Item 2. Properties
FPL Group and its subsidiaries maintain properties which are adequate for their operations. The electric generating, transmission, distribution and general facilities of FPL represent approximately 49%, 12%, 32% and 7%, respectively, of FPL Group's gross investment in electric utility plant in service.
Generating Facilities. FPL has improved its ability to operate generating units at higher output levels to help meet peak loads. As a result of equipment upgrades and changes in operating procedures, FPL has gained approximately 570 mw of capacity. As of December 31, 1994, FPL had the following generating facilities:
Transmission and Distribution. FPL owns and operates 464 substations with a total capacity of 101,311,970 kva. Electric transmission and distribution lines owned and in service as of December 31, 1994 are as follows:
Character of Ownership. Substantially all of FPL's properties are subject to the lien of its mortgage, which secures debt securities issued by FPL. The principal properties of FPL are held by it in fee and are free from other encumbrances, subject to minor exceptions, none of which is of such a nature as to substantially impair the usefulness to FPL of such properties. Some of the electric lines are located on land not owned in fee but are covered by necessary consents of governmental authorities or rights obtained from owners of private property.
Item 3.
Item 3. Legal Proceedings
In October 1988, Union Carbide Corporation, the corporate predecessor of Praxair, Inc. (Praxair), filed suit against FPL and Florida Power Corporation (Florida Power) in the United States District Court for the Middle District of Florida. Praxair requested that Florida Power sell power to its facility located within FPL's service territory, and that FPL transport (wheel) the power to the facility. Florida Power and FPL denied the request as being inconsistent with Florida law and public policy. The FPSC issued a declaratory statement that FPL's denial of Praxair's request was proper and ordered FPL not to wheel power under such circumstances. The suit alleges that through a territorial agreement, FPL and Florida Power have conspired to
eliminate competition for the sale of electric power to retail customers, thereby unreasonably restraining trade and commerce in violation of federal antitrust laws as contained in Section 1 of the Sherman Antitrust Act (Sherman Act). 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 judgment were denied. Both parties are appealing the denials.
In November 1988, TEC Cogeneration, Inc., its affiliate Thermo Electron Corporation, RRD Corp. and its affiliate Rolls Royce Inc. filed suit in the United States District Court for the Southern District of Florida against FPL Group and its subsidiaries, FPL and ESI, on behalf of South Florida Cogeneration Associates (SFCA), a joint venture which since 1986 has operated a cogeneration facility for Metropolitan Dade County within FPL's service territory in Miami, Florida. The suit alleges that the defendants have engaged in anti- competitive conduct intended to prevent and defeat competition from cogenerators within FPL's service territory, and from SFCA's Metropolitan Dade County facility in particular. It alleges that the defendants' actions constitute monopolization and attempts to monopolize in violation of Section 2 of the Sherman Act; conspiracy in restraint of trade in violation of Section 1 of the Sherman Act; unlawful discrimination in prices, services or facilities in violation of Section 2 of the Clayton Act; and intentional interference with SFCA's contractual relationship with Metropolitan Dade County in violation of Florida law. 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. FPL Group, FPL and ESI are appealing the denial.
In December 1991, the FMPA, an association of municipal electric utilities operating in the state, filed a suit against FPL in the Circuit Court of the Ninth Judicial Circuit in Orange County, Florida. The suit was subsequently removed to the United States District Court for the Middle District of Florida. The FMPA alleges that FPL is in breach of a "contract," consisting of several different documents, by refusing to provide transmission service to the FMPA and its members on the FMPA's terms. The FMPA also alleges that FPL has violated federal and Florida antitrust laws by monopolizing or attempting to monopolize the provision, coordination and transmission of electric power in FPL's area of operation by refusing to provide transmission service or to permit the FMPA to invest in and use FPL's transmission system on the FMPA's terms. The FMPA seeks $140 million in damages, before trebling for the antitrust claim, and asks the court to require FPL: to transmit electric power among the FMPA and its members on "reasonable terms and conditions"; to permit the FMPA to contribute to and use FPL's transmission system on "reasonable terms and conditions"; and to recognize the FMPA transmission investments as part of FPL's transmission system such that the FMPA can obtain transmission on a basis equivalent to FPL or, alternatively, to provide transmission service equivalent to such FMPA transmission ownership. In December 1993, the District Court granted summary judgment in favor of FPL. The FMPA has appealed.
In November 1989, Johnson Enterprises of Jacksonville, Inc. (Johnson Enterprises) filed suit in the United States District Court for the Middle District of Florida against FPL Group, FPL Group Capital and Telesat, a subsidiary of FPL Group Capital. The suit alleged breach of contract, fraud, violation of racketeering statutes and several other claims. Plaintiff claimed more than $24 million in compensatory damages, treble damages under racketeering statutes, punitive damages and attorneys' fees. The trial court entered a judgment in favor of FPL Group and Telesat on nine of twelve counts, including all of the racketeering and fraud claims, and in favor of FPL Group Capital on all counts. It also denied all parties' claims for attorneys' fees. However, the jury in the case awarded the contractor damages totaling approximately $6 million against FPL Group and Telesat for breach of contract and tortious interference. All parties have appealed.
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 these proceedings are not anticipated to have a material adverse effect on FPL Group's financial statements. However, in the event that FPL Group does not prevail in these suits, there may be a material adverse effect on FPL Group's financial position or results of operations.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders None PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Common Stock Data. FPL Group's common stock is traded on the New York Stock Exchange. The high and low sales prices for the common stock of FPL Group as reported in the consolidated transaction reporting system of the New York Stock Exchange for each quarter during the past two years are as follows:
The amount and timing of dividends payable on common stock are within the sole discretion of FPL Group's board of directors. In May 1994, FPL Group's board of directors announced a change in dividend policy which included a revised dividend payout ratio target of approximately 60% of prior year's earnings and changing the date the board reviews the dividend rate from May to February. The ability of FPL Group to pay dividends on its common stock is dependent upon dividends paid to it by its subsidiaries, primarily FPL. Given FPL's current financial condition, there are no restrictions in effect that currently limit FPL's ability to pay dividends to FPL Group. See Management's Discussion - Liquidity and Capital Resources.
Item 6.
Item 6. Selected Financial Data
Certain amounts included in prior years' selected financial data were reclassified to conform to current year's presentation.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
FPL Group's operating results reflect management's continuing focus on controlling costs and on reducing the net investment in assets used in electric utility operations. Increased energy sales, combined with cost control efforts, resulted in increased earnings in 1994 despite higher depreciation expense, as well as costs associated with the consolidation of facilities and inventory reductions. Also, reduced operating expenses reflect the benefits of the 1993 cost reduction program which lowered FPL's work force by approximately 1,700 positions. The charge associated with the cost reduction program, primarily consisting of severance pay and employee retirement benefits, adversely affected net income in 1993. See Note 4.
FPL's retail operations, which represent approximately 97% of FPL Group's operating revenues, are regulated by the Florida Public Service Commission (FPSC). FPL reported a retail regulatory return on equity of 12.3%, 9.8% and 12.4% in 1994, 1993 and 1992, respectively. The return on equity range authorized by the FPSC for these periods was 11% to 13% with a midpoint of 12%.
Operating revenues from energy sales primarily consist of revenues from base rates and cost recovery clauses. Revenues from base rates were $3.2 billion, $3.0 billion and $2.9 billion in 1994, 1993 and 1992, respectively. There were no changes in base rates during those years. Revenues from cost recovery clauses (including fuel) and franchise fees represent a pass-through of costs and do not significantly affect net income. Such revenues declined in each of the years 1994, 1993 and 1992 primarily due to lower fuel costs.
Retail customer growth was 2.1%, 2.1% and 1.7% in 1994, 1993 and 1992, respectively. Customer growth, together with favorable weather conditions and an improving economy, increased energy sales in 1994 and 1993. The benefits of customer growth in 1992 were largely offset by the effects of Hurricane Andrew.
Other operations and maintenance expense in 1994 reflects management's determination to control costs and a full year of lower employee-related expenses resulting from the 1993 cost reduction program. Partially offsetting these reductions were charges associated with facilities consolidation (including capital lease terminations) and inventory reductions, as well as costs relating to the growth in customer base and placement of additional generating units in service. FPL also incurred costs relating to four planned nuclear refueling outages in 1994 compared to two in 1993. Two of the outages occurred in the fourth quarter of 1994 affecting the comparison of quarterly results. Other operations and maintenance expense in 1993 was adversely affected by the cost of supporting an increasing customer base, as well as the implementation of two new accounting standards relating to postretirement and postemployment benefits. The 1993 benefit of the cost reduction program on other operations and maintenance expense was limited as it was implemented late in the year. Other operations and maintenance expense is expected to decline in 1995, despite projected sales growth, primarily due to two fewer nuclear refueling outages, the absence of the facilities consolidation and inventory reduction charges recorded in 1994 and continuing cost control measures.
An increase in depreciation rates for generating units, as well as the accelerated write-off of plant overhaul costs from prior years, consistent with FPSC orders, resulted in higher depreciation expense in 1994. Depreciation expense in all periods reflects higher utility plant balances added to meet customer growth. A proposal by FPL to increase its nuclear decommissioning and fossil fuel plant dismantlement accruals is pending FPSC approval. In addition, FPL requested and the FPSC approved, in February 1995, the amortization of approximately $111 million of deferred litigation items over a period not to exceed five years. These actions, together with continued growth in electric utility plant, will result in higher depreciation expense in future years. See Note 1.
Allowance for funds used during construction (AFUDC) declined in 1994 due to the completion of new generating capacity placed in service in 1994 and 1993. During the past few years, FPL Group has refinanced substantially all of its existing debt with lower interest rate instruments. In addition, efforts continued in 1994 to reduce the overall debt level and replace some higher fixed interest rate debt with currently lower cost variable interest rate debt. These activities led to the decline in interest expense and preferred stock dividend requirements in 1994.
In 1994, FPL Group adopted AICPA Statement of Position (SOP) 93-6, "Employer's Accounting for Employee Stock Ownership Plans." Under the new accounting rules, 10.6 million shares held in trust are not included in the earnings per share computation until allocated to employee accounts over the next 15 years. Additionally, compensation expense is measured at the fair value of shares allocated to employee accounts during the period and interest income on the ESOP loan held by FPL Group Capital, which was presented in other - net in 1993 and 1992, is eliminated in consolidation. The net effect of adopting SOP 93-6 was to reduce net income for 1994 by approximately $21 million and increase earnings per share by $0.05.
Planned dispositions of non-utility properties held for sale had a positive effect on cash flows, and a related reduction in other investments, but no significant effect on earnings. Income was reduced in 1993 by costs associated with the refinancing of high cost debt for the non-regulated subsidiaries. FPL's debt reacquisition costs are amortized over the remaining life of the respective debt securities, consistent with the ratemaking treatment. See Note 1.
Liquidity and Capital Resources
FPL Group's primary capital requirements consist of expenditures to meet increased electricity usage and customer growth of FPL. FPL's capital expenditures for the period 1995 through 1999, including AFUDC, are expected to be approximately $3.0 billion, including $712 million in 1995. See Note 11. FPL's capital expenditure forecast has declined significantly over the past few years as a result of continuing efforts to reduce costs and the completion of its generation expansion plan. No new generating plants are expected to be constructed before the year 2004.
Debt maturities and minimum sinking fund requirements will require cash outflows of approximately $612 million through 1999, including $87 million in 1995. See Notes 7 and 8. It is anticipated that cash requirements for construction expenditures and debt repayments in 1995 will be financed from internally generated funds. FPL Group expects no new long-term external financings in 1995; however, refinancing of existing debt or preferred stock with lower interest rate instruments, which could include variable interest rate debt, may occur based on market conditions. Excess internally generated funds may be used to reduce outstanding debt, preferred stock or common stock. Any temporary cash shortages will be met by the issuance of commercial paper. Bank lines of credit currently available to FPL Group and its subsidiaries aggregate $985 million.
FPL self-insures for damage to certain transmission and distribution properties and maintains a funded reserve to guard against storm losses. Bank lines of credit of $300 million, included in the $985 million above, are available if needed to provide cash for restoration costs. The FPSC has indicated that it would consider future storm losses in excess of the funded reserve for possible recovery from ratepayers.
In 1994, FPL Group liquidated its participation in a consolidated limited partnership, contributing to the reduction in marketable securities and other current liabilities. FPL Group Capital and its subsidiaries, primarily ESI, have guaranteed up to approximately $105 million of lease obligations, debt service payments and other payments subject to certain contingencies.
In 1993 and 1992, FPL Group's dividend payout ratio was 90% or greater. In its annual review of dividends in May 1994, the board of directors met with outside advisors and management on this issue which resulted in the adoption of a new financial policy. The key elements of this policy include a revised dividend payout ratio target of approximately 60% of prior year's earnings and acceleration of the dividend review to February of each year. In addition, the board of directors authorized the repurchase of up to 10 million shares of common stock through 1997, 4 million of which were repurchased through December 31, 1994.
FPL Group's charter does not limit the dividends that may be paid on its common stock; however, FPL's charter and mortgage contain provisions which, 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. At December 31, 1994, limits under FPL's charter and mortgage would allow the issuance of approximately $1.4 billion of additional unsecured debt and $5.7 billion of additional first mortgage bonds, respectively. The amount of additional first mortgage bonds that are permitted to be issued will increase as the amount of unfunded property additions increases. FPL's charter also prohibits the issuance of preferred stock unless the preferred stock coverage ratio, as prescribed, is at least 1.5; for the twelve months ended December 31, 1994 it was 2.6.
Item 8.
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
FPL GROUP, INC.:
We have audited the consolidated financial statements of FPL Group, Inc. and its subsidiaries, listed in the accompanying index as Item 14(a)1 of this Annual Report (Form 10-K) to the Securities and Exchange Commission for the year ended December 31, 1994. 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, 1994 and 1993 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP Certified Public Accountants
Miami, Florida February 10, 1995
FPL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
FPL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands of dollars)
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)
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, 1994, 1993 and 1992
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." SFAS 71 indicates that regulators can create assets and impose liabilities that would not be recorded by non-regulated entities. Recoverability of these assets is judged the same as for enterprises in general. The principal assets recorded under SFAS 71 are unamortized debt reacquisition costs and deferred litigation items, aggregating $403 million at December 31, 1994, which are presented in the other assets section of the consolidated balance sheets. The principal SFAS 71-related liabilities are deferred regulatory credit - income taxes, unamortized investment tax credits and the storm and property insurance reserve, aggregating $595 million at December 31, 1994, which are presented in the other liabilities and deferred credits section of the consolidated balance sheets. Other accounting practices followed by regulated electric utilities that differ from non-regulated entities are outlined below, including deferral of clause under or over recoveries, nuclear decommissioning and allowance for funds used during construction.
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 customer receivables and amounted to approximately $117 million and $112 million at December 31, 1994 and 1993, 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 other operations and maintenance expense. At December 31, 1994, the generating, transmission, distribution and general facilities of FPL represented approximately 49%, 12%, 32% and 7%, respectively, of FPL Group's gross investment in electric utility plant in service. Substantially all electric utility plant is subject to the lien of a mortgage, securing FPL's first mortgage bonds.
Depreciation of utility property is primarily provided on a straight-line average remaining life basis and includes a provision for dismantlement. For substantially all utility property, depreciation and fossil fuel plant dismantlement studies are performed at least every four years. The most recent depreciation studies were filed with the FPSC and approved in 1994; approval of fossil fuel plant dismantlement studies also filed in 1994 is pending. The weighted annual composite depreciation rate was approximately 4.0%, 3.9% and 3.5% for the years 1994, 1993 and 1992, respectively. Excluded from the composite rate for 1994 is the accelerated write-off of certain accumulated plant overhaul costs.
Nuclear fuel costs, including a charge for spent nuclear fuel disposal, is accrued in fuel expense on a unit of production method.
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 8.26% in 1994, 8.67% from January 1993 through June 1993, 8.26% from July 1993 through December 1993 and 8.61% in 1992. FPL allocates total AFUDC between borrowed funds and other funds. The portion of AFUDC attributable to short- and long-term borrowed funds amounted to $10 million, $31 million and $27 million for the years ended December 31, 1994, 1993 and 1992, 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 and are submitted to the FPSC for approval. The most recent studies were filed in December 1994 and are pending approval. These studies assume prompt dismantlement for the Turkey Point nuclear units commencing in the year 2013 and for St. Lucie Unit No. 2 commencing in
2023. St. Lucie Unit No. 1 will be mothballed in 2016 until St. Lucie Unit No. 2 is ready for dismantlement. Decommissioning expense accruals, included in depreciation and amortization expense in the consolidated statements of income, were $38 million for each of the years 1994, 1993 and 1992, and are projected to be $46 million for 1995 and future years. FPL's portion of the ultimate cost of decommissioning its four units, including dismantlement and reclamation, expressed in 1994 dollars, is currently estimated to aggregate $1.1 billion. At December 31, 1994 and 1993, the accumulated provision for nuclear decommissioning totaled $507 million and $445 million, respectively, and is included in accumulated depreciation.
Amounts equal to decommissioning expense are deposited in funds which may be used only for the payment of the cost of decommissioning FPL's nuclear units. Included in special use funds of FPL in the consolidated balance sheets were $373 million and $325 million of decommissioning funds at December 31, 1994 and 1993, respectively. Securities held in the decommissioning funds primarily consist of tax-exempt obligations with a weighted-average maturity of 10 years and, in 1994, are carried at market value. Any market value adjustment results in a corresponding adjustment to the accumulated provision for nuclear decommissioning. See Note 9. Fund earnings, net of taxes, are reinvested in the funds. Both fund earnings and the reinvestment of the earnings are included in other - net, resulting in no net impact on FPL Group's earnings. The related income tax effects are included in accumulated deferred income taxes.
In 1994, the Financial Accounting Standards Board (FASB) added a project to its agenda to review current accounting practices for nuclear decommissioning. The objective of the project is to determine if and when a liability for nuclear decommissioning should be recognized, how the liability should be measured and whether a corresponding asset is created. FPL is unable to predict the outcome of this project; however, these deliberations could result in a significant change to FPL Group's balance sheet. Some or all of the accumulated provision for nuclear decommissioning could be reclassified out of accumulated depreciation and presented as a liability. Additionally, the amount of the liability could be increased to the total estimated decommissioning cost stated in current dollars, or the present value of projected future dollars, with an offset to a property or other account. FPL Group expects no significant adverse effect on results of operations from potential changes currently being considered by the FASB.
Storm and Property Insurance Reserve Fund - A storm and property insurance reserve fund (storm 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. Securities held in the fund are carried at market value in 1994 and are included in special use funds of FPL in the consolidated balance sheets. The related income tax effects are included in accumulated deferred income taxes. These securities primarily consist of tax-exempt obligations with a weighted-average maturity of 7 years. Any market value adjustment results in a corresponding adjustment to the storm and property insurance reserve. See Note 9. Included in special use funds in the consolidated balance sheets were $62 million and $54 million of storm funds at December 31, 1994 and 1993, respectively.
Other Investments - Included in other investments are FPL Group's non-majority owned interests in partnerships and joint ventures, essentially all of which are accounted for under the equity method. Additionally, other investments include FPL Group's participation in leveraged leases of $158 million and $155 million at December 31, 1994 and 1993, respectively.
Marketable Securities - In 1993, marketable securities and a related liability for securities sold short were held by a consolidated limited partnership and accounted for at market value. Earnings on the investments are included in other - net in the consolidated statements of income. The partnership was liquidated during 1994.
Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less.
Commercial Paper - The year end weighted-average interest rate on commercial paper at December 31, 1994 and 1993 was 5.9% and 3.4%, respectively. The average annual rate for 1994 and 1993 was 4.4% and 3.2%, respectively. In 1994, $200 million of commercial paper was classified as long-term debt as FPL expects to maintain this level of commercial paper usage for the foreseeable future.
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 primarily consist of deferred costs associated with the replacement of steam generators at the Turkey Point nuclear units. In 1986, the FPSC approved recovery of these costs over five years commencing with FPL's next general rate proceeding. In February 1995, the FPSC approved FPL's request to amortize these costs over a period of no more than five years, commencing in 1995.
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 in accordance with the regulatory treatment.
2. Income Taxes
The components of income taxes are as follows:
A reconciliation between income tax expense and the income tax expense calculated at the applicable statutory rates is as follows:
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. At FPL, the principal effect of adopting SFAS 109 was the establishment of a new account, deferred regulatory credit - income taxes. This amount, which represents the revenue equivalent of the difference in accumulated deferred income taxes computed under SFAS 109 as compared to prior accounting rules, 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 valuation allowance in 1994 and 1993 offsets a related amount of deferred tax assets recorded pursuant to SFAS 109. The primary component of the valuation allowance relates to capital loss carryforwards from the disposition of a subsidiary in a prior year. The amount of the deductible loss from this disposition was limited by Internal Revenue Service rules which are being challenged by FPL Group. FPL Group is unable to predict the outcome of this challenge.
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.
For 1994, 1993 and 1992 the components of pension cost, net of amounts capitalized, are as follows:
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,
1994 and 1993, the unamortized balance of this regulatory adjustment included in other liabilities was approximately $12 million and $16 million, respectively.
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 minimum funding standards of the Employee Retirement Income Security Act of 1974, as amended, and is not greater than the maximum tax deductible amount for the year. No contributions to the plan were required for 1994, 1993 or 1992.
A reconciliation of the funded status of the plan to the amounts recognized in the consolidated balance sheets is presented below:
The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.75% and 7.0% for 1994 and 1993, respectively. The assumed rate of increase in future compensation levels was 5.5% for both years. The expected long-term rate of return on plan assets used in determining pension cost was 7.75% for 1994 and 1993 and 7.0% for 1992.
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.
In 1993, FPL Group adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." For 1994 and 1993, the components of net periodic postretirement benefit cost, net of amounts capitalized, are as follows:
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) for 1994 is 9.0% for retirees under age 65 and 8.0% for retirees over age 65. These rates are assumed to decrease gradually to 5.0% by the year 2003, 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, 1994 by $7 million, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost of the plan for 1994 by approximately $1 million.
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.75% and 7.0% for 1994 and 1993, respectively. The expected long-term rate of return on plan assets used in determining postretirement benefit cost was 7.75% for 1994 and 1993.
4. Cost Reduction Program Charge
In 1993, FPL implemented a cost reduction program which resulted in a $138 million ($85 million after-tax) charge, primarily consisting of severance payments and employee retirement benefits. The impact on pension cost and postretirement benefits was approximately $34 million and $29 million, respectively, and was included as part of the total charge of $138 million. See Note 3. A total of 1,700 positions throughout FPL were eliminated.
5. 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 approximately 66% undivided interest in Scherer Unit No. 4. FPL expects to purchase an additional 11% undivided ownership interest in Scherer Unit No. 4 in 1995. At December 31, 1994, FPL's investment in St. Lucie Unit No. 2 was $719 million, net of accumulated depreciation of $448 million; the investment in the SJRPP units and coal terminal was $209 million, net of accumulated depreciation of $121 million; the investment in Scherer Unit No. 4 was $384 million, net of accumulated depreciation of $85 million.
FPL is responsible for its share of the operating costs, as well as providing its own financing. At December 31, 1994, there was no significant balance of construction work in progress on these facilities.
6. Common Shareholders' Equity
The changes in common shareholders' equity accounts are as follows:
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 a mortgage securing FPL's first mortgage bonds 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 include a leveraged Employee Stock Ownership Plan (ESOP) 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 funds from FPL Group Capital, at an interest rate of 9.69% to purchase 12.4 million shares and is repaying the loan with dividends received on all shares along with cash contributions from the employers. Dividends on shares allocated to employee accounts and used by the Trust for debt service are replaced with an equivalent amount of shares of common stock at prevailing market prices. Dividends paid aggregated approximately $23 million in 1994 and $30 million in 1993 and 1992.
In 1994, FPL Group adopted American Institute of Certified Public Accountants Statement of Position (SOP) 93-6, "Employer's Accounting for Employee Stock Ownership Plans." Under the new accounting rules, unallocated shares held by the Trust were removed from the earnings per share computation until allocated to employee accounts over the next 15 years. Additionally, compensation expense totaling approximately $18 million is now measured at the fair value of shares allocated to employee accounts during the period and interest income on the ESOP loan held by FPL Group Capital is eliminated in consolidation. The net effect of adopting SOP 93-6 was to reduce net income for 1994 by approximately $21 million and increase earnings per share by $0.05.
ESOP-related unearned compensation included as a reduction of shareholders' equity at December 31, 1994 was approximately $300 million, representing 10.4 million unallocated shares at the original issue price of $29 per share. The fair value of the unearned compensation account using the closing price of FPL Group stock as reported on the Composite Tape for New York Stock Exchange listed companies as of December 31, 1994 was approximately $364 million.
Long-Term Incentive Plan - In 1994, FPL Group's board of directors and its shareholders approved a new long-term incentive plan which replaced the prior long-term incentive plan. Under the new plan, 9 million shares of common stock are reserved and available for awards to officers and employees of FPL Group and its subsidiaries. No further awards will be made under the prior plan. 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:
In conjunction with the options referred to above, stock appreciation rights have been granted in an equivalent amount. No awards of incentive stock options had been granted as of December 31, 1994.
Other - FPL Group has 19 million shares of common stock reserved for issuance under the Dividend Reinvestment and Common Share Purchase Plan and Employee Benefit Plans at December 31, 1994.
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 FPL Group's board of directors.
7. Preferred Stock (1)(2)
Preferred stock consists of the following:
9. 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.
FPL's capacity and energy charges under these contracts were as follows:
Natural gas payments, which were recovered through the fuel clause, were $232 million, $270 million and $269 million for 1994, 1993 and 1992, 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 for product sales lost. Cross motions for summary judgment 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 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 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 laws, plus other unspecified compensatory and punitive damages. A motion for summary judgment by FPL Group, FPL and ESI was denied. FPL Group, FPL and ESI are appealing the denial.
The Florida Municipal Power Agency (FMPA), an organization comprised of municipal electric utilities, has sued FPL for allegedly breaching a "contract" to provide transmission service to the FMPA and its members and for breaching antitrust laws by monopolizing or attempting to monopolize the provision, coordination and transmission of electric power in refusing to provide transmission service, or to permit the FMPA to invest in and use FPL's transmission system, on the FMPA's proposed terms. The FMPA seeks $140 million in damages, before trebling for the antitrust claim, and court orders requiring FPL to permit the FMPA to invest in and use FPL's transmission system on "reasonable terms and conditions" and on a basis equal to FPL. In December 1993, a district court granted summary judgement in favor of FPL. The FMPA has appealed.
A former cable installation contractor for Telesat Cablevision, Inc. (Telesat) sued FPL Group, FPL Group Capital and Telesat for breach of contract, fraud, violation of racketeering statutes and several other claims. The trial court entered a judgment in favor of FPL Group and Telesat on nine of twelve counts, including all of the racketeering and fraud claims, and in favor of FPL Group Capital on all counts. It also denied all parties' claims for attorney's fees. However, the jury in the case awarded the contractor damages totaling approximately $6 million against FPL Group and Telesat for breach of contract and tortious interference. All parties have appealed.
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 these proceedings are not anticipated to have a material adverse effect on FPL Group's financial statements.
12. Summarized Financial Information (Unaudited)
Summarized financial information of FPL Group Capital, a consolidated wholly-owned subsidiary whose debentures are guaranteed by FPL Group, is provided below:
13. Quarterly Data (Unaudited)
Condensed consolidated quarterly financial information for 1994 and 1993 is as follows:
14. Subsequent Event (Unaudited)
In March 1995, FPL issued notices to call 400,000 shares of its 8.625% Preferred Stock, Series R and $66.2 million principal amount of First Mortgage Bonds, 9 3/8% Series due July 1, 2019.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item will be included in FPL Group's Definitive Proxy Statement which will be filed with the SEC in connection with the 1995 Annual Meeting of Shareholders (FPL Group's Proxy Statement) and is incorporated herein by reference, or is included in Part I under Executive Officers of the Registrant.
Item 11.
Item 11. Executive Compensation
The information required by this Item will be included in FPL Group's Proxy Statement and is incorporated herein by reference, provided that the Compensation Committee Report and Performance Graphs which are contained in FPL Group's Proxy Statement shall not be deemed to be incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item will be included in FPL Group's Proxy Statement and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this Item will be included in FPL Group's Proxy Statement and is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements Page(s)
Independent Auditors' Report 14 Consolidated Statements of Income 15 Consolidated Balance Sheets 16 Consolidated Statements of Cash Flows 17 Notes to Consolidated Financial Statements 18-30
2. Financial Statement Schedules
Schedules are omitted as not applicable or not required.
3. Exhibits including those Incorporated by Reference
Exhibit Number Description
*3(i) Restated Articles of Incorporation of FPL Group dated December 31, 1984, as amended through December 17, 1990 (filed as Exhibit 4(a) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*3(ii) Bylaws of FPL Group dated November 15, 1993 (filed as Exhibit 3(ii) to Form 10-K for the year ended December 31, 1993, File No. 1-8841)
*4(a) Rights Agreement, dated as of June 16, 1986, between FPL Group, Inc. and the First National Bank of Boston (filed as Exhibit 4(e) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*4(b) Mortgage and Deed of Trust dated as of January 1, 1944, and Ninety-five Supplements thereto between FPL and Bankers Trust Company and The Florida National Bank of Jacksonville (now First Union National Bank of Florida), Trustees (as of September 2, 1992, the sole trustee is Bankers Trust Company) (filed as Exhibit B-3, File No. 2-4845; Exhibit 7(a), File No. 2-7126; Exhibit 7(a), File No. 2-7523; Exhibit 7(a), File No. 2-7990; Exhibit 7(a), File No. 2-9217; Exhibit 4(a)-5, File No. 2-10093; Exhibit 4(c), File No. 2-11491; Exhibit 4(b)-1, File No. 2-12900; Exhibit 4(b)-1, File No. 2-13255; Exhibit 4(b)-1, File No. 2-13705; Exhibit 4(b)-1, File No. 2-13925; Exhibit 4(b)-1, File No. 2-15088; Exhibit 4(b)-1, File No. 2-15677; Exhibit 4(b)-1, File No. 2-20501; Exhibit 4(b)-1, File No. 2-22104; Exhibit 2(c), File No. 2-23142; Exhibit 2(c), File No. 2-24195; Exhibit 4(b)-1, File No. 2-25677; Exhibit 2(c), File No.
2-27612; Exhibit 2(c), File No. 2-29001; Exhibit 2(c), File No. 2-30542; Exhibit 2(c), File No. 2-33038; Exhibit 2(c), File No. 2-37679; Exhibit 2(c), File No. 2-39006; Exhibit 2(c), File No. 2-41312; Exhibit 2(c), File No. 2-44234; Exhibit 2(c), File No. 2-46502; Exhibit 2(c), File No. 2-48679; Exhibit 2(c), File No. 2-49726; Exhibit 2(c), File No. 2-50712; Exhibit 2(c), File No. 2-52826; Exhibit 2(c), File No. 2-53272; Exhibit 2(c), File No. 2-54242; Exhibit 2(c), File No. 2-56228; Exhibits 2(c) and 2(d), File No. 2-60413; Exhibits 2(c) and 2(d), File No. 2-65701; Exhibit 2(c), File No. 2-66524; Exhibit 2(c), File No. 2-67239; Exhibit 4(c), File No. 2-69716; Exhibit 4(c), File No. 2-70767; Exhibit 4(b), File No. 2-71542; Exhibit 4(b), File No. 2-73799; Exhibits 4(c), 4(d) and 4(e), File No. 2-75762; Exhibit 4(c), File No. 2-77629; Exhibit 4(c), File No. 2-79557; Exhibit 99(a) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669; Exhibit 99(a) to Post-Effective Amendment No. 1 to Form S-3, File No. 33-46076); Exhibit 4(b) to Form 10-K for the year ended December 31, 1993, File No. 1-3545; and Exhibit 4(i) to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3545)
*10(a) Supplemental Executive Retirement Plan, as amended and restated (filed as Exhibit 99(b) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(b) Benefit Restoration Plan of FPL Group and affiliates, as amended and restated (filed as Exhibit 99(c) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(c) FPL Group Amended and Restated Supplemental Executive Retirement Plan for J. L. Broadhead (filed as Exhibit 99(d) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(d) Employment Agreement between FPL Group and D. P. Coyle dated June 12, 1989 (filed as Exhibit 99(e) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(e) Employment Agreement between FPL and Stephen E. Frank dated July 31, 1990 (filed as Exhibit 99(f) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(f) Employment Agreement between FPL and Jerome H. Goldberg dated August 9, 1989 (filed as Exhibit 99(g) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(g) FPL Group Long-Term Incentive Plan of 1985, as amended (filed as Exhibit 99(h) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(h) Director and Executive Compensation Deferral Plan of FPL, as amended (filed as Exhibit 99(i) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(i) Employment Agreement between FPL Group and James L. Broadhead dated February 13, 1989 (filed as Exhibit 99(j) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(j) Employment Agreement between FPL Group and James L. Broadhead dated as of December 13, 1993 (filed as Exhibit 10(j) to Form 10-K for the year ended December 31, 1993, File No. 1-8841)
*10(k) Annual Incentive Plan dated as of March 31, 1994 (filed as Exhibit 10(k) to Form 10-Q for the quarter ended March 31, 1994, File No. 1-8841)
*10(l) Long-Term Incentive Plan 1994 (filed as Exhibit 4(d) to Form S-8, File No. 33-57673)
*10(m) Employment Agreement between FPL and Jerome H. Goldberg dated July 25, 1994 (filed as Exhibit 10(m) to Form 10-Q for the quarter ended June 30, 1994, File No. 1-8841)
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
* Incorporated herein by reference
(b) Reports on Form 8-K None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, Inc.
JAMES L. BROADHEAD James L. Broadhead Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer and Director)
Date: March 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.