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Florida Public Utilities Company 10-Q 2007

Documents found in this filing:

  1. 10-Q/A
  2. Ex-31
  3. Ex-31
  4. Ex-32
  5.  
UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q/A

(Amendment No. 1)

(Mark One)


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2006



[  ] 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:  001-10608


FLORIDA PUBLIC UTILITIES COMPANY

(Exact name of registrant as specified in its charter)



Florida

59-0539080

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)


401 South Dixie Highway,

West Palm Beach, Fl.  33401

(561) 832-0872

(Address and telephone number of registrant’s principal executive offices

and principal place of business)



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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  [  ]

Accelerated filer [  ]

Non-accelerated filer [X]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  [  ]      No [X]


On October 26, 2006, there were 6,006,299 shares of $1.50 par value common stock outstanding.


Explanatory Note

We are filing this Amendment No.1 to our Quarterly Report on Form 10-Q (“Amendment No.1”) for the quarter ended September 30, 2006. The Quarterly Report on Form 10-Q was originally filed on November 14, 2006 (the “Original Filing”). Amendment No. 1 is being filed to recognize additional pension expenses and pension liability of $225,000 and a reduction of $85,000 in deferred tax expense and deferred tax liability which reduced net income by $140,000 in the third quarter of 2006 within our condensed consolidated financial statements for both the three and nine months ended September 30, 2006. The additional expense is the result of a correction in the valuation of our pension liability.

Except as described above, no other information in Amendment No. 1 is amended hereby. Amendment No. 1 does not reflect events occurring after the filing of the Original Filing or modify or update those disclosures affected by subsequent events. Accordingly, Amendment No. 1 should be read in conjunction with our other filings made with the SEC subsequent to the filing of the Original Filing.



INDEX


Part I.

Financial Information

 

Item 1.

Financial Statements

 

Condensed Consolidated Statements of Income

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations


Item 3.

Quantitative and Qualitative Disclosures about Market Risk


Item 4.

Controls and Procedures


Part II.

Other Information


Item 1.

Legal Proceedings


Item 1A.

Risk Factors


Item 6.

Exhibits


Signatures




PART I - Financial Information


Item 1.

Financial Statements


FLORIDA PUBLIC UTILITIES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except share data)

 

 

Three Months Ended

 

Nine Months Ended

 

 September 30,

       

 

 September 30,

      

Revenues

2006


2005

 

2006

 

2005

 

Restated

 

 

 

Restated

 

 

Natural gas

$12,522 

 

$12,863 

 

 $54,108 

 

 $47,240 

Electric

13,896 

 

13,686 

 

37,407 

 

36,139 

Propane gas

2,997 

 

2,641 

 

11,126 

 

9,578 

Total revenues

29,415 

 

29,190 

 

102,641 

 

92,957 

Cost of Fuel and Other Pass Through Costs

18,548 

 

18,816 

 

66,237 

 

58,001 

Gross Profit

10,867 

 

10,374 

 

36,404 

 

34,956 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

Operation and maintenance

          6,935 

 

6,319 

 

          20,472 

 

18,862 

Depreciation and amortization

1,915 

 

1,779 

 

5,818 

 

5,408 

Taxes other than income taxes

754 

 

698 

 

2,258 

 

2,209 

Total operating expenses

          9,604 

 

8,796 

 

         28,548 

 

26,479 

Operating Income

          1,263 

 

1,578 

 

           7,856 

 

8,477 

 

 

 

 

 

 

 

 

Other Income and (Deductions)

 

 

 

 

 

 

 

Merchandise and service revenue

   985 

 

1,292 

 

3,301 

 

       3,465 

Merchandise and service expenses

(876)

 

(1,255)

 

(3,068)

 

(3,435)

Other income

    149 

 

    83 

 

433 

 

374 

Interest expense

(1,137)

 

(1,125)

 

(3,469)

 

(3,392)

Total other deductions (net)

(879)

 

(1,005)

 

(2,803)

 

(2,988)

Earnings Before Income Taxes

            384 

 

    573 

 

           5,053 

 

5,489 

Income Taxes

(49)

 

(313)

 

(1,759)

 

(2,025)

Net Income

            335 

 

    260 

 

           3,294 

 

3,464 

Preferred Stock Dividends

    7 

 

    7 

 

21 

 

21 

Earnings For Common Stock

$328 

 

$253 

 

 $3,273 

 

 $3,443 

 

 

 

 

 

 

 

 

(Basic and Diluted):

 

 

 

 

 

 

 

Earnings Per Common Share

   $0.05 

 

    $0.04 

 

 $0.55 

 

 $0.58 

 

 

 

 

 

 

 

 

Dividends Declared Per Common Share

  $0.1075 

 

  $0.1033 

 

 $0.3183 

 

$0.3066 

  

 

 

 

 

 

 

 

Average Shares Outstanding

6,002,859 

 

5,960,601 

 

5,989,353 

 

5,949,018 

These financial statements should be read with the accompanying Notes to Condensed Consolidated Financial Statements.





FLORIDA PUBLIC UTILITIES COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)

 

 

 

 

ASSETS

September 30,

 

December 31,

 

2006

 

2005

 

Restated

 

 

 

 

 

 

   Utility plant

$187,041 

 

       $179,278 

Less Accumulated depreciation

58,944 

 

           56,217 

Net utility plant

128,097 

 

          123,061 

 

 

 

 

Current Assets

 

 

 

Cash

743 

 

                695 

Accounts receivable

               11,203 

 

            15,780 

Allowance for doubtful accounts

 (314)

 

 (272)

Unbilled receivables

1,542 

 

              1,918 

Notes receivable-current portion

320 

 

                 299 

Inventories (at average unit cost)

4,031 

 

                3,781 

Prepaid expenses

1,077 

 

                 951 

    Under-recovery of fuel costs

                     - 

 

               3,375 

    Income tax prepayments

                     - 

 

               1,159 

Total current assets

               18,602 

 

              27,686 

 

 

 

 

Other Assets

 

 

 

Investments held for environmental costs

3,317 

 

3,258 

Regulatory assets-environmental

8,521 

 

               8,868 

Regulatory assets-storm reserve

                   313 

 

                 452 

 Long-term receivables and other investments

5,664 

 

 5,794 

Deferred charges

6,773 

 

6,751 

Goodwill

2,405 

 

2,405 

Intangible assets (net)

                 4,344 

 

4,391 

Total other assets

 31,337 

 

31,919 

Total Assets

           $178,036 

 

$182,666 

 

 

 

 

These financial statements should be read with the accompanying Notes to Condensed Consolidated Financial Statements.





FLORIDA PUBLIC UTILITIES COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)

  

 

 

 

 

CAPITALIZATION AND LIABILITIES

September 30,

 

December 31,

 

2006

 

2005

 

Restated

 

 

Capitalization

 

 

 

Common shareholders' equity

              $47,387 

 

$45,503 

Preferred stock

 600 

 

 600 

Long-term debt

 50,682 

 

50,620 

Total capitalization

 98,669 

 

96,723 

 

 

 

 

Current Liabilities 

 

 

 

Line of credit

1,687 

 

9,558 

Accounts payable

7,885 

 

13,166 

Insurance accrued

219 

 

 296 

Interest accrued

1,670 

 

 1,014 

Other accruals and payables

 2,079 

 

2,684 

Taxes accrued

                  2,957 

 

              1,512 

Over-recovery of fuel costs and other

                  4,068 

 

                   24 

Deferred income tax-current

 624 

 

1,066 

Customer deposits

               9,384 

 

            8,851 

 Total current liabilities

30,573 

 

38,171 

 

 

 

 

Other Liabilities

 

 

 

Deferred income taxes

 16,960 

 

17,979 

Environmental liability

13,993 

 

14,001 

Regulatory liability-storm reserve

                  1,589 

 

1,536 

Regulatory liabilities-other

9,542 

 

               9,247 

Other liabilities

 6,710 

 

5,009 

Total other liabilities

48,794 

 

47,772 

Total Capitalization and Liabilities

             $178,036 

 

         $182,666 

 

 

 

 

These financial statements should be read with the accompanying Notes to Condensed Consolidated Financial Statements.





FLORIDA PUBLIC UTILITIES COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

 

 

 

 

 

Nine Months Ended

 

September 30,

 

2006

 

2005

 

 

 

 

Net cash provided by operating activities

$19,341 

 

$14,960 

 

 

 

 

Investing Activities

 

 

 

Construction expenditures

 (10,199)

 

(8,752)

Proceeds received on notes receivable

 602 

 

279 

Other

 296 

 

429 

Net cash used in investing activities

 (9,301)

 

 (8,044)

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

Net decrease in short-term borrowings

 (7,871)

 

 (5,060)

Dividends paid

 (2,551)

 

 (1,825)

Other increases

 430 

 

402 

Net cash used in financing activities

 (9,992)

 

 (6,483)

 

 

 

 

Net increase in cash

48 

 

433 

 

 

 

 

Cash at beginning of period

695 

 

 499 

 

 

 

 

Cash at end of period

 $743 

 

 $932 

These financial statements should be read with the accompanying Notes to Condensed Consolidated Financial Statements.




FLORIDA PUBLIC UTILITIES COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2006


1.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments necessary for fair presentation have been included. The operating results for the period are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.


2.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include allowances, accruals for pensions, environmental liabilities, liability reserves, regulatory deferred tax liabilities, unbilled revenue and over-earnings liability. Actual results may differ from these estimates and assumptions.


3.

Regulation

The financial statements are prepared in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71 – "Accounting for the Effects of Certain Types of Regulation".  SFAS No. 71 recognizes that accounting for rate-regulated enterprises should reflect the relationship of costs and revenues introduced by rate regulation. A regulated utility may defer recognition of a cost (a regulatory asset) or show recognition of an obligation (a regulatory liability) if it is probable that, through the ratemaking process, there will be a corresponding increase or decrease in revenues. The Company has recognized certain regulatory assets and liabilities in the condensed consolidated balance sheets.


As a result, Florida Public Service Commission (FPSC) regulation has a significant effect on the Company’s results of operations. The FPSC approves rates that are intended to permit a specified rate of return on investment. Rate tariffs allow the flexibility of automatically passing through the cost of natural gas and electricity to customers. Increases in the operating expenses of the regulated segments may require a request for increases in the rates charged to customers.


4.

Pledged Assets

Substantially all of the Company’s utility plant and the shares of Flo-Gas Corporation collateralize the Company’s First Mortgage Bonds (long-term debt).  Balances in cash, accounts receivable and inventory are collateral for the line of credit.


5.

Restriction on Dividends

The Company’s Fifteenth Supplemental Indenture of Mortgage and Deed of Trust restricts the amount that is available for cash dividends. At September 30, 2006, approximately $8.7 million of retained earnings were free of such restriction and available for the payment of dividends. The Company’s line of credit agreement contains covenants that, if violated, could restrict or prevent the payment of dividends. The Company is not in violation of these covenants.


6.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts based on historical information and trended current economic conditions.  Despite a decrease in accounts receivable, the amount that is over 90 days has increased approximately $110,000 over the amount at December 31, 2005.  Management has increased its focus on collecting these receivables and believes that the allowance for doubtful accounts is adequate. Due to the uncertainty in the estimate and the Company's ability to collect as anticipated, it is possible that additional allowances may be required.


7.

Storm Reserves

As of September 30, 2006, the Company had a storm reserve of approximately $1.6 million for the electric segment. The Company does not have a storm reserve for the natural gas or propane gas segments. Any future storm costs affecting the natural gas segment will be deferred pending review by the FPSC for possible recovery from customers either through rate increases or through applying any available over-earnings as a reduction to the costs.


The Company deferred storm costs for the natural gas segment incurred in 2004 as a regulatory asset on the condensed consolidated balance sheets. The FPSC approved recovery of these storm costs, plus interest and revenue related taxes, over a 30-month period beginning in November 2005. As of September 30, 2006, the remaining balance of these storm costs to be recovered is $313,000.


8.

Goodwill and Other Intangible Assets

The Company does not amortize goodwill or intangibles with indefinite lives. The Company periodically tests the applicable reporting segments, natural gas and propane gas, for impairment. In the event goodwill or intangible assets related to a segment are determined to be impaired, the Company would write down such assets to fair value. The impairment test performed in 2006 showed no impairment for either reporting segment.


Goodwill associated with the Company’s acquisitions consists of $500,000 in the natural gas segment and $1.9 million in the propane gas segment. The summary of intangible assets at September 30, 2006, is as follows:


Intangible Assets

(Dollars in thousands)

 

 

2006 

Customer distribution rights

(Indefinite life)

$ 1,900 

Customer relationships

(Indefinite life)

900 

Software

(Five to nine year life)

3,179 

Non-compete agreement

(Five year life)

35 

Accumulated amortization

(1,670)

Total intangible assets, net of amortization

$ 4,344 


The amortization expense of intangible assets was approximately $255,000 for the nine months ended September 30, 2006.


9.

Common Shareholders’ Equity

Items impacting common shareholders’ equity other than income and dividends are the dividend reinvestment program, employee stock purchase program, stock compensation plans and treasury stock. The net impact of these additional items increased common shareholders’ equity approximately $758,000 for the nine months ended September 30, 2006.


10.

Over-earnings – Natural Gas Segment

The FPSC approves rates that are intended to permit a specified rate of return on investment and limits the maximum amount of earnings of regulated operations. The Company has agreed with the FPSC staff to limit the earned return on equity for regulated natural gas and electric operations.


The Company estimated over-earnings in 2005 of $700,000 for the natural gas segment. This liability is included in the category of “other accruals and payables” on the condensed consolidated balance sheet. The estimate of the over-earnings liabilities could change upon the FPSC finalization and review of earnings.


The FPSC determines the disposition of over-earnings with alternatives that include refunding to customers, funding storm or environmental reserves or reducing any depreciation reserve deficiency. Finalization of the disposition and determination of the amount of 2005 natural gas over-earnings is expected in 2007.


11.

Environmental 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. For full disclosure of the legal items that impact the Company, please refer to "Contingencies" in the Notes to Consolidated Financial Statements in the Company’s Form 10-K for the year ended December 31, 2005.


12.

Reclassification

Certain amounts in the 2005 financial statements have been reclassified to conform to the 2006 presentation.


13.

Recent Accounting Standards


Financial Accounting Standard No. 157

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, “Fair Value Measurements”.  This Statement clarifies fair value as the market value received to sell an asset or paid to transfer a liability, the exit value, and applies to any assets or liabilities that require recurring determination of fair value.  The measurement includes any applicable risk factors and does not include any adjustment for volume.  This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within. The Company expects to adopt SFAS No. 157 effective January 1, 2008. The Company does not believe adoption of this Statement will have a material impact on our financial condition or results of operation.


Financial Accounting Standard No. 158

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. Statement 158 will require the Company to show the funded status of its pension and retiree health care plans as a prepaid asset or accrued liability, and to show the net deferred and unrecognized gains and losses related to the retirement plans, net of tax, as part of accumulated other comprehensive income in shareholders’ equity.  Previously, the net deferred and unrecognized gains and losses were netted in the prepaid asset or accrued liability recorded for the retirement plans. The Company will adopt the recognition provisions of Statement 158, as required, at December 31, 2006.   


The Company uses December 31 as the measurement date to measure the assets and obligations of its retirement plans.  Statement 158 requires the use of the Company year-end as the measurement date no later than fiscal years ending after December 15, 2008.  The Company currently uses this date and has used it for all periods presented.


Although the actuarial valuation of the retirement plan obligations at year end has not yet been completed, and the fair value of retirement plan assets is subject to change based on market fluctuations through December 31, the Company estimates that Statement 158 will result in an additional liability for retirement plans of about $3 million, a reduction in deferred tax liabilities of about $1 million, and a reduction in shareholders’ equity of about $2 million.


Staff Accounting Bulletin No. 108

In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”.  SAB 108 requires that public companies utilize a “dual-approach” to assessing the quantitative effects of financial misstatements.  This dual approach includes both an income statement focused assessment and a balance sheet focused assessment.  The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006.  The Company is currently assessing the impact of adopting SAB 108, but does not expect that it will have a material effect on our consolidated financial position or results of operations.


14.    Restatement of 2006 Third Quarter Financial Statements

These financial statements have been restated to recognize additional pension expenses and pension liability of $225,000 and a reduction of $85,000 in deferred tax expense and liability which reduced net income by $140,000 in the third quarter of 2006 within our condensed consolidated financial statements for both the three and nine months ended September 30, 2006. The additional expense is the result of a correction in the valuation of our pension liability. The following tables show the effects before and after the restatement on our condensed consolidated income statements and balance sheet.


Effects on Condensed Consolidated Income Statements:


(Dollars in thousands, except for per share amounts)


 

 

 Three Months Ended

 

 

 Nine Months Ended

 

 

 September 30, 2006

 

 

 September 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Before

Adjustments

 

After

 

 

Before

Adjustments

 

After

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

$

  29,415

                    -

$

       29,415

 

$

     102,641

                    -

$

     102,641

Gross profit

$

  10,867

                    -

$

       10,867

 

$

       36,404

                    -

$

       36,404

Operating expenses

$

    6,710

               225

$

         6,935

 

$

       20,247

               225

$

       20,472

Total operating expenses

$

    9,379

               225

$

         9,604

 

$

       28,323

               225

$

       28,548

Operating income

$

    1,488

             (225)

$

         1,263

 

$

         8,081

             (225)

$

         7,856

Earnings Before Income Taxes

$

       609

             (225)

$

            384

 

$

         5,278

             (225)

$

         5,053

Income taxes

$

     134

               (85)

$

             49

 

$

        1,844

               (85)

$

        1,759

Net income

$

       475

             (140)

$

            335

 

$

         3,434

             (140)

$

         3,294

Earnings for common stock

$

       468

             (140)

$

            328

 

$

         3,413

             (140)

$

         3,273

Earnings per common share

$

      0.08

            (0.03)

$

           0.05

 

$

           0.57

            (0.02)

$

           0.55



Effects on Condensed Consolidated Balance Sheet:


September 30, 2006

(Dollars in thousands)


 

 

 

 

 

 

 

 

Before

Adjustments

 

After

 

 

 

 

 

 

Capitalization and Liabilities

 

 

 

 

 

Common shareholders' equity

$

  47,527

             (140)

$

       47,387

Total capitalization

$

  98,809

             (140)

$

       98,669

Deferred income taxes

$

  17,045

               (85)

$

       16,960

Other liabilities

$

    6,485

               225

$

         6,710

Total other liabilities

$

  48,654

               140

$

       48,794



Except as described above, no other information in Amendment No. 1 is amended hereby. Amendment No. 1 does not reflect events occurring after the filing of the Original Filing or modify or update those disclosures affected by subsequent events. Accordingly, Amendment No. 1 should be read in conjunction with our other filings made with the SEC subsequent to the filing of the Original Filing.



Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations


Overview

We have three primary business segments: natural gas, electric and propane gas. The Florida Public Service Commission (FPSC) regulates the natural gas and electric segments.


Although high natural gas and propane gas prices in the first half of 2006 may have resulted in lower than normal energy use in 2006 and may affect future demand and net operating income; the price of natural gas and propane gas has fallen over the past few months. Propane prices have followed crude prices downward.  Natural gas prices are reacting to the lack of hurricanes in the Gulf of Mexico and high storage levels.  Future prices cannot be predicted. 


Results of Operations


Revenues and Gross Profit Summary

Normal sales revenues include cost recovery revenues. The FPSC allows cost recovery revenues to directly recover costs of fuel, conservation and revenue-based taxes in our natural gas and electric segments. Revenues collected for these expenses have no effect on results of operations and fluctuations could distort the relationship of revenues between periods. Gross profit is defined as gross operating revenues less fuel, conservation and revenue-based taxes that are passed directly through to customers. Because gross profit eliminates these cost recovery revenues, we believe it provides a more meaningful basis for evaluating utility revenues. The following summary compares gross profit between periods and units sold in Dekatherm (Dth) (gas) and Megawatt Hour (MWH) (electric).



 Revenues and Gross Profit

(Dollars and units in thousands)

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2006

 

2005

 

2006

 

2005

Natural Gas

 

 

 

 

 

 

 

Revenues

$12,522 

 

$12,863 

 

$54,108 

 

$47,240 

Cost of fuel and other pass through costs

 6,969 

 

   7,737 

 

33,926 

 

 27,889 

Gross Profit

$ 5,553 

 

$ 5,126 

 

$20,182 

 

$19,351 

Units sold:  (Dth)

    1,240 

 

    1,193 

 

     4,588 

 

     4,583 

Customers (average for the period)

51,040 

 

50,143 

 

51,183 

 

50,172 

Electric

 

 

 

 

 

 

 

Revenues

$13,896 

 

$13,686 

 

$37,407 

 

$36,139 

Cost of fuel and other pass through costs

9,923 

 

9,742 

 

26,439 

 

25,413 

Gross Profit

$ 3,973 

 

$ 3,944 

 

$10,968 

 

$10,726 

Units sold: (MWH)

    250 

 

    245 

 

        664 

 

     621 

Customers (average for the period)

30,686 

 

30,378 

 

30,590 

 

30,194 

Propane Gas

 

 

 

 

 

 

 

Revenues

$  2,997 

 

$  2,641 

 

 $11,126 

 

$ 9,578 

Cost of fuel

1,656 

 

1,337 

 

5,872 

 

4,699 

Gross Profit

$  1,341 

 

$  1,304 

 

$ 5,254 

 

$ 4,879 

Units sold:  (Dth)

124 

 

 123 

 

 471 

 

478 

Customers (average for the period)

13,033 

 

12,341 

 

12,987 

 

12,315 

Consolidated

 

 

 

 

 

 

 

Revenues

$29,415 

 

$29,190 

 

$102,641 

 

$92,957 

Cost of fuel

18,548 

 

18,816 

 

66,237 

 

58,001 

Gross Profit

$10,867 

 

$10,374 

 

$36,404 

 

$34,956 

Customers (average for the period)

94,759 

 

92,862 

 

94,760 

 

92,681 

 

 

 

 

 

 

 

 



Three Months Ended September 30, 2006 Compared with Three Months Ended September 30, 2005.


Revenues and Gross Profit

Natural Gas

Natural gas service revenues decreased $341,000 in the third quarter of 2006 over the same period in 2005.  As the cost of natural gas continues to decline, revenues to recover our cost of fuel and other costs passed through to customers decreased by $768,000.  Although overall revenues decreased, gross profit increased $427,000 or 8%.  The increase in gross profit is attributable to a 4% increase in units sold in 2006 compared to the prior year and an adjustment in the prior year for over-earnings which were earnings in excess of the amount that we were authorized to earn. This adjustment reduced 2005 revenues and gross profit by $267,000.


Electric

Electric service revenues increased $210,000 in the third quarter of 2006 over the same period in 2005.  $181,000 of the increase was attributable to the cost of fuel and other costs that were passed through to customers. Gross profit was flat compared to the third quarter of 2005.


Propane Gas

Propane gas revenues increased $356,000 and gross profit increased $37,000 or 3% in the third quarter of 2006 over the same period in 2005. The revenue increase resulted from an increase in our propane rates over the prior period to cover the rising cost of propane gas. To remain competitive, we did not increase these rates as much as the cost of propane gas increased so our profit margins decreased in the third quarter of 2006. We anticipate our profit margins will remain at these reduced levels for the last quarter of 2006.


Operating Expenses

Operating expenses increased $808, 000 or approximately 9% in the third quarter of 2006 compared to the same period in 2005. The increase in expenses was due to inflationary impacts and additional payroll of $238,000. The payroll increases relate to an increased number of employees and annual pay raises. As we continue our efforts to respond more effectively to customer needs, additional employees have been added. This is due to increased interest in gas conversions because of prior storms along with increased business from new subdivision developments. Bad debt expense increased in the third quarter by $117,000 over the prior year same period due to management’s revised estimate on the probability of collecting receivables over 90 days old. We recently increased our focus on collecting receivables and expect the expense to return to normal levels in future periods. The continued focus on reliability increased maintenance in our electric divisions by approximately $100,000 due to underground line failure repairs, additional tree trimming and transmission line pole maintenance to reduce damage from future storms.


Other increases included regulatory storm surcharges of $44,000 approved in our 2005 natural gas storm petition hearing and higher depreciation expense of $127,000 due to the addition of fixed assets.


Other Income and Deductions

Merchandise and Service profitability increased by $72,000 in the third quarter of 2006 compared to the prior year primarily as a result of strategic changes implemented by management. These changes included revising the product markup structure, increasing fees for installation and increasing employee training.


Income Taxes

Income tax expense decreased in the third quarter of 2006 by $264,000 over the same period last year. Outside of the impact of normal taxes on net income, this decrease was due to an increase in income tax expense of $102,000 in 2005 and a decrease of $71,000 due to adjustments related to the regulatory deferred tax liabilities in the current year.


Nine Months Ended September 30, 2006 Compared with Nine Months Ended September 30, 2005.


Revenues and Gross Profit

Natural Gas

Natural gas service revenues increased $6.9 million for the nine months ended September 30, 2006 over the same period in 2005.  With natural gas costs at historically high levels, the revenues related to the cost of fuel and other costs passed through to customers contributed to $6 million of this increase. Gross profit increased by $831,000 or 4% for the nine months ended September 30, 2006, compared to the same period in 2005. This was primarily due to an adjustment in the prior year for over-earnings which were earnings in excess of the amount that we were authorized to earn. This adjustment reduced revenues and gross profit by $518,000. In 2006 the number of customers increased by 2%; however, the usage per customer declined by 2%. This usage decrease may have been due to the increased price of natural gas paid by our customers, which caused them to conserve energy.


Despite the increased cost of fuel and the slow down of construction over the past year, we continue to experience customer growth with our efforts still focused on contracting with builders to use gas in new developments. Continuing interest by customers to install stand-by gas generators for use during power outages is also contributing to growth.


Electric

Electric service revenues increased $1.3 million for the nine months ended September 30, 2006, over the same period in 2005. $1 million of the increase was attributable to the cost of fuel and other costs that were passed through to customers. Gross profit increased by $242,000 or 2%, while usage increased by 7%. The usage increase resulted in a lower gross profit increase because the usage was primarily by our large commercial and industrial customers that provide lower profit margins.


Propane Gas

Propane gas revenues increased $1.5 million and gross profit increased $375,000 or 8% for the nine months ended September 30, 2006, over the same period in 2005. This increase was primarily the result of an increase in the propane rates over the prior period, which exceeded increased fuel costs.


Operating Expenses

Operating expenses increased $2.1 million or approximately 8% in the nine months ended September 30, 2006, compared to the same period in 2005. The increase in expenses was due to inflationary impacts and additional payroll of $708,000. In addition to pay raises, the number of employees increased over the prior year as we continue our efforts to respond more effectively to customer needs. Sales expenses in our electric division increased by $83,000 as the result of our efforts to inform and educate our electric customers about the expected substantial increases in monthly bills when new fuel contracts begin at the beginning of 2007 and 2008. Bad debt expense increased in the nine months ending September 30, 2006 by $84,000 over the prior year same period due to management’s revised estimate on the probability of collecting receivables over 90 days old. We recently increased our focus on collecting receivables and expect the expense to return to normal levels in future periods.


Other increases included regulatory storm surcharges of $156,000 approved in our 2005 natural gas storm petition hearing, higher medical insurance premiums of $86,000, higher pension expense of approximately $114,000, higher consulting fees of $44,000 due to preparation for Sarbanes-Oxley requirements and higher depreciation expense of $373,000 due to the addition of fixed assets.


Other Income and Deductions

Merchandise and Service profitability increased by $203,000 in the nine months ended September 30, 2006, compared to the same period in 2005 primarily as a result of strategic changes implemented by management. These changes included revising the product markup structure, increasing fees for installation and increasing employee training.  


Income Taxes

Income tax expense decreased in the nine months ending September 30, 2006 by $266,000 over the same period last year. Outside of the impact of normal taxes on net income, this decrease was due to an increase of $102,000 in 2005 and a decrease of $71,000 due to adjustments related to the regulatory deferred tax liabilities in the current year.


Liquidity and Capital Resources


Cash Flows

Operating Activities

Net cash flow provided by operating activities for the nine months ended September 30, 2006 increased by approximately $4.4 million over the same period in 2005. The increase was primarily due to an increase in the over-recovery of fuel costs of $5.7 million. This increase was partially offset by increased payments on accounts payable and other liabilities.  


Investing Activities

Construction expenditures through September 30, 2006 increased by approximately $1.4 million compared to the same period last year, primarily due to the purchase of new vehicles.


Financing Activities

Increases in the cash flow used in financing activities resulted from a reduction in short-term debt of approximately $2.8 million in the nine months ended September 30, 2006, compared to the same period last year.


Capital Resources

We have a $12 million line of credit (LOC), which expires on July 1, 2008. Upon 30 days notice by us we can increase the LOC to a maximum of $20 million. The LOC contains affirmative and negative covenants that, if violated, would give the bank the right to accelerate the due date of the loan to be immediately payable. The covenants include certain financial ratios. All ratios are currently within the required limits and management believes we are in full compliance with all covenants and anticipates continued compliance in the foreseeable future. We reserve $1 million of the LOC to cover expenses for any major storm repairs in our electric segment and an additional $250,000 for a letter of credit insuring propane facilities. As of September 30, 2006, the amount borrowed from the LOC was $1.7 million. At September 30, 2006, the LOC, long-term debt and preferred stock comprised 53% of total equity and debt capitalization.


Our 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 September 30, 2006, such calculation would permit the issuance of approximately $38 million of additional bonds.


We have $3.3 million in invested funds for payment of future environmental costs. We expect to incur over $800,000 through 2007 for expenses related to environmental clean up.


Capital Requirements

Portions of our business are seasonal and dependent on weather conditions in Florida.  The weather affects the sale of electricity and gas, and thereby impacts the cash provided by operations. Construction costs also impact cash requirements throughout the year. Cash needs for operations and construction are met partially through short-term borrowings from our LOC.  


The construction expenditures for the remainder of 2006 are expected to remain relatively the same as the prior year unless we purchase land for the construction of our South Florida division office. The possible purchase of the land would increase construction expenditures by $4 to $6 million over the same period last year .


The current division office is located on environmentally impacted property, which requires relocating the office to allow for clean up of the property. It will not be possible to rebuild at the current location since this site has been rezoned with a residential designation. The estimated cost of the land is $4 million to $6 million. We are planning to build and complete this new facility in the next five years.


Material commitments for capital expenditures consist of $775,000 for the purchase of a transformer and vehicle purchases totaling approximately $200,000.


Cash requirements are anticipated to increase significantly in the future due to additional environmental clean up costs, sinking fund payments on long-term debt and pension contributions. Environmental clean up costs are forecasted to be approximately $800,000 through 2007, with remaining payments of approximately $10 million thereafter. Annual long-term debt sinking fund payments of approximately $1.4 million will begin in 2008 and will continue for eleven years. We made a contribution to our pension plan of $250,000 in the third quarter of 2006 and current projections indicate that we will make an additional contribution of $250,000 in 2007. Congress has finalized the new funding rules and we may have significant contribution requirements for several years beginning with 2008.


Due to delayed environmental clean-up costs, a possible equity or debt financing in 2006 will not be required. We believe that cash from operations, coupled with short-term borrowings on the LOC, will be sufficient to satisfy our operating expenses, normal capital expenditure requirements and dividend payments through spring of 2008.  However, cash requirements are forecasted to increase significantly in the future due to our environmental clean up costs, a land purchase, sinking fund payments on long-term debt and pension contributions. Depending on cash needs relating to the land purchase and related construction and the timing of environmental expenditures, it is possible we may consider equity or debt financing in 2007 or 2008.  The need and timing will depend upon the overall company cash flow requirements. There can be no assurance, however, that equity or debt financing will be available on favorable terms, or at all, in 2007 or later years when we seek such financings.


Outlook


Electric Power Supply

Contracts with our two electric suppliers were set to expire on December 31, 2007.  Those contracts provided electricity to our customers at rates that are much lower than market rates.  As part of our negotiations, we agreed to end the current contract terms for our Northeast division on December 31, 2006 and executed an amended contract to begin January 1, 2007 and expire December 31, 2017.  Although the contract rates will increase for 2007, this enabled us to obtain lower rates for the longer term of the contract than we would have been otherwise able to obtain if we hadn’t revised the contract.  The savings are passed through to our customers without profit to the Company.  We have selected the provider of electricity in our Northwest division and anticipate the execution of a final contract in the fourth quarter of 2006.  This contract will be for the purchase of electricity beginning January 1, 2008.  We anticipate that contract will also result in rates closer to market, which could cause our customers’ bills to double in the next several years over existing prices. We are unable to estimate what impact, if any, the higher rates could have on electric consumption.


Over-earnings – Natural Gas Segment

The FPSC approves rates that are intended to permit a specified rate of return on investment and limits the maximum amount of earnings of regulated operations.  We have estimated over-earnings in 2005 of $700,000.  This liability has been included in the category of “other accruals and payables” on our condensed consolidated balance sheet with the potential of rate refunds to customers.  The calculations supporting these liabilities are complex and involve a variety of projections and estimates before the ultimate settlement of such obligations. We believe our 2005 estimate of over-earnings liabilities is accurate, but it could change upon the FPSC review and finalization of our earnings.  We have estimated that there are no over-earnings to date in 2006.


The FPSC determines the disposition of over-earnings with alternatives that include refunding to customers, funding storm damage or environmental reserves or reducing any depreciation reserve deficiency. Recently, the FPSC ordered 2002 natural gas over-earnings of approximately $118,000 to be added to our “regulatory liability-storm reserve” to cover future storm costs. Finalization of the disposition and determination of the amount of 2005 natural gas over-earnings is expected in 2007.


Indiantown Gas

The FPSC approved our joint transportation and territorial agreements with Indiantown in October 2006. We have also begun construction in the Indiantown area to install natural gas mains in the first phase of this development for approximately 100 homes. The next two developments are slated to break ground in 2007 for construction of approximately 1,000 homes.

 

Land Purchase

We have reviewed numerous potential sites for the new South Florida division office, though it has been difficult to find a site that will be able to be used for our intended purpose. It is possible a land purchase would not occur until 2007 or 2008 due to the lack of availability of land that meets our use and cost requirements.


Storm Related Expenditures

Regulators continue to focus on hurricane preparedness and storm recovery issues for utility companies. Newly mandated storm preparedness initiatives could impact our operating expenses and capital expenditures beginning in 2007. The initial forecasts of these annual expenditures are approximately $700,000. It is possible that additional regulation and rules will be mandated regarding storm related expenditures over the next several years. We requested a limited proceeding to recover the cost of the newly mandated storm preparedness initiatives and to defer these storm related expenditures until we receive recovery through a rate increase.  If approved, both the recovery and expenditures may occur by mid-2007. If the FPSC does not approve our request, we plan to file a rate proceeding in 2007 as an alternative option for recovery of these expenditures.


Impact of Recent Accounting Standards


Financial Accounting Standard No. 157

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, “Fair Value Measurements”.  This Statement clarifies fair value as the market value received to sell an asset or paid to transfer a liability, the exit value, and applies to any assets or liabilities that require recurring determination of fair value.  The measurement includes any applicable risk factors and does not include any adjustment for volume.  This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within. We expect to adopt SFAS No. 157 effective January 1, 2008. Management does not believe adoption of this Statement will have a material impact on our financial condition or results of operation.


Financial Accounting Standard No. 158

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”.  Statement 158 will require the Company to show the funded status of its pension and retiree health care plans as a prepaid asset or accrued liability, and to show the net deferred and unrecognized gains and losses related to the retirement plans, net of tax, as part of accumulated other comprehensive income in shareholders’ equity.  Previously, the net deferred and unrecognized gains and losses were netted in the prepaid asset or accrued liability recorded for the retirement plans.  The Company will adopt the recognition provisions of Statement 158, as required, at December 31, 2006.


The Company uses December 31 as the measurement date to measure the assets and obligations of its retirement plans.  Statement 158 requires the use of the Company year-end as the measurement date no later than fiscal years ending after December 15, 2008.  The Company currently uses this date and has used it for all periods presented.


Although the actuarial valuation of the retirement plan obligations at year end has not yet been completed, and the fair value of retirement plan assets is subject to change based on market fluctuations through December 31, the Company estimates that Statement 158 will result in an additional liability for retirement plans of about $3 million, a reduction in deferred tax liabilities of about $1 million, and a reduction in shareholders’ equity of about $2 million.


Staff Accounting Bulletin No. 108

In September 2006, the SEC issued SAB No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”.  SAB 108 requires that public companies utilize a “dual-approach” to assessing the quantitative effects of financial misstatements.  This dual approach includes both an income statement focused assessment and a balance sheet focused assessment.  The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006.  The Company is currently assessing the impact of adopting SAB 108, but does not expect that it will have a material effect on our consolidated financial position or results of operations.



Forward-Looking Statements (Cautionary Statement)

This report contains forward-looking statements including those relating to the following:


·

Based on our current expectations for cash needs, including cash needs relating to the possible land purchase and related construction, we may choose to consider an equity or debt financing in 2007 or 2008. 

·

Our anticipation of continued compliance in the foreseeable future with our LOC covenants.

·

Construction expenditures for the remainder of 2006 may increase by $4 to $6 million over the same period in 2005 if we are successful in negotiating the purchase of the land for our South Florida operations.

·

Our expectation is that the substation transformer in our Northeast division will be replaced during the first half of 2008 at a cost of $775,000.

·

Our expectation that cash requirements will increase significantly in the future due to environmental clean-up costs, sinking fund payment on long-term debt and pension contributions.

·

Management has recently increased focus on collecting receivables and they expect the bad debt expense to return to normal levels in future periods.

·

Our belief that cash from operations, coupled with short-term borrowings on our LOC, will be sufficient to satisfy our operating expenses, normal construction expenditure and dividend payments through spring of 2008.

·

Our 2005 over-earnings liability in natural gas will materialize as estimated after the FPSC review and audit.

·

We expect higher fuel costs beginning in 2007 for our Northeast division and in 2008 in both electric divisions. These new fuel costs may cause customers’ electricity bills to double in the next several years over existing prices.

·

The development in Indiantown will occur as estimated and we will provide natural gas to this area.

·

Storm related expenditures may be necessary beginning in 2007 and the total cost may be significant. We may receive recovery for these expenditures.

·

The purchase of land for our new South Florida division office may occur by 2008.

·

We estimate that SFAS No. 158 will result in an additional liability for retirement plans of about $3 million, a reduction in deferred tax liabilities of about $1 million, and a reduction in shareholders’ equity of about $2 million.


These statements involve certain risks and uncertainties. Actual results may differ materially from what is expressed in such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed by the forward-looking statements include, but are not limited to, those set forth in “Risk Factors” below and in our Form 10-K for the year ending December 31, 2005.


Item 3.

Quantitative and Qualitative Disclosures about Market Risk


All financial instruments held by us were entered into for purposes other than for trading.  We have market risk exposure only from the potential loss in fair value resulting from changes in interest rates. We have no material exposure relating to commodity prices because under our regulatory jurisdictions, we are fully compensated for the actual costs of commodities (natural gas and electricity) used in our operations. Any commodity price increases for propane gas are normally passed through monthly to propane gas customers as the fuel charge portion of their rate.


None of our gas or electric contracts are accounted for using the fair value method of accounting. While some of our contracts meet the definition of a derivative, we have designated these contracts as "normal purchases and sales" under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".


On a rolling four-quarter basis, we will purchase a “cap” on approximately one-third of our forecast propane volume purchases and pre-buy or hedge with a swap one-third of our forecast anticipated propane purchases. The remaining one-third will fluctuate with the market price. Our energy strategy allows us to participate in two-thirds of price declines but only one-third of price increases. As of September 30, 2006, we have not entered into any hedging activities. When we do enter into hedging activities, we will determine whether they meet the definition of normal sales and purchases and if not, we will determine whether we should use hedge accounting.


We have no exposure to equity risk, as we do not hold any equity instruments. Our exposure to interest rate risk is limited to investments held for environmental costs, the long-term notes receivable from the sale of our water division and short-term borrowings on the line of credit. The investments held for environmental costs are short-term fixed income debt securities whose carrying amounts are not materially different than fair value. The short-term borrowings were approximately $1.7 million at the end of September 2006. We do not believe we have material market risk exposure related to these instruments. The indentures governing our two first mortgage bond series outstanding contain "make-whole" provisions (pre-payment penalties that charge for lost interest), which render refinancing impracticable.


Item 4.

Controls and Procedures


Disclosure Controls and Procedures

Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer as of September 30, 2006, concluded that our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.


Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





PART II.

OTHER INFORMATION


Item 1.

Legal Proceedings


None.


Item 1A.

Risk Factors

The risk factors should be read in conjunction with those included in our most recent Form 10-K for the year ending December 31, 2005.


New supply contracts could result in substantial increases to our prices, and could materially adversely affect our financial condition and results of operations.


Two pipeline suppliers under firm contracts having expiration dates from 2007 to 2023 transport our natural gas to us. All of these contracts have provisions, which allow us to extend the terms ranging from 2020 to 2032. Our electric services are provided by two suppliers under contracts which both expire in 2007.


Electricity supply contracts expiring in 2007 will result in the cost of electricity more than doubling over existing prices. This increase could have a significant impact on our financial condition and results of operations.



Conflict or turmoil in oil producing countries could impact future prices for commodities including natural gas, propane gas and electricity, and increases in these prices could materially affect our financial condition and results of operations.


Recent turmoil in the Middle East is causing crude oil and its associated products to rise on concerns of the conflict spreading to other oil producing countries. If the conflict escalates or spreads, the impact to the cost of all fuel related commodities could increase substantially. These increases could materially adversely affect our financial condition and results of operations.  




Item 6.

Exhibits


3.1

Amended Articles of Incorporation (incorporated herein by reference as Exhibit 3.1 to our quarterly report on Form 10-Q for the period ended June 30, 2002).


3.2

Amended By-Laws (incorporated herein by reference as Exhibit 3(ii) to our quarterly report on Form 10-Q for the period ended June 30, 2002).


4.1

Indenture of Mortgage and Deed of Trust of FPU dated as of September 1, 1942 (incorporated by reference herein to Exhibit 7-A to Registration No. 2-6087).


4.2

Fourteenth Supplemental Indenture dated September 1, 2001 (incorporated by reference to exhibit 4.2 on our annual report on Form 10-K for the year ended December 31, 2001).


4.3

Fifteenth Supplemental Indenture dated November 1, 2001 (incorporated by reference to exhibit 4.3 on our annual report on Form 10-K for the year ended December 31, 2001).


10.1*

Amendment to Electric Service Contract by and between JEA and FPU dated September 25, 2006.


10.2*

Amended Security Agreement and Promissory Note between FPU and Bank of America dated August 25, 2006.  


31.1

Certification of Chief Executive Officer (CEO) per Section 302 of the Sarbanes-Oxley Act of 2002.


31.2

Certification of Chief Financial Officer (CFO) per Section 302 of the Sarbanes-Oxley Act of 2002.


32

Certification of Principal Executive Officer and Principal Financial Officer per Section 906 of the Sarbanes-Oxley Act of 2002.



* Previously filed with our Form 10Q for the period ending September 30, 2006




SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


FLORIDA PUBLIC UTILITIES COMPANY

(Registrant)



Date: March 19, 2007

By:           /s/ George M. Bachman         

George M. Bachman

Chief Financial Officer

(Principal Accounting Officer)





FLORIDA PUBLIC UTILITIES COMPANY

EXHIBIT INDEX

Item Number


10.1*

Amendment to Electric Service Contract by and between JEA and FPU dated September 25, 2006.


10.2*

Amended Security Agreement and Promissory Note between FPU and Bank of America dated August 25, 2006.


31.1

Certification of Chief Executive Officer (CEO) per Section 302 of the Sarbanes-Oxley Act of 2002.


31.2

Certification of Chief Financial Officer (CFO) per Section 302 of the Sarbanes-Oxley Act of 2002.


32

Certification of Principal Executive Officer and Principal Financial Officer per Section 906 of the Sarbanes-Oxley Act of 2002.


*Previously filed with our Form 10Q for the period ending September 30, 2006



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