SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of earliest event reported: March 22, 1994
FPL GROUP CAPITAL INC
(Exact name of registrant as specified in its charter)
FLORIDA 0-15607 59-2576416
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
700 Universe Boulevard
Juno Beach, Florida 33408
(Address of principal executive office)
(Zip Code)
(407) 694-3509
(Registrant's telephone number, including area code)
ITEM 5. Other Events
Attached hereto are:
(1) Financial Statements of FPL Group, Inc. and its subsidiaries as
they appeared in FPL Group, Inc.'s Annual Report on Form 10-K.
(a) Consolidated Statements of Income for the Years Ended
December 31, 1993, 1992 and 1991.
(b) Consolidated Balance Sheets at December 31, 1993 and 1992.
(c) Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991.
(d) Notes to Consolidated Financial Statements for the Years
Ended December 31, 1993, 1992 and 1991.
(e) Independent Auditors' Report.
ITEM 7. Financial Statements and Exhibits
(c) Exhibits
23 - Independent Auditors' Consent.
FPL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years Ended December 31,
1993 1992 1991
OPERATING REVENUES:
Utility $ 5,224,299 $ 5,100,463 $ 5,158,766
Non-utility 91,995 92,864 90,670
Total operating revenues 5,316,294 5,193,327 5,249,436
OPERATING EXPENSES:
Utility operations:
Fuel, purchased power and interchange 1,758,298 1,829,908 1,932,637
Other operations and maintenance of utility plant 1,251,284 1,203,474 1,276,244
Cost reduction program and restructuring charges 138,000 - 90,008
Non-utility operations 70,256 74,195 69,469
Depreciation and amortization 598,389 554,237 518,068
Taxes other than income taxes 526,109 497,739 485,962
Total operating expenses 4,342,336 4,159,553 4,372,388
OPERATING INCOME 973,958 1,033,774 877,048
INTEREST EXPENSE AND OTHER (INCOME) DEDUCTIONS:
Interest and preferred stock dividend requirements 409,760 410,152 411,079
Allowance for funds used during construction (66,238) (57,782) (34,044)
Other - net (48,812) (46,978) (47,456)
Interest expense and other - net 294,710 305,392 329,579
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 679,248 728,382 547,469
INCOME TAXES:
Current 238,557 147,961 186,008
Deferred 11,942 113,472 (14,687)
Total income taxes 250,499 261,433 171,321
INCOME FROM CONTINUING OPERATIONS 428,749 466,949 376,148
Loss on sale of discontinued operations, net
of income tax benefits of $28,900 - - (135,570)
NET INCOME $ 428,749 $ 466,949 $ 240,578
EARNINGS PER SHARE OF COMMON STOCK:
Continuing operations $ 2.30 $ 2.65 $ 2.31
Discontinued operations - - $ (0.83)
Net income $ 2.30 $ 2.65 $ 1.48
Dividends per share of common stock $ 2.47 $ 2.43 $ 2.39
Average number of common shares outstanding 186,777 176,458 163,101
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands of dollars)
December 31,
1993 1992
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant - at original cost, including
nuclear fuel under capital lease $ 14,838,160 $ 13,534,791
Construction work in progress 781,435 1,158,688
Other property 261,125 278,887
Less accumulated depreciation and amortization 5,591,265 5,106,066
Total property, plant and equipment - net 10,289,455 9,866,300
INVESTMENTS:
Utility special use funds 378,774 318,798
Investments in partnerships and joint ventures 368,724 296,593
Investments in leveraged leases 155,449 144,398
Other 82,045 62,952
Total investments 984,992 822,741
CURRENT ASSETS:
Cash and cash equivalents 152,014 78,156
Marketable securities - at market value (cost of
$169,607 and $75,441, respectively) 171,988 75,437
Receivables:
Customers, net of allowance for uncollectible
amounts of $13,946 and $14,990, respectively 444,815 413,574
Other 59,782 103,011
Materials, supplies and fossil fuel stock - at average cost 329,599 382,080
Recoverable storm costs 44,945 72,500
Other 48,214 58,418
Total current assets 1,251,357 1,183,176
DEFERRED DEBITS AND OTHER ASSETS:
Unamortized debt reacquisition costs of FPL 302,561 175,320
Deferred litigation items of FPL 110,859 110,859
Other 138,788 147,909
Total deferred debits and other assets 552,208 434,088
TOTAL ASSETS $ 13,078,012 $ 12,306,305
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Thousands of dollars)
December 31,
1993 1992
CAPITALIZATION:
Common shareholders' equity:
Common Stock, $.01 par value, authorized - 300,000,000 shares;
outstanding - 190,065,570 shares at December 31, 1993 and
182,788,320 shares at December 31, 1992 $ 1,901 $ 1,828
Additional paid-in capital 3,589,994 3,312,903
Unearned compensation (321,121) (336,355)
Retained earnings 829,833 857,613
Total common shareholders' equity 4,100,607 3,835,989
Preferred stock of FPL:
Without sinking fund requirements 451,250 421,250
With sinking fund requirements 97,000 130,150
Long-term debt 3,748,983 3,960,096
Total capitalization 8,397,840 8,347,485
CURRENT LIABILITIES:
Commercial paper 349,600 -
Current maturities of long-term debt and preferred stock 279,680 164,004
Accounts payable 323,282 411,369
Customers' deposits 216,140 215,435
Interest accrued 109,206 123,735
Income and other taxes 94,880 90,929
Deferred clause revenues 130,786 175
Other 335,043 172,069
Total current liabilities 1,838,617 1,177,716
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,512,067 1,718,388
Deferred regulatory credit - income taxes 216,546 -
Unamortized investment tax credits 323,791 345,438
Capital lease obligations 271,498 324,198
Other 517,653 393,080
Total deferred credits and other liabilities 2,841,555 2,781,104
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES $13,078,012 $12,306,305
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Years Ended December 31,
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 428,749 $ 466,949 $ 240,578
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 598,389 554,237 518,068
Increase (decrease) in deferred income
taxes and related regulatory credit 10,225 211,156 (31,414)
(Increase) decrease in recoverable storm costs 12,184 (57,130) -
Deferrals under cost recovery clauses(1) 138,949 (102,977) 120,772
Increase (decrease) in accrued interest and taxes (10,578) 5,948 15,481
Loss from discontinued operations - - 135,570
Other 89,058 (90,521) 194,466
Net cash provided by operating activities 1,266,976 987,662 1,193,521
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2) (1,247,661) (1,390,930) (1,343,931)
Sale of Colonial Penn - - 128,380
Net cash used by discontinued operations - - (49,827)
Receipts from partnerships and leveraged leases 82,462 17,592 11,572
Other 34,365 (10,013) 1,427
Net cash used in investing activities (1,130,834) (1,383,351) (1,252,379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of FPL bonds and other long-term debt 2,082,993 874,633 265,246
Issuance of FPL Group Capital long-term debt 125,889 25,000 -
Issuance of preferred stock 190,000 125,000 -
Retirement of long-term debt and preferred stock (2,648,170) (699,614) (360,372)
Issuance of common stock 276,287 422,626 318,341
Dividends on common stock (461,639) (430,716) (392,000)
Sale of nuclear fuel - - 235,972
Increase (decrease) in commercial paper 349,600 - (48,814)
Other 22,756 (13,295) (3,468)
Net cash provided (used) by financing activities (62,284) 303,634 14,905
Net increase (decrease) in cash and cash equivalents 73,858 (92,055) (43,953)
Cash and cash equivalents at beginning of year 78,156 170,211 214,164
Cash and cash equivalents at end of year $ 152,014 $ 78,156 $ 170,211
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amount capitalized) $ 350,845 $ 316,826 $ 341,668
Cash paid for income taxes $ 150,227 $ 115,045 $ 139,400
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations $ 57,579 $ 152,833 $ 274,966
(1) Represents the effect on cash flows from operating activities of the net
amounts deferred or recovered under the fuel and purchased power,
oil-backout, energy conservation, capacity and environmental cost
recovery clauses.
(2) Excludes allowance for other funds used during construction.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1993, 1992 and 1991
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of FPL Group, Inc. (FPL Group) and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts included in prior years' consolidated
financial statements have been reclassified to conform to the current year's
presentation.
Regulation - The principal operating company of FPL Group is Florida Power
& Light Company (FPL), a utility subject to regulation by the Florida Public
Service Commission (FPSC) and the Federal Energy Regulatory Commission
(FERC). As a result of such regulation, FPL follows the accounting practices
set forth in Statement of Financial Accounting Standard (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation."
Revenues and Rates - FPL's retail and wholesale utility rate schedules are
approved by the FPSC and the FERC, respectively. FPL records the estimated
amount of base revenues for energy delivered to customers but not billed.
Such unbilled revenues are included in receivables - customers and amounted
to approximately $112 million and $120 million at December 31, 1993 and 1992,
respectively.
Revenues include amounts resulting from cost recovery clauses, which are
designed to permit full recovery of certain costs and provide a return on
certain assets utilized by these programs, and franchise fees. Such revenues
represent a pass-through of costs and include substantially all fuel,
purchased power and interchange expenses, conservation-related expenses,
revenue taxes and franchise fees. Revenues from cost recovery clauses are
recorded when billed; FPL achieves matching of costs and related revenues by
deferring the net under or over recovery.
Electric Utility Plant, Depreciation and Amortization - The cost of additions
to units of utility property is added to electric utility plant. The cost of
units of property retired, less net salvage, is charged to accumulated
depreciation. Maintenance and repairs of property as well as replacements
and renewals of items determined to be less than units of property are
charged to operating expenses - other operations and maintenance of utility
plant.
Depreciation of utility property is provided primarily on a straight-line
average remaining life basis. Depreciation studies are performed at least
every four years for substantially all utility property. The weighted annual
composite depreciation rate was approximately 3.9%, 3.5% and 3.8% for the
years 1993, 1992 and 1991, respectively. These rates exclude decommissioning
expense and certain accelerated depreciation under cost recovery clauses.
All depreciation methods and rates are approved by the FPSC.
Nuclear fuel costs, including a charge for spent nuclear fuel disposal, is
accrued in fuel expense on a unit of production method.
Substantially all electric utility plant is subject to the lien of the
Mortgage and Deed of Trust, as supplemented, securing FPL's first mortgage
bonds.
Allowance for Funds Used During Construction (AFUDC) - FPL recognizes AFUDC
as a noncash item which represents the allowed cost of capital used to
finance a portion of FPL's construction work in progress. AFUDC is
capitalized as an additional cost of utility plant and is recorded as an
addition to income. The capitalization rate used in computing AFUDC was
8.67% from January 1993 through June 1993, 8.26% from July 1993 through
December 1993, 8.61% in 1992 and 8.46% in 1991. FPL allocates total AFUDC
between borrowed funds and other funds. The portion of AFUDC attributable to
short and long-term borrowed funds amounted to $31 million, $27 million and
$17 million for the years ended December 31, 1993, 1992 and 1991,
respectively.
Nuclear Decommissioning - FPL accrues nuclear decommissioning costs over the
expected service life of each plant. Nuclear decommissioning studies are
performed at least every five years for FPL's four nuclear units. A
provision for nuclear decommissioning of $38 million for each of the years
1993, 1992 and 1991 is included in depreciation expense. The accumulated
provision for nuclear decommissioning totaled $445 million and $390 million
at December 31, 1993 and 1992, respectively, and is included in accumulated
depreciation.
Amounts equal to decommissioning expense are deposited in either qualified
funds on a pretax basis or in a non-qualified fund on a net of tax basis.
Fund earnings, net of taxes, are reinvested in the funds. Both fund earnings
and the charge resulting from reinvestment of the earnings are included in
other income - net. The related income tax effects are included in deferred
taxes. The decommissioning reserve funds, the predominant component of the
utility special use funds, may be used only for the payment of the cost of
decommissioning FPL's nuclear units. Securities held in the funds consist
primarily of tax-exempt obligations and are carried at cost. See Note 11.
The most recent decommissioning studies assume prompt dismantlement for the
Turkey Point nuclear units commencing in the year 2005 and for St. Lucie Unit
No. 2 commencing in 2021. St. Lucie Unit No. 1 will be mothballed in 2016
until St. Lucie Unit No. 2 is ready for dismantlement. FPL's portion of the
cost of decommissioning these units, including dismantlement and reclamation,
expressed in 1993 dollars, is currently estimated to aggregate $935 million.
Storm and Property Insurance Reserve Fund - The storm and property insurance
reserve fund provides coverage toward storm damage costs and possible
retrospective premium assessments stemming from a nuclear incident under the
various insurance programs covering FPL's nuclear generating plants. The
storm and property insurance reserve represents amounts accumulated to date
net of expenditures for storm damages. The related income tax effects are
included in accumulated deferred income taxes. Securities held in the fund
consist primarily of tax-exempt obligations and are carried at cost. In
1992, $21 million of the storm fund was used for storm damage costs
associated with Hurricane Andrew. See Note 11.
Investments in Partnerships and Joint Ventures - The majority of investments
in partnerships and joint ventures are accounted for under the equity method.
The cost method is used when FPL Group has virtually no ability to influence
the operating or financial decisions of the investee.
Securities Transactions - Marketable securities are held by a consolidated
limited partnership and are accounted for at market value. Partnership
assets are managed by an independent investment advisor. Earnings on the
investments are included in other - net in the consolidated statements of
income.
Included in other current liabilities at December 31, 1993 are approximately
$94 million of securities sold, but not yet purchased. These obligations are
carried at their market value and create off-balance sheet market risk to the
extent that the market value of the underlying securities (U.S. Treasury
Notes) subsequently increases.
Cash Equivalents - Cash equivalents consist of short-term, highly liquid
investments with original maturities of three months or less. The carrying
amount of these investments approximates their market value.
Retirement of Long-Term Debt - The excess of FPL's reacquisition cost over the
book value of long-term debt is deferred and amortized to expense ratably
over the remaining life of the original issue, which is consistent with its
treatment in the ratemaking process. FPL Group Capital Inc (FPL Group
Capital) expenses this cost in the period incurred.
Rate Matters - Deferred litigation items of FPL at December 31, 1993 and 1992,
represent costs approved by the FPSC for recovery over five years commencing
with the effective date of new base rates to be established in the next
general rate proceeding.
Income Taxes - Deferred income taxes are provided on all significant temporary
differences between the financial statement and tax bases of assets and
liabilities. Investment tax credits are used to reduce current federal
income taxes and, in the case of FPL, are deferred and amortized to income
over the approximate lives of the related property.
2. Income Taxes
In 1993, FPL Group adopted SFAS No. 109, "Accounting for Income Taxes," which
requires the use of the liability method in accounting for income taxes.
Under the liability method, the tax effect of temporary differences between
the financial statement and tax bases of assets and liabilities are reported
as deferred taxes measured at current tax rates. At FPL, the principal
effect of adopting SFAS No. 109 was the reclassification of the revenue
equivalent of deferred taxes in excess of the amount required to be reported
as a liability under SFAS No. 109 from accumulated deferred income taxes to
a newly-established deferred regulatory credit - income taxes. This amount
will be amortized over the estimated lives of the assets or liabilities which
resulted in the initial recognition of the deferred tax amount. Adoption of
this standard had no effect on results of operations. The net result of
amortizing the deferred regulatory credit and the related deferred taxes
established under SFAS No. 109 is to yield comparable amounts to those
included in the tax provision under accounting rules applicable to prior
periods.
The components of income taxes are as follows:
Years Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Federal:
Current. . . . . . . . . . . . . . . . . . . $205,233 $124,417 $155,265
Deferred:
Loss on reacquired debt . . . . . . . . . . 41,606 10,117 691
Cost reduction program/restructuring. . . . (28,995) 191 (7,909)
Depreciation and related items. . . . . . . 36,213 105,048 141,866
Cost recovery clauses . . . . . . . . . . . (45,873) 33,334 (39,045)
Nuclear decommissioning reserve . . . . . . (2,016) (1,959) (12,459)
Alternative minimum tax credits . . . . . . 44,647 (31,302) (32,168)
Other . . . . . . . . . . . . . . . . . . . (17,375) 4,464 (30,744)
Deferred investment tax credits. . . . . . . (503) (2,817) (634)
Amortization of investment tax credits . . . (21,491) (20,715) (37,373)
Total federal . . . . . . . . . . . . . . 211,446 220,778 137,490
State:
Current. . . . . . . . . . . . . . . . . . . 33,324 23,544 30,743
Deferred:
Loss on reacquired debt . . . . . . . . . . 6,992 1,358 209
Cost reduction program/restructuring. . . . (4,810) 33 (1,354)
Depreciation and related items. . . . . . . 5,968 10,600 18,641
Cost recovery clauses . . . . . . . . . . . (7,645) 5,706 (6,684)
Alternative minimum tax credits . . . . . . 12,385 - -
Other . . . . . . . . . . . . . . . . . . . (7,161) (586) (7,724)
Total state . . . . . . . . . . . . . . . 39,053 40,655 33,831
Total income taxes . . . . . . . . . . . . . . . . . $250,499 $261,433 $171,321
A reconciliation between income tax expense and the expected income tax
expense at the applicable statutory rates is as follows:
Years Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Computed at statutory federal income tax rate. . . . $237,737 $247,650 $186,139
Increases (reductions) resulting from:
State income taxes - net of federal
income tax benefit. . . . . . . . . . . . . 24,530 26,832 22,328
Amortization of investment tax credits . . . (21,491) (20,714) (45,624)
Preferred dividend requirements of FPL . . . 14,932 14,926 14,027
Other - net. . . . . . . . . . . . . . . . . (5,209) (7,261) (5,549)
Total income taxes . . . . . . . . . . . . . . . . . $250,499 $261,433 $171,321
The income tax effects of discontinued operations in 1991 differ from the
effects computed at statutory rates primarily due to FPL Group's assessment
of loss disallowance rules and limitations on the ability to utilize capital
loss benefits. FPL Group plans to challenge the loss disallowance rules.
Based on the uncertainties associated with the ultimate outcome of this
challenge and recognition of offsetting capital gains, a valuation allowance
was recorded to fully offset the effect of establishing a deferred tax asset
of approximately $170 million under SFAS No. 109 for the tax benefits of the
capital loss carryforward.
The income tax effects of temporary differences giving rise to FPL Group's
consolidated deferred income tax assets and liabilities after adoption of
SFAS No. 109 are as follows:
December 31, 1993 January 1, 1993
(Thousands of Dollars)
Deferred tax liabilities:
Property related. . . . . . . . . . . . . . . . . $1,677,926 $1,644,200
Leveraged leases. . . . . . . . . . . . . . . . . 167,467 159,300
Partnerships and joint ventures . . . . . . . . . 166,376 153,800
Unamortized debt reacquisition costs. . . . . . . 116,556 65,900
Other . . . . . . . . . . . . . . . . . . . . . . 75,666 57,400
Total deferred tax liabilities. . . . . . . . . 2,203,991 2,080,600
Deferred tax assets and valuation allowance:
Asset writedowns and capital loss carryforward. . 236,865 216,100
Unamortized investment tax credits. . . . . . . . 124,913 130,000
Deferred regulatory credit - income taxes . . . . 83,524 110,100
Storm and decommissioning reserves. . . . . . . . 133,754 119,100
Alternative minimum tax credits . . . . . . . . . 106,422 88,300
Other . . . . . . . . . . . . . . . . . . . . . . 193,534 177,400
Valuation allowance . . . . . . . . . . . . . . . (187,088) (182,900)
Net deferred tax assets . . . . . . . . . . . . 691,924 658,100
Accumulated deferred income taxes. . . . . . . . . . . . $1,512,067 $1,422,500
3. Employee Retirement Benefits
Pension Benefits - Substantially all employees of FPL Group and its
subsidiaries are covered by a noncontributory defined benefit pension plan.
Plan benefits are generally based on employees' years of service and
compensation during the last years
of employment. Participants are vested after five years of service. Plan
assets consist primarily of bonds, common stocks and short-term investments.
For 1993, 1992 and 1991 the components of pension cost, a portion of which
has been capitalized, are as follows:
Years Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Benefits earned during the year. . . . . . . . . . . . . . . . . . . $ 36,105 $ 39,624 $ 37,153
Interest cost on projected benefit obligation. . . . . . . . . . . . 78,797 62,518 60,753
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . (236,565) (76,755) (253,447)
Net amortization and deferral. . . . . . . . . . . . . . . . . . . . 106,894 (30,592) 150,149
Negative pension cost. . . . . . . . . . . . . . . . . . . . . . . . (14,769) (5,205) (5,392)
Effect of cost reduction program (see Note 4). . . . . . . . . . . . 34,463 - -
FPL regulatory adjustment. . . . . . . . . . . . . . . . . . . . . . - 5,221 5,722
Pension cost recognized in the Consolidated Statements of Income . . $ 19,694 $ 16 $ 330
Prior to 1993, an adjustment was made to reflect in the results of operations
FPL's pension cost calculated under the actuarial cost method used for
utility ratemaking purposes. In 1993, FPL adopted consistent pension
measurements for ratemaking and financial reporting. The accumulated
regulatory adjustment is being amortized to income over five years. At
December 31, 1993 and 1992, the cumulative amount of this regulatory
adjustment included in other liabilities was approximately $16 million and
$20 million, respectively.
During 1992, the method used for valuing plan assets in the calculation of
pension cost was changed from fair value to a calculated market-related
value. The new method was adopted to reduce the volatility in annual pension
expense that results from short-term fluctuations in the securities markets.
The cumulative effect of the change was to reduce prepaid pension costs and
the related accumulated regulatory adjustment by approximately $37 million,
with no effect on earnings.
During 1993, the effect of a prior plan amendment that changed the manner in
which benefits accrue was recognized and included as part of prior service
cost to be amortized over the remaining service life of the employees.
FPL Group funds the pension cost calculated under the entry age normal level
percentage of pay actuarial cost method, provided that this amount satisfies
the Employee Retirement Income Security Act minimum funding standards and is
not greater than the maximum tax deductible amount for the year. No
contributions to the plan were required for 1993, 1992 or 1991.
A reconciliation of the funded status of the plan to the amounts recognized
in the Consolidated Balance Sheets is presented below:
December 31,
1993 1992
(Thousands of Dollars)
Fair market value of plan assets . . . . . . . . . . . . . . . . . $ 1,662,051 $1,549,294
Actuarial present value of benefits for services rendered to date:
Accumulated benefits based on salaries to date, including
vested benefits of $689.2 million and $870.6 million for
1993 and 1992, respectively. . . . . . . . . . . . . . . . . 740,959 883,487
Additional benefits based on estimated future salary levels . . 325,582 235,908
Projected benefit obligation . . . . . . . . . . . . . . . . . . . 1,066,541 1,119,395
Plan assets in excess of projected benefit obligation. . . . . . . 595,510 429,899
Prior service costs not recognized in net periodic pension cost. . 212,908 79,584
Unrecognized net asset at January 1, 1986, being amortized
primarily over 19 years - net of accumulated amortization . . . (256,914) (280,270)
Unrecognized net gain. . . . . . . . . . . . . . . . . . . . . . . (548,741) (206,755)(1)
Prepaid pension cost . . . . . . . . . . . . . . . . . . . . . . . $ 2,763 $ 22,458
(1) Includes $37 million effect of changing to calculated market-related
method of valuing plan assets.
As of December 31, 1993 and 1992, the weighted-average discount rate used in
determining the actuarial present value of the projected benefit obligation
was 7.0% and 6.0%, respectively. The assumed rate of increase in future
compensation levels at those respective dates was 5.5% and 6.0%. The
expected long-term rate of return on plan assets used in determining pension
cost was 7.75% for 1993 and 7.0% for 1992 and 1991.
Other Postretirement Benefits - FPL Group and its subsidiaries have defined
benefit postretirement plans for health care and life insurance benefits that
cover substantially all employees. Eligibility for health care benefits is
based upon age plus years of service at retirement. The plans are
contributory, and contain cost-sharing features such as deductibles and
coinsurance. FPL Group has capped company contributions for postretirement
health care at a defined level which, depending on actual claims experience,
may be reached by the year 2000. Generally, life insurance benefits for
retirees are capped at $50,000. FPL Group's policy is to fund postretirement
benefits in amounts determined at the discretion of management. Benefit
payments in 1993 and 1992 totaled $13 million and $12 million, respectively,
and were paid out of existing plan assets.
In 1993, FPL Group adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." For the year ended December
31, 1993, the components of net periodic postretirement benefit cost, a
portion of which has been capitalized, are as follows:
Year Ended
December 31,1993
(Thousands of Dollars)
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,233
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,633
Return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,130)
Amortization of transition obligation. . . . . . . . . . . . . . . . . . . . . . . 4,064
Net periodic postretirement benefit cost . . . . . . . . . . . . . . . . . . . . . 15,800
Effect of cost reduction program (see Note 4). . . . . . . . . . . . . . . . . . . 29,008
Postretirement benefit cost recognized in the Consolidated Statement of Income . . $ 44,808
A reconciliation of the funded status of the plan to the amounts recognized
in the Consolidated Balance Sheets is presented below:
December 31, 1993
(Thousands of Dollars)
Plan assets at fair value, primarily listed stocks and bonds . . . . . . . . $109,372
Accumulated postretirement benefit obligation:
Retirees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,788
Fully eligible active plan participants . . . . . . . . . . . . . . . 68,823
Other active plan participants. . . . . . . . . . . . . . . . . . . . 177,419
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253,030
Accumulated postretirement benefit obligation in excess of plan assets . . . (143,658)
Unrecognized net transition obligation (amortized over 20 years) . . . . . . 66,217
Unrecognized net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,633
Accrued postretirement benefit cost. . . . . . . . . . . . . . . . . . . . . $ 44,808
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) for 1993 is 10.5% for
retirees under age 65 and 6.5% for retirees over age 65. These rates are
assumed to decrease gradually to 6.0% by the year 2000, which is when it is
anticipated that benefit costs will reach the defined level at which company
contributions will be capped. The cap on FPL Group's contributions mitigates
the potential significant increase in costs resulting from an increase in the
health care cost trend rate. Increasing the assumed health care cost trend
rate by one percentage point would increase the plan's accumulated
postretirement benefit obligation as of December 31, 1993 by $8 million, and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost of the plan for 1993 by approximately $1 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at December 31, 1993. The
expected long-term rate of return on plan assets was 7.75% at December 31,
1993.
Postemployment Benefits - In 1993, FPL Group adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," which requires a change from
recognizing expenses when paid to recording the benefits as the liability is
incurred. Implementation of this pronouncement did not have a material effect
on FPL Group's results of operations.
4. Cost Reduction Program and Restructuring Charge
In 1993, FPL implemented a major cost reduction program, which resulted in a
$138 million charge and reduced net income by approximately $85 million. The
program consisted primarily of a Voluntary Retirement Plan (VRP) and a
Special Severance Plan (SSP). The VRP was offered to all employees who were
at least 54 years of age and had at least 10 years of service. The plan,
among other things, added five years to age and service for the determination
of plan benefits to be received by eligible employees. Approximately 700
employees, or 75% of those eligible, elected to retire under this program.
The impact on pension cost resulting from the two programs as determined
under the provisions of SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits," was approximately $34 million. The impact on postretirement
benefits as determined under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" was approximately $29 million.
These amounts are included as part of the total charge of $138 million. See
Note 3.
In 1991, FPL recorded a $90 million restructuring charge in connection with
a company-wide restructuring which reduced net income by $56 million. The
charge included severance pay for departing employees, as well as relocation
and facility
modification expenditures.
5. Businesses to be Discontinued
In 1990, FPL Group decided to sell or otherwise dispose of the real estate,
cable television, environmental remediation and utility-related services
businesses. In 1991, the environmental remediation and utility-related
services businesses were sold with no significant impact on net income.
During 1993, FPL Group sold or otherwise liquidated certain cable television
and real estate assets, including cable television operating systems,
interests in three cable television joint ventures and real estate rental
properties. FPL Group's remaining developed real estate properties are under
contract for sale. This pending sale, if closed, and the currently estimated
result of disposing of the balance of FPL Group's cable television and real
estate assets are not expected to have a significant adverse effect on net
income.
6. Discontinued Operations
In 1991, Colonial Penn Group, Inc. (Colonial Penn) was sold, resulting in a
$135 million after-tax loss. The sale did not include Bay Loan and
Investment Bank (Bay Loan), a former Colonial Penn subsidiary, which is
winding down its operations and will be dissolved. The principal business of
Bay Loan was investing in loans secured by real estate using funds provided
from the issuance of insured certificates of deposit. Bay Loan ceased
investing in new loans in 1990 and is in the process of effecting an orderly
liquidation. The date when such liquidation will be completed cannot be
predicted with certainty because it is dependent on the timing of loan
prepayments and asset sales. FPL Group has no legal obligation and has no
intention to contribute additional equity to Bay Loan. The investment in Bay
Loan was written off in 1990; the orderly liquidation of its operations is
not expected to have an adverse effect on FPL Group's future operating
results.
Colonial Penn and Bay Loan have been accounted for as discontinued
operations. Operating revenues of Bay Loan were $16.3 million and $21.4
million for 1993 and 1992, respectively. Combined operating revenues of
Colonial Penn (through date of closing) and Bay Loan were $714.1 million for
1991. Bay Loan reported operating income of $5.1 million in 1993 and
operating losses of $5.9 million and $8.5 million in 1992 and 1991,
respectively. The losses incurred subsequent to the measurement date (date
on which Bay Loan was initially classified as discontinued operations) had no
effect on FPL Group's results of operations as such losses had been provided
for in the loss on disposal of discontinued operations in 1991.
The remaining assets of Bay Loan consist primarily of loans secured by real
estate and real estate owned as a result of foreclosures. Most of Bay Loan's
loan customers and the real estate securing their loans are located in the
northeast United States. The remaining liabilities of Bay Loan consist
primarily of FDIC-insured certificates of deposit, which will be settled with
funds generated from loan repayments and the sale of Bay Loan assets. Total
assets and liabilities of Bay Loan at December 31, 1993 were $149.3 million
and $129.7 million, respectively. Total assets and liabilities of Bay Loan
at December 31, 1992 were $194.9 million and $180.4 million, respectively.
The carrying amounts of assets and liabilities at December 31, 1993 and 1992,
approximate the estimated fair values of the financial instruments of Bay
Loan.
7. Leases
In 1991, FPL expanded its nuclear fuel lease program to include all four of
its nuclear units. In connection with this expansion, FPL sold to a
non-affiliated lessor and leased back approximately $220 million of nuclear
fuel held in reactors of these units, as well as nuclear fuel in various
stages of enrichment. The fuel was sold at book value. Nuclear fuel
payments, which are based on energy production and are charged to fuel
expense, were $122 million, $120 million and $81 million for the years ended
December 31, 1993, 1992 and 1991, respectively. Included in these payments
was an interest component of $11 million, $13 million and $9 million in 1993,
1992 and 1991, respectively. Under certain circumstances of lease
termination, FPL is required to purchase all nuclear fuel in whatever form at
a purchase price designed to allow the lessor to recover its net investment
cost in the fuel, which totaled $226 million at December 31, 1993. For
ratemaking purposes, the leases encompassed within this lease arrangement are
classified as operating leases. For financial reporting purposes, the
capital lease obligation is recorded at the amount due in the event of lease
termination.
In 1992, FPL entered into a noncancelable capital lease arrangement for an
office building whose net book value at December 31, 1993 and 1992 was
approximately $46 million and $48 million, respectively. The present value
of future minimum lease payments at December 31, 1993 totaled $49 million.
Future minimum annual lease payments under this lease arrangement, which
expires in 2016, are estimated to be $4 million.
Excluding these leases, the amount of assets and capitalized lease
obligations for other capital leases is not material.
FPL Group, through its subsidiaries, leases automotive, computer, office and
other equipment through rental agreements with various terms and expiration
dates. Rental expense totaled $33 million, $55 million and $51 million for
1993, 1992 and 1991, respectively. Minimum annual rental commitments for
noncancelable operating leases are $22 million for 1994, $19 million for
1995, $13 million for 1996, $7 million for 1997, $6 million for 1998 and $15
million thereafter.
8. Jointly-Owned Electric Utility Plant
FPL owns approximately 85% of the St. Lucie Nuclear Unit No. 2, 20% of the
St. Johns River Power Park (SJRPP) units and coal terminal and a 49%
undivided interest in Scherer Unit No. 4. FPL expects to purchase an
additional 27% undivided ownership interest in Scherer Unit No. 4 in two
stages through 1995. At December 31, 1993, FPL's investment in St. Lucie
Unit No. 2 was $768 million, net of accumulated depreciation of $397 million;
the investment in the SJRPP units and coal terminal was $221 million, net of
accumulated depreciation of $110 million; the investment in Scherer Unit
No. 4 was $296 million, net of accumulated depreciation of $54 million.
FPL is responsible for its share of the operating costs, as well as providing
its own financing. At December 31, 1993, there was no significant balance of
construction work in progress on these facilities.
9. Common Shareholders' Equity
The changes in common shareholders' equity accounts are as follows:
Common Stock
Aggregate Additional Unearned Retained
Shares Par Value Paid-in Capital Compensation Earnings
(In thousands)
Balances, December 31, 1990 161,065 $1,610 $2,566,844 $(360,000) $ 952,707
Net income - - - - 240,578
Issuances of common stock 9,691 98 318,905 - -
Dividends on common stock - - - - (392,000)
Earned compensation and tax benefits
on ESOP dividends - - - 13,785 10,956
Other - - 364 - -
Balances, December 31, 1991 170,756 1,708 2,886,113 (346,215) 812,241
Net income - - - - 466,949
Issuances of common stock 12,032 120 429,482 (5,683) -
Dividends on common stock - - - - (430,716)
Earned compensation and tax benefits
on ESOP dividends - - - 15,543 9,139
Other - - (2,692) - -
Balances, December 31, 1992 182,788 1,828 3,312,903 (336,355) 857,613
Net income - - - - 428,749
Issuances of common stock 7,277 73 278,123 - -
Dividends on common stock - - - - (461,639)
Earned compensation and tax benefits
on ESOP dividends - - - 15,234 5,110
Other - - (1,032) - -
Balances, December 31, 1993 190,065 $1,901 $3,589,994 $(321,121) $829,833
Common Stock Dividend Restrictions - FPL Group's Charter does not limit the
dividends that may be paid on its common stock. As a practical matter, the
ability of FPL Group to pay dividends on its common stock is dependent upon
dividends paid to it by its subsidiaries, primarily FPL. FPL's charter and
mortgage contain provisions that, under certain conditions, restrict the
payment of dividends and other distributions to FPL Group. Given FPL's
current financial condition and level of earnings, these restrictions do not
currently limit FPL's ability to pay dividends to FPL Group.
Employee Stock Ownership Plan - The employee thrift plans of FPL Group and FPL
include a leveraged Employee Stock Ownership Plan feature. Shares of common
stock held by the Trust for the Thrift Plans (Trust) are used to provide all
or a portion of the employers' matching contributions. In 1990, the Trust
borrowed the funds from FPL Group Capital, at an interest rate of 9.69% to
purchase the shares and is repaying the loan with dividends received on the
shares along with cash contributions from the employers. Reducing
stockholders' equity at December 31, 1993 is approximately $317 million of
unearned compensation related to unallocated shares of common stock held by
the Trust. The unallocated shares are considered outstanding for purposes of
computing earnings per share. Dividends paid aggregated approximately $30
million in all years.
In November 1993, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued SOP 93-6,
"Employers' Accounting for Employee Stock Ownership Plans." If adopted,
SOP 93-6 would significantly change the manner in which FPL Group recognizes
compensation expense associated with the matching contributions to its thrift
plans. Based on preliminary estimates, adoption of the standard would reduce
net income by approximately $20 million but would increase earnings per share
by $0.04 in 1994, since shares held by the Trust which have not yet been
allocated to employees would not be considered outstanding for purposes of
computing earnings per share. FPL Group is not required to adopt the
accounting guidance in this pronouncement and is evaluating whether or not to
adopt it.
Long-Term Incentive Plan - FPL Group has a long-term incentive plan under
which an aggregate of 4 million shares may be awarded to officers and key
employees of FPL Group and its subsidiaries. At December 31, 1993, 3,304,739
shares were available for future awards. Total compensation charged against
earnings under the incentive plan, and the effect on earnings per share, were
not material in any year. The changes in share awards under the incentive
plan are as follows:
Non-qualified
Performance Restricted Option
Shares Stock Shares
Balances, December 31, 1990 178,418 13,900 365,651
Granted 196,729 110,344 -
Exercised at $29 3/8 - $37 1/4 - - (153,625)
Paid (45,158) - -
Forfeited (57,008) - (52,229)
Balances, December 31, 1991 272,981 124,244 159,797
Granted 106,516 60,950 -
Exercised at $30 7/8 - $35 3/4 - - (71,814)
Paid/released (65,061) (6,898) -
Forfeited (22,991) (1,000) (2,577)
Balances, December 31, 1992 291,445 177,296 85,406
Granted 89,827 - -
Exercised at $36 1/4 - $40 7/8 - - (35,045)
Paid/released (87,169) (6,903) -
Forfeited (14,044) (4,070) (285)
Balances, December 31, 1993 280,059(1) 166,323(2) 50,076(3)
(1) Payment of performance shares is based on the market price of FPL Group's
common stock when the related performance goal is achieved.
(2) Shares of restricted stock were issued at market value at the date of the
grant.
(3) All outstanding options are exercisable at $30 7/8.
Stock appreciation rights in an equivalent amount have been granted in
conjunction with the options referred to above. No awards of incentive stock
options have been granted as of December 31, 1993.
Other - FPL Group has reserved 17 million shares of common stock for issuance
under the Dividend Reinvestment and Common Share Purchase Plan and Employee
Benefit Plans. At December 31, 1993, 9 million of the shares reserved for
these plans had been issued. Each share of common stock has been granted a
Preferred Share Purchase Right, which is exercisable in the event of certain
attempted business combinations. The Rights will cause substantial dilution
to a person or group attempting to acquire FPL Group on terms not approved by
the FPL Group Board of Directors.
10. Preferred Stock and Long-Term Debt
Preferred Stock (1)(2)
December 31, 1993
Shares Redemption December 31,
Outstanding Price 1993 1992
(Thousands of Dollars)
Preferred stock of FPL without sinking fund requirements:
Cumulative, No Par Value, authorized 10,000,000
shares at December 31, 1993 and December 31, 1992
$2.00 No Par Value, Series A (Involuntary Liquidation
Value $25 Per Share) 5,000,000 $ 27.00 $125,000 $125,000
Cumulative, $100 Par Value, authorized 15,822,500
shares at December 31, 1993 and 17,842,000 shares
at December 31, 1992
4 1/2% Series 100,000 101.00 10,000 10,000
4 1/2% Series A 50,000 101.00 5,000 5,000
4 1/2% Series B 50,000 101.00 5,000 5,000
4 1/2% Series C 62,500 103.00 6,250 6,250
4.32% Series D 50,000 103.50 5,000 5,000
4.35% Series E 50,000 102.00 5,000 5,000
7.28% Series F 600,000 102.93 60,000 60,000
7.40% Series G 400,000 102.53 40,000 40,000
8.70% Series K - - - 75,000
8.84% Series L - - - 50,000
8.50% Series P - - - 35,000
6.98% Series S 750,000 -(3) 75,000 -
7.05% Series T 500,000 -(3) 50,000 -
6.75% Series U 650,000 -(3) 65,000 -
Total preferred stock of FPL without sinking fund requirements 8,262,500 $451,250 $421,250
Preferred stock of FPL with sinking fund requirements(4):
10.08% Series J - - - $ 3,746
8.70% Series M - - - 30,200
11.32% Series O - - - 6,500
6.84% Series Q (5) 485,000 $104.10 $48,500 48,500
8.625% Series R (6) 500,000 108.63 50,000 50,000
Total preferred stock with sinking fund requirements 985,000 98,500 138,946
Less current maturities 15,000 1,500 8,796
Preferred stock with sinking fund requirements,
excluding current maturities 970,000 $ 97,000 $130,150
(1) FPL Group's charter authorizes the issuance of 100 million shares of serial
preferred stock, $.01 par value. None of these shares are outstanding.
(2) FPL's charter authorizes the issuance of 5 million shares of subordinated
preferred stock, no par value. No shares of subordinated preferred stock
are outstanding. In 1993, FPL issued 1,900,000 shares of $100 par value
preferred stock. In 1992, FPL issued 5,000,000 shares of $2.00 No Par
Value, Series A, preferred stock. There were no issuances of preferred
stock in 1991.
(3) Not redeemable prior to 2003.
(4) Minimum annual sinking fund requirements on preferred stock are
approximately $2 million for each of the years 1994 and 1995 and $4 million
for each of the years 1996, 1997 and 1998. In the event that FPL should
be in arrears on its sinking fund obligations, FPL may not pay dividends
on common stock.
(5) Entitled to a sinking fund to retire a minimum of 15,000 shares and a
maximum of 30,000 shares annually from 1994 through 2026 at $100 per
share plus accrued dividends. FPL redeemed and retired 15,000 shares in
1992, satisfying the 1993 minimum annual sinking fund requirement.
(6) Entitled to a sinking fund to retire a minimum of 25,000 shares and a
maximum of 50,000 shares annually from 1996 through 2015 at $100 per
share plus accrued dividends.
Long-Term Debt (1)(2)
December 31,
1993 1992
(Thousands of Dollars)
Florida Power & Light Company
First Mortgage Bonds:
Maturing through 2000 - 4 5/8% to 9 5/8% $ 460,697 $ 500,000
Maturing 2001 through 2015 - 6 5/8% to 9 1/8% 700,000 725,000
Maturing 2016 through 2026 - 7% to 10 1/4% 1,126,223 1,425,000 Medium-Term Notes:
Maturing through 2000 - 4.85% to 9.5% 280,300 30,000
Maturing 2001 through 2015 - 5.79% to 9.4% 155,725 90,000
Maturing 2016 through 2022 - 8% to 9.45% 148,700 193,700
Pollution Control and Industrial Development Series:
Maturing 2008 through 2027 - 6.10% to 11 3/8% 412,565(3) 456,705
Pollution Control, Solid Waste Disposal and Industrial
Development Revenue Bonds:
Maturing 2021 through 2027 - variable, 2.6%
to 3.9% year-end interest rate 200,315 77,625
Installment Purchase and Security Contracts:
Maturing 2004 through 2007 - 5.40% to 6.15% 22,990 89,030
Promissory Notes - 5% due 1993 - 1,750
Unamortized discount - net (44,450) (32,656)
Total long-term debt of FPL 3,463,065 3,556,154
Less current maturities - 151,750
Long-term debt of FPL, excluding current maturities 3,463,065 3,404,404
FPL Group Capital Inc
Debentures:
Maturing 1997 - 6 1/2% 150,000 150,000
Maturing 2013 - 7 5/8% 125,000 -
Maturing 2017 - 8 7/8% and 10 1/8% 150,000 250,000
Bank loans - 3.7% to 4.2% in 1993 and 4.0% to 4.2%
in 1992 due December 1994 125,000 125,000
Other long-term debt - 7.0% to 9.9% due various dates to 2013 16,399 35,288
Unamortized discount (2,302) (1,138)
Total long-term debt of FPL Group Capital 564,097 559,150
Less current maturities 278,179 3,458
Long-term debt of FPL Group Capital,
excluding current maturities 285,918 555,692
Total long-term debt $3,748,983 $3,960,096
(1) Minimum annual maturities and sinking fund requirements of long-term debt
are approximately $278 million for 1994, $82 million for 1995, $101
million for 1996, $151 million for 1997 and $181 million for 1998.
(2) Available lines of credit aggregated approximately $950 million at
December 31, 1993, all of which were based on firm commitments.
(3) Excludes approximately $46 million principal amount of bonds removed from
the balance sheet in December 1993 as a result of an in-substance
defeasance. Such bonds were redeemed in January 1994 with funds
previously placed in an irrevocable trust.
11. Fair Value of Financial Instruments
The following estimates of the fair value of financial instruments have been
made using available market information and other valuation methodologies.
However, the use of different market assumptions or methods of valuation
could result in different estimated fair values.
December 31,
1993 1992
Carrying Estimated Carrying Estimated
Amount Fair Value(1) Amount Fair Value(1)
(Thousands of Dollars)
Utility special use funds $ 378,774 $ 403,841 $ 318,798 $ 331,877
Marketable securities $ 171,988 $ 171,988 $ 75,437 $ 75,437
Other investment securities $ 82,045 $ 82,045 $ 62,952 $ 62,952
Preferred stock with
sinking fund requirements (2) $ 98,500 $ 104,463 $ 138,946 $ 144,148
Long-term debt (2) $ 4,027,162 $ 4,200,802 $4,115,304 $4,285,080
(1) Based on quoted market prices for these or similar issues.
(2) Includes current maturities.
12. Commitments and Contingencies
Capital Commitments - FPL has made certain commitments in connection with its
projected capital expenditures. These expenditures, for the construction or
acquisition of additional facilities and equipment to meet customer demand,
are estimated to be $3.7 billion, including AFUDC, for the years 1994 through
1998.
FPL Group Capital and ESI Energy, Inc. (ESI), have committed to invest $3
million in, and lend approximately $4 million to, partnerships and joint
ventures entered into through ESI, all of which are expected to be funded in
1994. Additionally, FPL Group Capital and its subsidiaries, primarily ESI,
have guaranteed up to approximately $89 million of lease obligations, debt
service payments and other payments subject to certain contingencies.
FPL Group, through a consolidated limited partnership, has entered into
forward commitments at December 31, 1993 to purchase $100 million of
mortgage-backed securities on various dates through February 1994 at
specified prices. The market value of these securities totaled $100 million
at December 31, 1993. Additionally, the partnership had entered into forward
commitments to sell short $87 million of U.S. Treasury Notes on various dates
in January 1994 at specified prices. At December 31, 1993, the market value
of those securities totaled $89 million.
Insurance - Liability for accidents at nuclear power plants is governed by the
Price-Anderson Act, which limits the liability of nuclear reactor owners to
the amount of the insurance available from private sources and under an
industry retrospective payment plan. In accordance with this Act, FPL
maintains $200 million of private liability insurance, which is the maximum
obtainable, and participates in a secondary financial protection system under
which it is subject to retrospective assessments of up to $317 million per
incident at any nuclear utility reactor in the United States, payable at a
rate not to exceed $40 million per incident per year.
FPL participates in insurance pools and other arrangements that provide $2.75
billion of limited insurance coverage for property damage, decontamination
and premature decommissioning risks at its nuclear plants. The proceeds from
such insurance, however, must first be used for reactor stabilization and
site decontamination before they can be used for plant repair. FPL also
participates in an insurance program that provides limited coverage for
replacement power costs if a plant is out of service because of an accident.
In the event of an accident at one of FPL's or another participating
insured's nuclear plant, FPL could be assessed up to $58 million in
retrospective premiums, and in the event of a subsequent accident at such
nuclear plants during the policy period, the maximum assessment is $72
million under the programs in effect at December 31, 1993. This contingent
liability would be partially offset by a portion of FPL's storm and property
insurance reserve (storm fund), which totaled $82 million at that date.
In the event of a catastrophic loss at one of FPL's nuclear plants, the
amount of insurance available may not be adequate to cover property damage
and other expenses incurred. Uninsured losses, to the extent not recovered
through rates, would be borne by FPL and could have a material adverse effect
on FPL Group's and FPL's financial condition.
In 1993, FPL replaced its transmission and distribution (T&D) property
insurance coverage with a self-insurance program due to the high cost and
limited coverage available from third-party insurers. Costs incurred under
the self-insurance program will be charged against FPL's storm fund.
Recovery of any losses in excess of the storm fund from ratepayers will
require the approval of the FPSC. FPL's available lines of credit include
$300 million to provide additional liquidity in the event of a T&D property
loss.
Contracts - FPL has take-or-pay contracts with the Jacksonville Electric
Authority (JEA) for 374 megawatts (mw) through 2023 and with the subsidiaries
of the Southern Company to purchase 1,406 mw of power through May 1994, and
declining amounts thereafter through mid-2010. FPL also has various firm
pay-for-performance contracts to purchase 1,031 mw from certain cogenerators
and small power producers (qualifying facilities) with expiration dates
ranging from 2002 through 2026. These contracts provide for capacity and
energy payments. Capacity payments for the pay-for-performance contracts are
subject to the qualifying facilities meeting certain contract obligations.
Energy payments are based on the actual power taken under these contracts.
The required capacity payments through 1998 under these contracts are
estimated to be as follows:
1994 1995 1996 1997 1998
(In Millions)
JEA. . . . . . . . . . . . . . . . . . $ 80 $ 80 $ 80 $ 80 $ 80
Southern Company . . . . . . . . . . . 200 150 140 140 140
Qualifying Facilities. . . . . . . . . 140 160 310 340 350
FPL's capacity and energy charges under these contracts for 1993, 1992 and
1991 were as follows:
1993 Charges 1992 Charges 1991 Charges
Capacity Energy(3) Capacity Energy(3) Capacity Energy(3)
(In Millions)
JEA. . . . . . . . . . . . . . $ 85(1) $ 51 $ 85(1) $ 48 $ 82(4) $ 53
Southern Company . . . . . . . 268(2) 183 377(2) 283 389(2) 311
Qualifying Facilities. . . . . 60(2) 40 44(2) 40 5(2) 36
(1) Recovered through base rates and the capacity cost recovery clause
(capacity clause).
(2) Recovered through the capacity clause.
(3) Recovered through the fuel and purchased power cost recovery clause.
(4) Recoverable through base rates.
FPL has take-or-pay contracts for the supply and transportation of natural
gas under which it is required to make payments estimated to be $280 million
for 1994, $380 million for 1995 and $390 million for each of the years 1996,
1997 and 1998. Total payments made under these contracts were $270 million,
$269 million and $221 million for 1993, 1992 and 1991, respectively.
Litigation - Union Carbide Corporation sued FPL and Florida Power Corporation
alleging that, through a territorial agreement approved by the FPSC, they
conspired to eliminate competition in violation of federal antitrust laws.
Praxair, Inc., an entity that was formerly a unit of Union Carbide, has been
substituted as the plaintiff. The suit seeks treble damages of an
unspecified amount based on alleged higher prices paid for electricity and
product sales lost. Cross motions for summary judgement were denied. Both
parties are appealing the denials.
A suit brought by the partners in a cogeneration project located in Dade
County, Florida, alleges that FPL Group, FPL and ESI have engaged in
anti-competitive conduct intended to eliminate competition from cogenerators
generally, and from their facility in particular, in violation of federal
antitrust laws and have wrongfully interfered with the cogeneration project's
contractual relationship with Metropolitan Dade County. The suit seeks
damages in excess of $100 million, before trebling under antitrust law, plus
other unspecified compensatory and punitive damages. A motion for summary
judgment by FPL Group, FPL and ESI has been denied.
A former cable installation contractor for Telesat Cablevision, Inc. (an
indirect subsidiary of FPL Group) has sued FPL Group, FPL Group Capital and
Telesat for breach of contract, fraud and violation of racketeering statutes.
The suit seeks compensatory damages in excess of $24 million, treble damages
under racketeering activity statutes, punitive damages and attorneys' fees,
as well as the revocation of Telesat's corporate charter and cable television
franchises.
FPL Group believes that it and its subsidiaries have meritorious defenses to
all of the litigation described above and is vigorously defending these
suits. Accordingly, the liabilities, if any, arising from this litigation
are not anticipated to have a material adverse effect on FPL Group's
financial statements.
13. Quarterly Data (Unaudited)
Condensed consolidated quarterly financial information for 1993 and 1992 is
as follows:
March 31 (1) June 30 (1) September 30 (1) ecember 31 (1)
(In thousands, except per share amounts)
1993
Operating revenues $ 1,132,376 $ 1,349,866 $ 1,602,685 $ 1,231,367
Operating income $ 205,925 $ 235,606 $ 294,853(2) $ 237,574
Net income $ 91,950 $ 110,546 $ 140,522(2) $ 85,731
Earnings per share of common stock $ 0.50 $ 0.60 $ 0.75(2) $ 0.45
Dividends per share of common stock $ 0.61 $ 0.62 $ 0.62 $ 0.62
High-low trading prices $39 5/8 - 36 1/8 $38 5/8 - 36 1/2 $ 41 - 37 5/8 $40 3/8 - 35 1/2
1992
Operating revenues $ 1,093,369 $ 1,261,982 $ 1,569,153 $ 1,268,823
Operating income $ 193,470 $ 237,263 $ 381,816 $ 221,225
Net income $ 74,405 $ 103,491 $ 187,773 $ 101,280
Earnings per share of common stock $ 0.43 $ 0.60 $ 1.05 $ 0.56
Dividends per share of common stock $ 0.60 $ 0.61 $ 0.61 $ 0.61
High-low trading prices $ 37 - 32 7/8 $ 36 - 32 $38 3/8 - 34 7/8 $37 3/8 - 34 1/2
(1) In the opinion of FPL Group, all adjustments, which consist of normal
recurring accruals necessary to present a fair statement of such amounts for
such periods, have been made. Results of operations for an interim period
may not give a true indication of results for the calendar year.
(2) Charge resulting from cost reduction program reduced operating income by
$138 million, net income by $85 million and earnings per share by $0.45.
See Note 4.
INDEPENDENT AUDITORS' REPORT
FPL GROUP, INC.:
We have audited the consolidated balance sheets of FPL Group, Inc. and its
subsidiaries as of December 31, 1993 and 1992 and the related consolidated
statements of income and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of FPL Group, Inc. and its
subsidiaries at December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes 2 and 3 to the consolidated financial statements, FPL
Group, Inc. and its subsidiaries changed their method of accounting for
income taxes and postretirement benefits other than pensions effective
January 1, 1993.
DELOITTE & TOUCHE
Certified Public Accountants
Miami, Florida
February 11, 1994
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.
FPL GROUP CAPITAL INC
(Registrant)
Date: March 21, 1994 PAUL J. EVANSON
Paul J. Evanson
Vice President and Chief Financial Officer
(Principal Financial Officer and Director)