UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1055
FLORIDA PUBLIC UTILITIES COMPANY
(Exact name of registrant as specified in its charter)
Florida 59-0539080
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 South Dixie Highway, West Palm Beach, FL 33401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 832-2461
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $1.50 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment of this Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price on March 8, 2002, was
$53,903,615.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
At March 8, 2002, there were 2,894,931 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Florida Public Utilities Company's Proxy Statement for the
May 14,2002 Annual Meeting of Shareholders are incorporated by reference in
Part III hereof.
PART I
Item 1. Business
General
The Company was incorporated on April 29, 1925 under the 1925 Florida
Corporation Law and is continuing its corporate existence pursuant to such
law and its Certificate of Reincorporation, as amended. Recently the Company
has been proactive in looking for opportunities to purchase small gas
companies to assist in growth. In 2001 two acquisitions took place adding
approximately 7,300 customers. The cost of the acquisitions was less than
10% of assets.
Financial Information about Segments
(For additional information see segments in the Notes to Financial
Statements.)
2001 2000 1999
Revenues
Electric $39,050 $39,304 $37,544
Natural Gas 44,729 38,270 30,287
Propane Gas 5,399 4,380 3,866
Water 2,965 2,805 2,401
Consolidated 92,143 84,759 74,098
Operating income
excluding income tax
Electric $ 2,893 $ 3,016 $ 3,173
Natural Gas 3,295 3,789 3,493
Propane Gas 431 264 393
Water 897 932 739
Consolidated 7,516 8,001 7,798
Identifiable assets
Electric $37,753 $36,911 $35,384
Natural Gas 52,734 42,564 38,355
Propane Gas 10,728 5,648 4,999
Water 9,579 9,038 7,199
Common 29,195 14,885 10,606
Consolidated 139,989 109,046 96,543
Description of Business
Florida Public Utilities Company (FPU or the Company) is regulated by the
Florida Public Service Commission (FPSC), except for propane gas service
supplied by it's wholly owned subsidiary Flo-Gas Corporation, and provides
natural and propane gas service, electric service and water service to
consumers in Florida. The Company is comprised of the following four
divisions and number of customers as of December 31, 2001:(1) South Florida
division serves natural gas to 29,498 customers and propane gas to 5,939
customers; (2) Central Florida division serves 15,944 natural gas customers
and 2,876 propane customers; (3) Northwest Florida division provides
electricity to 12,181 customers; and (4) Northeast Florida division serves
13,811 electric customers and 6,966 water customers and 1,323 propane
customers.
The economy of the South Florida division relies somewhat on the migration of
seasonal residents and tourists during the winter season. Providing stability
in South Florida is primarily gas use by small commercial and residential
customers. Seasonal residents and tourist continue to play a role in the
Central Florida Division; however the I-4 corridor, particularly in Seminole
County's Lake Mary/Heathrow area, is producing a greater amount of large
business parks, individual corporate buildings and call centers. Volusia
County's economy still seems to be dominated by small and privately owned
businesses with the major employers being Florida Power and Florida Power &
Light which own and operate three power plants in the area. The Northwest
Division growth relies on the economies in Jackson, Calhoun and Liberty
Counties. All three are dependant upon a variety of agricultural industries
mainly involved with timber, peanuts, cotton and beef production. However,
the largest employers within the three counties are the Federal, State and
County governments involved in correction and rehabilitation centers. There
are also a number of smaller industries. Northeast Florida's economy is
centered around two large paper mills: ITT Rayonier, Inc. and Jefferson
Smurfit Corp. The beach area, Amelia Island, is noted for its fine beaches
and resort amenities.
The populations for each division, based on counties in which the service
areas are located, as reported by the Untied States Census Bureau, for the
year 2000, are as follows:
South Florida (Palm Beach, Martin, & Broward Counties) 2,881,000
Central Florida (Seminole, Marion, Orange, Levy, Citrus, 2,116,000
& Volusia Counties)
Northwest Florida (Jackson, Calhoun & Liberty Counties) 67,000
Northeast Florida (Nassau County) 58,000
In Northeast Florida, two large paper mills accounted for 12.1% of total 2001
electric division's operating revenues and 5.2% of the Company's total
operating revenues. However, such mills accounted for 4.8% of total 2001
electric division gross profit and 1.6% of the Company's total gross profit.
Natural Gas
The Company receives its total supply of natural gas at twelve City Gate
Stations connected to Florida Gas Transmission Company's (FGT) pipeline
system. FGT is owned by Citrus Corporation who is jointly owned by Enron
Corporation and El Paso Corporation. Due to the joint ownership of FGT, there
has been no direct effect on FPU's operations from Enron's bankruptcy. There
currently is another interstate natural gas transmission system under
construction which will terminate in areas near the Company's existing
distribution systems that may have potential for increasing competition in
the area of interstate pipeline deliveries of natural gas to the Florida
market. Natural Gas is primarily composed of methane which is a colorless,
odorless, fuel that burns cleaner than many other traditional fossil fuels.
Odorant, which enables one to readily detect a gas leak is added by the
interstate transmission company and FPU. Natural gas is one of the most
popular forms of energy today. It is used for heating, cooling, production
of electricity and it finds many uses in industry. Increasingly, natural gas
is being used in combination with other fuels to improve their environmental
performance and decrease pollution.
The Company has the adequate redundancy of gate stations in each distribution
system to assure high levels of continuous service to our customers. The
vast majority of the natural gas the Company distributes is purchased in the
Gulf Coast region both onshore and offshore. The Company has not experienced
any supply availability issues, or shortage, of natural gas in recent history,
nor does it expect any shortages in years to come. In fact the U.S.
Department of Energy estimates that there is more than a 60 year supply
of natural gas reserves.
(See web site: http://www.fe.doe.gov/education/index.html).
FGT is the sole natural gas pipeline serving peninsular Florida and is under
the jurisdiction of the Federal Energy Regulatory Commission (FERC). The
Company uses FGT solely as a carrier of natural gas. All gas supplies for the
Company's traditional sales markets are independently procured by the Company
using gas marketers and producers. The Company's transportation customers
are responsible for obtaining their own gas supplies and arranging for
pipeline transportation.
The Company has continued to be in full compliance with the Gas Industry
Standards Board's (GISB) standards. The GISB was formed to develop a uniform
nationwide network of natural gas producers, marketers, gathering systems,
pipelines, distribution companies and customers. The GISB's standards place
all participants on the same time schedules for procurement, capacity
transactions, invoicing, etc. It caused the network to be fully available
twenty-four hours per day, 365 days per year.
The Company has gained vast experience directly contracting for gas supplies
with marketers and producers while contracting for transportation services
from FGT. This experience appropriately postured the Company to be effective
in operating within an unbundled industry environment. The Company has
maintained the lowest overall cost of gas of all distribution companies
regulated by the FPSC. Furthermore, the Company has minimized its charges
from FGT by releasing (or subletting) a large portion of its unused capacity
and by keeping pipeline imbalances to a minimum, the Company has avoided
punitive pipeline charges. All fuel costs and associated savings are passed
along to our traditional sales customers. Additionally, the Company has
actively reduced demand charges it pays for the pipeline capacity by
"subletting" unused capacity, for short-terms, to other shippers on FGT's
system. The Company continues to be one of Florida's lowest cost suppliers
of natural gas.
The Company continued its activity in Off-System Sales since receiving
approval for the appropriate tariff from the Florida Public Service Commission
(FPSC). Off-System Sales allow the Company to broaden its market to include
any customer within the state of Florida who currently uses natural gas.
Since inception, Off-Systems Sales have been transacted between the Company
and national marketers, electric generators, other gas distributors and
agricultural firms, to name a few. The tariff permits for profit sharing
between the Company and its customers. The Company will explore future
opportunities to keep its total cost of gas as low as possible.
In 2001, the national natural gas market's price volatility stabilized
after experiencing unprecedented high levels of volatility and price in the
cost of gas. The Company, through its Purchased Gas Adjustment (PGA)
mechanism, collected the actual cost of gas from its customers during 2001
for any 2000 under collections. The Company's natural gas sales are affected
by weather which results in higher gas sales, per day, during the winter
period than during the summer season. The Company's customer portfolio is
quite diverse, with the largest customers using natural gas for the generation
of electricity. The Company is not dependent on a single natural gas customer
for a significant percentage of its total revenue.
The Company has filed the appropriate unbundled tariffs to give its
commercial natural gas customers the option of purchasing their gas supplies
from third parties. Even though FPU has had the overall lowest gas costs in
the Florida market, third party suppliers may be able to offer our customers
additional programs which a regulated gas company cannot offer. Furthermore,
by purchasing their gas supplies from third parties, our commercial customers
may avoid certain taxes and fees which FPU is required to collect on the sale
of natural gas. The Company's operating results would not be affected as the
Company realizes the same operating margin regardless of whether the customer
purchases the gas from the Company or uses our system to transport the gas.
The Company officially offered unbundled services to commercial customers on
August 1, 2001. The FPSC allows the Company to be reimbursed by its customers
for the incremental cost of providing unbundled services.
Electricity
The Company provides electrical service to customers in Jackson, Calhoun,
Liberty and Nassau counties in Florida.
Wholesale electricity is purchased from two suppliers, The Southern Company
and Jacksonville Electric Authority. In 1996, long-term purchased power
contracts were executed with both suppliers that will continue through 2007.
The Southern Company provides electrical power to the Northwest Division and
the Jacksonville Electric Authority provides electrical power to the Northeast
Division. Less than 1% of the Company's power supply is purchased on an as
available basis from a self-generating paper mill located in Fernandina
Beach. These long-term contracts allow the Company to offer customers the
lowest rates in the State of Florida.
The Company is not a generating utility, which results in environmental
regulations having minimal effect on our operations.
Both the Northwest and Northeast Divisions are located in northern Florida
which experiences a variety of weather patterns. Hot summers and cold winters
ensure that electrical sales are not extremely seasonal in nature.
The Company has no dependence upon any major customers. No single customer
accounts for more than 10% of electric sales or profit.
The electric utility industry has not been deregulated in the State of
Florida. All customers within a given service or franchise area purchase
from the single electricity provider in that area.
Propane
Florida Public Utilities purchases it's supply of propane gas from several
different wholesale companies such as Dynegy, Propane Resources, Sea3 of
Tampa and Harper Industries. Propane is transported to Florida via ocean-going
barges to seaport terminals in Tampa and Ft. Lauderdale, by railcar and
through the Dixie Pipeline ending at Alma, Georgia. The propane supply
infrastructure is more than adequate to meet the needs of the industry in
Florida for the foreseeable future.
Propane is a non-pollutant, therefore it is not effected by environmental
regulations. However, propane is a hazardous material and as such is subject
to strict code enforcement and safety requirements as outlined in the National
Fire Protection Code 58, Code 54 and various other state and local codes.
The sales volume of propane is effected by the season, tourism, weather, and
the influx of temporary residents. Florida typically has a tourist season
that coincides with the winter season. Approximately 40% of all propane
volumes are sold during the winter season which begins in November and ends
in March. The propane division's sales volumes and revenues are closely
balanced between residential and commercial customers. One of the strategies
of the Company is to become less weather dependant by concentrating on the
marketing of appliances that are not used for heating air. Water heaters are
an excellent way to become less weather reliant. The propane division does
not have any one customer that represents more than five percent of the
overall sales volume or more than two percent of overall revenues.
There is significant competition in the propane business. Our propane
business competes directly with other distributors of propane, natural gas
and electric. Consolidation in the propane industry will continue to provide
Florida Public Utilities with opportunities to expand market share. FPU
competes on the basis of fair priced energy and excellent customer service.
Regulation
The Florida Public Service Commission, pursuant to State Statutes, has
authority encompassing natural gas and electric rates, conditions of service,
the issuance of securities and certain other matters affecting the operations
of the Company. The water segment of the business was subject to FPSC
regulation until September 17, 2001 when the Board of Nassau County rescinded
the FPSC jurisdiction.
Franchises
We hold franchises in most of the incorporated municipalities and in one of
the counties (Jackson County) where we provide natural gas, electric and
water services. These franchises generally have terms from 15 to 30 years and
terminate at various dates. We are in negotiations with some municipalities in
which our franchises have lapsed. We continue to provide services in these
municipalities and do not anticipate any interruption in our service.
Employees
On December 31, 2001 the Company had 358 employees, of whom 101 were covered
under union contracts with two labor unions, the International Brotherhood of
Electrical Workers and the International Chemical Workers Union.
Research Expenditures and Environmental Regulations
Environmental regulations do not have a material impact on the company. The
Company does not engage in research activities.
Competition
Generally, in municipalities and other areas where the Company provides
natural gas, electric and water services, no other utility directly renders
such service. Propane gas has several propane competitors competing on price
and service.
Item 2. Properties
The Company's properties consist primarily of distribution systems and related
facilities. At December 31, 2001 the Company owned 22 miles of electric
transmission lines and 1,034 miles of electric distribution lines. The gas
properties distribute gas through 1,358 miles of gas main. The water property
consists of deep wells, pumping equipment, water treatment facilities and a
distribution system. The propane gas systems operated by the Company's
subsidiary have bulk storage facilities and tank installations on the
customers' premises.
Certain properties of the Company and the shares of Flo-Gas Corporation, a
wholly-owned subsidiary, are subject to a lien collateralizing the funded
indebtedness of the Company under its Mortgage Indenture.
Item 3. Legal Proceedings
In the area of environmental matters the Company has several contamination
sites in various stages of assessment investigation; see "Contingencies" in
the Notes. The Company believes that all future contamination assessment and
remedial costs, legal fees and other related costs will not be in excess of
the rate relief granted the Company and insurance settlement proceeds
received.
On or about October 18, 2000, Violet Skipper, PC Buyers, Inc. and Thomas Wade
Skipper filed suit against FPU in the Circuit Court for Palm Beach County,
Florida. The case was later transferred to Jackson County, Florida. The
lawsuit alleged that FPU failed to properly install and/or maintain
electrical power lines, utility poles and related equipment which allegedly
caused a fire that spread to and eventually destroyed a warehouse/office
facility that was owned by Violet Skipper, that housed the place of business
of the corporate plaintiff and that contained property therein owned by all
the plaintiffs. The warehouse/office facility was located in Jackson County,
Florida. Plaintiffs alleged damages in excess of $1,000,000. FPU has denied
the claims in the complaint and is vigorously defending the claims on the
theory that the alleged fire started within the warehouse/office facility and
not at or in FPU's electrical equipment.
On or about August 13, 2001, Darrell Glenn filed suit against FPU in the
Circuit Court for Palm Beach County, Florida. The case was later moved to
Nassau County, Florida where it is pending. The lawsuit alleged that the
employee of a painting subcontractor was shocked and injured on May 16, 2001
while painting electrical equipment at FPU's step-down site in Fernandina
Beach, Florida. His employer was operating under an agreement that required
it to supervise its own workers. The plaintiff claims FPU was negligent and
that its negligence caused his injuries to his torso which experienced some
degree of burn. The plaintiff has not specified an amount of claim, but FPU
intends to bring the subcontractor into this action as a third-party defendant
and seek indemnification and contribution from the subcontractor. FPU intends
to vigorously defend this claim and to pursue the third-party claim against
the subcontractor.
In the event that the Company does not prevail in these suits, there
may be a material adverse effect on the financial statements. However,
FPU believes there are meritorious defenses to the pending litigation
discussed above but is unable to provide an evaluation of the likelihood of
an unfavorable outcome or provide an estimate of the amount or range of
potential loss.
The Company is also involved with other various claims and litigation
incidental to its business. In the opinion of management, none of these
incidental claims and litigation will have a material adverse effect on the
Company's results of operations or its financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
QUARTERLY STOCK PRICES AND DIVIDENDS PAID
The Company's common shares are traded on the American Stock Exchange
under the symbol FPU. The quarterly cash dividends paid and the reported
price range per share of FPU common stock for the most recent two years
were as follows:
2001 2000
------ ------
Low - High Low - High
STOCK PRICES
Quarter ended
March 31 $14.05 - $16.20 $13.13 - $17.13
June 30 14.40 - 17.49 13.19 - 19.50
September 30 15.20 - 17.26 15.63 - 17.88
December 31 15.60 - 17.35 13.75 - 16.75
DIVIDENDS PAID
January 1 $ 0.18 $ 0.17
April 1 0.18 0.17
July 1 0.185 0.18
October 1 0.185 0.18
On March 8, 2002, there were approximately 2,674 holders of the Registrant's
Common Stock including individual participants in security position listing.
It is the Company's intent to continue to pay quarterly dividends in the
foreseeable future. The dividend policy is reviewed on an ongoing basis and
is dependent upon the Company's expectation of future earnings, cash flow,
financial condition, capital requirements and other factors.
The Company's Fifteenth Supplemental Indenture of Mortgage and Deed of Trust
restricts the amount that is available for cash dividends. At December 31,
2001 approximately $2,900,000 of retained earnings were free of such
restriction.
Recent Sales of unregistered securities
On November 14, 2001 the Company sold Palm Beach County Florida Industrial
Development Revenue Bonds in the amount of $14,000,000. Edward D. Jones
& Co., L.P. was underwriter for the bond issue. The aggregate offering price
was $14,000,000, with payments relating to the issue of $420,000 in
underwriting fees and $349,426 for insurance premiums. The bond proceeds are
restricted and held in trust until construction expenditures are actually
incurred by the company. (See "Liquidity and Capital Resources" under Item 7
for additional information). The Company issued its First Mortgage Bond,
4.9% Series due 2031 on November 1, 2001 in the aggregate principal amount of
$14,000,000 as security for the $14,000,000 Palm Beach Industrial Development
Revenue Development Bonds. The pledged bond constitutes the Fifteenth Series
of the Company's First Mortgage Bonds.
The exemption from registration is under the authority of Section 382 of the
Securities Act of 1933, based on the bond being issued by a state and local
government.
Item 6. Selected Financial Data (in thousands, except per share data)
Years Ended December 31, 2001 2000 1999 1998 1997
------------------------------------------------------------------------
Revenues $92,143 $84,759 $74,098 $76,192 $78,134
Gross profit 32,776 31,143 29,342 28,491 26,679
Net income 3,052 3,288 3,529(1) 3,068 3,191(1)
Earnings per common share 1.06 1.16 1.17(1) 1.02 1.07(1)
Dividends per common share 0.73 0.70 0.66 0.62 0.60
Total assets 139,989 109,046 96,543 92,406 89,050
Utility plant - net 97,329 84,200 78,272 75,227 72,724
Current debt 20,430 17,900 13,000 8,200 7,600
Long-term debt 52,500 23,500 23,500 23,500 23,500
Common shareholders' equity 29,329 27,510 25,866 27,622 26,189
Notes to the Selected Financial Data:
(1) 1997 and 1999 include gains after income taxes from the sale of
non-utility real property of $83, $0.03 per share (1999) and
$522, $0.18 per share (1997).
The acquisitions in late 2001 added approximately $10,700 to total Assets
and$3,975 to Utility Plant - Net.
Revenue recorded in the 2001 year from the acquisitions late in the year
was approximately $326.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with the Notes to Consolidated
Financial Statements contained herein. In the following discussion, all
comparisons are with the corresponding items in the prior year.
RESULTS OF OPERATIONS
Overview
The Company is organized into three regulated business segments,
natural gas, electric and water and one non-regulated business segment,
propane gas. The gas and electric segments aggregate approximately 91% of
total gross profit.
From the Florida Public Service Commission's (FPSC) perspective the Company
operates four distinct regulated "entities" consisting of Northwest Florida
(Marianna) electric, Northeast Florida (Fernandina Beach) electric, Northeast
Florida (Fernandina Beach) water, and natural gas. The Company considers the
Northwest and Northeast electric divisions one electric segment. The Company
last received rate increases in the regulated entities as follows: natural
gas operations, May 1995; Northwest Florida electric division, February 1994;
Northeast Florida electric division, February 1989; and Northeast Florida
water in May 2001. The FPSC stopped regulating the water segment of the
Company's business on September 17, 2001 due to a resolution passed by Nassau
County (for additional information see "Business and Regulation" in the Notes
to Consolidated Financial Statements).
The Company's strategic initiative is to concentrate on developing deeper
relationships with our customers, including builders and developers. We are
approaching them as a total energy company, not just a supplier of gas or
electricity. Included in the strategy is a plan to increase the rate of
future growth by concentrating on increasing customers and territories using
improved marketing programs, along with a goal of acquiring small energy
related companies, particularly propane companies. During 2001 the Company
made two gas acquisitions, totaling less than 10% of assets, that added
approximately 7,300 customers.
Definitions:
Gross Profit. Gross Profit, defined as gross operating revenues less fuel
costs, conservation and unbundling costs, and taxes based on revenues that
are passed through to customers, provides a more meaningful basis for
evaluating our utility operations. Fuel, conservation, and unbundling costs
along with taxes passed through to customers have no effect on results of
operations and fluctuations in such costs distort the relationship of gross
operating revenues between periods. Gross profit is the net revenue retained
by the Company for operating purposes.
Summary of Gross profits
(in thousands) 2001 2000 1999
------- ------- -------
Natural gas $15,854 $15,430 $14,484
Propane gas 3,106 2,712 2,673
Electric 10,980 10,321 9,890
Water 2,836 2,680 2,295
Contributing to variations in gross profit are the effects of seasonal
weather conditions, the timing of rate increases, acquisitions, and the
migration of winter residents and tourists to Florida during the winter
season.
Operating Expenses. Operating expenses exclude fuel costs, conservation
and unbundling costs, and taxes based on revenues that are passed through
to customers. These operating expenses have no effect on results of
operations as they are passed on directly to customers and fluctuations in
such costs distort the relationship of operating expenses between periods.
These costs are grouped on a separate line of the income statement as "Cost
of fuel and taxes based on revenues".
Discussion:
Natural and Propane Gas Service
Natural gas service gross profit increased $424,000 in 2001 principally due
to a 4% increase in average customers, an increase in transportation revenues
of $216,000, a $91,000 increase relating to the December 14, 2001 asset
purchase of the South Florida Natural Gas Company that was part of the
Atlantic Utilities purchase, and new late payment fees. The Company began
charging late fees in 2001 adding over $161,000 in additional gross profit.
Consumption was down for the year by 3%, excluding transportation and
off-system sales, primarily due to weak demand in the last quarter of the
year caused by mild weather conditions and decreased tourism. Looking
forward, we expect the asset purchase will add approximately another
$1,347,000 annually to gross profit.
A gas line project for a generation facility located in Palm Beach County was
constructed during 2001 and completed in February 2002. The total cost, with
resulting increase to total assets, is anticipated to be approximately
$5,800,000, with $3,100,000 expended and recorded in 2001. The Company has a
30-year agreement that will realize an 11.17% return on the net invested cost
of the project, which began billing in February 2002. We expect that total
revenue will increase approximately $1,113,000 in 2002, $1,184,000 in 2003,
and $1,159,000 in 2004, decreasing yearly as construction costs are
depreciated. Because the project does not involve purchasing gas, the gross
profit will increase by approximately the same amounts (99.5% of the revenue).
After operating costs, interest, and income taxes, we anticipate this project
to increase net income by approximately $368,000 in 2002, $347,000 in 2003,
and $335,000 in 2004, decreasing yearly during the 30-year agreement.
A large volume transportation customer is connecting during 2002 with an
anticipated annual load of 1,825,000 therms. The customer plans to expand
and possibly double the load at sometime in the future. The estimated
construction cost to serve the customer is $20,000. They expect to be using
gas beginning in May 2002. The estimated revenue for 2002 is around $186,000
with the complete year in 2003 estimated to be $280,000. Because the project
does not involve purchasing gas, the gross profit will increase by
approximately the same amounts (99.5% of the revenue). There should be
minimal impact to any additional operating cost. We anticipate this customer
will increase future net income by approximately $115,000 for the partial
year in 2002 and $175,000 for 2003.
Propane gas gross profit increased $394,000 in 2001 due to a 4% increase in
average customers that resulted in a 22% increase in consumption, and the
addition of late payment fees. The start up of the Northeast division's
(Fernandina Beach) propane operations amounted to $136,000 of the increase,
including the effect of acquiring Z-Gas, a propane company, on October 29,
2001. Z-Gas is expected to add approximately another $90,000 annually to the
gross profit next year. Impacting the increase in 2001 was increased bulk
commercial customers in the South Florida division, resulting in a 68%
increase in consumption and $131,000 of gross profit. New late fees that
began in 2001 amounted to $25,000. As the Northeast propane start up
business continues it is expected to generate additional gross profit to
cover operating costs in the near future.
Natural gas operating expenses, excluding income taxes, increased $918,000
in 2001. General and administrative expenses increased $284,000 and are
discussed separately in the administrative expenses section. Increased
distribution expenses of $124,000 related to increased payroll and higher
costs of performing line locations and supporting growth. Customer accounts
expense increased $33,000 due to added payroll and other expenses associated
with the new customer information and billing system and growth, along with
an additional $147,000 in bad debts. Additional efforts and procedures are
being implemented to reduce future bad debt expense. Sales expenses were up
$158,000 due to staffing of marketing positions for expanding marketing
efforts. Increased property taxes reflecting increased plant and increased
valuations, along with additional payroll taxes associated with increased
payroll expense added $175,000 to operating expenses. The Atlantic
acquisition will increase future expenses.
Propane gas operating expenses, excluding income taxes, increased $226,000
in 2001. Changes to administrative expenses were nominal. The start up of
the new Northeast (Fernandina Beach) propane operation added $158,000 of the
increased expense. In addition, $23,000 was for increased labor expenses
associated with delivery of gas relating to growth, $12,000 was for increased
payroll associated with the new billing system and increased bad debts, and
$20,000 of the increase related to new marketing efforts to obtain additional
customers. The Z-Gas and Atlantic acquisitions will increase future expenses.
Natural gas service gross profit increased $946,000 in 2000. Transportation
revenues accounted for $404,000 of the increase as certain customers are
opting to purchase their own gas and use our system to transport the gas to
their location. The Company realizes the same gross profit regardless of
whether the customer purchases the gas from us or uses our system to transport
the gas. Excluding the approximate 600 customers in the Central Florida
division that converted from propane to natural gas in 2000, the remaining
$542,000 increase in gross profit was due principally to an approximate 2.3%
increase in average customers as compared with 1999. Consumption increased
in greater proportion to the increase in customers due to winter weather
colder than 1999. Propane gas gross profit increased $39,000 as compared with
1999. Average customers increased 1.0% from 1999 to 2000, excluding the
effect of those customers who converted to natural gas.
In 2000, operating expenses increased $818,000, or 6%, excluding income taxes.
Other than the general increases in all classifications of expense, there were
increases in gas line locating expenses, expenses related to increasing the
gas pressure in our mains and services, expenses attributable to the
implementation of a new customer information system, and start-up expenses
attributable to the propane gas service in Fernandina Beach, which commenced
October 1, 2000. Additional marketing staff and customer service costs, also
contributed to increased expenses.
Electric Service
Electric service gross profit increased $659,000 in 2001. Average customers
grew by 2% for the year with the consumption per customer relatively flat.
The customer growth accounted for approximately $200,000 of the increase, with
new late fees that started during the year adding $134,000. A decrease in the
prior year's gross profit of $305,000 for pending refunds to customers for over
earnings accounted for part of this increase. The Company did not have any over
earnings adjustment in 2001 and does not expect to ordinarily over earn in the
future.
Operating expenses, excluding income taxes, increased $783,000 in 2001.
General and administrative costs increased $447,000 which is discussed below
in the administrative section. Maintenance expenses increased by $126,000 due
to substation maintenance work of $150,000 (including labor) and $55,000 for
overhead conductors including overhead line balancing relating to cold weather
early in the year in the Northeast division. Lower maintenance expenses in the
Northwest division offset these increases. Customer accounts expenses
increased over $58,000 due to additional payroll related to the new customer
information and billing system and growth, along with an additional $25,000
in bad debts. Additional efforts and procedures are being implemented to
reduce future bad debt expense.
In 2000, electric service gross profit increased $431,000. Average
customers increased approximately 3% which was the major factor contributing
to the gross profit increase. There were provisions for rate refunds in both
the current and prior year.
In 2000, operating expenses increased $588,000, or about 9%. In addition to
across the board increases in all classifications of expense, there were
increases in expenses attributable to the implementation of a new customer
information system and increases in all areas of maintenance expense,
including tree trimming costs.
Water Service
Gross profit from the water segment in 2001 accounts for less than 9% of the
Company's total gross profit and is not materially significant. Gross profit
increased $156,000 due to 2% customer growth and a rate increase on
May 17, 2001 that added approximately $225,000 gross profit annually.
Expenses for operations were up in 2001 by $191,000 primarily due to
increased administrative expenses of $82,000, customer service expenses of
$34,000, property and payroll taxes of $44,000, and water treatment expenses
of $11,000. The administrative expenses are discussed below. The customer
service increase was to support growth and a new customer information and
billing system. Water treatment expenses included adjusting chlorine systems
to coordinate with a new plant. In addition, there was increased labor
expenses as required by increased regulation and growth with the positions
recovered in the recent rate cases approved by the FPSC.
Gross profit from the water segment in 2000 accounts for less than 9% of the
Company's total gross profit and is not materially significant. Gross profit
increased by $386,000 primarily due to customer growth and a rate increase on
April 1, 2000 that added approximately $363,000 to the annual gross profit.
In 2000, operation expenses increased $192,000. In addition to across the
board increases in all classifications of expense, additional expenses were
incurred that were recovered in the rate increase.
Administrative Expenses
Administrative expenses for 2001 increased $813,000. Growth and the cost of a
more sophisticated billing system caused most of the increase. Also, payroll
expenses increased $195,000 due to replacing two management positions and
hiring two safety directors. The safety directors should assist in lowering
workman's compensation insurance costs and lost time. Other expenses that
increased were medical insurance costs of $60,000, pension cost of $175,000,
and employee benefit costs of $48,000.
In 2000, the administrative expenses are included in the discussion of each
segment as part of their increased operating expenses.
Interest Charges and Other Interest charges consist of interest on bonds,
short-term borrowings and customer deposits. Interest charges on long-term
debt increased due to two additional bond issues totaling $29,000,000. On
September 27, 2001 there was a $15,000,000 bond issued and on November
14, 2001 there was a $14,000,000 bond issued. Short-term interest expense
decreased primarily due to decreased interest rates, although it is effected
by fluctuations in the amounts borrowed under the line of credit. For
detailed information see "Notes Payable" and "Capitalization" in the notes
to financial statements.
Mergers and Acquisitions
In October 2001, Florida Public Utilities Company acquired Z-Gas Company,
Inc., a propane gas service distribution company in a stock for stock
transaction valued at approximately $600,000. The transaction involved the
issuance of 31,960 shares of the company's stock and $20,000 of cash. The
acquisition was accounted for under the purchase method of accounting. The
merger added about 1,000 customers to the propane operation in the Northeast
Florida Division.
In December 2001, Florida Public Utilities Company acquired certain net assets
of Atlantic Utilities, the Florida operation of Southern Union Company in a
cash transaction valued at approximately $10,000,000. Approximately $250,000
of the purchase price was withheld pending title clearance for real property
in Lauderhill. The acquisition was accounted for under the purchase method of
accounting. Atlantic Utilities served about 4,400 natural gas customers in New
Smyrna Beach and about 1,900 propane customers in central and south Florida.
Based on preliminary estimates, the excess of the consideration paid over the
estimated fair value, or the depreciated original cost for regulated entities,
of net assets acquired of approximately $5,900,000 was recorded as goodwill
and according to Financial Accounting Standards (FAS) Nos. 141 and 142 is
not being amortized. There could be amortization if intangibles other than
goodwill are identified. FPU is in the process of obtaining additional
supporting documentation from the seller of Atlantic Utilities to refine the
purchase price. For additional information concerning the acquisitions, see
"Mergers and Acquisitions" in Notes to Consolidated Financial Information.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities was $7,639,000 in 2001, $6,834,000 in
2000, and $7,543,000 in 1999. The increase in 2001 is primarily the result of
a reduction in accounts receivables due to increased collection efforts and
going from a $902,000 under recovery of energy costs to an over collection of
$1,456,000, offset by a reduction to accounts payable due to lower energy
bills. Most of the decrease in 2000 relates to the escalation of fuel prices
which caused accounts receivable and accounts payable to increase and fuel
costs to go from over recovery of $1,306,000 in 1999 to under recovery of
$902,000 in 2000.
Cash flows used from investing activities for construction averaged about $8.1
million through the five years ending 1999. For the 2001 year, $13,962,000
was spent due to several projects in addition to normal construction. A
project under contract with a generation facility, located in Palm Beach
County, began involving the construction of a gas line to the facility. The
estimated cost of constructing the line is $5,800,000, with approximately
$3,100,000 expended in 2001. Completion is expected in 2002. Proceeds from
the Palm Beach County municipal bonds, discussed in the "New Bond Issues"
section below, will be used to finance the project. Also approximately
$1,500,000 was spent to rebuild a 138KV electric line and $538,000 to
construct a new office in the Central Florida division. In 2000 there was
additional capitalized costs over normal expenditures of $1,348,000 relating
to the new customer information system.
In 2001, cash flows used by investing activities other than construction
projects included acquisitions of two companies amounting to $9,875,000 and
a $8,808,000 increase for restricted funds placed in long-term investments
that will be used for future construction expenditures in Palm Beach County
(see the "New Bond Issues" section below for details). The acquisitions were
financed from proceeds of the First Mortgage bonds detailed below.
Since portions of the Company's business are seasonal throughout the year,
short-term debt is used to meet working capital requirements. The Company also
borrows under lines of credit to finance portions of its capital expenditures,
pending refinancing at a later date through the issuance of equity or
long-term debt, depending upon prevailing market conditions.
The Company has a $20,000,000 line of credit with its primary bank of which
at December 31, 2001, $2,070,000 is available and a $2,500,000 line of credit
with a secondary bank which is all fully borrowed. The primary line provides
for interest at LIBOR plus fifty basis points and the line of credit at the
second bank is at LIBOR plus thirty basis points. The Company has reserved
$1,000,000 as a contingency for major storm repairs in the Northwest Florida
electric division. The weighted average interest rates at December 31, 2001,
2000, and 1999 were approximately 2.4%, 7.1%, and 6.3% respectively.
The Company has no material commitments for construction expenditures, with
the exception of $2,700,000 committed for the Lake Worth generation project
that will be funded from the restricted funds held in long-term investments
(see new bond issues). Capital expenditures for 2002 have been budgeted
for $13,426,000, of which approximately $8,700,000 will be funded from cash
and operating activities and, $4,800,000 from the restricted bond issue. For
additional information see "Notes Payable" and "Capitalization" in the Notes.
The Company anticipates that future construction expenditures and potential
acquisitions will require additional debt and/or equity financing, most
likely in 2002 or 2003. Most recently the Company used debt financing for all
cash requirements, including acquisitions because of the favorable interest
rate environment. The Company will issue equity or long-term debt depending
upon prevailing market conditions and availability. The Company does not use
any off-balance sheet financing structures and does not have any partnerships
or synthetic leases.
Long-term debt has sinking fund payments that begin in 2008. Lines of credit
are for generally a year and are renewed annually.
New Bond Issues
The Company's 1942 Indenture of Mortgage and Deed of Trust, which is a mortgage
on all real and personal property, permits the issuance of additional bonds
based upon a calculation of unencumbered net real and personal property. At
December 31, 2001, such calculation would permit the issuance of approximately
$25,000,000 of additional bonds.
Florida Public Utilities Company (FPU) filed an application on December 12,
2000, seeking Commission approval pursuant to Section 366.04, Florida
Statutesand Chapter 25-8, Florida
Administrative Code, to issue and sell and/or exchange any combination of
long-term debt, short-term notes and equity securities and/or to assume
liabilities or obligations as guarantor, endorser or surety during calendar
year 2001. FPU filed an amendment to its original application on January 19,
2001, which increased the dollar amount of its authority to $60 million in
long-term debt, short-term notes and equity securities, or any combination
thereof. Notice of FPU's application was given in the Florida Administrative
Weekly on February 9, 2001. The Company received approval from the Florida
Public Service Commission to issue a total aggregate debt amount not to
exceed $60 million on March 14, 2001. On April 17, 2001, stockholders
approved an amendment to the Company's Certificate of Reincorporation to
increase the authorized shares of Common Stock from 3,500,000 to 6,000,000
shares.
The Company issued its First Mortgage Bond, 6.85% Series due 2031 on September
27, 2001 in the aggregate principal amount of $15,000,000 as security for
the 6.85% Secured Insured Quarterly Notes, due October 1, 2031 (IQ Notes).
Interest on the pledged bond accrues at the rate of 6.85% per annum payable
quarterly in arrears on January 1, April 1, July 1 and October 1 of each year,
payable initially on January 1, 2002. The pledge bond constitutes the
Fourteenth Series of the Company's First Mortgage Bonds.
The Company issued $14,000,000 of Palm Beach County municipal bonds
(Industrial Development Revenue Bonds) on November 14, 2001 to finance
development in the area. The interest rate on the thirty-year callable
bonds is 4.90%. The bond proceeds are restricted and held in trust until
construction expenditures are actually incurred by the company and will be
available from the trustee as construction is performed in the county during
2001, 2002, and 2003. In 2001 $5,362,000 was drawn from the restricted funds
held by the trustee, leaving $8,008,000 available after closing costs.
$4,800,000 is expected to be used in 2002. The Company issued its First
Mortgage Bond, 4.9% Series due 2031 on November 1, 2001 in the aggregate
principal amount of $14,000,000 as security for the $14,000,000 Palm Beach
Industrial Development Revenue Development Bonds. The pledged bond
constitutes the Fifteenth Series of the Company's First Mortgage Bonds.
Impact of Recent Accounting Standards
Financial Accounting Standard No. 133 and 138
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments
and Hedging Activities" as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes
in the derivatives' fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. The effects of applying SFAS
Nos. 133 and 138 through December 31, 2001 were not material to the
Company's financial statements and are not expected to effect future
operations as the Company does not expect to enter into significant
derivative instruments.
Financial Accounting Standard No. 141 and 142
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method
of accounting. SFAS No. 142 specifies that, among other things, intangible
assets with an indefinite useful life and goodwill will no longer be
amortized. The standard requires goodwill to be periodically tested for
impairment and written down to fair value if considered impaired. The
provisions of SFAS No. 142 are effective for fiscal years beginning after
December 15, 2001, and are effective for interim periods in the initial year
of adoption. The effects of adopting SFAS Nos. 141 and 142 on the recent
acquisitions required use of the purchase method and resulted in goodwill
that will have to be tested for impairment beginning in 2002.
Financial Accounting Standard No. 143
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The statement requires that the fair value of an
asset retirement obligation be recognized in the period in which it is
incurred and the associated asset retirement costs capitalized as part of
the carrying amount of the long-lived asset. The asset retirement cost is
subsequently allocated to expense using a systematic and rational method
over its useful life. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. Management is in the process of evaluating the impact
of implementing SFAS 143 and feels that other than changing the methodology
of depreciation and increasing administrative efforts, the effect on
operating results will be immaterial and feels the impact on the regulated
portion of the business, if any, would be an allowable item for recovery in
the Company's rates.
Financial Accounting Standard No. 144
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The statement supercedes, with exceptions, SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
Management is in the process of evaluating the impact of implementing SFAS 144
and is unable to estimate the effect, if any, on the Company's financial
statements but feels the regulated portion of an impact, if any, would be an
allowable item for recovery in the Company's rates.
OTHER
Effects of Inflation
The Company's tariffs associated with its utility operating divisions provide
for fuel clauses through which rates charged to customers are adjusted for
changes in the cost of fuel on a reasonably current basis. Increases in other
utility costs and expenses not otherwise offset by increases in revenues or
reductions in other expenses could have an adverse effect on earnings due to
the time lag associated with obtaining regulatory approval to recover such
increased costs and expenses, and the uncertainty of whether regulatory
commissions will allow full recovery of such increased costs and expenses.
Forward Looking Information
This report contains forward looking information that is intended to qualify
for the safe harbor provided by the Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations are based on
reasonable assumptions, actual results could differ materially from those
currently anticipated. Factors that could cause actual results to differ from
those anticipated include, but are not limited to, the effects of regulatory
actions, competition, future economic conditions and weather.
Critical Accounting Policies
The Company prepares its financial statements in accordance with the
provisions of Statement of Financial Accounting Standards No. 71 -
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71).
In general, SFAS 71 recognizes that accounting for rate-regulated enterprises
should reflect the relationship of costs and revenues introduced by rate
regulation. As a result, a regulated utility may defer recognition of a cost
(a regulatory asset) or recognize an obligation (a regulatory liability) if it
is probable that, through the rate making process, there will be a
corresponding increase or decrease in revenues.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
All financial instruments held by the Company were entered into for purposes
other than for trading. The Company has market risk exposure only from the
potential loss in fair value resulting from reasonably possible changes in
interest rates. The Company has no exposure relating to commodity prices
because the Company, under its regulatory jurisdictions, is fully compensated
for the actual costs of commodities (primarily natural gas and electricity)
and also passes through fluctuations in propane costs to customers. The
Company has no exposure to equity risk as it does not hold any equity
instruments. The Company's exposure to interest rate risk is limited to
investments held in escrow for environmental costs, investments from
restricted bond proceeds, and long-term debt. The investments held in escrow
for environmental costs have gained in market value by $49,000 as of December
31, 2001 and mature from 2001 to 2004. We expect to hold these securities
until maturity. The restricted funds will be used during the next two years.
Therefore, the Company does not believe it has material market risk exposure
related to these instruments. The cost of long-term debt is included as a
recovered cost in revenue for the regulated operations and as such the Company
is reimbursed for interest costs. Therefore, disclosure of the change in fair
value due to reasonably possible near term changes in interest rates is not
meaningful.
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Years Ended December 31
-------------------------
2001 2000 1999
Revenues ------ ------ ------
Electric $39,050 $39,304 $37,544
Natural gas 44,729 38,270 30,287
Propane gas 5,399 4,380 3,866
Water 2,965 2,805 2,401
------- ------- -------
Total revenues 92,143 84,759 74,098
Cost of fuel and taxes
based on revenues 59,367 53,616 44,756
------- ------- -------
Gross profit 32,776 31,143 29,342
------- ------- -------
Operating Expenses
Operations 14,718 13,139 12,013
Maintenance 3,165 3,013 2,763
Depreciation and amortization 4,839 4,698 4,557
Taxes other than income taxes 2,538 2,292 2,211
Income taxes 1,249 1,473 1,628
------- ------- -------
Total operating expenses 26,509 24,615 23,172
------- ------- -------
Operating Income 6,267 6,528 6,170
------- ------- -------
Interest Charges and Other
Merchandise and service revenue (2,571) (1,815) (1,599)
Merchandise and service expenses 2,316 1,762 1,572
Other income (427) (372) (401)
Other deductions 30 23 26
Gain from sale of
non-utility property (15) - (134)
Long-term debt 2,606 2,235 2,235
Short-term borrowings 826 962 473
Customer deposits and other interest 159 290 260
Income taxes on interest
charges and other 291 155 209
------- ------- -------
Total interest charges and other 3,215 3,240 2,641
------- ------- -------
Net Income 3,052 3,288 3,529
Preferred Stock Dividends 29 29 29
------- ------- -------
Earnings for Common Shares $3,023 $3,259 $3,500
======= ======= =======
Earnings Per Common Share $ 1.06 $ 1.16 $ 1.17
Dividends Paid Per Common Share 0.73 0.70 0.66
Average Shares Outstanding 2,851,305 2,819,510 2,995,721
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(in thousands) December 31
-------------------
ASSETS 2001 2000
-------- --------
Utility Plant
Electric $ 57,212 $ 53,642
Natural gas 68,528 56,464
Propane gas 8,993 6,628
Water 12,079 11,512
Common 4,844 4,657
-------- --------
Total 151,656 132,903
Less accumulated depreciation 54,327 48,703
-------- --------
Net utility plant 97,329 84,200
-------- --------
Current Assets
Cash 3,198 66
Accounts receivable 7,169 9,970
Allowance for uncollectible accounts (131) (162)
Unbilled Receivable 1,482 1,431
Inventories (at average or unit cost) 3,343 2,884
Prepayments and deferrals 670 910
Under recovery of fuel costs - 788
Under recovery of conservation
and unbundling 343 115
-------- --------
Total current assets 16,074 16,002
-------- --------
Other Assets
Investments held in escrow
for environmental costs 3,417 2,876
Restricted Bond Proceeds 8,008 -
Deferred charges 9,260 5,968
Goodwill 5,901 -
-------- --------
Total other assets 26,586 8,844
-------- --------
Total $139,989 $109,046
======== ========
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 29,329 $ 27,510
Preferred stock 600 600
Long-term debt 52,500 23,500
-------- --------
Total capitalization 82,429 51,610
-------- --------
Current Liabilities
Notes payable 20,430 17,900
Accounts payable 5,637 10,337
Insurance accrued 2,257 2,389
Interest accrued 877 625
Other accruals and payables 3,186 3,062
Over recovery of fuel costs 1,800 -
Customer deposits 4,454 4,192
-------- --------
Total current liabilities 38,641 38,505
-------- --------
Other Liabilities
Deferred income taxes 7,308 7,437
Unamortized investment tax credits 861 975
Environmental liability 5,237 5,306
Regulatory tax liabilities 1,548 1,653
Customer advances for construction 2,011 1,965
Storm damage 1,954 1,595
-------- --------
Total other liabilities 18,919 18,931
-------- --------
Total $139,989 $109,046
======== ========
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(dollars in thousands)
December 31,
------------------
2001 2000
------ ------
Common Shareholders' Equity
Common stock, $1.50 par value, authorized
6,000,000 shares and issued 3,236,975,
shares in 2001; authorized 3,500,000 and
issued 3,224,672 shares in 2000 $4,856 $4,837
Paid-in capital 9,902 9,661
Retained earnings 19,386 18,461
Treasury stock - at cost (350,691 shares
in 2001 and 396,867 in 2000) (4,815) (5,449)
------- -------
Total common shareholders' equity 29,329 27,510
------- -------
Preferred Stock
4 3/4% Series A, $100 par value,
redemption price $106, authorized
and outstanding 6,000 shares 600 600
------- -------
Long-Term Debt
First mortgage bonds
Series
9.57% due 2018 10,000 10,000
10.03% due 2018 5,500 5,500
9.08 % due 2022 8,000 8,000
4.90 % due 2031 14,000 -
6.85 % due 2031 15,000 -
------- -------
Total long-term debt 52,500 23,500
------- -------
Total Capitalization $82,429 $51,610
======= =======
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(dollars in thousands)
Common Stock
------------------ Treasury
Shares Aggregate Paid-in Retained Treasury Shares
Issued Par Value Capital Earnings Shares Cost
------- --------- ------- -------- -------- --------
Balances as of
December 31, 1998 3,200,860 $4,801 $9,065 $15,686 200,945 $(1,930)
Net income 3,529
Dividends (2,011)
Stock plans 11,341 18 279 (9,593) 34
Purchase of
treasury shares 218,464 (3,605)
--------- ------- ------- ------- -------- -------
Balances as of
December 31, 1999 3,212,201 4,819 9,344 17,204 409,816 (5,501)
Net income 3,288
Dividends (2,031)
Stock plans 12,471 18 317 (12,949) 52
Balances as of --------- ------- ------- ------- -------- -------
December 31, 2000 3,224,672 4,837 9,661 18,461 396,867 (5,449)
Net income 3,052
Dividends (2,127)
Stock Issuance
due to Acquisitions (31,960) 439
Stock plans 12,303 19 241 (14,216) 195
Balances as of --------- ------- ------- ------- -------- -------
December 31, 2001 3,236,975 $4,856 $9,902 $19,386 350,691 $(4,815)
========= ======= ======= ======= ======== =======
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years Ended December 31,
----------------------------------
2001 2000 1999
------ ------ ------
Cash Flows from Operating Activities
Net income $ 3,052 $ 3,288 $ 3,529
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 4,839 4,698 4,557
Deferred income taxes (231) 375 641
Bad debt expense 417 206 162
Investment tax credits (114) (117) (130)
Other 28 (46) 133
Gain on sale of non-utility property - - (134)
Effects of changes in
Receivables 2,443 (3,184) (515)
Unbilled Receivable 19 (235) 92
Inventories and prepayments 76 (1007) (260)
Accounts payable and accruals (4,143) 6,550 519
Over (under) recovery of
fuel costs 2,358 (2,208) 446
Area expansion program
deferred costs (804) (576) (945)
Environmental liability (82) 106 (424)
Other (219) (1,016) (128)
Net cash provided by ------ ------ ------
operating activities 7,639 6,834 7,543
------ ------ ------
Cash Flows from Investing Activities
Construction expenditures (13,962) (10,543) (8,177)
Payment for purchase of
Atlantic Company (9,792) - -
Payment for purchase of
Z Gas Company, net of cash acquired (83) - -
Customer advances for construction 39 320 313
Purchase of restricted
long-term investment (8,008) 1 256
Deposit held in escrow for
dividend payment (541) - -
Proceeds from sale of non-utility
property - - 154
------ ------ ------
Net cash used by investing activities (32,347) (10,222) (7,454)
------ ------ ------
Cash Flows from Financing Activities
Short-term borrowings - net 2,530 4,900 4,800
Long-term borrowings - net of costs 27,022 - -
Proceeds from common stock plans 390 387 331
Dividends paid (2,102) (1,998) (2,014)
Purchase of treasury shares - - (3,605)
Net cash provided by ------ ------ ------
(used by) financing activities 27,840 3,289 (488)
------ ------ ------
Net Increase (Decrease) in Cash 3,132 (99) (399)
Cash at Beginning of Year 66 165 564
------ ------ ------
Cash at End of Year $ 3,198 $ 66 $ 165
====== ====== ======
Supplemental Cash Flow Information
Cash was paid during the
years as follows:
Interest $ 3,379 $ 3,399 $ 2,792
Income Taxes 1,396 1,958 1,188
Non-cash investing and financing activities
Purchase of Z-Gas company through
issuance of 31,960 shares of
common stock $ 503 - -
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting and Reporting Policies
Business and Regulation Florida Public Utilities Company (the Company) is an
operating public utility engaged principally in the purchase, transmission,
distribution and sale of electricity and in the purchase, transmission,
distribution, sale and transportation of natural gas. The Company is subject
to the jurisdiction of the Florida Public Service Commission (FPSC) with
respect to its electric, natural gas and water operations. The FPSC stopped
regulating the water segment of the Company's business on September 17, 2001
due to a resolution passed by Nassau County (see additional discussion below).
The suppliers of electrical power to the Northwest Florida division and of
natural gas to the natural gas divisions are subject to the jurisdiction of
the Federal Energy Regulatory Commission (FERC). The Northeast Florida
division is supplied most of its electrical power by a municipality which is
exempt from FERC and FPSC regulation. The Company also distributes propane
gas through a non-regulatedsubsidiary. The Company's accounting policies and
practices conform to generally accepted accounting principles as applied to
regulated public utilities and are in accordance with the accounting
requirements and rate making practices of the FPSC.
The Company prepares its financial statements in accordance with the provisions
of Statement of Financial Accounting Standards No. 71 - "Accounting for the
Effects of Certain Types of Regulation" (SFAS 71). In general, SFAS 71
recognizes that accounting for rate regulated enterprises should reflect the
relationship of costs and revenues introduced by rate regulation. As a result,
a regulated utility may defer recognition of a cost (a regulatory asset) or
recognize an obligation (a regulatory liability) if it is probable that,
through the rate making process, there will be a corresponding increase or
decrease in future revenues. Accordingly, the Company has recognized certain
regulatory assets and regulatory liabilities in the consolidated balance
sheets. The Company believes that the FPSC will continue to allow the Company
to recover such items through its rates. A summary of such items is as
follows (in thousands):
2001 2000
Assets
Deferred development costs $ 2,518 $ 1,714
Under recovery of fuel
costs, conservation and unbundling 343 903
Unamortized piping and conversion costs 1,227 1,336
Unamortized loss on reacquired debt 302 325
------ ------
Total Regulatory Assets $ 4,390 $ 4,278
====== ======
Liabilities
Regulatory tax liabilities $ 1,548 $ 1,653
Environmental liability 5,237 5,306
Storm damage 1,954 1,595
Over recovery of fuel costs 1,800 -
------ ------
Total Regulatory Liabilities $10,539 $ 8,554
====== ======
Deferred development costs and unamortized loss on reacquired debt are
included in deferred charges in the consolidated balance sheets.
The Company has agreed with the FPSC staff to limit its earned return on equity
for its regulated electric and natural gas operations. The disposition of any
excess earnings is left to the discretion of the FPSC, with alternatives
including a refund to customers, additional contributions to storm damage
reserves, or the reduction of any depreciation reserve deficiency. The excess
earnings for 1997, 1998 and 1999 at one of the Company's electric divisions
were ordered by the FPSC to be added to that division's storm damage reserve.
Since that last order on the 1999 disposition of excess earnings, the FPSC has
allowed the company the automatic flexibility of funding the storm damage
reserves each year thereafter through use of the excess earnings and allowing
additional storm damage accruals up to a cap in those reserves of $1,500,000
and $1,400,000 in the Northeast and Northwest electric divisions, respectively.
In 2001, the Company funded it's Northeast division electric storm reserve
with an additional $237,000 relating to 2000 excess earnings. In 2001, the
Company did not expect any excess earnings and accordingly has not funded any
additional amounts to its storm damage reserves. As of the end of 2001, the
Northeast and Northwest electric storm reserves were at approximately
$1,200,000 and $750,000, respectively.
In 1999, the Company filed for a water rate increase with the FPSC and had a
rate increase effective April 2000, with an expected increase in annual
revenues of $381,000. The Company filed for a limited proceeding rate increase
in its water rates with the FPSC in 2000. The rates became effective May 2001
and they are expected to increase annual revenues by $236,000 or an overall
8.86% increase to rates.
The FPSC stopped regulating the water segment of the Company's business on
September 17, 2001 due to Nassau County adopting resolution No. 2001-128 that
rescinded the jurisdiction of the FPSC over investor owned water and wastewater
utilities in the County. Under Florida law there is a "grandfather"
application process under which a utility, subject to such a jurisdictional
change, is entitled to receive a certificate of authorization from the County
for the same service as certified by the Commission. In such process, the
utility is also entitled to have "grandfathered" all rates and charges,
regulations and procedures, and rate base until thereafter lawfully changed.
The Company is in process of working with the County board on a regulatory
agreement.It is unknown what effect, if any, the change or regulatory body
will have on the water operations or what additional action the Company will
take in this regard.
The Company filed the appropriate unbundled tariffs to give its commercial
natural gas customers the option of purchasing their gas supplies from third
parties. The Company officially offered unbundled services to commercial
customers on August 1, 2001. Even though FPU has had the overall lowest gas
costs in the Florida market, third party suppliers may be able to offer our
customers additional programs which a regulated gas company cannot offer.
Furthermore, by purchasing their gas supplies from third parties, our
commercial customers may avoid certain taxes and fees which FPU is required to
collect on the sale of natural gas. The Company's operating results will
not be affected as the Company realizes the same gross profit regardless of
whether the customer purchases the gas from us or uses our system to transport
the gas. The FPSC approved various mechanisms, which will allow the Company
to be reimbursed for the incremental cost of providing unbundled services.
Revenues
The Company records utility revenues as service is provided and bills
its customers monthly on a cycle billing basis. Accordingly, at the end of
each month, the Company accrues for estimated unbilled revenues.
The rates of the Company include base revenues, fuel adjustment charges and the
pass-through of certain governmental imposed taxes based on revenues. The base
revenues are determined by the FPSC and remain constant until a request for an
increase in such rates is filed and approved by the FPSC. From the FPSC's
perspective, the Company operates four distinct entities (Northwest Florida
electric, Northeast Florida electric, Northeast Florida water, and natural
gas). Thus, for the Company to recover through rate relief the effects of
inflation and construction expenditures for all such entities, a request for an
increase in base revenues would require the filing of four separate rate cases.
The water segment of the business was subject to FPSC regulation until
September 17, 2001, when the Board of Nassau County rescinded the FPSC
jurisdiction.Fuel adjustment charges are estimated for customer billing
purposes and any under/over-recovery difference between the incurred cost of
fuel and estimated amounts billed to customers is deferred for future recovery
or refund and either charged or credited to customers. Interest accrues on
such under/over-recoveries and is included in the subsequent adjustment.
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Flo-Gas Corporation. All significant intercompany
balances and transactions have been eliminated.
Certain reclassifications have been made to the prior years' financial
statements and other financial information contained herein to conform with the
2001 presentation.
Utility Plant and Depreciation
Utility plant is stated at original cost. The costs of additions to utility
plant include contracted services, direct labor, transportation, and materials.
The costs of units of property retired are removed from utility plant, and such
costs plus removal costs, less salvage, are charged to accumulated
depreciation. Maintenance and repairs of property and replacement and renewal
of items determined not to be units of property are charged to operating
expenses. Substantially all of the utility plant and the shares of Flo-Gas
Corporation collateralize the Company's First Mortgage Bonds.
Depreciation is computed using the composite straight-line method at rates
prescribed by the FPSC for financial accounting purposes. Such rates are based
on estimated service lives of the various classes of property. Depreciation
provisions on average depreciable property approximate 3.4% in 2001, 3.6% in
2000 and 3.7% in 1999.
Income Taxes
Deferred income taxes are provided on all significant temporary differences
between the financial statements and tax basis of assets and liabilities at
currently enacted tax rates. Investment tax credits have been deferred and
are amortized based upon the average useful life of the related property in
accordance with the rate treatment.
Use of Estimates
Inherent in the accounting process is the use of estimates when preparing
financial statements in accordance with accounting principals generally
accepted in the United States of America. Actual results could differ from
these estimates. The Company has used estimates in the preparation of its
financial statements including the accrual for uninsured liability claims.
The Company is self-insured for certain liability claims and therefore accrues
for estimated losses occurring from both asserted and unasserted claims. The
estimate for unasserted claims arising from unreported incidents is based on an
analysis of historical claims data and judgment. The accrual for such claims
was approximately $600,000 at December 31, 2001.Management believes that its
accrual for potential liability claims is adequate.
Notes Payable
The Company has a $20,000,000 line of credit with its primary bank of which at
December 31, 2001, $2,070,000 is available and a $2,500,000 line of credit with
a secondary bank which is all fully borrowed. The primary line and note
provide for interest at LIBOR plus fifty basis points and the line of credit
at the second bank is at LIBOR plus thirty basis points. The Company has
reserved $1,000,000 as a contingency for major storm repairs in the Northwest
Florida electric division. The weighted average interest rates at
December 31, 2001, 2000, and 1999 were approximately 2.4%, 7.1%, and 6.3%
respectively.
Mergers and Acquisitions
In October 2001, the Company acquired Z-Gas Company, Inc., a propane gas
service distribution company in a stock for stock transaction valued at
approximately $600,000. The transaction involved the issuance of 31,960 shares
of the Company's stock and approximately $20,000 cash. The acquisition was
accounted for under the purchase method of accounting. The purchase added
about 1,000 customers to the propane operation in the Northeast Florida
Division.
In December 2001, the Company acquired certain net assets of Atlantic
Utilities, the Florida operation of Southern Union Company in a cash
transaction valued at approximately $10,000,000. Approximately $250,000 of the
purchase price was withheld pending title clearance for real property in
Lauderhill. The acquisition was accounted for under the purchase method
of accounting. Atlantic Utilities served about 4,400 natural gas customers in
New Smyrna Beach and about 1,900 propane customers in central and south
Florida.
Based on preliminary estimates, the excess of the consideration paid over the
estimated fair value, or the depreciated original cost for regulated entities,
of net assets acquired of approximately $5,900,000 was recorded as goodwill and
according to Financial Accounting Standards (FAS) Nos. 141 and 142 is not
being amortized. There could be amortization if intangibles other than goodwill
are identified. FPU is in the process of obtaining additional supporting
documentation from the seller of Atlantic Utilities to refine the purchase
price.
The estimated fair market values of assets acquired and liabilities assumed
are summarized in the following table:
Fair Market Value of Assets Acquired and Liabilities Assumed
(In Thousands)
- ------------------------------------------------------------------------
Atlantic
Utilities Z-Gas
- ------------------------------------------------------------------------
Assets
Utility Plant
Natural Gas $4,830 $ -
Propane Gas 1,006 333
Accumulated Depreciation
and Amortization (2,195) -
------ ------
Net Utility Plant 3,641 333
------ ------
Current Assets
Cash 0 14
Accounts Receivable 150 40
Allowance for Uncollectable
Accounts (15) (17)
Inventories 278 17
------ ------
Total Current Assets 413 54
------ ------
Other Assets
Goodwill 5,685 216
Deferred Charges 342 -
------ ------
Total Other Assets 6,027 216
------ ------
Liabilities
Current Liabilities
Interest Accrued (12) -
Other Accruals and Payables (10) (3)
Customer Deposits (260) -
------ ------
Current Liabilities (282) (3)
------ ------
Other Liabilities
Customer Advances for Construction (7) -
------ ------
Total Other Liabilities (7) 0
------ ------
Acquisition Cost $9,792 $ 600
====== ======
The net utility plant for the natural gas business represents the depreciated
original cost according to the regulatory guidelines. For Atlantic Utilities,
approximately $3,127 of the goodwill relates to natural gas regulated
operations and $2,558 relates to propane operations. All of the Z-Gas goodwill
relates to propane operations.
The following unaudited pro forma information combines the consolidated results
of operations of Florida Public Utilities Company with those of Z-Gas and
Atlantic Utilities as if these acquisitions had occurred at the beginning of
2000.
The pro forma results are not necessarily an indication of the results that
would have been achieved had the transactions been consummated as of the date
indicated, or that may be achieved in the future.
Pro Forma Results
(IN THOUSANDS EXCEPT FOR PER-SHARE AMOUNTS)
- -----------------------------------------------------------------------
Year Ended December 31, 2001 2000
- -----------------------------------------------------------------------
Revenues $98,061 $88,989
Cost of Fuel and Taxes Based on Revenues 62,689 55,481
------- -------
Gross Profit $35,372 $33,508
Operating Income $ 7,103 $ 7,021
Net Income $ 3,800 $ 3,693
Earnings for Common Shares $ 3,771 $ 3,664
Average Shares Outstanding 2,877,938 2,851,470
Earnings per Common Share $1.31 $1.28
2001 amounts include actual November and December for Z-Gas and
December 15-31, 2001 for Atlantic Utilities.
Capitalization
Common Shares Reserved The Company has reserved 88,725 common shares for
issuance under the Dividend Reinvestment Plan and 33,984 common shares for
issuance under the Employee Stock Purchase Plan.
Dividend Restriction The Indenture of Mortgage and Deed of Trust and
supplements thereto provide for restriction of the payment of cash dividends.
At December 31, 2001 approximately $2,900,000 of retained earnings were free
of such restriction.
Maturities of Long-Term Debt Sinking fund payments are scheduled to begin in
2008.
Bond Proceeds The Company issued its First Mortgage Bond, 6.85% Series due
2031 on September 27, 2001 in the aggregate principal amount of $15,000,000
as security for the 6.85% Secured Insured Quarterly Notes, due October 1, 2031
(IQ Notes). Interest on the pledged bond accrues at the rate of 6.85% per
annum payable quarterly in arrears on January 1, April 1, July 1 and October 1
of each year, payable initially on January 1, 2002. The pledge bond
constitutes the Fourteenth Series of the Company's First Mortgage Bonds.
Restricted Bond Proceeds The Company issued $14,000,000 of Palm Beach County
tax free municipal bonds (Industrial Development Revenue Bonds) on
November 14, 2001 to finance development in the area. The interest rate on the
thirty-year callable bonds is 4.90%. The bond proceeds are restricted and held
in trust until construction expenditures are actually incurred by the Company
and will be available from the trustee as construction is performed in the
County during 2001, 2002, and 2003. In 2001 $5,362,000 was drawn from the
restricted funds held by the trustee, leaving $8,008,000 available after
closing costs. The Company issued its First Mortgage Bond, 4.9% Series due
2031 on November 1, 2001 in the aggregate principal amount of $14,000,000 as
security for the $14,000,000 Palm Beach Industrial Development Revenue
Development Bonds. The pledged bond constitutes the Fifteenth Series of the
Company's First Mortgage Bonds.
Segment Information
The Company is organized into three regulated business segments: natural gas,
electric and water and one non-regulated business segment, propane gas. There
are no material inter-segment sales or transfers.
Identifiable assets are those assets used in the Company's operations in each
business segment. Common assets are principally cash and overnight
investments, deferred tax assets and common plant.
Business segment information for 2001, 2000 and 1999 is summarized as follows
(in thousands):
2001 2000 1999
------ ------ ------
Revenues
Electric $39,050 $39,304 $37,544
Natural Gas 44,729 38,270 30,287
Propane Gas 5,399 4,380 3,866
Water 2,965 2,805 2,401
------ ------ ------
Consolidated 92,143 84,759 74,098
Operating income
excluding income tax
Electric $ 2,893 $ 3,016 $ 3,173
Natural Gas 3,295 3,789 3,493
Propane Gas 431 264 393
Water 897 932 39
------ ------ ------
Consolidated 7,516 8,001 7,798
Identifiable assets
Electric $37,753 $36,911 $35,384
Natural Gas 52,734 42,564 38,355
Propane Gas 10,728 5,648 4,999
Water 9,579 9,038 7,199
Common 29,195 14,885 10,606
------ ------ ------
Consolidated 139,989 109,046 96,543
Depreciation and
amortization
Electric $ 2,070 $ 1,969 $ 1,863
Natural Gas 1,963 2,027 1,998
Propane Gas 322 284 303
Water 300 282 260
Common 184 136 133
------ ------ ------
Consolidated 4,839 4,698 4,557
Construction expenditures
Electric $ 4,418 $ 3,015 $ 2,774
Natural Gas 7,508 3,300 3,337
Propane Gas 1,147 757 384
Water 520 2,100 1,462
Common 369 1,371 220
------ ------ ------
Consolidated 13,962 10,543 8,177
Income tax expense
Electric $ 397 $ 475 $ 621
Natural Gas 547 728 729
Propane Gas 84 26 87
Water 222 244 191
Common 290 155 209
------ ------ ------
Consolidated 1,540 1,628 1,837
Income Taxes
The provision (benefit) for income taxes consists of the following
(in thousands):
2001 2000 1999
------ ------ ------
Current payable
Federal $ 1,362 $ 1,039 $ 954
State 232 177 163
------ ------ ------
1,594 1,216 1,117
------ ------ ------
Deferred
Federal (210) 299 526
State (21) 75 115
------ ------ ------
(231) (374) (641)
------ ------ ------
Investment tax credit (114) (117) (130)
------ ------ ------
Total - operating 1,249 1,473 1,628
Included in interest
charges and other 291 155 209*
------ ------ ------
Total $ 1,540 $ 1,628 $ 1,837
====== ====== ======
*Includes income tax of $51 on gain from the sale of non-utility property.
The difference between the effective income tax rate and the statutory federal
income tax rate applied to pretax income is accounted for as follows
(in thousands):
2001 2000 1999
------ ------ ------
Federal income tax
at statutory rate $ 1,561 $ 1,671 $ 1,824
State income taxes,
net of federal benefit 139 166 183
Investment tax credit (114) (117) (130)
Other (46) (92) (40)
------ ------ ------
Total provision for income
taxes $ 1,540 $ 1,628 $ 1,837
====== ====== ======
The tax effects of temporary differences producing accumulated deferred
income taxes in the accompanying consolidated balance sheets are as follows
(in thousands):
2001 2000
------ ------
Deferred tax assets
Environmental $ 2,125 $ 1,997
Other 235 446
------ ------
Total deferred tax assets 2,360 2,443
------ ------
Deferred tax liabilities
Utility plant related 8,748 8,654
Under recovery of fuel costs 320 798
Other 600 428
------ ------
Total deferred tax liabilities 9,668 9,880
------ ------
Net deferred income taxes $ 7,308 $ 7,437
====== ======
Employee Benefit Plans
Florida Public Utilities Company sponsors a qualified pension plan and
postretirement medical and life benefit plans for its employees. The life plan
obligations are de minimis and not reflected in the Company's disclosures.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the 2-year period ending
December 31, 2001, and a statement of the funded status as of December 31 of
both years:
Pension Benefits Other Benefits
2001 2000 2001 2000
Reconciliation of
Benefit Obligation
Prior year obligation
at December 31 $26,186,445 $21,126,637 $ 1,875,972 $ 1,707,660
Service cost 901,220 971,596 77,425 87,596
Interest cost 1,780,967 1,694,069 103,649 118,285
Participant
contributions 0 0 15,625 12,144
Plan amendments 295,554 3,911,439 0 0
Actuarial (gain) loss (1,844,718) (454,127) (590,995) 19,331
Acquisitions
(divestitures) 0 0 0 0
Benefit payments (1,155,419) (1,063,169) (71,308) (69,044)
Curtailments 0 0 0 0
Settlements 0 0 0 0
Current year ---------- ---------- ---------- ----------
obligation at
December 31 $26,164,049 $26,186,445 $ 1,410,368 $ 1,875,972
========== ========== ========= =========
Reconciliation of Fair Value of Plan Assets
Prior year fair value
of plan assets at
December 31 $35,113,920 $36,385,130 $ 0 $ 0
Actual return on
plan assets (1,951,083) (208,041) 0 0
Acquisitions
(divestitures) 0 0 0 0
Employer contributions 0 0 55,683 56,900
Participant contributions 0 0 15,625 12,144
Benefit payments (1,155,419) (1,063,169) (71,308) (69,044)
Settlements 0 0 0 0
---------- ---------- ---------- ----------
Current year fair value
of plan assets at
December 31 $32,007,418 $35,113,920 $ 0 $ 0
========== ========== ========== ==========
Funded Status
Funded status at
December 31 $ 5,843,369 $ 8,927,475 $(1,410,368) $(1,875,972)
Unrecognized transition
(asset) obligation 0 0 471,846 514,742
Unrecognized prior
service cost 7,006,373 7,432,834 0 0
Unrecognized
(gain) loss (10,578,578) (14,335,325) (397,442) 188,775
---------- ----------- --------- ----------
Net amount
recognized - prepaid
/ (liability) $ 2,271,164 $ 2,024,984 $(1,335,964) $(1,172,455)
========== =========== ========= ==========
The following table provides the components of net periodic benefit cost for
the plans for fiscal years 2001, 2000, and 1999:
Pension Benefits Other Benefits
2001 2000 1999 2001 2000 1999
Service cost $ 901,220 $ 971,596 $ 770,799 $ 77,425 $ 87,596 $ 71,840
Interest cost 1,780,967 1,694,069 1,368,995 103,649 118,285 108,789
Expected return
on plan assets (2,821,040) (2,785,633) (2,170,746) 0 0 0
Amortization of
transition (asset)
obligation 0 (183,269) (183,276) 42,896 42,896 42,896
Amortization
of prior
service cost 722,015 716,418 422,358 0 0 0
Amortization of
net (gain) loss (829,342) (875,582) (474,402) (4,778) 1,001 262
--------- --------- --------- -------- -------- --------
Net periodic
benefit cost $(246,180) $ (462,401) $ (266,272) $219,192 $249,778 $223,787
Curtailment
(gain) loss 0 0 0 0 0 0
Settlement
(gain) Loss 0 0 0 0 0 0
--------- --------- --------- -------- -------- --------
Net periodic
benefit cost after
curtailments
and settlements $ (246,180) $(462,401) $ (266,272) $219,192 $249,778 $223,787
========== ========= ========= ======== ======== ========
The prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants.Gains and losses in excess of
10% of the greater of the benefit obligation and the market-related value of
assets are amortized over the average remaining service period of active
participants.
The pension plan is noncontributory; the postretirement medical plan is
contributory with participants' contributions subject to adjustment annually.
The accounting for the health care plan anticipates future cost-sharing changes
to the written plan such that retiree contributions will increase over time at
the same rate as the total plan cost.
The assumptions used in the measurement of the Company's benefit obligation are
shown in the following table:
Pension Benefits Other Benefits
2001 2000 1999 2001 2000 1999
Weighted-average Assumptions as of December 31
Discount rate 7.25% 7.00% 7.00% 7.25% 7.00% 7.00%
Expected return
on plan assets 8.50% 8.50% 8.50% N/A N/A N/A
Rate of compensation
increase 4.50% 5.50% 5.50% N/A N/A N/A
For measurement purposes, the annual rate of increase in the per capita cost
of covered health care benefits during 2001 was 6.50%. These rates were assumed
to decrease gradually each year to a rate of 5.00% for 2007 and remain at that
level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1% change in assumed health care cost
trend rates would have the following effects:
1% Increase 1% Decrease
Effect on total of service and
interest cost components of net
periodic postretirement health
care benefit cost $ 22,876 $ (19,248)
Effect on the health care component
of the accumulated postretirement
benefit obligation $ 163,306 $(139,472)
Health Plan
The Company is principally self-insured for its employee and retiree medical
insurance plan. The Company's health care liability under the plan is limited
to $100,000 per individual per year, with a maximum total liability
of $1,184,275.
A reserve for future benefit payments for active employees is maintained at a
level sufficient to provide for estimated outstanding claims under the plan net
of amounts contributed by employees. Net health care benefits paid by the
Company for active employees were approximately $629,000, $509,000, and
$516,000 for 2001, 2000 and 1999, respectively.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan offers common stock at a discount to
qualified employees. During 2001, 2000 and 1999, 11,774, 10,849, and 8,193
shares, respectively, were issued under the Plan for aggregate consideration
of $162,000, $165,000, and $116,000, respectively.
Dividend Reinvestment Plan
During 2001, 2000 and 1999, 12,303, 12,471, and 11,341 shares, respectively,
were issued under the Company's Dividend Reinvestment Plan for aggregate
consideration of $196,000, $193,000, and $193,000, respectively.
Financial Instruments
The carrying amounts reported in the balance sheet for restricted bond
proceeds, notes payable, taxes accrued and other accrued liabilities
approximate fair value. The Company's investments held in escrow for
environmental costs have gained in market value by $49,000 as of
December 31, 2001. The Company's debt is not rated by an agency. The older
bonds contain "make whole" provisions that would negate any value fluctuations
in interest rates. Additionally, the cost of long-term debt is included as a
recovered cost in revenue for the regulated operations and as such the Company
is reimbursed for interest costs. Therefore, disclosure of the change in fair
value due to reasonably possible near term changes in interest rates is not
meaningful. However, the current bonds outstanding were issued in 1988, 1992,
and 2001 and since that time interest rates have declined, and thus it is
reasonable to assume that the fair value of existing first mortgage bonds
would be more than their carrying value.
Contingencies
The Company is subject to federal and state legislation with respect to soil,
groundwater and employee health and safety matters and to environmental
regulations issued by the Florida Department of Environmental Protection
(FDEP), the United States Environmental Protection Agency (EPA) and other
federal and state agencies. Except as discussed below, the Company does
not expect to incur material future expenditures for compliance with
existing environmental laws and regulations.
Insurance Claims and Rate Relief
The Company notified its insurance carriers of environmental impacts detected
at the former gasification plant sites discussed above. As a result of
negotiations with the Company's major insurance carriers that concluded in
1997, such carriers agreed to pay settlement proceeds totaling approximately
$4,300,000 for certain environmental costs. Most recently, in September 1999,
certain British based insurers agreed to settle claims in the approximate total
amount of $7,630. Since 1991, the FPSC has also allowed the Company to recover
through rate relief environmental expenses of $2,356,000 at the rate of
approximately $240,000 per year as an addition to the insurance reserve; the
increases to the reserve ended in February 2001.
West Palm Beach Site
The Company is currently conducting a contamination assessment investigation of
a parcel of property owned by it in West Palm Beach, Florida, upon which the
Company previously operated a gasification plant. After a preliminary
contamination assessment investigation indicated soil and groundwater impacts,
the Company entered into a consent order with the FDEP. The consent order
requires the Company to delineate the extent of soil and groundwater impacts
associated with the prior operation of the gasification plant and requires the
Company to remediate such soil and groundwater impacts, if necessary. In
June 1992, the Company commenced a contamination assessment investigation. A
Contamination Assessment Report ("CAR") was submitted to FDEP in December 1995,
and a CAR Addendum was submitted to FDEP in April 2000. Additional field
investigations were performed in 2001 in response to FDEP comments to the CAR
Addendum.
On December 28, 2001, the Company submitted a Supplemental CAR Addendum
("SCARA") to FDEP for review and comment. The Company is awaiting comments
from FDEP regarding the SCARA. Prior to the review and approval of the SCARA
by FDEP, it is not possible to determine the complete extent or cost of
remedial action, if any, which may be required. However, a revised preliminary
estimate from the Company's environmental consultant projected that total
contamination assessment and remediation costs for this site may reach
approximately $4,354,000. A portion of the on-site impacts have been
determined to be eligible for reimbursement from a state fund and the FDEP has
determined that a portion of the work conducted off-site may be eligible for
reimbursement under state law.
Sanford Site
The Company owns a parcel of property located in Sanford, Florida, upon which
a gasification plant was operated prior to the Company's acquisition of the
property. FDEP required the Company to conduct a contamination assessment of
the property to determine whether contamination was present as a result of the
operation of the gasification plant. A preliminary investigation revealed soil
impacts on the property. Thereafter, in cooperation with four former owners
and operators of the gasification plant, the Company participated in the
funding of an initial contamination assessment investigation, the results of
which are set forth in a Contamination Assessment Report delivered to FDEP on
February 4, 1994. On July 11, 1997, EPA notified the Company of its potential
liability under applicable federal laws for further assessment and remediation
of the site. Similar notices were sent by EPA to four former owners and
operators of the site. On or about March 25, 1998, the Company and the four
former owners and operators (collectively, the "Group") and the EPA executed
an Administrative Order on Consent ("AOC") that obligated the Group to
implement a Remedial Investigation/Feasibility Study ("RI/FS") task and to pay
EPA's past and future oversight costs for the RI/FS. The Group also entered
into a Participation Agreement and an Escrow Agreement on or about
April 13, 1998. These agreements govern the manner and means by which all
parties will satisfy their respective obligations under the AOC for the
RI/FS task. The Company agreed to pay approximately 13.7% of the cost
for the RI/FS. Fieldwork for the RI/FS was initiated in 1998. A final RI
report was submitted to EPA in July 1999. The Group also submitted a Baseline
Risk Assessment to EPA in January 2000, including an Ecological Risk Assessment
("ERA"). Additional fieldwork will be required to complete the ERA at a total
estimated cost of less than $50,000. The Company's share of the additional ERA
work is 13.7%.
On July 5, 2000, EPA issued a Record of Decision ("ROD") approving the final
remedial action for contaminated soils at the site ("OU1 Remedy"). The total
estimated cost for the OU1 Remedy ranges from $5,593,000 to $5,760,000. On
June 12, 2001, EPA issued a ROD approving the final remedial action for
contaminated groundwater at the site ("OU2Remedy"). The present worth
cost estimate for the OU2 Remedy is $320,252. The Group is currently
negotiating a remedial design/remedial action ("RD/RA") Consent Decree with EPA
to provide for the implementation of the OU1 Remedy and OU2 Remedy. It is
reasonable to anticipate at this time that the Decree will not be effective
until July or August 2002. Pursuant to the Consent Decree, pre-remedial design
fieldwork will be performed to assist in the design of the final remedy for OU1
and OU2. The cost of the additional field and design work is approximately
$375,000. Upon EPA's approval of the final design, the Group will be obligated
to implement the remedy for OU1 and OU2 at an estimated combined cost, as noted
above, of approximately $6,000,000. The Consent Decree also obligates the
Group to reimburse EPA's past costs of approximately $215,000 and EPA's
future oversight costs. Pursuant to the terms and conditions of the Second
Participation Agreement entered into by the Company and other members of the
Group on August 1, 2000, the Company's share of costs for the additional field
and design work, implementation of the OU1 Remedy and OU2 Remedy, and payment
of EPA's past and future oversight costs for the RD/RA tasks is 10.5%.
The Company believes that all future contamination assessment and remedial
costs, legal fees and other related costs will not be in excess of the rate
relief granted the Company and insurance settlement proceeds received.
On or about October 18, 2000, Violet Skipper, PC Buyers, Inc. and Thomas Wade
Skipper filed suit against FPU in the Circuit Court for Palm Beach County,
Florida. The case was later transferred to Jackson County, Florida. The
lawsuit alleged that FPU failed to properly install and/or maintain electrical
power lines, utility poles and related equipment which allegedly caused a fire
that spread to and eventually destroyed a warehouse/office facility that was
owned by Violet Skipper, that housed the place of business of the corporate
plaintiff and that contained property therein owned by all the plaintiffs. The
warehouse/office facility was located in Jackson County, Florida. Plaintiffs
alleged damages in excess of $1,000,000. FPU has denied the claims in the
complaint and is vigorously defending the claims on the theory that the alleged
fire started within the warehouse/office facility and not at or in FPU's
electrical equipment.
On or about August 13, 2001, Darrell Glenn filed suit against FPU in the
Circuit Court for Palm Beach County, Florida. The case was later moved to
Nassau County, Florida where it is pending. The lawsuit alleged that the
employee of a painting subcontractor was shocked and injured on May 16, 2001
while paining electrical equipment at FPU's step-down site in Fernandina Beach,
Florida. His employer was operating under an agreement that required it to
supervise its own workers. The plaintiff claims FPU was negligent and that its
negligence caused his injuries to his torso which experienced some degree of
burn. The plaintiff has not specified an amount of claim but FPU intends to
bring the subcontractor into this action as a third-party defendant and seek
indemnification and contribution from the subcontractor. FPU intends to
vigorously defend this claim and to pursue the third-party claim against
the subcontractor.
In the event that the Company does not prevail in these suits, there may be a
material adverse effect on the financial statements. However, FPU believes
there are meritorious defenses to the pending litigation discussed above but
is unable to provide an evaluation of the likelihood of an unfavorable outcome
or provide an estimate of the amount or range of potential loss.
The Company is also involved with other various claims and litigation
incidential to its business. In the opinion of managment, none of these
incidental claims and litigation will have a material adverse effect on
the Company's results of operations or its financial condition.
Commitments
To ensure a reliable supply of power and natural gas at competitive prices, the
Company has entered into long-term purchase and transportation contracts with
various suppliers and producers, which expire at various dates through 2015.<