,1997,
- WITH COMPARATIVE TOTALS FOR SEPTEMBER 30,1996 l CITY OF BUSHNELL, FLORIDA i
! 1997 1996 Assets Cash - S 740,453 $ 701,473 ' Utility Taxes and Franchise Fees Receivable 57,108 50,122 Due From Other Governments 51,979 91,185 Due From Other Funds 0 1,000 Other Receivables 315 775 l ' Total Assets 849,855 844,555. Liabilities and Fund Balance Liabilities Due to Other Funds 0 7,626 Accounts Payable 52,968 98,453 Other Accrued Expenses 23,038 18,434 Deposits 1,325 1,235 Total Liabilities 77,331 125,748 Fund Balance l Reserve For Drug Interdiction 9,810 13,728 Fund Balance: Unreserved 762,714 705.079 Total Fund Balance 772,524 718,807 Total Liabilities and Fund Balance $ 849,855 $ 844,555 32
I STATEMENT OF REVENUES, EXPENDITURES AND E CIIANGES IN FUND BALANCE g GENERAL FUND FOR TIIE YEAR ENDED SEPTEMBER 30,1997, g WITII COMPARATIVE TOTALS FOR SEPTEMBER 30,1996 3 CITY OF BUSIINELL, FLORIDA 1997 1996 Revenues Taxes S 577,880 $ 536,217 g Licenses and Permits 14,891 21,940 385,963 387,764 E Intergovernmental Grant Revenue 24,297 77,160 Charges For Services 3,074 750 Fines and Forfeitures 34,834 37,014 Interest and Miscellaneous 59,979 109,559 Total Revenues 1.100,918 1,170,404 Expenditures General Government 279,604 317,049 Public Safety 469,726 439,703 Physical Environment 15,810 6,374 Transportation 201,520 208,376 E Economic Environment 13,000 12,250 E Culture and Recreation 289,541 225,620 (Total Expenditures) (1,269.201) (1,209,372) (Deficiency) of Revenues (Under) Expenditures (168,283) (38,968) Other Financing Sources Operating Transfers In: g Electric Utility Fund 187,000 187,000 g Water Utility Fund 25,000 20,000 Sanitation Fund 10,000 10,000 Total Other Financing Sources 222,000 217,000 Excess of Revenues and Other Financing Sources Over Expenditures 53,717 178,032 Fund Balance, October 1 718,807 540,775 Fund Balance, September 30 $ 772,524 $ 718,807 l I I 33 I
I l STATEMENT OF REVENUES, EXPENDITURES AhV i CIIANGES IN FUND BALANCE - BUDGET AND ACTUAL l GENERAL FUND ! FOR THE YEAR ENDED SEPTEMBER 30,1997, WITH COMPARATIVE ACTUAL AMOUNTS FOR SEPTEMBER 30,1996 CITY OF BUSIINELL, FLORIDA 1997 1996 l Variance Favorable I Budget Actual (Unfavorable) Actual ! Revenues l Taxes $ 521,170 $ 577,880 $ 56,710 $ 536,217 Licenses and Permits 21,236 14,891 (6,345) 21,940 Intergovernmental 345,256 385,963 40,707 387,764 Grant Revenue 59,115 24,297 (34,818) 77,160 Charges For Services 1,775 3,074 1,299 750 Fines and Forfeitures 30,800 34,834 4,034 37,014 Interest and Miscellaneous 35,000 59,979 24,979 109,559 Total Revenues 1,014,352 1,100,918 86,566 1,170,404 Expenditures General Government 273,568 279,604 (6,036) 317,049 Public Safety 487,458 .469,726 17,732 439,703 Physical Environment 18,400 15,810 2,590. 6,374 Transportation 168,881 201,520 (32,639) 208,376 Economic Environment 13,000 13,000 0 12,250 Culture and Recreation 298,562 289,541 9,021 225,620 (Total Expenditures) (1,259,869) (1,269,201) (9,332) (1,209,372) , (Deficiency) of Revenues (Under) l Expenditures (245,517) (168,283) 77,234 (38,968) Other Financing Sources Operating Transfers in: Electric Utility Fund 187,000 187,000 0 187,000 Water Utility Fund 25,000 25,000 0 20,000 Sanitation Fund 10,000 10,000 0 10,000 Total Other Financing Sources 222,000 222,000 0 217,000 Excess of Revenues and Other Financing Sources Over Expenditures (23,517) 53,717 77,234 178,032 Fund Balance, October 1 718,807 718,807 0 540,775 Fund Balance, September 30 $ 695,290 $ 772,524 5 77,234 $ 718,807 l 34
1 STATEMENT OF REVENUES - g BUDGET AND ACTUAL 3 GENERAL FUND FOR TIIE YEAR ENDED SEPTEMBER 30,1997, g WITII COMPARATIVE ACTUAL AMOUNTS FOR SEPTEMBER 30,1996 E CITY OF BUSIINELL, FLORIDA 1997 1996 Variance Favorable Budget Actual (Unfavorable) Actual Revenues Taxes Ad Valorem 5 97,5L $ 96,703 $ (895)$ 94,340 Sales Tax 91,900 106,809 14,909 109,614 Gas Tax 38,578 40,082 1,504 40,338 Franchise Fees: Telephone 1,710 2,433 723 2,197 Electric 49,576 50,984 1,408 50,790 Cable TV i1,142 17,145 6,003 5,631 Utility Service Taxes: Telephone 60,916 99,256 38,340 62,929 Gas 13.378 12,363 (1,015) 14,259 Electric 56,589 57,394 805 57,513 City Utility Tax 99,783 94,711 (5,072) 97,811 City Utilities Surcharge 0 0 0 795 Total Taxes $21,170 577,880 56,710 536,217 Licenses and Permits g Occupational Licenses 5,694 4,667 (1,027) 4,941 3 Building Permits 15,542 _ 10,224 (5,318) 16,999 Total Licenses and Permits 21,236 14,891 (6.345) 21,940 Intergoverntpental Two-Cent Cigarette Tax 18,635 18,263 (372) 18,502 State Revenue Sharing 52,257 54,082 1,825 55,363 Mobi'e liome Licenses 5,600 6,403 803 6,398 Alcoholic Beverage License 513 461 (52) 514 62,308 67,328 5,020 62,672 Seven-Cent Sales Tax E County Fire Fee 48,750 51,161 2,411 48,487 g Share of County Occupational License 2,692 2,232 (460) 2,596 Rebate on Municipal Vehicles 189 0 (189) 190 Sumter County Two-Cent Gas Tax 154,312 186,031 31,719 193,042 Total Intergovernmental 345,256 385,961 40,705 387,764 Grant Revenue g Law Enforcement Grant 0 1,458 1,458 0 m FRDAP Grant 59,115 22,839 (36,276) 77,160 Total Grant Revenue 59,115 24,297 (34,818) 77,160 35 I
STATEMENT OF REVENUES - BUDGET AND ACTUAL GENERAL FUhD FOR TIIE YEAR ENDED SEPTEMBER 30,1997,. WITII COMPARATIVE ACTUAL AMOUNTS FOR SEPTEMBER 30,'1996 CITY OF BUSIINELL, FLORIDA (Concluded) 1997 1996 Variance Favorable Budget Actual (Unfavorable) Actual Revenues (Concluded) Charges For Services Mowing Fees $ 1,775 $ 3,074 $ 1,299 $ 750 Fines and Forfeitures Fines and Forfeitures 30,000 34,070 4,070 35,942 Police Education 800 764 (36) 1,072 Total Fines and Forfeitures 30,800 34,834 4,034 37,014 Interest and Miscellaneous Interest Earned 13,000 24,817 11,817 12,728 Rent 5,500 3,570 (1,530) 5,129 Miscellaneous 16,500 16,574 74 24,122 Sale of Assets 0 14,620 14,620 67,580 TotalInterest and Miscellaneous 35,000 59,981 24,981 109,559 Total Revenues $ 1,014,352 $ 1,100,918 $ 86,566 $ 1,170,404 ) 36
I' STATEMENT OF EXPENDITURES - g BUDGET AND ACTUAL g GENERAL FUhD FOR TIIE YEAR ENDED SEPTEMBER 30,1997, g WITil COMPARATIVE ACTUAL AMOUNTS FOR SEPTEMBER 30,1996 g CITY OF BUSIINELL, FLORIDA 1997 1996 Variance Favorable Budget Actual (Unfavorable) Actual Expenditures General Government Legislative: Personnel Expenses $ 18,000 $ 13,000 $ 0$ 16,200 Operating Expenses 5,506 4,598 908 4,927 Grants and Aids 1,750 1,650 100 1,500 Total Legislative 25,256 24,248 1,008 22,627 Financial and Administrative: l Personnel Expenses 141,920 162,451 (531) 131,539 E Operating Expenses 53,675 59,783 (6,108) 56,933 Capital Outlay 10,588 10,421 167 64,153 l Debt Service 19,152 20,755 (1,603) 19,158 Total Financial and Administrative 225,335 233,410 (8,075) 271,783 l Legal Counsel: l Operating Expense 22,977 21,946 1,031 22,639 Total General Government 273,568 279,604 (6,036) 317,049 Public Safety E Police Depanment: 3 Personnel Expenses 267,930 267,793 137 261,904 Operating Expenses 60,699 58,584 2,115 57,323 Capital Outlay 30,570 28,993 1,577 18,838 l Total Police Depanment 359,199 355,370 3,829 338,065 Fire Department: Personnel Expenses 20,846 14.994 5,852 18,055 Operating Expenses 22,918 20,624 2,294 20,759 Capital Outlay 16,206 12,877 3,329 9,285 Debt Sen> ice 17,541 17,541 0 17.542 g Total Fire Depanment Building Depanment: 77,511 66,036 11,475 65,641 5 Personnel Expenses 32,648 32,676 (28) 29,846 Operating Expenses 5,600 2,675 2,925 6,151 Capital Outlay 12,500 12,969 (469) 0 Total Building Department 50,748 48,320 2,428 35,997 Total Public Safety 487,458 469,726 17,732 439,703 I 37 I
STATEMENT OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR TIIE YEAR ENDED SEITEMBER 30,1997, WITII COMPARATIVE ACTUAL AMOUNTS FOR SEPTEMBER 30,19% CITY OF BUSIINELL, FLORIDA (Concluded) 1997 1996 [' Variance Favorable Budget Actual (Unfavorable) Actual Expenditures (Concluded) Physical Environment Cemetery: Operating Expenses $ 16,000 $ 13,410 $ 2,590 $ 3,024 Grants and Aid 2,400 2,400 0 2,400 Capital Outlay 0 0 0 950 Total Physical Environment ~ 18,400 15,810 2,59d _ 6,374 Transportation Road and Street Department: Personnel Expenses 71,721 70,581 1,140 62,971 Operating Expenses 81,160 79,117 2,043 114,468 Capital Outlay 16,000 51,822 (35,822) 30,937 Total Transportation 168,881 201,520 (32,639) 208,376 Economic Environment Grants and Aid 13,000 13,000 0 12,250 Culture and Recreation Library: Operating Expenses 800 783 17 1,732 Grants and Aid 7,500 7,500 0 7,500 Total Library 8,300 8,283 17 9,232 Parks and Recreation: Personnel Expenses 50,470 44,237 6,233 46,853 Operating Expenses 38,672 47,797 (9,125) 44,063 Capital Outlay 111,987 38,223 73,764 2,190 FRDAP Grant - Capital Outlay 69,223 132,004 (62,781) 102,845 Total Parks and Recreation 270,352 262.261 8,091 195,951 Special Events: (- Operating Expenses 19,910 18,997 913 20.437 Total Culture and Recreation 298,562 289,541 9,021 225,620 ( Total Expenditures $ 1,259,869 5 1,269,201 $ (9,332) $ 1,209,372 38 L r
l l' 1 1 SPECIAL REVENUE FUNDS
' Evergreen Cemetery Fund - To account for the proceeds and expenditures generated to maintain the City's cemetery.
Community Development Block Grant (CDBG) Fund - To account for the receipts awarded and expenditures made in compliance with grant requirements to develop the City's downtown area.
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i-COMBINING BALANCE SHEET SPECIAL REVENUE FUNDS SEPTEMBER 30,1997, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30,1996 CITY OF BUSHNELL, FLORIDA l l Evergreen CDBG Totals Cemetery Grant 1997 1996 i Assets ) i Current Assets Cash $ 6,885 $ 18,683 $ 25,568 $ 8,441 Investments 358,000 358,000 341,000 Receivables: Duc From Other Governments 89,673 89,673 12,483 Total Assets 364,885 108,356 473,241 361,924
- Liabilities and Fund Balances Liabilities Accounts Payable 97,330 97,330 -12,483 Advance From Other Funds 0 1,000 Deferred Revenues 11,026 11,026 3,417 Deposits 2,100 2,100 1,725 Total Liabilities 2,100 108,356 110,456 18,625 Fund Balances Reserved For Perpetual Care 362,785 0 362,785 343,299 Total Liabilities and Fund Balances $ 364,885 $ 108,356 $ 473,241 $ 361,924 1
1 I i 1 39
I CO51BINING STATEh1ENT OF REVENUES, EXPENDITURES AND l CIIANGES IN FUND BALANCES 5 SPECIAL REVENUE FUNDS FOR TIIE YEAR ENDED SEPTEh1BER 30,1997, g WITII CO51PARATIVE TOTALS FOR SEPTEMBER 30,1996 g CITY OF BUSIINELL, FLORIDA Evergreen CDBG Totals I Cemetery Grant 1997 1996 g Revenues g Contributions $ 8,265 $ 0$ 8,265 $ 8,200 Sale of Cemetery Lots 4,475 0 4,475 14,200 Interest 19,218 0 19,218 16,977 Memorials and Gifts 3,625 0 3,625 1,070 Grant Revenue 0 209,387 209,387 41,916 Other Revenue 0 16,815 16,815 0 Total Revenues 35,583 226,202 261,785 82,363 Expenditures Operating Expenses 16,097 0 16,097 (55,643) Capital Outlay 0 226,202 226,202 0 (Total Expenditures) (16,097) (226,202) (242,299) (55,643) Excess of Revenues Over Expenditures 19,486 0 19,486 26,720 Fund Balances, October 1 343,299 0 343,299 316,579 Fund Balances, September 30 $ 362,785 $ 0$ 362,785 $ 343,299 I I I I I 40 I I
I l' STATEMENT OF REVENUES, EXPENDITURES AND CIIANGES IN FUND BALANCE - BUDGET AND ACTUAL SPECIAL REVENUE FUND - CDBG FOR THE YEAR ENDED SEPTEMBER 30,1997, ! - WITII COMPARATIVE ACTUAL AMOUNTS FOR SEPTEMBER 30,1996 l CITY OF BUSHNELL, FLORIDA ! 1997 1996 Variance ! Favorable l Budget Actual (Unfavorable) Actual l Rever:ues Grant Revenues S 438,750 $ 209,387 $ (229,363) $ 41,916 l Other Revenues 0 16,815 16,815 0 l Total Revenues 438,750 226,202 (212,548) 41,916 l L Expenditures Operating and Maintenance 0 0 0 41,916 Capital Outlay 438,750 226,202 212,548 0 (Total Expenditures) (438,750) (226,202) 212,548 (41,916) l l Excess of Revenues Over Expenditures 0 0 0 0 Fund Balance, October 1 0 0 0 0 Fund Balance, September 30 $ 0$ 0$ 0$ 0 41
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j ENTERPRISE FUNDS- - Enterprise funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the costs (expenses, including' depreciation)~ of providing goods or services to the general public on a continuing basis be
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SCIIEDULE OF REVENUES, EXPENSES AhT CIIANGES IN RETAINED EARNINGS - BUDGET AND ACTUAL, ( ELECTRIC UTILITY FUND FOR TIIE YEAR ENDED SEPTEh!BER 30,1997, WITII COh!PARATIVE ACTUAL Ah10UNTS FOR SEPTEh!BER 30,1996 CITY OF BUSIINELL, FLORIDA 1997 1996 Variance Favorable Budget Actual (Unfavorable) Actual Operating Revenues Residential Electric Sales $ 647,022 $ 607,903 $ (39,119) $ 618,109 [ Commercial Demand Sales 477,589 485,996 8,407 414,527 ( Commercial Nondemand Sales 529,649 653,539 123,890 588,661 Private Area Light Sales 16,574 14,199 (2,375) 14,113 Miscellaneous 12,500 22,976 10,476 17,271 Total Operating Revenues 1,683,334 1,784,613 101,279 1,652,681 , Operating Expenses Demand and Energy Charge 972,776 964,716 8,060 908,187 CR-3 Operations and Maintenance 77,390 75,358 2,032 74,180 Salaries 109,978 97,706 12,272 109,767 Employec Benefits 44,304 34,526 9,778 44,467 Professional Services 35,500 24,526 10,974 29,568 Operating Supplies 5,000 16,945 (l1,945) 36,086 Other Current Charges $5,089 44,399 10,690 35,071 Depreciation 0 110,372 (110.372) 104,550 (Total Operating Expenses) (1,300,037) (1,368,548) (68,511) (1,341,876) Operating Income 383,297 416,065 32,768 310,805 { Nonoperating Revenues (Expenses) Interest income 19,000 26,185 7,185 22,771 Interest Expense (13,473) (12,542) 931 (15,732) - Total Nonoperating Revenues (Expenses) 5,527 13,643 _ 8.116 7,039 Net Income Before Transfers 388,824 429,708 40,884 317,844 Operating Transfers (Out) (187,000) (187,000) 0 (187,000) Net Income $ 201,824 242,708 $ 40,884 130,844 Retained Earnings, October 1 1,624,340 1,493,496 Retained Earnings, September 30 $ 1,867,048 $ 1,624,340 45 I L F
I SCIIEDULE OF REVENUES, EXPENSES AND CIIANGES IN RETAINED EARNINGS - BUDGET AND ACTUAL WATER UTILITY FUND g FOR TIIE YEAR ENDED SEPTEMBER 30,1997, B WITII COMPARATIVE ACTUAL AMOUNTS FOR SEPTEMBER 30,1996 CITY OF BUSIINELL, FLORIDA 1997 19 % 3 Variance g Favorable
-Budget Actual (Unfavorable) Actual Operating Revenues 5,427 $ 162,874 l
W Residential Water Sales $ 130,063 $ 135,490 $ Commercial Water Sales 154,277 155,973 1,696 147,408 Penalties and Reconnections 10,500 18,062 7,562 15,724 g Water Connection Fees 6,000 3,870 (2,130) 5,867 g Capacity Reservation Charges 22,000 5,250 (16,750) 41,263 Miscellaneous 9,350 14,455 5,105 11,510 Total Operating Revenues 332,190 333,100 910 348,646 Operating Expenses Salaries 82,628 72,780 9,848 72,295 l Employee Benefits 32,725 30,342 2,383 33,919 3 Professional Services 22,000 17,071 4,929 34,843 Operating Supplies 7,500 13,900 (6,400) 1,101 g Other Current Charges 31,763 35,621 (3,858) 33,061 g Depreciation 0 63,433 (63,433) 60,936 (Total Operating Expenses) (176,616) (233,147) (56,531) (236,155) Operating Income 155,574 99,953 (55,621) 112,491 Nonoperating Revenues (Expenses) 2,000 4,233 2,233 2,543 E g Interest income Interest Expense (25,033) (20,100) 4,933 (17,825) Total Nonoperating Revenues (Expenses) (23,033) (15,867) 7,166 (15,282) Net Income Before Transfers 132,541 84,086 (48,455) 97,209 Operating Transfers (Out) (25,000) (25,000) 0 (20,000) Net Income $ 107,541 59,086 5 (48,455) 77,209 Retained Earnings, October 1 201,367 124,158 Retained Earnings, September 30 $ 260,453 5 201,367 I I 46 I
SCIIEDULE OF REVENUES, EXPENSES AND CIIANGES IN RETAINED EARNINGS - BUDGET AND ACTUAL SANITATION FUND FOR TEE YEAR ENDED SEPTEAfBER 30,1997, WITII COh1PARATIVE ACTUAL AhiOUNTS FOR SEPTEhfBER 30,1996 CITY OF BUSIINELL, FLORIDA 1997 1996 Variance I Favorable Budget Actual (Unfavorable) Actual Operating Revenues i Residential Garbage Commercial Garbage
$ 113,597 $
127,081 116,215 $ 135,708 2,618 $ 109,681 8,627 128,510 Miscellaneous 2,000 2,782 782 406 l Total Operating Revenues 242,678 254,705 12,027 238,597 Operating Expenses Salaries 42,430 44,963 (2,533) 36,511 l Employee Benefits 25,245 23,215 2,030 21,598 Professional Services 4,350 3,781 569 3,160 Operating Supplies 6,000 5,386 614 4,477 I Other Current Charges Depreciation 16,198 0 16,149 17,191 49 (17,191) 13,422 16,814 Landfill 119,248 108,432 10,816 108,672 (Total Operating Expenses) (213,471) (219,117) (5,646) (204,654) Operating Income 29,207 35,588 6,381 33,943 Nonoperating Revenues (Expenses) Interest income 1,000 3,391 2,391 975 interest Expense (441) (511) (70) (935) I Total Nonoperating Revenues (Expenses) 559 2,880 2,321 40 Net Income Before Transfers 29,766 38,468 8,702 33,983 Operating Transfers (Out) (10,000) (10,000) 0 (10,000) Net Income $ 19,766 28,468 $ 8,702 23,983 Retained Earnings, October 1 139,654 115,671 Retained Earnings, September 30 $ 168.122 $ 139,654 1 47
1 PENSION TRUST AND AGENCY FUNDS General Employees' Retirement Fund - To account for the accumulation of resources to be used for retirement annuity payments at appropriate amounts and times in the future and also the administrative costs of the system. Resources are contributed by the general and enterprise funds at amounts determined by biennial actuarial studies. Police Officers' Retirement Fund - To account for the accumulation of resources to be used for retirement annuity payments at appropriate amounts and times in the future and also the administrative costs of the system. Resources are contributed by the state and plan participants, with additional funds needed to meet actuarially determined amounts provided by the general fund. Employees' Deferred Compensation Fund - This fund is used to account for assets held for employees in accordance with the provisions of Internal Revenue Code Section 457.
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I STATEMENT OF CIIANGES IN ASSETS AND LIABILITIES AGENCY FUNDS SEPTEMBER 30,1997 g CITY OF BUSIINELL, FLORIDA 5 l Balance Balance i October 1, September 30, I 1996 Additions (Deletions) 1997 Deferred Compensation Fund Assets I Investments S 70,277 $ 44,808 $ 0$ 115,085 Liabilities Deferred Compensation Payable $ 70,277 $ 44,808 $ 0$ 115,085 I Il i j I l I, l I' I 49 I J
[ ADDITIONAL ELEMENTS OF REPORT PREPARED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS, ISSUED BY THE COMPTROLLER GENERAL OF THE UNITED STATES; AND THE RULES OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA [ J
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t 1 a : Rra i F s s t a i r om (L G i r n oo a g d o t n u u a S e c Fmo l l i l ir o B a Ft c rP t a e f Dco f e o t m B oCf CL ot o l F S A : t e o t e Pr l a t e a a t o ) o S t S t T 1 ( N
Purvis Gray & ' Company INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF GENERAL-PURPOSE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Ilonorable Mayor and Council Members City of Bushnell Bushnell, Florida We have audited the general-purpose financial statements of the City of Bushnell, Florida (the City) as of and for the year ended September 30,1997, and have issued our report thereon dated December 23, 1997. We conducted our audit in accordance with generally accepted auditing standards and the standards I applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the City's general-purpose financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. l The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. l Internal Control Over Financial Reporting ; In planning and performing our audit, we considered the City's internal control over financial reportmg in order to determine our auditing procedures for the purpose of expressing our opinion on the general-financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the genera-purpose financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions, We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that we have reported to the City Council in a separate letter dated December 23, 1997. Certified PubilC Accountants P.O. Box 23999 e 222 N E.1st Street e Gainesville, Florida 32602 (352) 378-2461 FAX (352) 378-2505 Laurel Ridge Professional Center . 2347 S.E.17th Street . OCala. Florida 34471 (352) 732-3872 e FAX (352) 732-0542 443 East College Avenue
- Tallahassee, Florida 32301 * (850) 224-7144 FAX (850) 224-1762 2831 Ringling Boulevard, Unit 106-B e Sarasota, Florida 34236 (941) 365-3774
- FAX (941) 365-0238 weMeERs oF AMERiCAN AND FLORIDA INSTITUTES OF CERTIFIED PUBUC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBuC ACCOUNTANTS PRIVATE COMPANIES AND s E C. PRACTICE SECTIONS
( 51
l Honorable Mayor and Council Members City of Bushnell Bushnell, Florida t= INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AhT ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF GENERAlePURPOSE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITII GOVERNMENT AUDITING STANDARDS . (Concluded) This report is intended for the information of the City Council, management, and federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited, c la orida 52
Purvis Gray & Company INDEPENDENT' AUDITORS' REPORT ON EXAh11 NATION OF MANAGEnfENT'S ASSERTION ABOUT COMPLIANCE WITII SPECIFIED REQUIREMENTS Honorable Mayor and Council Members City of Bushnell Bushnell, Florida We have examined management's assertion included in its representation letter dated December 23,1997, that the City of Bushnell, Florida complied with the allowable cost requirements of the grants and aids appropriations identified in the schedule of state financial assistance, for the year ended September 30, 1997. Management is responsible for the City of Bushnell, Florida's compliance with those requirements. Our responsibility is to express an opinion on management's assertion about the City's compliance based on our examination. Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the City's compliance with specified requirements. In our opinion, management's assertion that the City of Bushnell, Florida complied with the allowable cost requirements of the grants and aids appropriations identified in the schedule of state financial assistance during the fiscal year ended September 30,1997, is fairly stated, in all material respects. This report is intended for the information of the City Council, management, and applicable state and federal agencies. However, this report is a matter of public record and its distribution is not limited. December 23,1997 - Ocala, Florida ,,4f/)4.c e), 424 - Certified Public Accountants P.O. Box 23999 e 222 N.E. ist Street e Gainesville. Florida 32602 (352) 378-2461 e FAX (352) 378-2505 Laurel Ridge Professional Center e 2347 S E.17th Street . OCala. Florida 34471 (352) 732-3872 e FAX (352) 732-0542 443 East College Avenue Tallahassee. Florida 32301 (850) 224-7144 e FAX (850) 224-1762 2831 Ringling Boulevard. Unit 106-8 Sarasota Florida 34236 * (941) 365-3774 e FAX (941) 365-0238 MEMBERS OF AMERCAN AND FLORCA INSTITUTES OF CERTIFIED PU8uc ACCOuttrANTs WEMBER OF AMERICAN INSTITUTE OF CERTIFIED PusuC ACCOUNTANTS PRIVATE COMPANtts ANo s E C PRACTICE sECTCNs 53
! Purvis l l Gray & l Company l l l MANAGEMENT LETTER l Honorable Mayor and Council Members City of Bushnell ) Bushnell, Florida We have audited the financial statements of the City of Pushnell, Florida (the City) as of and for the fiscal year ended September 30,1997, and have issued our report thereon dated December 23,1997. We have issued our independent auditors' report on internal control and on compliance with laws and l regulations dated December 23, 1997. Disclosures in that report, if any, should be considered in conjunction with this management letter. l We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Additionally, our audit was conducted in accordance with the provisions of Chapter 10.550, Rules of the Auditor General, which govern the conduct of local governmental entity l audits performed in the state of Florida and require that certain items be addressed in this letter. l l The Rules of the Auditor General (Section 10.554(1)(e)l.) require that we comment as to whether or not i irregularities reported in the preceding annual financial audit report have been corrected. There were no irregularities disclosed in the preceding annual financial audit report. l Tne Rules of the Auditor General (Section 10.554(1)(e)2.) require that we comment as to whether or not recommendations made in the preceding annual financial audit report have been followed. The recommendations made ir. the preceding annual financial audit report have been satisfactorily addressed by the City, except as noted in management letter comments. l As required by the Rules of the Auditor General (Section 10.554(1)(e)3.), the scope of our audit included a review of the provisions of Section 218.503(1), Florida Statutes, " Determination of Financial Emergency." In connection with our audit, we determined that the City is not in a state of financial emergency as a consequence of the conditions described by Section 218.503(1), Florida Statutes. ! As required by the Rules of the Auditor General (Section 10.554(1)(e)4.), we determined that the annual l financial report for the City for the fiscal year ended September 30,1997, was filed with the Department of Banking and Finance pursuant to Section 218.32, Florida Statutes, and is in agreement with the annual financial audit report for the fiscal year ended September 30,1997. l Certified PubilC Accountants P.O. Box 23999 e 222 N E.1st Street Gainesville, Florida 32602. (352) 378-2461. FAX (352) 378-2505 Laurel Ridge Professional Center 2347 S.E.17th Street . OCala, Florida 34471. (352) 732-3872 e FAX (352) 732-0542 443 East College Avenue e Tallahassee, Florida 32301. (850) 224-7144 FAX (850) 224-1762 2831 Ringling Boulevard. Unit 106-B e Sarasota, Florida 34236 * (941) 365-3774. FAX (941) 365-0238 ; l wEueERs oF AMERICAN AND FloRCA INSTfruTEs of CERTIMED PUSUC ACCOUNTANTS l l WEntER oF AMERICAN INSTITUTE oF CERTIFIED PUSUC ACCOUNTANTS PRIVATE COMPANIES AND s E.C PRACTICE SECTIONS 54
Honorable Mayor and Council Members l City of Bushnell i Bushnell, Florida MANAGEMENT LETTER (Concluded) 1 The Rules of the Auditor General (Sections 10.544(1)(c)6., 7., 8., and 9.) require disclosure in the management letter for the following matters if not already addressed in the auditors' report on the internal control and compliance: recommendations to improve financial management, accounting procedures, and internal controls; violations of laws, rules, and regulations which may or may not materially affect the I financial statements; illegal or improper expenditures which may or may not materially affect the financial statements; improper or inadequate accounting procedures (e.g., the omission of required disclosures from the financial statements); failures to properly record financial transactions; and other inaccuracies, I irregularities, shortages, and defalcations discovered by the auditor. . Our audit disclosed no matters required to be disclosed by Rules of the Auditor General (Sections 10.544(1)(e) 6., 7., 8., and 9.). The Rules of the Auditor General (Section 10.554(1)(e)l0.) also require that the name or official title and l legal authority for the primary government and each component unit of the reporting entity be disclosed
) in the management letter, unless disclosed in the notes to the financial statements. The City was l established under the legal authority of the Laws of Florida 57-1205 and the Evergreen Cemetery fund by City Ordinance.
This management letter is intended solely for the information of the City Council, management, and the State of Florida. However, this report is a matter of public record and its distribution is not limited. I December 23,1997 . Ocala, Florida g7j ,
/
l l 55 t
Purvis Gray & ( Company i 51ANAGEhfENT LETTER C05th1ENTS l Honorable Mayor and Council Members City of Bushnell Bushnell, Florida l During the course of our audit, the following items came to our attention. These items involve primarily operational matters which, if improved, will result in more efficient and effective operations. l Status of Prior Year Comments All prior comments have been satisfactorily addressed by the City of Bushnell, Florida (the City), except j for the following items l Evergreen Cemetery Fund I The Evergreen Cemetery fund of the City is maintained and operated by a volunteer association that ! handles all financial functions of the fund. In prior years, the annual audit has been the only time that ) the financial activity and records of the fund are received and analyzed by the City. Additionally, the volunteer association's treasurer alone keeps all records, approves payments, writes and signs checks, and receives bank statement. During 1996, the City began the process of reviewing a copy of the monthly l checking account bank statement. However, we recommend that the City continue working with the volunteer association to perform a more in-depth financial review. A second signature from City Hall should be considered for all volunteer association checks. l Also, during the course of our audit, we noted that the City did not adopt an annual operating budget for the Evergreen Cemetery fund (a special revenue fund). According to Florida Statutes, Chapter 166.241, all such funds must be budgeted for by the local government. We recommend the City include this fund in its 1997-98 operating budget. l Internal Financial Reporting Our audit indicates that the City does not generate summarized financial statements for each fund during the year for review by the City Council and key management. Information regarding the City's assets, l liabilities, revenues and expenses should be summarized to provide all interested parties key financial information to aid in decision making and the appropriate discharge of fiduciary responsibility of City officials. l Accordingly, we recommend that the City take steps to create summarized internal use financial statements as soon as is practical. The City should contact its financial software provider to determine l how best to obtain this information from the existing general ledger and financial reporting package l currently used. If not available from the existing system, alternative sources should be explored. Certified PubilC Accountants P.O. Box 23999 222 N E.1st Street . Gainesville, Florida 32602. (352) 378-2461. FAX (352) 378-2505 1.aurel Ridge Professional Center . 2347 S E.17th Street . OCala. Florida 34471. (352) 732 3872. FAX (352) 732-0542 443 East College Avenue . Tanahassee. Florida 32301. (850) 224-7144. FAX (850) 224-1762 2831 Ringling Boulevard, Unit 106-B Sarasota. Florida 34236. (941) 365-3774. FAX (941) 365-0238 uEusEms oF AutRiCAN A,s0 FLORIDA INSMUTEs OF CERDRED Pusuc ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERT nED PutuC ACCOUNTANTS PRIVATE COMPANIES AND s E C PRACTICE SECTIONS 56 l
D Honorable Mayor and Council Members City of Bushnell Bushnell, Florida MANAGEMENT LETTER COMMENTS (Concluded) Current Year Comments and Recommendations Inventory System During 1996, the City implemented a perpetual inventory system to better record all inventory activity and monitor stock balances on hand. Under this new system, all materials purchased and issued out should be recorded in both the perpetual system and inventory general ledger account, with periodic reconciliations of the two balances. Our audit indicates that periodic reconciliation of the perpetual system to the general ledger balance did not occur, resulting in large year end inventory adjustments , which teok extra man-hours to resolve. Accordingly, we recommend that the City institute a policy where the perpetual inventory system is reconciled at least quarterly (or monthly) to the general ledger control account, with appropriate adjustments made to bring the two in balance. We would like to take this opportunity to express our appreciation for the courtesies which have been extended to our staff. If you have any questions or comments about the contents of this letter, or the information accompanying this letter, please do not hesitate to contact us. December 23,1997 - Ocala, Florida h j 7 [ s 57
1 F l I CITY OF BUSHNELL I I l S,fE4 219 N. Market Street , , Bushnell, Florida 33513 P.O. Box 115 : (352) 793-2591 Fax (352) 793-2711 l T l l I February 23,1998 TO: Honorable Mayor and Council Members FROM: Vince Ruano and Joy Coleman RE: Management response to the auditofs management letter and reports. l l Honorable Council Members:
- This letter of explanation, or rebuttal, is being offered in accordance with the i
' Rules of the Auditor General" in panicular, Chapter 10.500 thereof.
Specifically, this letter responds to Purvis, Gray & Company's " Management Letter Comments" dated December 23,1997. In their repon, Purvis, Gray & Company made several ; recommendations for improvement in different areas of the City's accounting functions. The specific areas identified in their recommendations are as follows:
> EVERGREEN CEMETERY FUND 1
> INTERNAL FINANCIAL REPORTING
> INVENTORY SYSTEM The management of the city recognizes that the recommendations of the auditofs report are beneficial and achievable, therefore, this ! citer will be without rebuttal. Our comments will hence be restricted to explanatory comments, implementation plans or recommendations for the above identified areas.
58 k j l
[
> EVERGREEN CEMETERY FUND -[
Management agrees with the auditors recommendation for the need of more in-depth financial review of the Bushnell Evergreen Cemetery fmancial activities by the City. ( Traditionally, the Cemetery Board of Trustees and its treasurer has had total control and custody of these City funds. With no oversight by the Council or management of the ( fund activities, for the exception of a year end financial report to the City by the Board's treasurer. [ It is management's recommendation that the City Council appoint a committee to work with the Bushnell Evergreen Cemetery Board of Trustees, to develop a system agreeable to all, which will provide the necessary oversight and control recommended by the auditors. Once ( this system is developed management, with the assistance of the Board ofTrustees treasurer, can develop ta budget for this special revenue fund. This special revenue fund will be included in the overall City budget, as required by Florida Statutes 166.241. [
>INTERNALFINANCIAL REPORTING Management has been in contact with the financial software provider, to obtain information on how best to extract a summanzed financial statement from the City's general ledger and financial reporting package. Our generalledger is currently a DOS system and does
[ not facilitate easy extraction and manipulation of the financial infonnation. The City's software provider informed us, that a window based version of our general ledger software has been recently released in other participating municipalities. It is management's understanding that the [ new windows based general ledger includes additional standardized financial reports, as well as, software to generate customized reports of the financialinformation. The window based general ledger is available at no additional cost to the City. The new software will be installed in the near f future for testing and training. Once the installation and training is completed there will be a short period of time in which the systems will be run in parallel. Once the window based system meets with management's approval, a summarized financial statement will be provided to council on a ( reoccurring basis. [ klNVENTORY SYSTEM ue City implemented a computerized inventory system during the fiscal year [ 1996. This system has been utilized by the electric and water departments to meintain a perpetual inventory of all stock items. Since it's implementation the inventory system's balances have been reconciled to the general ledger on an annual basis. Management, in response to the auditor's ( recommendations, has implemented a quarterly reconciliation of the balances of the inventory system to the generalledger. In addition, a reconciliation of the inventory system to the actual stock will be performed semi-annually through a physical stock count. [ 59 m r'
[ p This letter along with the' general purpose Enancial statement for fiscal year ending September 30,1997 will be filed with the public records of the City of Bushnell and the State of [ Florida Auditor General's Office. [ R trully submitted, ( w Vince Ruano c , c-J eman, CMC City Manager City Clerk (.. ( JC . (. [. [ [ [ [ l [; 60 l L
{ ( O { Seminole Electric Cooperative, Inc. t Consolidated Financial Statements December 31,1997 l
North Ashi Street Tampa, FL 3360$2640 [ Price Waterhousezir & ( ( Report ofIndependent Certified Public Accountants f February 18,1998 [ To the Board ofTrustees Seminole Electric Cooperative, Inc. { In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of revenue and expenses and patronage capital and of cash flows present fairly, in all material respects, the financial position of Seminole Electric Cooperative, Inc. and its subsidiaries (the Cooperative) at December 31,1997 and 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Cooperative's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards and the financial audit requirements of the government auditing standards issued by the Comptroller General of the United States.- These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits
'de a reasonable basis for the opinion expressed above.
LL L.
- l. . . ,
SEMINOLE ELECTRIC COOPERATIVE, INC. CONSOLIDATED BALANCE SHEETS December 31, 1997 1996 ASSETS Utility plant: Plant in service S 847,189,861 S 844,456,635 Construction work in progress 6,799,648 5,721,211 853,989,509 850,177,846 Less accumulated depreciation l and amortization (314,497,546) (289,660,040) Utility plant, net 539,491,963 560,517,806 i I Investments: Investments in associated j organizations 15,572,633 15,851,260
- Funds held by trustees l and special funds 84,201,474 18,396,751 Total investments 99,774,107 34,248,011 Current assets
- !
l Cash and cash equivalents 83,366,464 76,732,324 ! Receivables, principally I for sales of electricity 21,040,555 19,351,072 l Inventories, at average cost: Materials and supplies 17,051,546 17,333,668 l Fuel 28,702,844 21,878,379 Prepayments and other 558,075 1,475,370 Total current assets 150,719,484 136,770,813 1 Deferred charges 62,946.,064 71,653,138 l $ 852,931,618 $ 803,189,768 l
.The accompanying notes are an integral part of these financial statements.
l I SEMINOLE ELECTRIC COOPERATIVE, INC. CONSOLIDATED BALANCE SHEETS December 31, 1997 1996 EQUITY AND LIABILITIES Equity: Memberships S 1,100 $ 1,100 Patronage capital 66,165,136 64,094,029 Donated capital 31,61_5 31,615 Total equity 66,197,851 64,126,744 Long-term liabilities: Long-term debt - 652,773,223 606,594,101 Obligations under capital leases 21,280,935 23, 78 f, 72 9 Other 4,915,276 3,959,791 Total long-term liabilities 678,969,434 634,335,621 Current liabilities: Current portion of: Long-term debt 17,187,264 16,093,306 Obligations under capital leases 2,464,663 2,250,768 Accounts payable 35,497,958 28,356,904 Other accrued liabilities 20,194,668 24,986,643 Total current liabilities 75,344,553 71,687,621 Deferred gain on sale-leaseback of plant 16,930,235 18,346,004 Other deferred credits 15,489,545 14,693,778 Commitments and contingencies (Notes 11 and 12) S 852,931,618 $ 803,189,768 The accompanying notes are an integral part of these financial statements.
a SEMINOLE ELECTRIC COOPERATIVE, INC. CONSOLIDATED STATEMENTS OF REVENUE AND EXPENSES AND PATRONAGE CAPITAL For the years ended December 31, 1997 1996 Operating revenue S 537,936,477 S 554,483,598 Operating expenses: Operation: Fuel 171,259,235 172,928,294 Other production expenses 35,665,666 34,977,258 Purchased power 181,093,242 197,675,100 Transmission 23,087,700 20,289,623 Administrative and general 18,381,070 17,326,015 Depreciation and amortization 27,142,865 28,985,965 Lease of coal-fired plant 29,090,087 29,098,181 Taxes, primarily property 10,591,850 11,210,528 Write off of deferred charges 6,728,564 5,864,832 503,040,279 518,355,796 Operating margins before interest charges 34,896,198 36,127,802 Interest expense net of amounts capitalize <1 39,646,901 40,250,950 Operating deficits ( 4,750,703) ( 4,123,148) Patronage capital credits 197,665 193,402 Net cperating deficits ( 4,553,038) ( 3,929,746) Nonoperating income: Interest income 6,523,499 5,709,942 Other income, net 735,306 758,446 Net margins 2,705,767 2,538,642 Patronage capital, beginning of year 64,094,029 63,120,859 Patronage capital retirements ( 634,660) ( 1,565,472) Patronage capital, end of year S 66,16.5,136 S 64,094,029 The accompanying notes are an integral part of these financial statements.
SEMINOLE ELECTRIC COOPERATIVE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1997 1996 Cash flows from operating activities: Net margins S 2,705,767 S 2,538,642 Adjustments to reconcile to cash: Depreciation and amortization 31,698,358 33,364,300 Provision for postretirement benefits 638,830 524,542 Lease expense / lease payment difference 445,090 825,389 Write off of deferred charges 6,728,564 5,864,832 Change in assets and liabilities: Receivables ( 1,689,483) 3,730,003 Inventories ( 6,687,024) 316,189 Prepayments and other 917,295 ( 355,470) Deferred charges ( 3,412,782) ( 565,088) Other long-term liabilities 126,654 107,868 Accounts payable 7,141,054 ( 6,595,750) Other accrued liabilities ( 4,793,373) (12,769,091) Total adjustments 31,113,183 24,447,724 Net cash provided by operating activities 33,818,950 26,986,366 i Cash flows from investing activities: Utility plant additions ( 5,936,261) ( 4,458,393) Long-term investments (65,600,071) ( 641,665) Net cash used in investing activities (71,536,332) ( 5,100,058) Cash flows from financing activities: Proceeds from long-term borrowings 63,374,529 4,930,079 Payments of long-term debt (16,101,449) (18,326,016) Payments of capital lease obligations ( 2,286,898) ( 2,650,199) Payments of patronage capital credits ( 634,660) ( 1,565,472) Payments of repricing penalties __ ( 3,851,150) Net cash provided by/(used in) financing activities 44,351,5^2, (21,462,758) Net increase in cash and cash equivalents 6,634,140 423,550 Cash and cash equivalents, beginning of year 76,732,324 76,308,774 Cash and cash equivalents, end of year S 83,366,464 $ 76,732,324 Supplemental disclosure: Interest paid S 34,945,343 S 43,035,608 The accompanying notes are an integral part of these financial statements, l.
SEMINOLE ELECTRIC COOPERATIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COOPERATIVE: Seminole Electric Cooperative, Inc. (Seminole) is a generation and transmission cooperative (G & T). It is responsible for meeting the electric power and energy needs of its eleven distribution cooperative l members operating within the State of Florida. Seminole's rates are l established by its Board of Trustees, which is composed of representatives from each member cooperative. l Seminole constructed and operates two coal-fired generating facilities (Seminole Unit No. 1 and Unit No. 2) near Palatka, Florida with approximately 625 megawatts of net output per unit. These units are connected to the Florida bulk power supply grid through Seminole's 230 kV transmission lines and associated facilities. Both units commenced commercial operation in 1984. At year end 1997, 166 employees or approximately 39% of the total j workforce were covered by a three year collective bargaining agreement with Utility Workers Union of America expiring on June 30, 1999. j ' L l Seminole holds a 1.6994% undivided ownership interest in the Crystal l River Unit No. 3 (CR3) nuclear power plant operated by Florida Power j Corporation (FPC). Seminole also owns various transmission facilities I connecting Seminole to an Independent Power Producer (IPP) as well as individual members to the Florida bulk power grid. NOTE 2 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES: , 1 Seminole complies with the Uniform System of Accounts as prescribed l l by the Rural Utilities Service (RUS). The accounting policies and l practices applied by Seminole in the determination of rates are also employed for financial reporting purposes. These policies and j practices require management to make estimates and assumptions that l affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial l statements, and the reported amounts of revenues and expenses during l the reporting period. Actual results could differ from those j estimates. Under the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, " Accounting for the Effects of Certain Types of Regulation", Seminole's Board of Trustees prescribes ratemaking recovery for certain transactions. Such transactions are approved by RUS prior to adoption. The consolidated financial statements include the results of operations and financial position of Seminole, Acuera Corp. (Acuera), and beginning in 1997, Putnam Leasing Company A, Inc., Putnam Leasing
Company B, Inc., and Putnam Leasing Company C, Inc., each wholly owned subsidiaries of Seminole. The three new subsidiaries were established to facilitate the completion of the lease / leaseback transactions ( discussed in Note eliminated.
- 3. All intercompany transactions have been Operating Revenue Seminole has wholesale power contracts with each of its members, whereby the members must purchase all electric power and energy which the member shall require for its system within the State of Florida from Seminole to the extent that Seminole shall have such power, energy and facilities available. The only exception relates to contracts between several members and the Southeastern Power Administration, which provides less than 2% of the total energy required by all members.
Operating revenue consists primarily of sales of electric power and energy by Seminole and a facilities use charge for Seminole's transmission lines serving a single member cooperative. Member revenues include amounts resulting from a fuel and purchased power adjustment clause which provides for billings to reflect increases or decreases in fuel and fuel related purchased power costs. The l levelized adjustment factor is based on costs projected by Seminole
) for a twelve-month period. Any overrecovery or underrecovery of costs plus an interest factor are to be refunded or billed to the members l semi-annually. At the members' option, refunds of overrecoveries may ) be deferred with interest every six months until such time as the member elects to have the overrecovery including accumulated interest refunded. Net deferred and current balances of these amounts of approximately $4.1 million and $5.8 million at December 31, 1997 and 1996, respectively, are recorded as accrued liabilities until refunaed.
Included in operating revenue are approximately $526 million and $543 million of revenue from members for the years ended December 31, 1997 and 1996, respectively, of which approximately $20 million and $15 million are included in receivables at December 31, 1997 and 1996, respectively. Utility Plant Utility plant owned by Seminole is stated at original cost. Such cost includes applicable supervisory and overhead cost, plus net interest charged during construction. The amounts of interest capitalized during 1997 and 1996 were $86,553 and $65,565, respectively. The cost of maintenance and repairs, including renewals and replacements of minor items of property, is charged to operating expense. The cost of replacement of depreciable property units, as distinguished from
l 3-minor items, is charged to utility plant. The cost of units replaced or retired, including cost of removal, net of any salvage value, is charged to accumulated depreciation. Certain leased transportation equipment is valued at the total net present value of minimum lease payments. Depreciation and Amortization Seminole provides for depreciation on owned utility plant using composite rates applied annually on a straight-line basis that will amortize the original cost of depreciable property over its estimated useful life. The average rates for 1997 and 1996 were as follows: 1997 1996 Coal-fired production plant 3.10% 3.10% Transmission plant 2.75% 2.75% General plant 5.90% 7.22% Nuclear production plant 4.74% 4.56% Depreciation expense amounted to $23,872,653 and $24,003,317 for 1997 and 1996, respectively. Improvements to the leased coal-fired plant are amortized over the remaining life of the base lease term. The related composite amortization rates were 5.91% and 5.87% for 1997 and 1996, respectively. Amortization of leased assets under capital leases amounted to 1 S2,281,194 and $2,081,696 in 1997 and 1996, respectively. Amortization of Deferred Gain Deferred gain on sale-leaseback of plant is being amortized on a straight-line basis over the base lease term of 25 years commencing in 1985 and is reflected as a reduction of operating expenses. Deferred Charges At December 31, 1997 and 1996, deferred charges consisted primarily of unamortized debt costs and related prepayment and repricing penalties of approximately $58.8 million and S66 million, respectively. These deferred charges will be recovered through rates over the remaining lives of the related debt ranging up to twenty-one years. During 1997, certain of the unamortized balances of prepayment penalties were written off as directed by the Board of Trustees and are included in the write off of deferred charges in the amount of S3.9 million. 1
Also included in deferred charges at December 31, 1996 were costs associated with a load management incentive fee program with an unamortized balance of approximately $4.9 million. A 1996 amendment to the Load Management Incentive Program Expense Deferral Plan was adopted by the Board of Trustees which reduced the unamortized balance at year end 1996 by $1.5 million. As directed by the Board of Trustees, the $2.8 million unamortized balance remaining after 1997 amortization was written off in December 1997 These amounts are included in the write off of deferred charges. Long-Lived Assets Seminole evaluates, on a regular basis, whether events and circumstances have occurred that indicate the carrying amounts of utility plant and deferred charges may warrant revision or may not be recoverable. Seminole measures impairment of these long-lived assets based on estimated future undiscounted cash flows from operations. At December 31, 1997, the net utility plant and net unamortized deferred charges balances are not considered to be impaired. Deferred Credits At December 31, 1997 and 1996, deferred credits primarily included deferred lease expense which represents the difference between cash payments and expense recognized on a straight-line basis related to the operating lease of certain generating facilities and a reserve for CR3 decommissioning costs. These deferred credits have been authorized by the Board of Trustees. Cash Equivalents Seminole considers all short-term, highly liquid investments with an original maturity of three months or less to be cash equivalents. Reclassifications Certain reclassifications have been made to the 1996 statements to conform to current classifications. There were no changes in net margins as previously reported.
I NOTE 3 - LEASE / LEASEBACK TRANSACTIONS: In December 1997, Seminole entered into three long-term lease / leaseback transactions for a portion of its Palatka generating station. These transactions are characterized as sales and leasebacks for income tax purposes, but are reflected as financing transactions for financial reporting purposes. After a twenty-three year leaseback period, Seminole has three options including the exercise of a fixed purchase option which, if exercised, would allow Seminole to repurchase the leased assets, repay the related long-term debt and to retain all other rights of ownership (including tax ownership) with respect to the plant. The proceeds received by Seminole from these transactions were $288 million. From these proceeds, $224 million was paid to a financial institution for its entering into three separate payment undertaking agreements (PDAs) with Seminole. Under the PUAs, the financial institution assumed primary liability to pay the portion of Seminole's rental obligation under each lease corresponding to the debt in such leveraged lease. Therefore, both Seminole's interest in the PDAs and the corresponding lease obligations have been extinguished for financial reporting purposes. Additionally, on the date of closing, Seminole made advance rent payments totaling $.6 million and received fees totaling S.5 million. These transactions increased Seminole's investments and long-term debt (lease termination obligation) by $63.9 million and S63.4 million, respectively, at December 31, 1997. The S63.9 million increase in investments includes $33.4 million (lease termination fund) which has been invested in zero coupon government securities which will be held to maturity (the end of the twenty-three year leaseback period) and will accrete to a value to allow Seminole to fully fund the equity portion of the fixed purchase option. The fair market values of both the lease termination fund and lease termination obligation are not determinable since they are not marketable. The $63.9 million increase in investments also includes $30.5 million which represents Seminole's gross cash benefit. At December 31, 1997 this gross cash benefit, which is restricted as to use by an escrow agreement between Seminole and the RUS, has been invested in short-term government securities. Approximately S3.3 million in transaction costs had been incurred by Seminole as of December 31, 1997, with an estimated additional S.5 million expected to be incurred in 1998. The net cash benefit to Seminole totaling S26.7 million will be recognized on a straight-line basis over the twenty-three year leaseback period in the amount of S1.2 million annually, pursuant to SEAS No.71 and as authorized by the Board of Trustees.
NOTE 4 - UTILITY PLANT: December 31, 1997 1996 Owned property: Coal-fired plant S 592,919,310 $ 591,173,599 Transmission plant 157,184,325 157,115,741 General plant 19,981,233 19,207,105 Nuclear plant, including fuel 19,690,039 19,826,646 789,774,907 787,323,091 Transportation equipment under capital leases 39,328,927 39,365,058 i Leasehold improvements of coal-fired plant 18,086,027 17,768,486 847,189,861 844,456,635 Construction work in progress 6,799,648 5,721,211 I Accumulated depreciation and amortization: 853,989,509 850,177,846 Owned property (293,293,314) (271,932,154) I Leased transportation equipment ( 15,956,489) ( 13,675,295) Leasehold improvements ( 5,247,743) ( 4,052,591) (314,497,546) (289,660,040) S 539,491,963 $ 560,517,806 NOTE 5 - INVESTMENTS: l W 1997 December 31, 1996 Investments in associated organizations: National Rural Utilities Cooperative Finance Corporation (CFC): Membership S 1,000 $ 1,000 Capital term certificates 2,613,312 2,325,779 Subordinated term certificates 12,403,737 12,989,419 Patronage capital certificates 537,249 463,878 I Other 17,335 71,184 S 15,572,633 $ 15,851,260 Funds held by trustees and special funds: Pollution control bond funds S 14,929,779 $ 15,085,512 Nuclear decommissioning trust fund 3,246,818 2,801,630 Lease termination fund 33,398,553 - Lease / leaseback benefit 30,531,422 - Special funds 2,094,902 509,609
$ 84,201,474 $ 18,396,751 Investments in capital and subordinated term certificates and patronage capital certificates are considered to be held-to-maturity I due to their nature and are carried at cost determined by specific identification.
I It is not practicable to estimate the fair value of CFC capital term certificates due to the nature and maturity of these investments. Of these investments, $1,459,947 are required as a condition of membership and of loans provided to Seminole by CFC. Of the
$2,613,312 and $2,325,779 carrying amounts at December 31, 1997 and 1996, respectively, $63,307 matures in 2075 and $918,124 matures in 2080. Both of these amounts pay 5% annual interest. Additionally, S364,283 matures in 2030 and pays 3% annual interest and $114,233 bears no interect and amortizes through 2019. An additional non-interest bearing investment in these certificates maturing in 2005 totaling $1,153,365 and $865,024 at December 31, 1997 and 1996, respectively, with investments of approximately $144,000 to be made semi-annually through July 2000, relates to an agreement between Seminole, CFC and the National Cooperative Services Corporation (NCSC, an affiliate of CFC) (see Note 12).
Investments in CFC subordinated term certificates are required as a condition of guarantees provided to others by CFC on behalf of Seminole and are generally priced at market rates at the time of issuance. These investments bear interest at various rates with a combined average of approximately 9.94% and 9.80% in 1997 and 1996, respectively. At December 31, 1997 and 1996, the estimated fair values of these investments of approximately $17 million for each year are based on the current rates offered by CFC for this type of required investment. Restricted funds held by trustees for pollution control bond funds and the nuclear decommissioning trust fund are recorded at amortized cost and are considered to be held-to-maturity. At December 31, 1997 and 1996, the estimated fair values of these funds of approximately $18 million for each year is based on quoted market prices for the securities held by the trustees. The lease termination fund and lease / leaseback benefit are described in Note 3. Special funds consisted of deposits, accruing interest at variable rates, made to FPC and to Florida Power & Light Company (FPL) to secure future transmission services and are scheduled to be refunded in 1999. The deposits' carrying values approximate fair market value and will be held-to-maturity.
s ' NOTE 6 - LONG-TERM LIABILITIES: Long-Term Debt December 31, 1997 1996 First mortgage notes payable to Federal Financing Bank (FFB), guaranteed by RUS, principal due in various installments through 2020, interest at adjustable and fixed rates, currently 5.418% to 7.612% $ 448,775,544 $ 461,483,447 First mortgage notes payable to RUS, principal due in various installments through 2019, interest at 5% 7,885,620 8,062,252 Pollution control revenue bonds, payable to the Putnam County Development Authority, guaranteed by CFC, principal due in various installments through 2014, interest at adjustable rates, currently 3.85% and 3.70% 141,000,000 144,050,000 First mortgage notes payable to CFC, principal due in various installments through 2019, interest at adjustable rates, currently 6.55% 8,924,794 9,091,708 Lease termination obligation payable to State Street Bank and Trust at maturity in 2020, interest imputed at a fixed rate of 3.05% 63,374,529 - 669,960,487 622,687,407 Less current portion ( 17,187,264) ( 16,093,306)
$ 652,773,223 $ 606,594,101 The estimated maturities and annual sinking fund requirements of all long-term debt, at current interest rates for the four years subsequent to December 31, 1998, are presented below:
Annual Maturities Year ending and Sinking Fund December 31, Requirements 1999 $18,105,466 2000 $19,588,377 2001 $20,968,809 2002 $22,174,552
Substantially all owned assets and leasehold interests other than the lease termination fund are pledged as collateral for the above mentioned debt to the United States of America (RUS and FFB) and CFC. At December 31, 1997 and 1996, the estimated fair values of long-term debt including current portion, are approximately S682 million and
$616 million, respectively. For Seminole's long-term debt with interest rates substantially fixed to final maturity, and for that portion that is subject to interest rate adjustment more than six months from year end, fair value is estimated based on the present value of the underlying cashflows. For that portion of long-term debt that reprices to market rates at intervals of six months or less, the carrying amount has been used as a reasonable estimate of fair value.
The fair value of the lease termination obligation is discussed in Note 3. Obligations Under Capital Leases At December 31, 1997, Seminole was obligated under certain capital leases of transportation equipment for which base lease terms expire on various dates through 2005. The following is a schedule of future lease payments under these leases together with the present value of the net minimum lease payments as of December 31, 1997: Year ending December 31, 1998 $ 4,636,953 1999 4,633,266 2000 4,633,266 2001 4,633,266 2002 4,633,266 Thereafter 9,951,353 Total minimum lease payments 33,121,370 Less amount representing interest ( 9,375,772) Present value of minimum lease payments 23,745,598 Less current principal portion ( 2,464,663)
$ 21,280,935 These transportation equipment leases provide for renewals and options to purchase the equipment at fair market value at various dates or upon expiration. Payments under these leases are included as a cost of fuel inventory and expensed based on the tons of coal burned throughout the year.
l NOTE 7 - NET MARGINS AND EQUITY RESTRICTIONS: l Under provisions of the RUS mortgage, until total equity equals or exceeds forty percent of total assets, the distribution of capital contributed by members is limited generally to twenty-five percent of patronage capital and margins of the next preceding year where, after giving effect to such distribution, the total equity will equal or exceed twenty percent of total assets. Distributions may be made, however, in such amounts as may be approved by RUS through waiver of the aforementioned restrictions. Such distributions to members totaled $634,660 and $1,565,472 in 1997 and 1996, representing amounts j equal to 25% of 1996 and 1995 net margins, respectively. The RUS mortgage requires Seminole to design its wholesale rates with a view . I towards maintaining, on a calendar year basis, a Times Interest Earned Ratio (as defined) of not less than 1.0 and a Debt Service Coverage Ratio (as defined) of not less than 1.0. An RUS stipulation arising from the sale of tax benefits requires Seminole to design its wholesale rates to provide an annual Times Interest Earned Ratio (as defined) of not less than 1.05. In 1997 and 1996, Seminole achieved a Times Interest Earned Ratio (as defined) of 1.06 for each year, and a Debt Service Coverage Ratio (as defined) of 1.23 and 1.27, respectively. NOTE 8 - LINES OF CREDIT: i Seminole has available uncommitted lines of credit totaling $100 million of which none were drawn at December 31, 1997. RUS policy governs use of these funds. NOTE 9 - INCOME TAXES: Seminole is a non-exempt cooperative subject to federal and state income taxes and files a consolidated tax return. As a cooperative, Seminole is entitled to exclude patronage dividends from taxable income. In 1996 Seminole's bylaws were revised to require that Seminole is obligated, effective January 1, 1997, to declare patronage l dividends in an aggregate amount equal to Seminole's federal taxable
- income from its furnishing of electric energy and other services to l its member-patrons. Accordingly, such income will not be subject to l income taxes.
Seminole's ratemaking methods provide that any income taxes related ! to current operations are recognized as expense and are recovered r through rates when currently payable. In addition, income tax credits are accounted for as a reduction of taxes currently payable in the period utilized. In 1997 and 1996, net taxable income from non-patronage activity was eliminated by the application of net operating loss carryforwards. However, due to the alternative minimum tax (AMT) L
provisions enacted by the Tax Reform Act of 1986, Seminole paid AMT of approximately S1,600,000 and $200,000 in 1997 and 1996, respectively. AMT was charged to current operations in 1996. AMT was not generated from current operations in 1997 and is reflected as a cost of the lease / leaseback transactions described in Note 3. At December 31, 1997, net operating losses and income tax credits of approximately $102 million and $12 million are available to offset future taxable income and tax liabilities, respectively, expiring in years through 2006. Temporary differences in certain items of income and expense for tax and financial reporting purposes result primarily from depreciation, amortization and sale-leaseback of plant. Seminole has recorded the following noncurrent deferred tax asset, valuation allowance and noncurrent deferred tax liability in 1997 and 1996: 1997 1996 Noncurrent deferred tax asset S 59,900,000 $ 87,900,000 Less: valuation allowance (51,900,000) (78,400,000) Net noncurrent deferred tax asset 8,000,000 9,500,000 Noncurrent deferred tax liability 8,000,000 9,500,000 Net noncurrent deferred tax asset / liability S S __ Because, as a result of the bylaw change effective January 1, 1997, Seminole excludes from its taxable income amounts derived from patronage activity, the deferred tax asset, valuation allowance and deferred tax liability are calculated solely based on non-patronage activity. Prior to 1997, these components were calculated based on total temporary differences. The 1996 amounts shown above have been restated from the prior year to ensure comparability. The noncurrent deferred tax asset reflects deductible temporary differences and net operating loss carryforwards at statutory rates plus investment tax credits and AMT credits. Based on Seminole's historical transactions resulting in non-patronage losses and the revised bylaw provisions regarding patronage dividends effective January 1, 1997, it is not anticipated that Seminole will have future taxable income sufficient to fully realize the benefit of the existing tax credits and net operating loss carryforwards at December 31, 1997. A valuation allowance has been recorded in each year to reduce deferred tax assets relating to tax credits and net operating loss carryforwards. The valuation allowance decreased from 1996 to 1997 due primarily to the utilization of net operating loss carryforwards in 1997. The noncurrent deferred tax liability reflects taxable temporary differences at statutory rates.
NOTE 10 - EMPLOYEE BENEFITS: l Substantially all Seminole employees participate in the National Rural l Electric Cooperative Association (NRECA) Retirement and Security l Program (the Program), a defined benefit pension plan qualified under Section 401 and tax exempt under Section 501 (a) of the Internal
. Revenue Code. Seminole had accrued for pension expense amounts equal to the annual contributions to the Program until July 1, 1987, when a moratorium on contributions went into effect due to reaching full funding limitation. This moratorium on employer contributions was discontinued in November 1994 and reinstated in May 1995 and then discontinued again in October 1996. Employer contributions amounted to $1,331,507 in 1997 and $597,440 in 1996.. In this multi-employer plan, which is available to all member cooperatives of NRECA, the accumulated benefits and plan assets are not determined or allocated
- separately by individual employer.
Employees retiring on or after age 55 receive the benefit of being allowed to continue, at their expense, health care coverage under Seminole's group plan. In addition, these retirees may use a portion of their accumulated unused sick pay to apply toward these medical insurance premiums. The following sets forth the plan's funded status reconciled with amounts reported in Seminole's consolidated balance sheets at December d 31, 1997 and 1996. Accumulated postretirement benefit obligation (APBO): 1997 1996 Active plan participants not l yet fully eligible $2,767,300 $2,648,000 ! Fully eligible active plan participants 659,900 474,200 ; Retirees and dependents 301,700 354,400 Other plan participants 49,300 25,300 Total APBO $3,778,200 $3,501,900 Unrecognized gain /(loss) from past experience 60,100 ( 104,000) Accrued postretirement benefit liability $3,838,300 $3,397,900 Net periodic postretirement benefit cost included the following components: l Service cost S 286,400 $ 277,900 i Interest cost on accumulated I benefit obligation 246,900 228,700 l Amortization of unrecognized prior service cost Net periodic postretirement benefit cost S 533,300 $ 506,600
A 7.5% increase in the cost of covered health care benefits was assumed for 1997. This rate is assumed to decrease incrementally to 5.5% in 2001 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, a 1% increase in the health care trend rate would increase the accumulated postretirement benefit obligation by
$331,900 or 8.8% at year-end 1997 and net periodic cost by $49,000 or 9.2% for the year. The weighted average discount rate and rate of compensation increase used in determining the accumulated post-retirement benefit obligation for 1997 were 7.5% and 5.5%,
respectively. NOTE 11 - OPERATING LEASES: At December 31, 1997, Seminole was obligated under certain leases of generating facilities and transportation equipment for which base lease terms expire on various dates through 2009. The lease of the generating facilities contains a variable interest rate component that could affect future lease payments. Base rental obligations under these leases are payable as follows: Year ending December 31, 1998 $ 39,508,208 1999 $ 40,201,628 2000 $ 40,705,066 2001 S 40,705,066 2002 S 40,054,734 Thereafter S 262,976,788 These leases provide for renewals and options to purchase at fair market value at various dates or upon expiration. Rental payments for these transportation equipment leases totaled $4,557,481 for both 1997 and 1996. These payments were included as a cost of fuel inventory and expensed based on the tons of coal burned throughout the year. NOTE 12 - COMMITMENTS AND CONTINGENCIES: Seminole is purchasing a significant portion of the coal for the plant under a long-term contract expiring in 2010. Contract terms specify minimum annual purchase commitments, subject to force majeure conditions, and prices, which are subject to adjustment for changes in costs. In addition, Seminole has long-term contracts expiring through 2010 for transportation of substantially all coal purchases. Contract terms include a minimum cost as determined by a base quantity of tons shipped and prices, which are subject to adjustment for
I changes in costs. Total charges under these long-term contracts were approximately $110 million and $123 million in 1997 and - 1996, q respectively. ' Seminole has established an external nuclear decommissioning trust fund (NDTF) in compliance with regulations prescribed by the Nuclear l Regulatory Commission. The trust fund balance of approximately $3.2 l million represents Seminole's cumulative share at December 31, 1997 of the estimated sinking fun'd reserve required to decommission CR3. Annual cash deposits will continue to be made to the NDTF representing Seminole's annual share of the projected sinking fund requirements. These amounts will be recovered from members through rates annually. l Based upon a site specific study completed in 1994, Seminole's total share of the projected cost of decommissioning is approximately $7.2 million stated in 1996 dollars, and decommissioning expenditures are. expected to occur over a twenty-six year period ending in the year 2041. In January 1993, Seminole began purchasing power from an IPP under a twenty year agreement which requires the purchase of 295 megawatts of capacity by Seminole from a generating station that was constructed and is being operated by the IPP on a site leased from Acuera. During the initial ten years of the agreement, Seminole is required to purchase an additional 145 megawatts of capacity to be supplied by the IPP from an existing coal-fired generating facility. Under the terms ! of the agreement Seminole will receive this capacity on a first call l basis, subject to certain restrictions as to its use. Seminole is I obligated to make annual "take or pay" capacity payments of- l approximately $34.6 million over the remaining five years of the initial ten years and approximately $21 million over the final ten years of the agreement. Total charges under this long-term contract were approximately $49 million and $48 million in 1997 and 1996, respectively. In 1993, Seminole entered into an agreement with the Jacksonville Electric Authority (JEA) in which JEA will provide Seminole with 52 megawatts of firm capacity from January 1, 1995 through December 31,- 2001. This "take or pay" contract obligates Seminole to make annual capacity payments ranging from approxiinately $2.3 million to $2.6 million over the remaining four years of the contract. Total charges under this long-term contract were approximately $2.0 million in both 1997 and 1996. During 1993, Seminole entered into an agreement with CFC and NCSC whereby, beginning in 1994, Seminole began receiving the periodic net proceeds and certain other rights related to the NCSC refinancing of its debt associated with certain transportation equipment leases with a variable rate financing by CFC. In exchange, Seminole is at risk to make net payments to CFC in the event that the variable rate,
currently 6.6%, on the CFC internal funding which has a balance of
$17.2 million at December 31, 1997, averages more than 16.0% over the remaining seven year life of the agreement. The periodic net proceeds or payments are credited or recovered through the fuel adjustment clause.
In January 1994, Seminole entered into a "take or pay" agreement with the Orlando Utilities Commission (OUC) in which OUC provided Seminole with 75 megawatts of firm capacity during 1996 and will provide 125 megawatts of firm capacity from January 1, 1997 through December 31, 2000 with a minimum annual obligation of approximately $6.7 million. Additionally the contract calls for OUC to provide 75 megawatts of firm capacity from January 1, 2001 through May 31, 2004 with a minimum annual obligation of approximately $4.0 million for 2001 through 2003 and $1.7 million during 2004. Total charges under this long term contract were approximately $9.2 million in 1997 and S5.7 million in 1996. During 1995, Seminole completed the process of obtaining all certifications and permits necessary to construct a 440 MW combined cycle generating facility on a Seminole owned site in Hardee County, Florida. At December 31, 1997 and 1996 approximately S3.6 million is included in Construction Work in Progress related to this facility. This project, once scheduled to go in service in 1999, was postponed for three years by Seminole's Board of Trustees as a result of a new agreement with FPC. Under this agreement, FPC will supply Seminole with additional electric power for three years beginning in 1999. Seminole continues to evaluate the option of purchasing power from other power suppliers in order to determine whether the Hardee facility should be constructed for operation beginning in 2002 or if a more viable option exists. It is expected that a decision will be made during 1999. In the normal course of business Seminole has ongoing disputes with some of its power suppliers. Additionally, some of the billings received by Seminole for purchased power are subject to adjustment based on the actual costs of the seller. During 1997 and 1996, several disputes were settled resulting in refunds relating to purchased power costs recorded in prior periods in the amounts of approximately S300 thousand and $3 million, respectively, not including interest. Also during 1997 and 1996, refunds were received in the aggregate amounts of approximately $4.3 million and $1.3 million, respectively, not including interest, for adjustments to reflect actual costs related to power billings from prior periods. These amounts were recorded in both years as reductions to purchased power expenses.
Seminole is a party to litigation involving various claims arising in the normal course of business. In tho opinion of management, the ultimate resolution of these matters will not materially affect Seminole's financial statements. I { a l i
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