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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Exact name of Registrants as specified in
Commission their charters, address of principal executive IRS Employer Iden-
File Number offices and Registrants' telephone number tification Number
1-8841 FPL GROUP, INC. 59-2449419
1-3545 FLORIDA POWER & LIGHT COMPANY 59-0247775
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 694-4000
State or other jurisdiction of incorporation or organization: Florida
Securities registered pursuant to Section 12(b) of the Act: Name of exchange on which registered
FPL Group, Inc.:
Common Stock, $.01 Par Value and Preferred Share Purchase Rights New York Stock Exchange
Florida Power & Light Company:
$2.00 No Par Preferred Stock, Series A New York Stock Exchange
8.75% Quarterly Income Debt Securities (Subordinated Deferrable New York Stock Exchange
Interest Debentures)
Securities registered pursuant to Section 12(g) of the Act:
FPL Group, Inc.: None
Florida Power & Light Company: Preferred Stock, $100 Par Value
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) have been
subject to such filing requirements for the past 90 days. Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants' knowledge in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock of FPL Group, Inc. held by
non-affiliates as of February 28, 1997 (based on the closing market
price on the Composite Tape on February 28, 1997) was $8,172,154,254
(determined by subtracting from the number of shares outstanding on
that date the number of shares held by directors and officers of FPL
Group, Inc.).
There was no voting stock of Florida Power & Light Company held by
non-affiliates as of February 28, 1997.
The number of shares outstanding of each class of FPL Group, Inc.
common stock, as of the latest practicable date: Common Stock, $.01
Par Value, outstanding at February 28, 1997: 182,443,635 shares
As of February 28, 1997, there were issued and outstanding 1,000
shares of Florida Power & Light Company's common stock, without par
value, all of which were held, beneficially and of record, by FPL
Group, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of FPL Group, Inc.'s Definitive Proxy Statement for the 1997
Annual Meeting of Shareholders are incorporated by reference in Part
III hereof.
______________________________
This combined Form 10-K represents separate filings by FPL Group,
Inc. and Florida Power & Light Company. Information contained herein
relating to an individual registrant is filed by that registrant on
its own behalf. Florida Power & Light Company makes no
representations as to the information relating to FPL Group, Inc.'s
other operations.
DEFINITIONS
Acronyms and defined terms used in the text include the following:
Term Meaning
AFUDC Allowance for funds used during construction
capacity clause Capacity cost recovery clause
charter Restated Articles of Incorporation, as amended, of FPL Group or FPL, as
the case may be
conservation clause Energy conservation cost recovery clause
DOE United States Department of Energy
EMF Electric and magnetic fields
environmental clause Environmental compliance cost recovery clause
ESI ESI Energy, Inc.
EWG Exempt wholesale generator
FDEP Florida Department of Environmental Protection
FERC Federal Energy Regulatory Commission
FGT Florida Gas Transmission Company
FMPA Florida Municipal Power Agency
FPL Florida Power & Light Company
FPL Group FPL Group, Inc.
FPL Group Capital FPL Group Capital Inc
FPL Group International FPL Group International, Inc.
FPSC Florida Public Service Commission
fuel clause Fuel and purchased power cost recovery clause
Holding Company Act Public Utility Holding Company Act of 1935, as amended
IBEW International Brotherhood of Electrical Workers
JEA Jacksonville Electric Authority
kv Kilovolt
kva Kilovolt-ampere
kwh Kilowatt-hour
Management's Discussion Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
mortgage FPL's Mortgage and Deed of Trust dated as of January 1, 1944, as
supplemented and amended
mw Megawatt(s)
Note Note to Consolidated Financial Statements
NRC United States Nuclear Regulatory Commission
Nuclear Waste Policy Act Nuclear Waste Policy Act of 1982
O&M expenses Other operations and maintenance expenses in the Consolidated
Statements of Income
PURPA Public Utility Regulatory Policies Act of 1978, as amended
qualifying facilities Non-utility power production facilities meeting the requirements of a
qualifying facility under the PURPA
ROE Return on common equity
SJRPP St. Johns River Power Park
Turner Turner Foods Corporation
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
In connection with the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 (Reform Act), FPL Group and
FPL (collectively, Company) are hereby filing cautionary statements
identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward-looking
statements (as such term is defined in the Reform Act) of the Company
made by or on behalf of the Company which are made in this combined
Form 10-K, in presentations, in response to questions or otherwise.
Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future
events or performance (often, but not always, through the use of
words or phrases such as will likely result, are expected to, will
continue, is anticipated, estimated, projection, outlook) are not
statements of historical facts and may be forward-looking.
Forward-looking statements involve estimates, assumptions, and
uncertainties that could cause actual results to differ materially
from those expressed in the forward-looking statements. Accordingly,
any such statements are qualified in their entirety by reference to,
and are accompanied by, the following important factors that could
cause the Company's actual results to differ materially from those
contained in forward-looking statements of the Company made by or on
behalf of the Company.
Any forward-looking statement speaks only as of the date on which
such statement is made, and the Company undertakes no obligation to
update any forward-looking statement or statements to reflect events
or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New factors emerge
from time to time and it is not possible for management to predict
all of such factors, nor can it assess the impact of each such factor
on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking
statements include prevailing governmental policies and regulatory
actions, including those of the FERC, the FPSC and the NRC, with
respect to allowed rates of return, industry and rate structure,
operation of nuclear power facilities, acquisition and disposal of
assets and facilities, operation and construction of plant
facilities, recovery of purchased power, decommissioning costs, and
present or prospective wholesale and retail competition (including
but not limited to retail wheeling and transmission costs).
The business and profitability of the Company are also influenced by
economic and geographic factors including political and economic
risks, changes in and compliance with environmental and safety laws
and policies, weather conditions (including natural disasters such as
hurricanes), population growth rates and demographic patterns,
competition for retail and wholesale customers, pricing and
transportation of commodities, market demand for energy from plants
or facilities, changes in tax rates or policies or in rates of
inflation, unanticipated development project delays or changes in
project costs, unanticipated changes in operating expenses and
capital expenditures, capital market conditions, competition for new
energy development opportunities, and legal and administrative
proceedings (whether civil, such as environmental, or criminal) and
settlements.
All such factors are difficult to predict, contain uncertainties
which may materially affect actual results, and are beyond the
control of the Company.
PART I
Item 1. Business
FPL GROUP
FPL Group is a public utility holding company, as defined in the
Holding Company Act. It was incorporated in 1984 under the laws of
Florida. FPL Group's principal subsidiary, FPL, is engaged in the
generation, transmission, distribution and sale of electric energy.
Other operations are conducted through FPL Group Capital and its
subsidiaries and mainly consist of investments in non-utility energy
projects and agricultural operations. FPL Group and its subsidiaries
employ 10,250 persons.
FPL Group is exempt from substantially all of the provisions of the
Holding Company Act on the basis that FPL Group's and FPL's
businesses are predominantly intrastate in character and carried on
substantially in a single state in which both are incorporated.
FPL OPERATIONS
General. FPL was incorporated under the laws of Florida in 1925 and
is a wholly-owned subsidiary of FPL Group. FPL supplies electric
service throughout most of the east and lower west coasts of Florida.
This service territory contains 27,650 square miles with a population
of approximately 7 million. During 1996, FPL served 3.6 million
customer accounts. Operating revenues were as follows:
Years Ended December 31,
1996 1995 1994
(Millions of Dollars)
Residential .......................... $3,324 $3,097 $2,920
Commercial ........................... 2,116 1,953 1,854
Industrial ........................... 203 195 189
Other, including unbilled revenues ... 343 285 380
$5,986 $5,530 $5,343
Regulation. The retail operations of FPL provided approximately 99%
of FPL's operating revenues for 1996. Such operations are regulated
by the FPSC which has jurisdiction over retail rates, service
territory, issuances of securities, planning, siting and construction
of facilities and other matters. FPL is also subject to regulation
by the FERC in various respects, including the acquisition and
disposition of facilities, interchange and transmission services and
wholesale purchases and sales of electric energy.
FPL's nuclear power plants are subject to the jurisdiction of the
NRC. NRC regulations govern the granting of licenses for the
construction and operation of nuclear power plants and subject such
power plants to continuing review and regulation.
Federal, state and local environmental laws and regulations cover air
and water quality, land use, power plant and transmission line
siting, EMF from power lines and substations, noise and aesthetics,
solid waste and other environmental matters. Compliance with these
laws and regulations increases the cost of electric service by
requiring, among other things, changes in the design and operation of
existing facilities and changes or delays in the location, design,
construction and operation of new facilities. FPL estimates that
capital expenditures required to comply with environmental laws and
regulations for 1997 through 1999 will not be material. These
expenditures are included in FPL's projected capital expenditures set
forth in Item 1. Business - FPL Operations - Capital Expenditures.
FPL holds franchises with varying expiration dates to provide
electric service in various municipalities and counties in Florida.
FPL considers its franchises to be adequate for the conduct of its
business.
Retail Ratemaking. The underlying concept of utility ratemaking is
to set rates at a level that allows the utility to collect from
customers total revenues (revenue requirements) equal to its cost of
providing service, including a reasonable rate of return on invested
capital. To accomplish this, the FPSC uses various ratemaking
mechanisms.
The basic costs of providing electric service, other than fuel and
certain other costs, are recovered through base rates, which are
designed to recover the costs of constructing, operating and
maintaining the utility system. These basic costs include O&M
expenses, depreciation and taxes, as well as a return on FPL's
investment in assets used and useful in providing electric service
(rate base). The rate of return on rate base approximates FPL's
weighted cost of capital, which includes its costs for debt and
preferred stock and an allowed ROE. FPL's currently authorized ROE
range is 11% to 13% with a midpoint of 12%. The FPSC monitors FPL's
ROE through a surveillance report that is filed monthly by FPL with
the FPSC. The FPSC does not provide assurance that the allowed ROE
will be achieved. Base rates are determined in rate proceedings
which occur at irregular intervals at the initiative of FPL, the FPSC
or a substantially affected party. FPL's last base rate proceeding
was in 1984. In 1990, FPL's base rates were reduced following a
change in federal income tax rates.
Fuel costs totaled $1.7 billion in 1996 and are recovered through
levelized charges per kwh established pursuant to the fuel clause.
These charges are calculated semi-annually based on estimated costs
of fuel and estimated customer usage for the ensuing six-month
period, plus or minus a true-up adjustment to reflect the variance of
actual costs and usage from the estimates used in setting the fuel
adjustment charges for prior periods.
Capacity payments to other utilities and generating companies for
purchased power are recovered through the capacity clause and base
rates. In 1996, $404 million was recovered through the capacity
clause. Costs associated with implementing energy conservation
programs totaled $107 million in 1996 and are recovered through the
conservation clause. Costs of complying with federal, state and
local environmental regulations enacted after April 1993 totaled $13
million in 1996 and are recovered through the environmental clause to
the extent not included in base rates.
The FPSC has the authority to disallow recovery of costs that it
considers excessive or imprudently incurred. Such costs may include
O&M expenses, the cost of replacing power lost when fossil and
nuclear units are unavailable and costs associated with the
construction or acquisition of new facilities.
Competition. The electric utility industry is facing increasing
competitive pressure. FPL currently faces competition from other
suppliers of electrical energy to wholesale customers and from
alternative energy sources and self-generation for other customer
groups, primarily industrial customers. In 1996, operating revenues
from wholesale and industrial customers combined represent
approximately 5% of FPL's total operating revenues. Various states,
other than Florida, have either enacted legislation or are pursuing
initiatives designed to deregulate the production and sale of
electricity. By allowing customers to choose their electricity
supplier, deregulation is expected to result in a shift from
cost-based rates to market-based rates for energy production.
Similar initiatives are also being pursued on the federal level.
Although the legislation and initiatives vary substantially, common
areas of focus include when market-based pricing will be available
for wholesale and retail customers, what existing prudently incurred
costs in excess of the market-based price will be recoverable and
whether generation assets should be separated from transmission,
distribution and other assets. In the event the basis of regulation
for some or all of FPL's business changes from cost-based regulation,
existing regulatory assets and liabilities would be written off
unless regulators specify an alternative means of recovery or refund.
Further, other aspects of the business, such as generation assets and
long-term power purchase commitments, would need to be reviewed to
assess their recoverability in a changed regulatory environment. See
Management's Discussion - Results of Operations and
Note 1 - Regulation.
While legislators and state regulatory commissions will decide what
impact, if any, competitive forces will have on retail transactions,
the FERC has jurisdiction over potential changes which could affect
competition in wholesale transactions. In 1993, FPL filed with the
FERC a comprehensive revision of its service offerings in the
wholesale market. FPL proposed changes to its wholesale sales
tariffs for service to municipal and cooperatively-owned electric
utilities and its power sharing (interchange) agreements with other
utilities. In addition, FPL proposed expanding its transmission
offerings for new services by switching from individually negotiated
contracts to three tariffs of general applicability. FPL began
collecting the proposed rates in 1994, subject to refund pending the
final ruling on its proposal. In December 1995, the administrative
law judge issued his initial decision, ruling in favor of FPL on some
issues and against FPL on others. In 1996, the FERC revised its
policies with respect to transmission service and required all
jurisdictional utilities to have on file at the FERC open access
transmission tariffs. In general, these policies require a utility
to provide to third parties access to the utility's transmission
system on a basis comparable to the uses the utility makes of its own
system and at comparable rates. FPL updated its 1993 filing to
accommodate the FERC's revised policies. A final decision on these
filings is not expected until sometime in 1997.
FPL is a defendant in an antitrust suit filed by the FMPA. The
complaint includes an alleged inability to utilize FPL's transmission
facilities to wheel power. See Item 3. Legal Proceedings.
System Capability and Load. FPL's resources for serving load as of
December 31, 1996 consisted of 18,538 mw of electric power, 16,369 mw
generated by FPL-owned facilities (see Item 2.
Properties - Generating Facilities) and 2,169 mw obtained through
purchased power contracts. See Note 9 - Contracts. The compounded
annual growth rate of kwh sales and customers was 3.7% and 2.0%,
respectively, for the three years ended December 31, 1996.
Customer usage and operating revenues are typically higher during the
summer months largely due to the prevalent use of air conditioning in
FPL's service territory. However, occasionally, extremely cold
temperatures during the winter months result in unusually high
electricity usage for a short period of time. On February 5, 1996,
FPL reached an all-time energy peak demand of approximately 18,100
mw. At that time, FPL was able to meet the peak with available
resources.
Capital Expenditures. FPL's capital expenditures totaled $474
million in 1996, $669 million in 1995 and $772 million in 1994.
Capital expenditures for the 1997-99 period are expected to be
approximately $1.6 billion, including $590 million in 1997. This
estimate is subject to continuing review and adjustment, and actual
capital expenditures may vary from this estimate. See Management's
Discussion - Liquidity and Capital Resources.
Nuclear Operations. FPL owns and operates four nuclear units, two at
St. Lucie and two at Turkey Point. The operating licenses for St.
Lucie Units Nos. 1 and 2 expire in 2016 and 2023, respectively. The
operating licenses for Turkey Point Units Nos. 3 and 4 expire in 2012
and 2013, respectively. The nuclear units are periodically removed
from service to accommodate normal refueling and maintenance outages,
repairs and certain other modifications. A condition of the
operating license for each unit requires an approved plan for
decontamination and decommissioning. FPL's current plans provide for
dismantlement of the Turkey Point units commencing in 2013. St.
Lucie Unit No. 1 will be mothballed in 2016 until 2023 when
dismantlement of both Unit No. 1 and Unit No. 2 will commence. See
estimated cost data in Note 1 - Decommissioning and Dismantlement of
Generating Plant.
Since mid-1995, the St. Lucie nuclear plant has experienced a series
of mechanical and operational problems that have resulted in
increased attention and fines from the NRC. A number of
self-identified and NRC-identified corrective actions have been
implemented, and several changes have been made to St. Lucie's
management team. However, the NRC continues to give increased
attention to St. Lucie's overall operations.
Indications of abnormal degradation had previously been found in the
pressurized water circulation tubes of the St. Lucie Unit No. 1 steam
generators and FPL had determined that the steam generators needed to
be replaced. Costs incurred in 1997 and thereafter to replace the
steam generators are included in FPL's projected capital expenditures
set forth above. In 1996, FPL submitted an analysis of the
pressurized water circulation tubes of the St. Lucie Unit No. 1 steam
generators to the NRC. The analysis supported continued operation of
St. Lucie Unit No. 1 until at least September 1997, at which time FPL
plans to replace the steam generators. The NRC is currently
reviewing the analysis.
Fuel. FPL's generating plants use a variety of fuels. See Item 2.
Properties - Generating Facilities and Note 9 - Contracts. The
diverse fuel options, along with purchased power, enable FPL to shift
between sources of generation to achieve an economical fuel mix.
FPL's oil requirements are obtained under short-term contracts and in
the spot market.
FPL has contracts in place with FGT that satisfy substantially all of
the anticipated needs for natural gas transportation. The existing
contracts expire in 2005 and 2010, but can be extended at FPL's
option. To the extent desirable, FPL can also purchase interruptible
gas transportation service from FGT based on pipeline availability.
FPL has a 15-year firm natural gas supply contract at market rates
with an affiliate of FGT to provide approximately two-thirds of FPL's
anticipated needs for natural gas. The remainder of FPL's gas
requirements will be purchased under other contracts and in the spot
market.
FPL has, through its joint ownership interest in SJRPP Units Nos. 1
and 2, long-term coal supply and transportation contracts for a
portion of the fuel needs for those units. All of the transportation
requirements and a portion of the fuel supply needs for Scherer Unit
No. 4 are covered by a series of annual and long-term contracts. The
remaining fuel requirements will be obtained in the spot market.
FPL leases nuclear fuel for all four of its nuclear units. See
Note 1 - Nuclear Fuel. Under the Nuclear Waste Policy Act, the DOE
is required to construct permanent storage facilities and will take
title to and provide transportation and storage for spent nuclear
fuel for a specified fee based on current generation from nuclear
power plants. Through 1996, FPL has paid approximately $320 million
in such fees to the DOE for future transportation and storage. The
DOE has not completed selection of a permanent storage facility nor
indicated how it will satisfy its obligation under the Nuclear Waste
Policy Act. In January 1997, FPL joined a number of other utilities
in a lawsuit against the DOE to suspend payments for future
transportation and storage. Alternatively, the utilities propose to
hold the funds in escrow until a nuclear waste storage facility is
available. Currently, FPL is storing spent fuel on site and plans to
provide adequate storage capacity for all of its spent nuclear fuel,
pending its removal by the DOE.
In 1994, FPL entered into a 20-year contract with Bitor America to
purchase Orimulsion, a fuel that is an emulsion of bitumen and water
and is priced equivalently to coal. FPL has committed to purchase
Orimulsion to satisfy approximately 60% of the capacity of the
Manatee units, but may elect to purchase sufficient Orimulsion to
satisfy the Manatee units' total capacity. See Item 2.
Properties - Generating Facilities. The contract is contingent upon
FPL obtaining an operating permit from environmental agencies to use
Orimulsion at the Manatee units. In 1996, Florida's Power Plant
Siting Board denied FPL's request to burn Orimulsion at the Manatee
units. FPL has appealed the Board's denial to the First District
Court of Appeals of the State of Florida.
Electric and Magnetic Fields. In recent years, increasing public,
scientific and regulatory attention has been focused on possible
adverse health effects of EMF. These fields are created whenever
electricity flows through a power line or an appliance. Several
epidemiological (i.e., statistical) studies have suggested a linkage
between EMF and certain types of cancer, including leukemia and brain
cancer; other studies have been inconclusive, contradicted earlier
studies or have shown no such linkage. Neither these epidemiological
studies nor clinical studies have produced any conclusive evidence
that EMF does or does not cause adverse health effects.
The FDEP has promulgated regulations setting standards for EMF levels
within and at the edge of the rights of way for transmission lines,
and FPL is in compliance with these regulations. The FDEP reviewed
its EMF standards in 1992 and confirmed the field limits previously
established. Future changes in the standards could require
additional capital expenditures by FPL for such things as increasing
the right of way corridors or relocating or reconfiguring
transmission facilities. At present it is not known whether any such
expenditures will be required.
Employees. FPL had 10,011 employees at December 31, 1996.
Approximately 38% of the employees are represented by the IBEW under
a collective bargaining agreement with FPL expiring on October 31,
1997. FPL is currently negotiating with members of the IBEW for a
new collective bargaining agreement.
OTHER FPL GROUP OPERATIONS
FPL Group Capital, a wholly-owned subsidiary of FPL Group, holds the
capital stock and provides most of the funding for the operating
subsidiaries other than FPL. At December 31, 1996, FPL Group Capital
and its subsidiaries represented less than 6% of FPL Group's total
assets. The business activities of these companies primarily consist
of investments in non-utility energy projects and agricultural
operations.
Non-Utility Energy - Domestic. ESI provides equity capital, debt
financing, project development and operations management for
non-utility energy projects. To date, ESI has invested in one
project that qualifies as an EWG. Substantially all other projects
in which it has invested are qualifying facilities under PURPA. ESI
currently participates in 27 non-utility energy projects totaling
approximately 2,000 mw, primarily through non-controlling ownership
interests in joint ventures or leveraged lease investments. Based on
ESI's invested capital at December 31, 1996, the projects are
concentrated in California (55%), Virginia (20%) and Nevada (18%).
The technologies and fuels used by the projects to produce
electricity include natural gas, wind, geothermal, coal, solar and
waste-to-energy. Energy production from the non-utility energy
investments is generally higher during the third quarter due to
increased energy demand and resource availability.
Many of the projects in which ESI invests, particularly those located
in California, operate under fixed price energy sales contracts for a
period of years and then convert to the purchasing utility's avoided
costs. Currently, avoided cost is below the fixed price for many of
these projects. Competitive initiatives in California propose
phasing in market-based pricing rather than cost-based pricing by
2002. The effect of these initiatives on avoided cost and the
related revenues paid to non-utility generators is uncertain. Any
decline in revenues not offset by operational or performance
efficiencies would adversely affect ESI's earnings from and the value
of its investment in these projects.
Non-Utility Energy - International. FPL Group International, a
wholly-owned subsidiary of FPL Group Capital, was formed in 1996 to
invest in power projects overseas. To date, FPL Group International
has invested in projects located in Colombia, Indonesia and the
United Kingdom, two of which qualify as EWG's. One project is in
early operation and the remaining projects are in the development
stage. The projects utilize both conventional and alternative energy
sources. Long-term purchased power contracts are in place for
substantially all of the 414 mw these projects are designed to
produce. FPL Group International continues to pursue investment
opportunities around the world.
Agriculture. FPL Group Capital's agricultural subsidiary, Turner,
owns and operates citrus groves in Florida. Turner's primary product
is juice oranges, which are sold to processors for the premium
not-from-concentrate, as well as the domestic frozen-concentrate,
orange juice markets. Other products include grapefruit and
specialty fruits. Turner's operations are seasonal, with the
majority of the citrus harvest taking place between January and
April.
As of December 31, 1996, Turner owned or leased approximately 30,000
acres of citrus properties, which included 19,000 planted acres,
3,000 acres of undeveloped land and 8,000 acres of infrastructure,
wet lands and reservoirs.
Other. After giving effect to transactions completed in 1996 which
had no significant effect on net income, FPL Group Capital maintains
a limited amount of real estate and other assets held for
disposition. These assets are carried at estimated fair value less
costs to dispose. FPL Group cannot estimate the timing of their
ultimate disposition, but these transactions are not expected to have
a material adverse effect on FPL Group's net income. The remaining
cable television subscriber base was contributed into a limited
partnership which removed FPL Group from the day-to-day management
and operation of the cable television business.
EXECUTIVE OFFICERS OF THE REGISTRANTS (1)(2)
Name Age Position Effective Date
James L. Broadhead 61 Chairman of the Board, President and Chief Executive Officer
of FPL Group .................................................... May 8, 1990
Chairman of the Board and Chief Executive Officer of FPL .......... January 15, 1990
Dennis P. Coyle 58 General Counsel and Secretary of FPL Group ........................ June 1, 1991
General Counsel and Secretary of FPL .............................. July 1, 1991
K. Michael Davis 50 Controller and Chief Accounting Officer of FPL Group .............. May 13, 1991
Vice President, Accounting, Controller and Chief Accounting
Officer of FPL .................................................. July 1, 1991
Paul J. Evanson 55 President of FPL .................................................. January 9, 1995
Lawrence J. Kelleher 49 Vice President, Human Resources of FPL Group ...................... May 13, 1991
Senior Vice President, Human Resources of FPL ..................... July 1, 1991
Thomas F. Plunkett 57 President, Nuclear Division of FPL ................................ March 1, 1996
Dilek L. Samil 41 Treasurer of FPL Group ............................................ May 13, 1991
Treasurer of FPL .................................................. July 1, 1991
C. O. Woody 58 Senior Vice President, Power Generation of FPL .................... July 1, 1991
Michael W. Yackira 45 Vice President, Finance and Chief Financial Officer of FPL Group .. January 9, 1995
Senior Vice President, Finance and Chief Financial Officer of FPL.. January 9, 1995
(1) Executive officers are elected annually by, and serve at the pleasure of, their respective boards of directors. Except as
noted below, each officer has held his or her present position for five years or more and his or her employment history is
continuous.
(2) The business experience of the executive officers is as follows: Mr. Evanson was vice president, finance and chief financial
officer of FPL Group and senior vice president, finance and chief financial officer of FPL from December 1992 to January
1995. Prior to that, Mr. Evanson was president and chief operating officer of the Lynch Corporation, a diversified holding
company; Mr. Plunkett was formerly site vice president at Turkey Point; and Mr. Yackira was senior vice president, market
and regulatory services of FPL from May 1991 to January 1995.
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 38%, 14%, 40%
and 8%, respectively, of investment in electric utility plant in
service, net of accumulated depreciation.
Generating Facilities. As of December 31, 1996, FPL had the
following generating facilities:
No. of Net Warm Weather
Facility Location Units Fuel Peaking Capability (mw)
STEAM TURBINES
Cape Canaveral ......................... Cocoa, FL 2 Oil/Gas 810
Cutler ................................. Miami, FL 2 Gas 215
Fort Myers ............................. Fort Myers, FL 2 Oil 542
Manatee ................................ Parrish, FL 2 Oil 1,638
Martin ................................. Indiantown, FL 2 Oil/Gas 1,622
Port Everglades ........................ Port Everglades, FL 4 Oil/Gas 1,227
Riviera ................................ Riviera Beach, FL 2 Oil/Gas 580
St. Johns River Power Park ............. Jacksonville, FL 2 Coal/Petroleum Coke 250(1)
St. Lucie .............................. Hutchinson Island, FL 2 Nuclear 1,553(2)
Sanford ................................ Lake Monroe, FL 3 Oil/Gas 933
Scherer ................................ Monroe County, GA 1 Coal 633(3)
Turkey Point ........................... Florida City, FL 2 Oil/Gas 810
2 Nuclear 1,386
COMBINED CYCLE
Lauderdale ............................. Dania, FL 2 Gas/Oil 860
Martin ................................. Indiantown, FL 2 Gas 860
Putnam ................................. Palatka, FL 2 Gas/Oil 498
COMBUSTION TURBINES
Fort Myers ............................. Fort Myers, FL 12 Oil 626
Lauderdale ............................. Dania, FL 24 Oil/Gas 876
Port Everglades ........................ Port Everglades, FL 12 Oil/Gas 438
DIESEL UNITS
Turkey Point ........................... Florida City, FL 5 Oil 12
TOTAL .................................... 16,369
(1) Represents FPL's 20% individual ownership interest in SJRPP Units Nos. 1 and 2, which are jointly owned with the JEA.
(2) Excludes Orlando Utilities Commission's and the FMPA's combined share of approximately 15% of St. Lucie Unit No. 2.
(3) Represents FPL's approximately 76% ownership of Scherer Unit No. 4, which is jointly owned with the JEA.
Transmission and Distribution. FPL owns and operates 476 substations
with a total capacity of 102,087,240 kva. Electric transmission and
distribution lines owned and in service as of December 31, 1996 are
as follows:
Overhead Lines Trench and Submarine
Nominal Voltage Pole Miles Cable Miles
500 kv ............................................................ 1,107(1) -
230 kv ............................................................ 2,475 31
138 kv ............................................................ 1,486 48
115 kv ............................................................ 704 -
69 kv ............................................................ 166 11
Less than 69 kv ................................................... 38,857 19,425
Total ............................................................. 44,795 19,515
(1) Includes approximately 80 miles owned jointly with the JEA.
Character of Ownership. Substantially all of FPL's properties are
subject to the lien of its mortgage, which secures most 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. Legal Proceedings
In December 1991, the FMPA, an organization comprised 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 proposed
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 1993, the
District Court granted summary judgment in favor of FPL. In 1995,
the court of appeals vacated the District Court's summary judgment
and remanded the matter to the district court for further
proceedings. In 1996, the District Court ordered the FMPA to seek a
declaratory ruling from the FERC regarding certain issues in the
case. All other action in the case has been stayed pending the
FERC's ruling.
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 Cablevision, Inc. (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
District 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.
In the event that FPL Group or FPL does not prevail in these suits,
there may be a material adverse effect on their financial statements.
However, FPL Group and FPL believe that they have meritorious
defenses to the litigation described above and are vigorously
defending these suits. Accordingly, the liabilities, if any, arising
from these proceedings are not anticipated to have a material adverse
effect on their financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrants' Common Equity and Related
Stockholder Matters
Common Stock Data. All of FPL's common stock is owned by FPL Group.
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:
Quarter 1996 1995
High Low High Low
First ....................................................... $48 $42 1/8 $37 1/4 $34
Second ...................................................... $46 1/4 $41 1/2 $39 1/4 $36 1/8
Third ....................................................... $46 5/8 $42 5/8 $41 1/8 $37
Fourth ...................................................... $48 1/8 $43 1/8 $46 1/2 $40 1/4
Approximate Number of Stockholders. As of the close of business on
February 28, 1997, there were 66,216 holders of record of FPL Group's
common stock.
Dividends. Quarterly dividends have been paid on common stock of
FPL Group during the past two years in the following amounts:
Quarter 1996 1995
First ......................................................................................... $.46 $.44
Second ........................................................................................ $.46 $.44
Third ......................................................................................... $.46 $.44
Fourth ........................................................................................ $.46 $.44
The amount and timing of dividends payable on FPL Group's common
stock are within the sole discretion of FPL Group's board of
directors. The board of directors reviews the dividend rate at least
annually (in February) to determine its appropriateness in light of
FPL Group's financial position and results of operations, legislative
and regulatory developments affecting the electric utility industry
in general and FPL in particular, competitive conditions and any
other factors the board deems relevant. The ability of FPL Group to
pay dividends on its common stock is dependent upon dividends paid to
it by its subsidiaries, primarily FPL. 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
and Note 4 regarding dividends paid by FPL to FPL Group.
Item 6. Selected Financial Data
Years Ended December 31,
1996 1995 1994 1993 1992
SELECTED FINANCIAL DATA OF FPL GROUP
(Thousands of Dollars, except per
share amounts):
Operating revenues .................... $ 6,036,778 $ 5,592,485 $ 5,422,659 $ 5,311,685 $ 5,186,325
Net income ............................ $ 579,450 $ 553,311 $ 518,711 $ 428,749(1) $ 466,949
Earnings per share of common stock .... $ 3.33 $ 3.16 $ 2.91 $ 2.30(1) $ 2.65
Dividends paid per share of
common stock ........................ $ 1.84 $ 1.76 $ 1.88 $ 2.47 $ 2.43
Total assets .......................... $12,219,323 $12,459,226 $12,617,616 $13,078,012 $12,306,305
Long-term debt, excluding current
maturities .......................... $ 3,144,313 $ 3,376,613 $ 3,864,465 $ 3,748,983 $ 3,960,096
Obligations of FPL under capital lease
excluding current maturities ........ $ 182,163 $ 179,082 $ 185,647 $ 271,498 $ 324,198
Preferred Stock of FPL with sinking
fund requirements, excluding current
maturities .......................... $ 42,000 $ 50,000 $ 94,000 $ 97,000 $ 130,150
SELECTED FINANCIAL DATA OF FPL
(Thousands of Dollars):
Operating revenues .................... $ 5,986,428 $ 5,530,057 $ 5,342,656 $ 5,224,299 $ 5,100,463
Net income available to FPL Group...... $ 591,162 $ 567,972 $ 528,515 $ 425,297(1) $ 470,899
Total assets .......................... $11,531,273 $11,751,259 $11,821,452 $11,911,342 $11,348,626
Long-term debt, excluding current
maturities .......................... $ 2,981,261 $ 3,094,050 $ 3,581,157 $ 3,463,065 $ 3,404,404
SELECTED OPERATING STATISTICS OF FPL:
Energy sales (millions of kwh) ........ 80,889 79,756 77,096 72,455 69,290
Energy sales:
Residential ......................... 51.1% 50.8% 50.2% 50.2% 49.3%
Commercial .......................... 38.6 38.5 38.8 39.3 39.0
Industrial .......................... 4.7 4.9 5.0 5.4 5.9
Interchange power sales ............. 2.6 1.6 2.5 2.6 2.4
Other(2) ............................ 3.0 4.2 3.5 2.5 3.4
Total ................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Approximate 60-minute
net peak served (mw)(3):
Summer season ..................... 16,064 15,813 15,179 15,266 14,661
Winter season ..................... 16,490 18,096 16,563 12,594 12,964
Average number of customer accounts:
Residential ......................... 3,152,626 3,097,194 3,037,628 2,973,688 2,911,812
Commercial .......................... 380,863 374,012 366,415 358,378 350,271
Industrial .......................... 14,781 15,143 15,587 14,853 14,791
Other ............................... 2,487 2,462 2,562 3,261 4,376
Total ................................. 3,550,757 3,488,811 3,422,192 3,350,180 3,281,250
Average price per kwh sold (cents)(4).. 7.29 6.83 6.82 7.10 7.25
(1) Reduced by $85 million, or $.45 per share, after-tax effect of cost reduction program charge.
(2) Includes unbilled sales.
(3) The winter season generally represents November and December of the current year and January through March of the
following year.
(4) Includes unbilled and cost recovery clause revenues.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
FPL Group's net income, earnings per share and cash flow from
operations have grown since 1994 at average annual rates of 5.7%,
7.0% and 7.4%, respectively. These operating results reflect a
combination of continued growth in the number of customers served by
FPL and actions taken by management to make FPL's operations more
cost effective. These actions include the accelerated amortization
of nuclear and fossil fuel generating assets and regulatory assets,
as well as reductions in O&M expenses, debt and preferred stock.
FPL's operating revenues represent about 99% of FPL Group's operating
revenues and primarily consist of revenues from base rates, cost
recovery clauses and franchise fees. Revenues from base rates were
$3.4 billion, $3.4 billion and $3.2 billion in 1996, 1995 and 1994,
respectively. There were no changes in base rates during those
years. Revenues from cost recovery clauses and franchise fees
represent a pass-through of costs and do not significantly affect net
income. Fluctuations in these revenues are primarily driven by
changes in energy sales, fuel prices and capacity charges. Clause
revenues and the related fuel, purchased power and interchange
expense increased in 1996 primarily due to higher fuel prices, and
higher capacity charges as an additional purchased power contract
became effective. See Note 9 - Contracts.
The population in FPL's service territory continued to grow,
contributing to retail customer growth of 1.8%, 1.9% and 2.1% in
1996, 1995 and 1994, respectively. In 1996, milder weather
conditions resulted in a decrease in retail customer usage of 1.3%,
following extreme weather in 1995 and 1994 which contributed to
increases in usage of 2.5% and 3.8%, respectively. Together these
factors and changes in sales to other utilities contributed to
increased total energy sales of 1.4%, 3.5% and 6.4% in 1996, 1995 and
1994, respectively.
The FPSC regulates FPL's retail sales, which represent approximately
97% of FPL Group's total operating revenues. FPL reported a retail
regulatory ROE of 12.1%, 12.3% and 12.3% in 1996, 1995 and 1994,
respectively. The ROE range authorized by the FPSC for these periods
was 11% to 13% with a midpoint of 12%.
O&M expenses continued to decline in 1996 due to management's focus
on increasing the efficiency of FPL's operations. In 1996, these
cost savings were partially offset by the third quarter adoption of
an FPSC-approved change in accounting for costs associated with
nuclear refueling outages. Under this new accounting method, the
estimated nuclear refueling and maintenance cost of each nuclear
unit's next planned outage will be accrued from the time the unit
resumes operation until the end of the next outage. Any differences
between estimated and actual costs will be included in O&M expenses
when known. The cumulative effect of changing to this method of
accounting was $35 million and was approved by the FPSC for
amortization over a period not to exceed five years. Adoption of
this new method resulted in an increase in nuclear O&M expenses for
1996 of approximately $35 million, including $14 million amortization
of the cumulative effect adjustment. The comparability of future O&M
expenses should be improved as the number of nuclear refueling
outages should not be a factor affecting period expense. In 1995,
FPL incurred costs related to two nuclear refueling outages, while
there were four during 1994. O&M expenses in 1994, and to a lesser
extent in 1995, included charges associated with facilities
consolidation and inventory reductions, as well as costs relating to
growth in customer base and placement of additional generating units
in service. O&M expenses for 1996 and 1995 also included costs
associated with workforce reductions following operational reviews at
several business units.
The 1996 and 1995 increases in depreciation and amortization expense
are primarily the result of an FPSC-approved special amortization
program initiated by FPL in 1995. The program calls for a continuing
special nuclear amortization of $30 million per year plus, through
1997, an additional amount of amortization based on the level of
sales achieved compared to a forecasted amount. In 1996 and 1995,
FPL recorded $160 million and $126 million, respectively, of this
special amortization. The additional amounts are applied against
specific nuclear and fossil generating assets, as well as certain
regulatory assets. By the end of 1996, the approved amounts for
nuclear and fossil generating assets had been completely amortized
and accelerated amortization of regulatory assets had begun.
Additionally, in 1996 and 1995 FPL amortized $28 million and $37
million, respectively, of plant-related regulatory assets deferred
since FPL's last rate case in 1984. The remaining $46 million
balance will continue to be amortized as authorized by the FPSC.
Finally, in 1995 FPL increased its annual accrual for nuclear
decommissioning costs to $85 million, up from $38 million recorded in
1994. Nuclear decommissioning accruals are expected to remain at $85
million per year at least until the next decommissioning studies,
currently scheduled to be filed in 1999.
In order to strengthen the financial position of FPL Group and FPL,
debt, preferred stock and commercial paper balances have been reduced
over the past three years by more than $1.3 billion ($1.0 billion for
FPL). This has resulted in lower interest charges during the last
three years and lower preferred stock dividends in 1996 and 1994. In
1995, preferred stock dividends included premiums on preferred stock
redemptions.
In 1996, the FPSC approved an accounting rule change that eliminates
the recording of AFUDC on all but very large construction projects.
Additionally, AFUDC has declined in recent years from lower
construction expenditures. The change in AFUDC is the primary factor
changing the non-operating line other - net.
The effective income tax rate was lower in 1996, reflecting the
increased amortization of FPL's deferred investment tax credits
related to property included in the special amortization program.
The electric utility industry is facing increasing competitive
pressure. FPL currently faces competition from other suppliers of
electrical energy to wholesale customers and from alternative energy
sources and self-generation for other customer groups, primarily
industrial customers. In 1996, operating revenues from wholesale and
industrial customers combined represent approximately 5% of FPL's
total operating revenues. Various states, other than Florida, have
either enacted legislation or are pursuing initiatives designed to
deregulate the production and sale of electricity. By allowing
customers to choose their electricity supplier, deregulation is
expected to result in a shift from cost-based rates to market-based
rates for energy production. Similar initiatives are also being
pursued on the federal level. Although the legislation and
initiatives vary substantially, common areas of focus include when
market-based pricing will be available for wholesale and retail
customers, what existing prudently incurred costs in excess of the
market-based price will be recoverable and whether generation assets
should be separated from transmission, distribution and other assets.
In the event the basis of regulation for some or all of FPL's
business changes from cost-based regulation, existing regulatory
assets and liabilities would be written off unless regulators specify
an alternative means of recovery or refund. Further, other aspects
of the business, such as generation assets and long-term power
purchase commitments, would need to be reviewed to assess their
recoverability in a changed regulatory environment. Since there is
no deregulation proposal currently under consideration in Florida,
FPL is unable to predict what impact would result from a change to a
more competitive environment. See Note 1 - Regulation.
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 1997 through 1999 are expected to
be approximately $1.6 billion, including $590 million for 1997. See
Note 9 - Commitments. FPL's capital expenditures have declined
significantly over the past few years as a result of continuing
efforts to reduce costs and the completion of its generation
expansion plan, but are expected to increase in 1997 due to the
replacement of steam generators at St. Lucie Unit No. 1. No new
generating plants are expected to be constructed before 2004.
Debt maturities and minimum sinking fund requirements of FPL Group's
subsidiaries will require cash outflows of approximately $729 million
($548 million for FPL) through 2001, including $155 million ($4
million for FPL) in 1997. See Notes 5 and 6. It is anticipated that
cash requirements for capital expenditures and debt repayments in
1997 will be satisfied with internally generated funds. Internally
generated funds not required for capital expenditures and current
maturities may be used to reduce outstanding debt, preferred or
common stock, or for investment. Any temporary cash needs will be
met by the issuance of commercial paper. Bank lines of credit
currently available to FPL Group and its subsidiaries aggregate $1.3
billion ($1.0 billion for FPL).
In addition to over $500 million retirement of debt and preferred
stock of FPL during 1996, FPL Group repurchased 1.9 million shares of
common stock. In February 1997, FPL Group's board of directors
authorized the repurchase of up to 10 million shares of common stock
over an unspecified period. The authorization supersedes a similar
plan approved in May 1994, under which 8.1 million common shares were
repurchased.
FPL self-insures for damage to certain transmission and distribution
properties and maintains a funded storm reserve to guard against
storm losses. The balance of the storm fund reserve at December 31,
1996 was $223 million. Bank lines of credit of $300 million,
included in the $1.3 billion above, are also available if needed to
provide cash for storm restoration costs. The FPSC has indicated
that it would consider future storm losses in excess of the funded
reserve for possible recovery from customers. In 1995, the FPSC
approved FPL's request to increase the annual storm fund contribution
from $10 million to $20 million and to contribute to the storm fund
additional insurance recoveries related to 1992 and 1993 storms that
were not required for identified system repairs. These
contributions, combined with the increase in the funding of the
nuclear decommissioning trust, resulted in higher cash outflows from
investing activities.
Proceeds from properties held for sale have declined over the past
three years as FPL Group disposed of certain non-FPL properties that
are not part of the core business. These dispositions had little
effect on earnings but have contributed to cash flows. Dispositions
of remaining properties are not expected to significantly affect
future operating results.
In 1996, the Financial Accounting Standards Board issued an exposure
draft on accounting for certain liabilities related to closure or
removal of long-lived assets. The primary effect of this exposure
draft would be to change the way FPL accounts for nuclear
decommissioning and fossil dismantlement costs. The exposure draft
calls for recording the present value of estimated future cash flows
to decommission FPL's nuclear power plants and dismantle its fossil
power plants as an increase to assets and as a liability. This
amount is currently estimated to be $1.4 billion. It is anticipated
that there will be no effect on cash flows and, because of the
regulatory treatment, there will be no significant effect on net
income.
FPL Group Capital and its subsidiaries, primarily ESI, have
guaranteed approximately $120 million of lease obligations, debt
service payments and other payments subject to certain contingencies.
FPL's charter and mortgage contain provisions which, under certain
conditions, restrict the payment of dividends and the issuance of
additional unsecured debt, first mortgage bonds and preferred stock.
Given FPL's current financial condition and level of earnings,
expected financing activities and dividends are not affected by these
limitations.
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY:
We have audited the consolidated financial statements of FPL Group,
Inc. and of Florida Power & Light Company, listed in the accompanying
index at Item 14(a)1 of this Annual Report (Form 10-K) to the
Securities and Exchange Commission for the year ended December 31,
1996. These financial statements are the responsibility of the
companies' 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 Florida Power & Light Company at December 31, 1996
and 1995 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
February 14, 1997
FPL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years Ended December 31,
1996 1995 1994
OPERATING REVENUES ..................................................... $6,036,778 $5,592,485 $5,422,659
OPERATING EXPENSES:
Fuel, purchased power and interchange ................................ 2,130,583 1,721,730 1,715,345
Other operations and maintenance ..................................... 1,188,820 1,206,444 1,304,046
Depreciation and amortization ........................................ 960,375 917,936 723,856
Taxes other than income taxes ........................................ 586,179 549,269 530,970
Total operating expenses ........................................... 4,865,957 4,395,379 4,274,217
OPERATING INCOME ....................................................... 1,170,821 1,197,106 1,148,442
OTHER INCOME (DEDUCTIONS):
Interest charges ..................................................... (266,530) (290,669) (318,967)
Preferred stock dividends - FPL ...................................... (23,732) (43,402) (39,558)
Other - net .......................................................... (7,247) 18,870 36,076
Total other deductions - net ....................................... (297,509) (315,201) (322,449)
INCOME BEFORE INCOME TAXES ............................................. 873,312 881,905 825,993
INCOME TAXES ........................................................... 293,862 328,594 307,282
NET INCOME ............................................................. $ 579,450 $ 553,311 $ 518,711
Earnings per share of common stock ..................................... $3.33 $3.16 $2.91
Dividends per share of common stock .................................... $1.84 $1.76 $1.88
Average number of common shares outstanding ............................ 174,072 175,335 178,009
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
FPL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31,
1996 1995
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service - at original cost ................................ $16,406,493 $16,034,653
Nuclear fuel under capital lease .................................................... 182,163 179,100
Construction work in progress ....................................................... 258,336 317,739
Other property ...................................................................... 186,631 193,739
Less accumulated depreciation and amortization ...................................... (7,649,734) (6,873,250)
Total property, plant and equipment - net ......................................... 9,383,889 9,851,981
CURRENT ASSETS:
Cash and cash equivalents ........................................................... 195,932 46,177
Customer receivables, net of allowances of $12,474 and $11,929 ...................... 461,501 482,326
Materials, supplies and fossil fuel stock - at average cost ......................... 268,186 247,323
Deferred clause expenses ............................................................ 127,046 81,451
Other ............................................................................... 120,866 128,071
Total current assets .............................................................. 1,173,531 985,348
OTHER ASSETS:
Special use funds of FPL ............................................................ 805,819 646,846
Other investments ................................................................... 326,855 447,006
Unamortized debt reacquisition costs of FPL ......................................... 282,756 294,844
Other ............................................................................... 246,473 233,201
Total other assets ................................................................ 1,661,903 1,621,897
TOTAL ASSETS .......................................................................... $12,219,323 $12,459,226
CAPITALIZATION:
Common shareholders' equity ......................................................... $ 4,592,132 $ 4,392,509
Preferred stock of FPL without sinking fund requirements ............................ 289,580 289,580
Preferred stock of FPL with sinking fund requirements ............................... 42,000 50,000
Long-term debt ...................................................................... 3,144,313 3,376,613
Total capitalization .............................................................. 8,068,025 8,108,702
CURRENT LIABILITIES:
Commercial paper .................................................................... - 178,500
Current maturities of long-term debt and preferred stock ............................ 154,600 211,902
Accounts payable .................................................................... 307,836 305,126
Customers' deposits ................................................................. 267,928 235,048
Accrued interest and taxes .......................................................... 258,657 219,935
Deferred clause revenues ............................................................ 60,451 78,809
Other ............................................................................... 224,992 274,823
Total current liabilities ......................................................... 1,274,464 1,504,143
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes ................................................... 1,530,538 1,587,449
Deferred regulatory credit - income taxes ........................................... 128,638 144,351
Unamortized investment tax credits .................................................. 250,641 281,966
Storm and property insurance reserve ................................................ 222,577 177,498
Other ............................................................................... 744,440 655,117
Total other liabilities and deferred credits ...................................... 2,876,834 2,846,381
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES .................................................. $12,219,323 $12,459,226
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
FPL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Years Ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 579,450 $ 553,311 $ 518,711
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .................................... 960,375 917,936 723,856
Increase (decrease) in deferred income taxes and
related regulatory credit ...................................... (75,732) (89,587) 92,774
Cost recovery clauses (1) ........................................ (63,953) (48,447) (82,142)
(Increase) decrease in materials, supplies and fossil fuel stock.. (20,863) 61,985 20,291
Other - net ...................................................... 213,001 114,946 108,463
Net cash provided by operating activities .......................... 1,592,278 1,510,144 1,381,953
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................. (487,594) (670,808) (758,690)
Proceeds from properties held for sale ............................... 68,821 70,227 123,012
Other - net........................................................... (107,260) (101,048) 61,744
Net cash used in investing activities .............................. (526,033) (701,629) (573,934)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of first mortgage bonds and other long-term debt ............ - 177,512 172,850
Retirement of long-term debt and preferred stock ..................... (337,664) (574,343) (470,720)
Decrease in commercial paper ......................................... (178,500) (56,479) (114,621)
Issuance of common stock ............................................. - - 16,685
Repurchase of common stock ........................................... (81,636) (69,394) (123,733)
Dividends on common stock ............................................ (320,253) (308,582) (334,751)
Other - net........................................................... 1,563 (16,802) (19,993)
Net cash used in financing activities .............................. (916,490) (848,088) (874,283)
Net increase (decrease) in cash and cash equivalents ................... 149,755 (39,573) (66,264)
Cash and cash equivalents at beginning of year ......................... 46,177 85,750 152,014
Cash and cash equivalents at end of year ............................... $ 195,932 $ 46,177 $ 85,750
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ............................................... $ 248,381 $ 275,542 $ 295,992
Cash paid for income taxes ........................................... $ 380,500 $ 390,800 $ 239,050
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations ............................... $ 86,332 $ 84,276 $ 63,479
Liabilities assumed for acquisition of property ...................... $ 33,320 - -
(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 compliance cost recovery clauses.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
Years Ended December 31,
1996 1995 1994
OPERATING REVENUES ...................................................... $5,986,428 $5,530,057 $5,342,656
OPERATING EXPENSES:
Fuel, purchased power and interchange ................................. 2,130,583 1,721,730 1,715,345
Other operations and maintenance ...................................... 1,127,559 1,138,347 1,230,171
Depreciation and amortization ......................................... 954,802 909,357 713,352
Income taxes .......................................................... 329,034 347,341 322,435
Taxes other than income taxes ......................................... 585,669 547,976 529,301
Total operating expenses ............................................ 5,127,647 4,664,751 4,510,604
OPERATING INCOME ........................................................ 858,781 865,306 832,052
OTHER INCOME (DEDUCTIONS):
Interest charges ...................................................... (246,227) (269,952) (292,347)
Other - net ........................................................... 2,340 16,020 28,368
Total other deductions - net ........................................ (243,887) (253,932) (263,979)
NET INCOME .............................................................. 614,894 611,374 568,073
PREFERRED STOCK DIVIDENDS ............................................... 23,732 43,402 39,558
NET INCOME AVAILABLE TO FPL GROUP, INC. ................................. $ 591,162 $ 567,972 $ 528,515
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31,
1996 1995
ELECTRIC UTILITY PLANT:
In service - original cost......................................................... $16,406,493 $16,034,653
Less accumulated depreciation ..................................................... (7,610,786) (6,832,201)
Net ............................................................................. 8,795,707 9,202,452
Construction work in progress ..................................................... 220,136 317,739
Nuclear fuel under capital lease .................................................. 182,163 179,100
Electric utility plant - net .................................................. 9,198,006 9,699,291
CURRENT ASSETS:
Cash and cash equivalents ......................................................... 78,417 412
Customer receivables, net of allowances of $12,176 and $11,737 .................... 460,120 479,838
Materials, supplies and fossil fuel stock - at average cost ....................... 247,597 230,553
Deferred clause expenses .......................................................... 127,046 81,451
Other ............................................................................. 98,107 98,963
Total current assets .......................................................... 1,011,287 891,217
OTHER ASSETS:
Special use funds ................................................................. 805,819 646,846
Unamortized debt reacquisition costs .............................................. 282,756 294,844
Other ............................................................................. 233,405 219,061
Total other assets ............................................................ 1,321,980 1,160,751
TOTAL ASSETS ........................................................................ $11,531,273 $11,751,259
CAPITALIZATION:
Common shareholder's equity ....................................................... $ 4,666,941 $ 4,473,708
Preferred stock without sinking fund requirements ................................. 289,580 289,580
Preferred stock with sinking fund requirements .................................... 42,000 50,000
Long-term debt .................................................................... 2,981,261 3,094,050
Total capitalization .......................................................... 7,979,782 7,907,338
CURRENT LIABILITIES:
Commercial paper .................................................................. - 178,500
Current maturities of long-term debt and preferred stock .......................... 4,040 204,000
Accounts payable .................................................................. 299,026 299,987
Customers' deposits ............................................................... 267,846 234,858
Accrued interest and taxes ........................................................ 300,842 210,559
Deferred clause revenues .......................................................... 60,451 78,809
Other ............................................................................. 195,806 254,239
Total current liabilities ..................................................... 1,128,011 1,460,952
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes ................................................. 1,146,680 1,204,315
Deferred regulatory credit - income taxes ......................................... 128,638 144,351
Unamortized investment tax credits ................................................ 250,641 281,966
Storm and property insurance reserve .............................................. 222,577 177,498
Other ............................................................................. 674,944 574,839
Total other liabilities and deferred credits .................................. 2,423,480 2,382,969
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES ................................................ $11,531,273 $11,751,259
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Years Ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 614,894 $ 611,374 $ 568,073
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................... 954,802 909,357 713,352
Decrease in deferred income taxes and related regulatory credit.. (24,739) (107,063) (21,405)
Cost recovery clauses (1) ....................................... (63,953) (48,447) (82,142)
(Increase) decrease in materials, supplies and fossil fuel stock. (17,044) 61,985 20,291
Other - net ..................................................... 143,584 94,348 88,584
Net cash provided by operating activities ......................... 1,607,544 1,521,554 1,286,753
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (474,387) (660,818) (745,500)
Other - net ......................................................... (123,444) (73,049) (29,394)
Net cash used in investing activities ............................. (597,831) (733,867) (774,894)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of first mortgage bonds and other long-term debt ........... - 170,452 172,850
Retirement of long-term debt and preferred stock .................... (332,669) (573,580) (181,989)
Decrease in commercial paper ........................................ (178,500) (46,500) (124,600)
Capital contributions from FPL Group, Inc. .......................... 195,000 280,000 205,000
Dividends ........................................................... (616,547) (596,954) (567,012)
Other - net ......................................................... 1,008 (21,228) (22,889)
Net cash used in financing activities ............................. (931,708) (787,810) (518,640)
Net increase (decrease) in cash and cash equivalents .................. 78,005 (123) (6,781)
Cash and cash equivalents at beginning of year ........................ 412 535 7,316
Cash and cash equivalents at end of year .............................. $ 78,417 $ 412 $ 535
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest .............................................. $ 228,079 $ 252,459 $ 264,097
Cash paid for income taxes .......................................... $ 378,919 $ 478,708 $ 369,720
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations .............................. $ 86,332 $ 84,276 $ 63,479
(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 compliance cost recovery clauses.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation - Substantially all of FPL Group, Inc.'s (FPL
Group) revenues are derived from Florida Power & Light Company (FPL)
which supplies electric service to 3.6 million customers throughout
most of the east and lower west coasts of Florida. Other operations
mainly consist of investments in non-utility energy projects and
agricultural operations.
The consolidated financial statements of FPL Group and FPL include
the accounts of their respective 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. The preparation of financial statements
requires the use of estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities. Actual results
could differ from those estimates.
Regulation - FPL is a public utility subject to regulation by the
Florida Public Service Commission (FPSC) and the Federal Energy
Regulatory Commission (FERC). Its rates are designed to recover the
cost of providing electric service to its customers including a
reasonable rate of return on invested capital. As a result of this
cost-based regulation, FPL follows the accounting practices set forth
in Statement of Financial Accounting Standard (FAS) 71, "Accounting
for the Effects of Certain Types of Regulation." FAS 71 indicates
that regulators can create assets and impose liabilities that would
not be recorded by non-regulated entities. Regulatory assets and
liabilities represent probable future revenues that will be recovered
from or refunded to customers through the ratemaking process.
Recoverability of regulatory assets is assessed at each reporting
period.
Various states, other than Florida, have either enacted legislation
or are pursuing initiatives designed to deregulate the production and
sale of electricity. By allowing customers to choose their
electricity supplier, deregulation is expected to result in a shift
from cost-based rates to market-based rates for energy production.
Similar initiatives are also being pursued on the federal level.
Although the legislation and initiatives vary substantially, common
areas of focus include when market-based pricing will be available
for wholesale and retail customers, what existing prudently incurred
costs in excess of the market-based price will be recoverable and
whether generation assets should be separated from transmission,
distribution and other assets.
In the event that FPL's operations are no longer subject to the
provisions of FAS 71, as a result of market-based pricing due to
regulatory or other changes, existing regulatory assets and
liabilities would be written off unless regulators specify an
alternative means of recovery or refund. The principal regulatory
assets and liabilities are as follows:
December 31,
1996 1995
(Thousands of Dollars)
Assets:
Unamortized debt reacquisition costs ................................................ $ 282,756 $ 294,844
Plant-related deferred costs (included in other assets) ............................. $ 46,191 $ 73,906
Nuclear maintenance cumulative effect adjustment (included in other assets) ......... $ 21,311 -
Deferred Department of Energy (DOE) assessment (included in other assets) ........... $ 52,598 $ 56,254
Liabilities:
Deferred regulatory credit - income taxes ........................................... $ 128,638 $ 144,351
Unamortized investment tax credits .................................................. $ 250,641 $ 281,966
Storm and property insurance reserve ................................................ $ 222,577 $ 177,498
The amounts presented above exclude clause-related regulatory assets
and liabilities that are recovered or refunded over six-month periods.
These amounts are reflected as current assets and liabilities in the
consolidated balance sheets. Additionally, other aspects of the
business, such as generation assets and long-term power purchase
commitments, would need to be reviewed to assess their recoverability
in a changed regulatory environment. Since there is no deregulation
proposal currently under consideration in Florida, FPL is unable to
predict what impact would result from a change to a more competitive
environment.
FPL has been taking steps to lower its costs of operations. In 1995,
FPL began amortizing the plant-related deferred costs in the table above
over a period of no more than five years as approved by the FPSC. In
1996, FPL received final approval from the FPSC of a program started in
1995 to amortize specified nuclear and fossil generating assets, the tax
effect of certain tax basis differences and debt reacquisition costs
(collectively, special amortization). The program calls for a continuing
special nuclear amortization of $30 million per year plus, through 1997,
an additional amount of amortization based on the level of sales
achieved compared to a forecasted amount. Under this program, $160
million of special amortization was recorded in 1996 and $126 million in
1995. The 1996 amount includes, as depreciation and amortization
expense, $20 million of amortization of the tax effects of tax basis
differences. By the end of 1996, the approved amounts for nuclear and
fossil generating assets had been completely amortized and accelerated
amortization of regulatory assets had begun.
Revenues and Rates - FPL's retail and wholesale utility rate schedules
are approved by the FPSC and the FERC, respectively. FPL records
unbilled base revenues for the estimated amount of energy delivered to
customers but not yet billed. Unbilled base revenues are included in
customer receivables and amounted to approximately $161 million and
$155 million at December 31, 1996 and 1995, 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. These
revenues generally represent a pass-through of costs and include
substantially all fuel, purchased power and interchange expenses,
conservation- and environmental-related expenses, certain 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. Any under
recovered costs or over recovered revenues are collected from or
returned to customers in subsequent periods.
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 utility 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 utility property are charged to other operations and maintenance
(O&M) expenses. At December 31, 1996, the generating, transmission,
distribution and general facilities of FPL represented approximately 38%,
14%, 40% and 8%, respectively, of FPL's investment in electric utility
plant in service, net of accumulated depreciation. 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 fossil plant
dismantlement and nuclear plant decommissioning. For substantially all
utility property, depreciation and fossil fuel plant dismantlement studies
are performed at least every four years. The next studies are scheduled
to be filed in 1997 and would be effective for 1998. The weighted
annual composite depreciation rate was approximately 4.1% for 1996
and 4.0% for 1995 and 1994, excluding the effects of dismantlement and
decommissioning. Further, the 1996 and 1995 rates exclude
approximately $188 million and $163 million, respectively, of special and
plant-related deferred costs amortization. See Regulation. The 1994
rate excludes $47 million of accelerated write-off of certain accumulated
plant overhaul costs.
Nuclear Fuel - FPL leases nuclear fuel for all four of its nuclear units.
Nuclear fuel lease payments were $94 million, $104 million and $115
million in 1996, 1995 and 1994, respectively. Included in these
payments was an interest component of $10 million in 1996 and $11
million in both 1995 and 1994. The nuclear fuel lease payments and a
charge for spent nuclear fuel disposal are charged to fuel expense on a
unit of production method. These costs are recovered through the fuel
and purchased power cost recovery clause (fuel clause). 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 $182
million at December 31, 1996. For ratemaking, these leases are
classified as operating leases. For financial reporting, the capital lease
obligation is recorded at the amount due in the event of lease
termination.
Decommissioning and Dismantlement of Generating Plant - FPL
accrues nuclear decommissioning costs over the expected service life of
each unit. Nuclear decommissioning studies are performed at least once
every five years for FPL's four nuclear units and are submitted to the
FPSC for approval. The next studies are scheduled for 1999. These
studies assume prompt dismantlement for the Turkey Point Unit Nos. 3
and 4 with decommissioning activities commencing in 2012 and 2013,
respectively. St. Lucie Unit No. 1 will be mothballed in 2016 until St.
Lucie Unit No. 2 is ready for decommissioning in 2023. These studies
also assume that FPL will be storing spent fuel on site pending removal
to a U.S. Government facility. In January 1997, FPL joined a number of
other utilities in a lawsuit against the DOE to suspend payments for
future transportation and storage. Alternatively, the utilities proposed to
hold the funds in escrow until a nuclear waste storage facility is
available. Decommissioning expense accruals, included in depreciation
and amortization expense, were $85 million in both 1996 and 1995 and
$38 million in 1994. FPL's portion of the ultimate cost of
decommissioning its four units, including dismantlement and reclamation,
expressed in 1996 dollars, is currently estimated to aggregate $1.5
billion. At December 31, 1996 and 1995, the accumulated provision for
nuclear decommissioning totaled $805 million and $666 million,
respectively, and is included in accumulated depreciation.
Similarly, FPL accrues the cost of dismantling its fossil fuel plants over
the expected service life of each unit. Fossil dismantlement expense
totaled $17 million, $25 million and $11 million in 1996, 1995 and 1994,
respectively, and is included in depreciation and amortization expense.
The ultimate cost of dismantlement for the fossil units, expressed in
1996 dollars, is estimated to be $258 million. At December 31, 1996
and 1995, the accumulated provision for fossil dismantlement totaled
$146 million and $130 million, respectively, and is a component of
accumulated depreciation.
Restricted assets for the payment of future expenditures to
decommission FPL's nuclear units are included in special use funds of
FPL. At December 31, 1996 and 1995, decommissioning fund assets
were $667 million and $534 million, respectively. Securities held in the
decommissioning fund are carried at market value with market
adjustments resulting in a corresponding adjustment to the accumulated
provision for nuclear decommissioning. See Note 7. Contributions to
the funds are based on current period decommissioning expense.
Additionally, fund earnings, net of taxes are reinvested in the funds. The
tax effects of amounts not yet recognized for tax purposes are included
in accumulated deferred income taxes.
In 1996, the Financial Accounting Standards Board issued an exposure
draft, "Accounting for Certain Liabilities Related to Closure or Removal of
Long-Lived Assets." The primary effect of this exposure draft would be
to change the way FPL accounts for nuclear decommissioning and fossil
dismantlement costs. The exposure draft calls for recording the present
value of estimated future cash flows to decommission FPL's nuclear
power plants and dismantle its fossil power plants as an increase to
asset balances and as a liability. This amount is currently estimated to
be $1.4 billion. It is anticipated that there will be no effect on cash flows
and, because of the regulatory treatment, there will be no significant
effect on net income.
Accrual for Nuclear Maintenance Costs - In 1996, the FPSC approved a
new method of accounting for costs associated with nuclear refueling
outages. Under this new method, the estimated nuclear refueling and
maintenance costs relating to each unit's next planned outage will be
accrued over the period beginning when the unit resumes operations
until the end of the next outage. Any difference between the estimated
and actual costs will be included in O&M expenses when known. This
approach will result in FPL recognizing costs equivalent to slightly less
than three outages per year based upon the current refueling outage
schedule for FPL's four nuclear units. The cumulative effect of adopting
this accounting method was $35 million and, in accordance with the
FPSC order, was recorded as a regulatory asset which will be amortized
and included in O&M expenses over a period not to exceed five years.
In 1996, $14 million of the cumulative adjustment was expensed.
Allowance for Funds Used During Construction (AFUDC) - AFUDC is a
noncash item representing the allowed cost of capital, including a return
on common equity, used to finance FPL's construction projects. In 1996,
the FPSC eliminated the recording of AFUDC except for projects that
cost in excess of 1/2% of a company's utility plant in service balance
and recharacterized the construction work in progress balance as an
element of rate base. AFUDC amounted to $2 million, $15 million and
$24 million for the years ended December 31, 1996, 1995 and 1994,
respectively, and is included in other - net in the consolidated statements
of income.
Storm and Property Insurance Reserve Fund (storm fund) - The 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. The storm fund, which totaled $139 million and $113 million at
December 31, 1996 and 1995, respectively, is included in special use
funds of FPL. Securities held in the fund are carried at market value
with market adjustments resulting in a corresponding adjustment to the
storm and property insurance reserve. See Note 7 and
Note 9 - Insurance. Fund earnings, net of taxes, are reinvested in the
fund. The tax effects of amounts not yet recognized for tax purposes
are included in accumulated deferred income taxes.
Other Investments - Included in other investments in FPL Group's
consolidated balance sheets are 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 $157 million and $158
million at December 31, 1996 and 1995, respectively.
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, 1995 was 5.8%.
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. See Regulation.
FPL Group Capital Inc (FPL Group Capital) expenses this cost in the
period incurred.
Income Taxes - Deferred income taxes are provided on all significant
temporary differences between the financial statement and tax bases of
assets and liabilities. FPL is included in the consolidated federal income
tax return filed by FPL Group. FPL determines its income tax provision
on the "separate return method." The deferred regulatory credit -
income taxes of FPL represents the revenue equivalent of the difference
in accumulated deferred income taxes computed under FAS 109,
"Accounting for Income Taxes," as compared to prior accounting rules.
This amount is being amortized in accordance with the regulatory
treatment over the estimated lives of the assets or liabilities which
resulted in the initial recognition of the deferred tax amount. Investment
tax credits (ITC) for FPL are deferred and amortized to income over the
approximate lives of the related property in accordance with the
regulatory treatment.
2. Jointly-Owned Electric Utility Plant
FPL owns approximately 85% of the St. Lucie Unit No. 2, 20% of the St.
Johns River Power Park units and coal terminal and approximately 76%
of Scherer Unit No. 4. At December 31, 1996, FPL's gross investment in
these units was $1.176 billion, $329 million and $570 million,
respectively; accumulated depreciation was $434 million, $129 million
and $138 million, respectively.
FPL is responsible for its share of the operating costs, as well as
providing its own financing. At December 31, 1996, there was no
significant balance of construction work in progress on these facilities.
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. All costs of the FPL Group pension
plan are allocated to participating subsidiaries on a pro rata basis.
For 1996, 1995 and 1994 the components of pension cost are as
follows:
Years Ended December 31,
1996 1995 1994
(Thousands of Dollars)
Service cost .............................................................. $ 38,302 $ 31,782 $ 37,423
Interest cost on projected benefit obligation ............................. 90,716 87,871 80,466
Actual return on plan assets .............................................. (123,278) (350,237) (11,293)
Net amortization and deferral ............................................. (24,269) 211,523 (118,770)
Negative pension cost ..................................................... (18,529) (19,061) (12,174)
Effect of special retirement programs ..................................... - 5,338 -
FPL Group's pension cost .................................................. $ (18,529) $ (13,723) $ (12,174)
Pension cost allocated to FPL ............................................. $ (18,285) $ (13,432) $ (11,966)
FPL Group and its subsidiaries fund 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 1996, 1995 or 1994.
A reconciliation of the funded status of the plan to the amounts
recognized in FPL Group's consolidated balance sheets is presented
below:
September 30, December 31,
1996 1995
(Thousands of Dollars)
Plan assets at fair value, primarily listed stocks and bonds ........................ $1,996,405 $1,910,986
Actuarial present value of benefits for services rendered to date:
Accumulated benefits based on salaries to date, including vested benefits
of $898 million and $924 million ................................................ 950,865 982,159
Additional benefits based on estimated future salary levels ....................... 311,294 447,120
Projected benefit obligation ........................................................ 1,262,159 1,429,279
Plan assets in excess of projected benefit obligation ............................... 734,246 481,707
Prior service costs not recognized in net periodic pension cost ..................... 174,740 187,463
Unrecognized net asset at January 1, 1986, being amortized
over 19 years - net of accumulated amortization ................................... (186,847) (210,203)
Unrecognized net gain ............................................................... (674,950) (430,307)
Prepaid pension cost of FPL Group ................................................... $ 47,189 $ 28,660
Prepaid pension cost allocated to FPL ............................................... $ 43,354 $ 25,069
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.00% and 6.75%
for 1996 and 1995, 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 1996, 1995 and 1994. In 1996, FPL Group elected to change
the measurement date for pension obligations and plan assets from
December 31 to September 30. The effect of this accounting change is
not material.
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. All costs of the FPL
Group plans are allocated to participating subsidiaries on a pro rata
basis. 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 2004. 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.
For 1996, 1995 and 1994, the components of net periodic postretirement
benefit cost are as follows:
Years Ended December 31,
1996 1995 1994
(Thousands of Dollars)
Service cost .................................................................... $ 4,921 $ 4,216 $ 4,717
Interest cost ................................................................... 18,138 18,119 17,336
Actual return on plan assets .................................................... (4,621) (23,742) (749)
Amortization of transition obligation ........................................... 3,485 3,485 3,485
Net amortization and deferral ................................................... (2,324) 16,479 (6,156)
FPL Group's postretirement benefit cost ......................................... $19,599 $ 18,557 $18,633
Postretirement benefit cost allocated to FPL .................................... $19,464 $ 18,326 $18,436
A reconciliation of the funded status of the plan to the amounts
recognized in FPL Group's consolidated balance sheets is presented
below:
September 30, December 31,
1996 1995
(Thousands of Dollars)
Plan assets at fair value, primarily listed stocks and bonds ........................ $ 107,334 $ 110,435
Accumulated postretirement benefit obligation:
Retirees .......................................................................... 188,618 172,572
Fully eligible active plan participants ........................................... 3,327 3,194
Other active plan participants .................................................... 81,604 94,128
Total ........................................................................... 273,549 269,894
Accumulated postretirement benefit obligation in excess of plan assets .............. (166,215) (159,459)
Unrecognized net transition obligation (amortized over 20 years) .................... 55,762 59,247
Unrecognized net loss ............................................................... 10,002 18,269
Accrued postretirement benefit liability of FPL Group ............................... $(100,451) $ (81,943)
Accrued postretirement benefit liability allocated to FPL ........................... $ (99,568) $ (81,194)
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) for 1996 is
7.5% for retirees under age 65 and 6.5% for retirees over age 65.
These rates are assumed to decrease gradually to 5.0% by 2003. 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 September 30, 1996 by $8 million, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost of the plan for 1996 by approximately $1
million.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.00% and 6.75% for
1996 and 1995, respectively. The expected long-term rate of return on
plan assets used in determining postretirement benefit cost was 7.75%
for 1996, 1995 and 1994. In 1996, FPL Group elected to change the
measurement date for benefit obligations and plan assets from
December 31 to September 30. The effect of this accounting change is
not material.
4. Common Shareholders' Equity
FPL Group - The changes in FPL Group's common shareholders' equity
accounts are as follows:
Common Stock (1) Additional Common
Aggregate Paid-In Unearned Retained Shareholders'
Shares Par Value Capital Compensation Earnings Equity
(In Thousands)
Balances, December 31, 1993 .... 190,065 $1,901 $3,589,994 $(321,121) $ 829,833
Net income ................... - - - - 518,711
Issuance of common stock ..... 506 5 16,680 - -
Repurchase of common stock ... (4,000) (40) (123,693) - -
Dividends on common stock .... - - - - (334,751)
Earned compensation under ESOP - - 1,964 16,900 -
Other ........................ - - 852 - -
Balances, December 31, 1994 .... 186,571(2) 1,866 3,485,797 (304,221) 1,013,793
Net income ................... - - - - 553,311
Repurchase of common stock ... (1,878) (19) (69,375) - -
Dividends on common stock .... - - - - (308,582)
Earned compensation under ESOP - - 5,030 16,741 -
Other ........................ - - (1,832) - -
Balances, December 31, 1995 .... 184,693(2) 1,847 3,419,620 (287,480) 1,258,522 $4,392,509
Net income ................... - - - - 579,450
Repurchase of common stock ... (1,861) (19) (81,636) - -
Dividends on common stock .... - - - - (320,253)
Earned compensation under ESOP - - 7,991 14,932 -
Other ........................ (17) - (842) - -
Balances, December 31, 1996 .... 182,815(2) $1,828 $3,345,133 $(272,548) $1,517,719 $4,592,132
(1) $.01 par value, authorized - 300,000,000 shares; outstanding 182,815,135 and 184,692,985 at December 31, 1996 and
1995, respectively.
(2) Outstanding and unallocated shares held by the ESOP Trust totaled 9.3 million, 9.8 million and 10.4 million at December 31,
1996, 1995 and 1994, respectively.
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. These restrictions do
not currently limit FPL's ability to pay dividends to FPL Group. In 1996,
1995 and 1994, FPL paid, as dividends to FPL Group, its net income
available to FPL Group on a one-month lag basis.
Employee Stock Ownership Plan (ESOP) - The employee thrift plans of
FPL Group include a leveraged 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. Dividends received on
all shares, along with cash contributions from the employers, are used to
pay principal and interest on the ESOP loan held by FPL Group Capital.
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.
ESOP-related compensation expense of approximately $23 million in
1996 and $18 million in both 1995 and 1994 was recognized based on
the fair value of shares allocated to employee accounts during the
period. Interest income on the ESOP loan is eliminated in consolidation.
ESOP-related unearned compensation included as a reduction of
shareholders' equity at December 31, 1996 was approximately $269
million, representing 9.3 million unallocated shares at the original issue
price of $29 per share. The fair value of the ESOP-related unearned
compensation account using the closing price of FPL Group stock as of
December 31, 1996 was approximately $427 million.
Long-Term Incentive Plan - In 1994, FPL Group's board of directors and
its shareholders approved FPL Group's current long-term incentive plan.
Under this plan, 9 million shares of common stock are reserved and
available for awards to officers and employees of FPL Group and its
subsidiaries as of December 31, 1996. 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:
Performance Restricted Non-qualified
Shares Stock Option Shares
Balances, December 31, 1993 .......................................... 280,059 166,323 50,076
Granted ............................................................ 102,720 29,000 -
Exercised at $30 7/8 ............................................... - - (8,941)
Paid/released ...................................................... - (6,223) -
Forfeited .......................................................... (5,589) (1,350) (2,748)
Balances, December 31, 1994 .......................................... 377,190 187,750 38,387
Granted (1) ........................................................ 97,786 13,500 -
Exercised at $30 7/8 ............................................... - - (23,136)
Paid/released ...................................................... (123,328) (3,000) -
Forfeited .......................................................... (31,312) (4,050) (4,066)
Balances, December 31, 1995 .......................................... 320,336 194,200 11,185
Granted (1) ........................................................ 90,772 23,000 -
Exercised at $30 7/8 ............................................... - - (10,935)
Paid/released ...................................................... (60,359) (34,250) -
Forfeited .......................................................... (39,222) (16,650) (250)
Balances, December 31, 1996 .......................................... 311,527(2) 166,300(3) -
(1) The average grant date fair value of equity instruments issued under the incentive plan was $5 million in 1996 and $4
million in 1995.
(2) Payment of performance shares is based on the market price of FPL Group's common stock when the related performance
goal is achieved.
(3) Shares of restricted stock were issued at market value at the date of the grant.
The requirements of FAS 123, "Accounting for Stock-Based
Compensation," became effective in 1996. The statement encourages,
but does not require, a fair value-based method of accounting for
stock-based compensation. FPL Group elected to continue the use of
the intrinsic value-based method of accounting; however,
implementation of FAS 123 would not have a material effect on FPL
Group's results of operations or earnings per share.
Other - Each share of common stock has been granted a Preferred Share
Purchase Right (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.
FPL - The changes in FPL's common shareholder's equity accounts are
as follows:
Common Additional Retained Common Share-
Stock (1) Paid-in Capital Earnings holder's Equity
(Thousands of Dollars)
Balances, December 31, 1993 ......................... $1,373,069 $1,741,436 $ 864,920
Contributions from FPL Group ...................... - 205,000 -
Net income available to FPL Group ................. - - 528,515
Dividends to FPL Group ............................ - - (527,454)
Other ............................................. - 100 -
Balances, December 31, 1994 ......................... 1,373,069 1,946,536 865,981
Contributions from FPL Group ...................... - 280,000 -
Net income available to FPL Group ................. - - 567,972
Dividends to FPL Group ............................ - - (557,923)
Other ............................................. - 2,057 (3,984)
Balances, December 31, 1995 ......................... 1,373,069 2,228,593 872,046 $4,473,708
Contributions from FPL Group ...................... - 195,000 -
Net income available to FPL Group ................. - - 591,162
Dividends to FPL Group ............................ - - (592,815)
Other ............................................. - 166 (280)
Balances, December 31, 1996 ......................... $1,373,069 $2,423,759 $ 870,113 $4,666,941
(1) Common stock, no par value, 1,000 shares authorized, issued and outstanding.
5. Preferred Stock
FPL Group's charter authorizes the issuance of 100 million shares of
serial preferred stock, $.01 par value. None of these shares is
outstanding. FPL Group has reserved 3 million shares for issuance
upon exercise of preferred share purchase rights which expire in June
2006. Preferred stock of FPL consists of the following: (1)
December 31, 1996
Shares Redemption December 31,
Outstanding Price 1996 1995
(Thousands of Dollars)
Cumulative, No Par Value, authorized 10,000,000 shares at
December 31, 1996 and 1995; without sinking fund
requirements - $2.00 No Par Value, Series A (Involuntary
Liquidation Value $25 Per Share) (2) ........................ 2,533,188 $ 27.00 $ 63,330 $ 63,330
Cumulative, $100 Par Value, authorized 15,822,500 shares at
December 31, 1996 and 1995:
Without sinking fund requirements:
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 .......................................... - - - 60,000
7.40% Series G .......................................... - - - 40,000
6.98% Series S .......................................... 750,000 -(3) 75,000 75,000
7.05% Series T .......................................... 500,000 -(3) 50,000 50,000
6.75% Series U .......................................... 650,000 -(3) 65,000 65,000
Total preferred stock of FPL without sinking
fund requirements ................................... 4,795,688 289,580 389,580
Less current maturities ........................... - - 100,000
Total preferred stock of FPL without sinking fund
requirements, excluding current maturities .......... 4,795,688 $289,580 $289,580
With sinking fund requirements(4):
6.84% Series Q (5) ...................................... 410,000 $102.28 $ 41,000 $ 44,000
8.625% Series R (6) ..................................... 50,000 $104.60 5,000 10,000
Total preferred stock of FPL with sinking
fund requirements ................................... 460,000 46,000 54,000
Less current maturities ........................... 40,000 4,000 4,000
Total preferred stock of FPL with sinking fund
requirements, excluding current maturities .......... 420,000 $ 42,000 $ 50,000
(1) FPL's charter authorizes the issuance of 5 million shares of subordinated preferred stock, no par value. None of these
shares is outstanding. There were no issuances of preferred stock in 1996, 1995 and 1994. In 1996, FPL redeemed
600,000 shares of its 7.28% Preferred Stock, Series F, $100 Par Value and 400,000 shares of its 7.40% Preferred Stock,
Series G, $100 Par Value.
(2) In 1995, 2,466,812 shares were tendered, accepted for exchange and retired by FPL pursuant to its offer to exchange each
such share for $25 in principal amount of 8.75% Quarterly Income Debt Securities (Subordinated Deferrable Interest
Debentures). In February 1997, FPL issued notices to redeem all of the outstanding shares in March 1997.
(3) Not redeemable prior to 2003.
(4) Minimum annual sinking fund requirements on preferred stock are $4 million for 1997 and 1998 and approximately $2 million
per year for 1999 through 2001. 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 1997
through 2024 at $100 per share plus accrued dividends. FPL redeemed and retired 45,000 shares in 1994, satisfying the
1994 and 1995 minimum annual sinking fund requirement. In 1996, FPL redeemed and retired 30,000 shares. In February
1997, FPL issued notices to redeem and retire 30,000 shares on April 1, 1997.
(6) FPL redeemed and retired 400,000 shares in 1995. In 1996, FPL redeemed and retired 50,000 shares. In February 1997,
FPL issued notices to redeem and retire the remaining 50,000 shares on April 1, 1997.
6. Long-Term Debt (1)(2)
Long-term debt consists of the following:
December 31,
1996 1995
(Thousands of Dollars)
FPL
First mortgage bonds:
Maturing through 2000 - 5 3/8% to 5 1/2% .......................................... $ 355,000 $ 355,000
Maturing 2001 through 2015 - 6 5/8% to 7 7/8% ..................................... 659,738 661,838
Maturing 2016 through 2026 - 7% to 8 1/2% ......................................... 910,452 1,024,702
Medium-term notes:
Maturing through 2000 - 5.50% to 6.20% .......................................... 180,300 280,300
Maturing 2001 through 2015 - 5.79% to 8.20% ..................................... 106,500 106,500
Maturing 2016 through 2022 - 8% ................................................. 98,610 98,610
Pollution control and industrial development series -
Maturing 2020 through 2027 - 6.7% to 7.5% ....................................... 150,135 150,135
Pollution control, solid waste disposal and industrial development revenue
bonds - Maturing 2021 through 2029 - variable, 3.6% and 4.3%
average annual interest rate, respectively ...................................... 483,735 483,735
Installment purchase and security contracts - maturing 2007 - 5.9% .................. 2,000 2,000
Quarterly Income Debt Securities (Subordinated Deferrable Interest
Debentures) - maturing 2025 - 8.75% (3) ........................................... 61,670 61,670
Unamortized discount - net .......................................................... (26,839) (30,440)
Total long-term debt of FPL ....................................................... 2,981,301 3,194,050
Less current maturities ......................................................... 40 100,000
Long-term debt of FPL, excluding current maturities ............................. 2,981,261 3,094,050
FPL Group Capital
Debentures:
Maturing 1997 - 6 1/2% ............................................................ 150,000 150,000
Maturing 2013 - 7 5/8% ............................................................ 125,000 125,000
Other long-term debt - 6.5% to 8.44% due various dates to 2013 ...................... 40,740 17,655
Unamortized discount ................................................................ (2,128) (2,190)
Total long-term debt of FPL Group Capital ......................................... 313,612 290,465
Less current maturities ......................................................... 150,560 7,902
Long-term debt of FPL Group Capital, excluding current maturities ............... 163,052 282,563
Total long-term debt .............................................................. $3,144,313 $3,376,613
(1) Minimum annual maturities and sinking fund requirements of long-term debt for FPL Group for 1997-2001 are approximately
$151 million, $180 million, $261 million, $125 million and $40 thousand, respectively. The respective amounts for FPL are
$40 thousand, $180 million, $230 million, $125 million and $40 thousand.
(2) Available lines of credit aggregated approximately $1.3 billion at December 31, 1996, all of which were based on firm
commitments.
(3) In February 1997, FPL issued notices to redeem all of the outstanding Quarterly Income Debt Securities (Subordinated
Deferrable Interest Debentures).
7. Financial Instruments
The carrying amounts of cash equivalents and commercial paper
approximate their fair values. Certain investments of FPL Group,
included in other investments, are carried at estimated fair value
which was $66 million and $84 million at December 31, 1996 and 1995,
respectively. 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,
1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value(1) Amount Fair Value(1)
(Thousands of Dollars)
Preferred stock of FPL with sinking fund requirements (2). $ 46,000 $ 46,979 $ 54,000 $ 55,520
Long-term debt of FPL (2) ................................ $2,981,301 $3,001,265 $3,194,050 $3,285,925
Long-term debt of FPL Group (2) .......................... $3,294,913 $3,318,588 $3,484,515 $3,588,835
(1) Based on quoted market prices for these or similar issues.
(2) Includes current maturities.
Special Use Funds - Securities held in the special use funds are
carried at estimated fair value. Approximately two-thirds of the
nuclear decommissioning fund consists of municipal and corporate debt
securities with a weighted-average maturity of 9 years. The
remaining balance consists of equity securities. The storm fund
primarily consists of municipal debt securities with a
weighted-average maturity of 5 years. The cost of securities sold is
determined on the specific identification method. The funds had
realized gains of $8 million and realized losses of $9 million in
1996, $13 million and $4 million in 1995 and $6 million and $8
million in 1994, respectively. The funds had unrealized gains of $55
million and $33 million at December 31, 1996 and 1995, respectively;
there were no significant unrealized losses at those periods. The
proceeds from the sale of securities in 1996, 1995 and 1994 were
$1.05 billion, $950 million and $650 million, respectively. A shift
in the asset mix of the decommissioning fund occurred in recent years
due to certain tax law changes.
8. Income Taxes
The components of income taxes are as follows:
FPL Group FPL
Years Ended December 31, Years Ended December 31,
1996 1995 1994 1996 1995 1994
(Thousands of Dollars)
Federal:
Current ............................... $355,091 $380,792 $203,407 $387,514 $395,480 $314,956
Deferred .............................. (76,692) (78,467) 83,135 (80,662) (84,630) (22,125)
ITC - net ............................. (31,442) (20,957) (21,205) (31,324) (20,832) (20,994)
Total federal ..................... 246,957 281,368 265,337 275,528 290,018 271,837
State:
Current ............................... 63,180 58,426 32,020 53,953 64,427 46,152
Deferred .............................. (16,275) (11,200) 9,925 (447) (7,104) 4,446
Total state ....................... 46,905 47,226 41,945 53,506 57,323 50,598
Income taxes charged to operations - FPL. 329,034 347,341 322,435
Credited to other income
(deductions) - FPL .................... (7,448) (5,047) (3,026)
Total income taxes ...................... $293,862 $328,594 $307,282 $321,586 $342,294 $319,409
A reconciliation between the effective income tax rates and the
applicable statutory rates is as follows:
FPL Group FPL
Years Ended December 31, Years Ended December 31,
1996 1995 1994 1996 1995 1994
Statutory federal income tax rate ................... 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
Increases (reductions) resulting from:
State income taxes - net of federal income
tax benefit ..................................... 3.5 3.5 3.3 3.7 3.9 3.7
Amortization of ITC ............................... (3.6) (2.4) (2.6) (3.3) (2.2) (2.4)
Preferred stock dividends - FPL ................... 1.0 1.7 1.7 - - -
Other - net ....................................... (2.3) (.5) (.2) (1.1) (.8) (.3)
Effective income tax rate ........................... 33.6% 37.3% 37.2% 34.3% 35.9% 36.0%
The income tax effects of temporary differences giving rise to
consolidated deferred income tax liabilities and assets are as follows:
FPL Group FPL
December 31, December 31,
1996 1995 1996 1995
(Thousands of Dollars)
Deferred tax liabilities:
Property-related ..................................... $1,707,705 $1,704,643 $1,676,497 $1,670,242
Investment-related ................................... 384,023 371,298 - -
Unamortized debt reacquisition costs and other ....... 342,274 222,279 188,499 145,180
Total deferred tax liabilities ..................... 2,434,002 2,298,220 1,864,996 1,815,422
Deferred tax assets and valuation allowance:
Asset writedowns and capital loss carryforward ....... 154,864 263,149 - -
Unamortized ITC and deferred regulatory
credit - income taxes .............................. 146,825 164,451 146,825 164,451
Storm and decommissioning reserves ................... 223,694 200,890 223,694 200,890
Other ................................................ 442,151 289,885 347,797 245,766
Valuation allowance .................................. (64,070) (207,604) - -
Net deferred tax assets ............................ 903,464 710,771 718,316 611,107
Accumulated deferred income taxes ...................... $1,530,538 $1,587,449 $1,146,680 $1,204,315
Certain deferred tax assets and the related valuation allowance
decreased during 1996. These accounts primarily relate to a capital loss
carryforward from the disposition of an FPL Group Capital subsidiary in a
prior year. The amount of the deductible loss from this disposition was
limited by Internal Revenue Service (IRS) rules. The carryforward period
expired at the end of 1996. FPL Group is challenging the IRS loss
limitations and the IRS is disputing certain positions taken by FPL
Group. Tax benefits, if any, associated with these matters will be
reported in future periods when resolved.
9. Commitments and Contingencies
Commitments - FPL has made commitments in connection with a portion
of its projected capital expenditures. Capital expenditures for the
construction or acquisition of additional facilities and equipment to meet
customer demand are estimated to be approximately $1.6 billion for
1997 through 1999. Included in this three-year forecast are capital
expenditures for 1997 of approximately $590 million. FPL Group Capital
and its subsidiaries, primarily ESI Energy, Inc., have guaranteed
approximately $120 million of lease obligations, debt service payments
and other payments subject to certain contingencies.
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 $327 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 nuclear insurance mutual companies 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 plants, FPL could be
assessed up to $70 million in retrospective premiums.
FPL also participates in a program that provides $200 million of tort
liability coverage for nuclear worker claims. In the event of a tort claim
by an FPL or another insured's nuclear worker, FPL could be assessed
up to $12 million in retrospective premiums per incident.
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.
FPL self-insures certain of its transmission and distribution (T&D)
property due to the high cost and limited coverage available from
third-party insurers. FPL maintains a funded storm and property
insurance reserve, which totaled approximately $223 million at
December 31, 1996, for T&D property storm damage or assessments
under the nuclear insurance program. Recovery from customers of any
losses in excess of the storm and property insurance reserve 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 entered into certain long-term purchased power and
fuel contracts. Take-or-pay purchased power contracts with the
Jacksonville Electric Authority (JEA) and with subsidiaries of the
Southern Company (Southern Companies) provide approximately 1,300
megawatts (mw) of power through mid-2010 and 374 mw through 2022.
FPL also has various firm pay-for-performance contracts to purchase
approximately 1,000 mw from certain cogenerators and small power
producers (qualifying facilities) with expiration dates ranging from 2002
through 2026. The purchased power contracts provide for capacity and
energy payments. Energy payments are based on the actual power
taken under these contracts. Capacity payments for the
pay-for-performance contracts are subject to the qualifying facilities
meeting certain contract conditions. The fuel contracts provide for the
transportation and supply of natural gas and coal and the supply and
use of Orimulsion. Orimulsion is a new fuel which FPL expected to
begin using in 1998. The contract and related use of this fuel is subject
to regulatory approvals. In 1996, Florida's Power Plant Siting Board
denied FPL's request to burn Orimulsion at the Manatee power plant.
FPL has appealed the denial to the First District Court of Appeal of the
State of Florida.
The required capacity and minimum payments through 2001 under these
contracts are estimated to be as follows:
1997 1998 1999 2000 2001
(Millions of Dollars)
Capacity payments:
JEA ...................................................................... $ 80 $ 80 $ 80 $ 80 $ 90
Southern Companies ....................................................... $130 $130 $120 $130 $130
Qualifying facilities .................................................... $330 $340 $350 $360 $370
Minimum payments, at projected prices:
Natural gas, including transportation .................................... $210 $200 $210 $210 $210
Orimulsion (1) ........................................................... - - $140 $140 $140
Coal ..................................................................... $ 50 $ 50 $ 40 $ 40 $ 30
(1) All of FPL's Orimulsion-related contract obligations are subject to obtaining the required regulatory approvals.
Capacity, energy and fuel charges under these contracts were as
follows:
1996 Charges 1995 Charges 1994 Charges
Energy/ Energy/ Energy/
Capacity Fuel (1) Capacity Fuel (1) Capacity Fuel (1)
(Millions of Dollars)
JEA ................................................. $ 77(2) $ 49 $ 83(2) $ 47 $ 82(2) $ 48
Southern Companies .................................. $115(3) $ 99 $130(3) $ 94 $186(3) $124
Qualifying facilities................................ $279(3) $125 $158(3) $ 92 $137(3) $ 68
Natural gas ......................................... - $422 - $361 - $232
Coal ................................................ - $ 49 - $ 37 - $ 33
(1) Recovered through the fuel clause.
(2) Recovered through base rates and the capacity cost recovery clause (capacity clause).
(3) Recovered through the capacity clause.
Litigation - 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
1995, the Court of Appeals vacated the District Court's summary
judgment in favor of FPL and remanded the matter to the District Court
for further proceedings. In 1996, the District Court ordered the FMPA to
seek a declaratory ruling from the FERC regarding certain issues in the
case. All other action in the case has been stayed pending the FERC's
ruling.
A former cable installation contractor for Telesat Cablevision, Inc.
(Telesat), a wholly-owned subsidiary of FPL Group Capital, 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 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 and FPL believe that they have meritorious defenses to the
litigation described above and are vigorously defending these suits.
Accordingly, the liabilities, if any, arising from these proceedings are not
anticipated to have a material adverse effect on their financial
statements.
10. Summarized Financial Information of FPL Group Capital
(Unaudited)
FPL Group Capital's debentures are guaranteed by FPL Group.
Operating revenues of FPL Group Capital for the three years ended
December 31, 1996, 1995 and 1994 were $50 million, $62 million and
$80 million, respectively. For the same periods, operating expenses
were $65 million, $77 million and $84 million, respectively. Net income
for 1996, 1995 and 1994 was $11 million, $2 million and $7 million,
respectively.
At December 31, 1996, FPL Group Capital had $144 million of current
assets, $857 million of noncurrent assets, $182 million of current
liabilities and $595 million of noncurrent liabilities. At December 31,
1995, FPL Group Capital had current assets of $89 million, noncurrent
assets of $934 million, current liabilities of $24 million and noncurrent
liabilities of $787 million.
11. Quarterly Data (Unaudited)
Condensed consolidated quarterly financial information for 1996 and
1995 is as follows:
March 31 (1) June 30 (1) September 30 (1) December 31 (1)
(In thousands, except per share amounts)
FPL Group:
1996
Operating revenues ................ $ 1,357,707 $ 1,474,086 $ 1,769,599 $ 1,435,386
Operating income .................. $ 223,374 $ 299,288 $ 459,133 $ 189,026
Net income ........................ $ 93,712 $ 150,313 $ 250,116 $ 85,309
Earnings per share ................ $ 0.54 $ 0.86 $ 1.44 $ 0.49
Dividends per share ............... $ 0.46 $ 0.46 $ 0.46 $ 0.46
High-low trading prices ........... $ 48 - 42 1/8 $46 1/4 - 41 1/2 $46 5/8 - 42 5/8 $48 1/8 - 43 1/8
1995
Operating revenues ................ $ 1,177,366 $ 1,466,724 $ 1,587,037 $ 1,361,358
Operating income .................. $ 248,797 $ 312,191 $ 447,935 $ 188,183
Net income ........................ $ 99,840 $ 138,302 $ 240,449 $ 74,720
Earnings per share ................ $ 0.57 $ 0.79 $ 1.37 $ 0.43
Dividends per share ............... $ 0.44 $ 0.44 $ 0.44 $ 0.44
High-low trading prices ........... $ 37 1/4 - 34 $39 1/4 - 36 1/8 $ 41 1/8 - 37 $46 1/2 - 40 1/4
FPL:
1996
Operating revenues ................ $ 1,340,742 $ 1,454,997 $ 1,760,939 $ 1,429,750
Operating income .................. $ 166,805 $ 218,757 $ 316,926 $ 156,293
Net income ........................ $ 107,153 $ 158,357 $ 253,027 $ 96,357
Net income available to FPL Group.. $ 100,719 $ 152,591 $ 247,260 $ 90,592
1995
Operating revenues ................ $ 1,156,269 $ 1,446,203 $ 1,579,549 $ 1,348,036
Operating income .................. $ 185,616 $ 219,554 $ 306,782 $ 153,354
Net income ........................ $ 119,442 $ 153,804 $ 245,747 $ 92,381
Net income available to FPL Group.. $ 107,289 $ 144,765 $ 236,757 $ 79,161
(1) In the opinion of FPL Group and FPL, 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. The change in the method of accounting for the cost of nuclear refueling
outages described in Note 1 did not have a material effect on the operating results of any quarter.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrants
FPL Group - The information required by this Item will be included in
FPL Group's Definitive Proxy Statement which will be filed with the
Securities and Exchange Commission in connection with the 1997 Annual
Meeting of Shareholders (FPL Group's Proxy Statement) and is
incorporated herein by reference, or is included in Item I.
Business - Executive Officers of the Registrants.
FPL DIRECTORS(1)
James L. Broadhead. Mr. Broadhead, 61, is chairman and chief
executive officer of FPL and chairman, president and chief executive
officer of FPL Group. He is a director of Barnett Banks, Inc., Delta
Air Lines, Inc. and The Pittston Company, and a board fellow of
Cornell University. Mr. Broadhead has been a director of FPL and FPL
Group since 1989.
Dennis P. Coyle. Mr. Coyle, 58, is general counsel and secretary of
FPL and FPL Group. Mr. Coyle has been a director of FPL since 1990.
Paul J. Evanson. Mr. Evanson, 55, became the president of FPL in
January 1995, after having served as senior vice president, finance
and chief financial officer of FPL and vice president, finance and
chief financial officer of FPL Group since December 1992. Prior to
that, he was president and chief operating officer of Lynch
Corporation, a diversified holding company. He is a director of
Lynch Corporation and Southern Energy Homes, Inc. Mr. Evanson has
been a director of FPL since 1992 and a director of FPL Group since
1995.
Lawrence J. Kelleher. Mr. Kelleher, 49, is senior vice president,
human resources of FPL and vice president, human resources of FPL
Group. Mr. Kelleher has been a director of FPL since 1990.
Thomas F. Plunkett. Mr. Plunkett, 57, is president of FPL's nuclear
division. He was formerly site vice president at Turkey Point. Mr.
Plunkett has been a director of FPL since 1996.
C. O. Woody. Mr. Woody, 58, is senior vice president, power
generation of FPL. Mr. Woody has been a director of FPL since 1989.
Michael W. Yackira. Mr. Yackira, 45, became senior vice president,
finance and chief financial officer of FPL and vice president,
finance and chief financial officer of FPL Group in January 1995 and
was senior vice president, market and regulatory services of FPL from
May 1991 to January 1995. Mr. Yackira has been a director of FPL
since 1990.
(1) Directors are elected annually and serve until their
resignation, removal or until their respective
successors are elected. Each director's business
experience during the past five years is noted either
here or in the Executive Officers table in Item 1.
Business - Executive Officers of the Registrants.
Item 11. Executive Compensation
FPL Group - 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 Graph
which are contained in FPL Group's Proxy Statement shall not be
deemed to be incorporated herein by reference.
FPL - The following table sets forth FPL's portion of the
compensation paid during the past three years to FPL's chief
executive officer and the other four most highly-compensated persons
who served as executive officers of FPL at December 31, 1996.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Payouts
Other Long Term All
Annual Incentive Other
Compen- Plan Compen-
Name and Principal Position Year Salary Bonus sation Payouts(1) sation(2)
James L. Broadhead (3) 1996 $799,800 $633,423 $10,601 $920,892 $12,727
Chairman of the Board and Chief Executive 1995 749,567 637,000 30,342 947,387 15,901
Officer of FPL and FPL Group, President 1994 692,346 565,500 5,658 780,681 14,131
of FPL Group
Paul J. Evanson 1996 540,000 340,200 2,925 197,471 15,868
President 1995 500,000 307,400 3,691 155,513 12,906
1994 261,000 130,500 3,254 69,622 10,214
Dennis P. Coyle 1996 334,800 158,193 - 203,637 10,742
General Counsel and Secretary of FPL 1995 303,849 138,957 3,756 223,724 11,972
and FPL Group 1994 280,662 125,344 - 165,351 10,784
C.O. Woody 1996 295,000 142,500 3,882 184,711 13,448
Senior Vice President, Power Generation 1995 283,300 133,400 3,234 207,350 15,539
1994 273,700 123,216 1,458 165,288 14,391
Michael W. Yackira 1996 279,000 131,874 3,886 145,942 9,908
Chief Financial Officer of FPL and 1995 239,250 110,403 4,526 153,294 9,092
FPL Group 1994 231,200 110,000 3,199 165,288 9,791
(1) Payouts were made in cash (for payment of income taxes) and shares of common stock, valued at the closing price on the
last business day preceding payout.
(2) Represents employer matching contributions to thrift plans and employer contributions for life insurance.
Thrift Match Life Insurance
Mr. Broadhead ....................... $6,626 $6,101
Mr. Evanson ......................... 7,125 8,743
Mr. Coyle ........................... 6,626 4,115
Mr. Woody ........................... 7,125 6,323
Mr. Yackira ......................... 6,626 3,282
(3) At December 31, 1996, Mr. Broadhead held 96,800 shares of restricted common stock with a value of $4,452,800. These
shares were awarded in 1991 for the purpose of financing Mr. Broadhead's supplemental retirement plan and will offset
lump sum benefits that would otherwise be payable to him in cash upon retirement. See Retirement Plans herein.
Dividends at normal rates are paid on restricted common stock.
Long Term Incentive Plan Awards - In 1996, awards of performance
shares under FPL Group's Long Term Incentive Plan were made to the
executive officers named in the Summary Compensation Table as set
forth in the following table.
LONG TERM INCENTIVE PLAN AWARDS
Estimated Future Payouts
Under Non-Stock Price-Based Plans
Number of Shares
Number of Performance Period
Name Shares Until Payout Threshold Target Maximum
James L. Broadhead ................ 20,074 1/1/96 - 12/31/99 - 20,074 32,118
Paul J. Evanson ................... 8,021 1/1/96 - 12/31/99 - 8,021 12,834
Dennis P. Coyle ................... 4,584 1/1/96 - 12/31/99 - 4,584 7,334
C. O. Woody ....................... 3,756 1/1/96 - 12/31/99 - 3,756 6,010
Michael W. Yackira ................ 3,820 1/1/96 - 12/31/99 - 3,820 6,112
The performance share awards shown above are payable at the end of
the four-year performance period. The amount of the payout is
determined by multiplying the participant's target number of shares
by his average level of attainment, expressed as a percentage, which
may not exceed 160%, of his targeted awards under the Annual
Incentive Plans for each of the years encompassed by the award
period. The incentive performance measures were financial indicators
(weighted 50%) and operating indicators (weighted 50%). The
financial indicators were operations and maintenance costs, capital
expenditure levels, book and regulatory return on equity and net
income. The operating indicators were customer satisfaction survey
results, service reliability as measured by the frequency and
duration of service interruptions, system performance as measured by
availability factors for the fossil and nuclear power plants,
unplanned trips of nuclear power plants, SALP ratings for nuclear
power plants, full-time equivalent workforce, number of significant
environmental violations, employee safety, load management installed
capability and conservation programs' annual installed capacity.
Retirement Plans - FPL Group maintains a non-contributory defined
benefit pension plan and a supplemental executive retirement plan
which covers FPL employees. The following table shows the estimated
annual benefits, calculated on a straight-line annuity basis, payable
upon retirement in 1996 at age 65 after the indicated years of
service.
PENSION PLAN TABLE
Eligible Average Years of Service
Annual Compensation 10 20 30 40 50
$ 500,000 ............................................. $ 99,049 $198,086 $247,134 $260,749 $263,137
600,000 ............................................. 119,049 238,086 297,134 313,249 315,637
700,000 ............................................. 139,049 278,086 347,134 365,749 368,137
800,000 ............................................. 159,049 318,086 397,134 418,249 420,637
900,000 ............................................. 179,049 358,086 447,134 470,749 473,137
1,000,000 ............................................. 199,049 398,086 497,134 523,249 525,637
1,100,000 ............................................. 219,049 438,086 547,134 575,749 578,137
1,200,000 ............................................. 239,049 478,086 597,134 628,249 630,637
1,300,000 ............................................. 259,049 518,086 647,134 680,749 683,137
1,400,000 ............................................. 279,049 558,086 697,134 733,249 735,637
1,500,000 ............................................. 299,049 598,086 747,134 785,749 788,137
1,600,000 ............................................. 319,049 638,086 797,134 838,249 840,637
1,700,000 ............................................. 339,049 678,086 847,134 890,749 893,137
1,800,000 ............................................. 359,049 718,086 897,134 943,249 945,637
1,900,000 ............................................. 379,049 758,086 947,134 995,749 998,137
2,000,000 ............................................. 399,049 798,086 997,134 1,048,249 1,050,637
The compensation covered by the plans includes annual salaries and
bonuses of officers of FPL Group and annual salaries of officers of
FPL, as shown in the Summary Compensation Table, but no other amounts
shown in that table. The estimated credited years of service for the
executive officers named in the Summary Compensation Table are: Mr.
Broadhead, 8 years; Mr. Evanson, 4 years; Mr. Coyle, 7 years; Mr.
Woody, 40 years; and Mr. Yackira, 7 years. Amounts shown in the
table reflect deductions to partially cover employer contributions to
Social Security.
A supplemental retirement plan for Mr. Broadhead provides for a
lump-sum retirement benefit equal to the then present value of a
joint and survivor annuity providing annual payments to him equal to
61% to 65% of his average annual compensation for the three years
prior to his retirement between age 62 (1998) and age 65 (2001) and
to his surviving beneficiary of 37.5% of such average annual
compensation, reduced by the then present value of the annual amount
of payments to which he is entitled under all other pension and
retirement plans of FPL Group and former employers. This benefit is
further reduced by the then value of 96,800 shares of restricted
common stock which vest as to 77,000 shares in 1998 and as to 19,800
shares in 2001. Upon a change of control of FPL Group (as defined
below under Employment Agreements), the restrictions on the
restricted stock lapse and the full retirement benefit becomes
payable. Upon termination of Mr. Broadhead's employment agreement
(also described below) without cause, the restrictions on the
restricted stock lapse and he becomes fully vested under the
supplemental retirement plan. Absent any such change of control or
termination of employment, Mr. Broadhead will have no right to such
shares of restricted stock, and there will be no payments under the
supplemental retirement plan, unless he remains with FPL Group until
at least age 62.
A supplemental retirement plan for Mr. Coyle provides for benefits,
upon retirement at age 62 or more, based on two times his credited
years of service. A supplemental retirement plan for Mr. Evanson
provides for benefits based on two times his credited years of
service up to age 65, and additionally, one times his credited years
of service thereafter.
FPL Group sponsors a split-dollar life insurance plan for certain of
FPL and FPL Group's senior officers. Benefits under the split-dollar
plan are provided by universal life insurance policies purchased by
FPL Group. If the officer dies prior to retirement, the officer's
beneficiaries generally receive two and one-half times the officer's
annual salary at the time of death. If the officer dies after
retirement, the officer's beneficiaries receive between 50% to 100%
of the officer's final annual salary. Each officer is taxable on the
insurance carrier's one year term rate for his or her life insurance
coverage.
Employment Agreements - FPL Group has entered into an employment
agreement with Mr. Broadhead for an initial term ending
December 1997, with automatic one-year extensions thereafter unless
either party elects not to extend. The agreement provides for a
minimum base salary of $765,900 per year, subject to increases based
upon corporate and individual performance and increases in
cost-of-living indices, plus annual and long-term incentive
compensation opportunities at least equal to those currently in
effect. If FPL Group terminates Mr. Broadhead's employment without
cause, he is entitled to receive a lump sum payment of two years'
compensation. Compensation is measured by the then current base
salary plus the average of the preceding two years' annual incentive
awards. He would also be entitled to receive all amounts accrued
under all performance share grants in progress, prorated for the year
of termination and assuming achievement of the targeted award, and to
full vesting of his benefits under his supplemental retirement plan.
FPL Group and FPL have entered into employment agreements with
certain officers, including the individuals named in the Summary
Compensation Table, to become effective in the event of a change of
control of FPL Group, which is defined as the acquisition of
beneficial ownership of 20% of the voting power of FPL Group, certain
changes in FPL Group's board of directors, or approval by the
shareholders of the liquidation of FPL Group or of certain mergers or
consolidations or of certain transfers of FPL Group's assets. These
agreements are intended to assure FPL Group and FPL of the continued
services of key officers. The agreements provide that each officer
shall be employed by FPL Group or one of its subsidiaries in his or
her then current position, with compensation and benefits at least
equal to the then current base and incentive compensation and benefit
levels, for an employment period of four and, in certain cases, five
years after a change in control occurs.
In the event that the officer's employment is terminated (except for
death, disability or cause) or if the officer terminates his or her
employment for good reason, as defined in the agreement, the officer
is entitled to severance benefits in the form of a lump sum payment
equal to the compensation due for the remainder of the employment
period or for two years, whichever is longer. Such benefits would be
based on the officer's then base salary plus an annual bonus at least
equal to the average bonus for the two years preceding the change of
control. The officer is also entitled to the maximum amount payable
under all long-term incentive compensation grants outstanding,
continued coverage under all employee benefit plans, supplemental
retirement benefits and reimbursement for any tax penalties incurred
as a result of the severance payments.
Director Compensation - All of the directors of FPL are salaried
employees of FPL and do not receive any additional compensation for
serving as a director.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
FPL Group - The information required by this Item will be included in
FPL Group's Proxy Statement and is incorporated herein by reference.
FPL - FPL Group owns 100% of FPL's common stock. FPL's directors and
executive officers beneficially own shares of FPL Group's common
stock as follows:
Name Number of Shares (1)
James L. Broadhead ......................................................................... 136,433(2)
Dennis P. Coyle ............................................................................ 10,987
Paul J. Evanson ............................................................................ 10,715
Lawrence J. Kelleher ....................................................................... 17,394
Thomas F. Plunkett ......................................................................... 21,135(3)
C. O. Woody ................................................................................ 17,718
Michael W. Yackira ......................................................................... 12,170
All directors and executive officers as a group ............................................ 238,891(4)
(1) Information is as of March 1, 1997, except for executive officers' holdings under the thrift plans, which are as of
December 31, 1996. Unless otherwise indicated, each person has sole voting and sole investment power.
(2) Includes 96,800 shares of restricted stock as to which Mr. Broadhead has voting but not investment power.
(3) Includes 15,000 shares of restricted stock as to which Mr. Plunkett has voting but not investment power.
(4) Less than 1% of FPL Group's common stock outstanding.
Section 16(a) Beneficial Ownership Reporting Compliance - FPL's
directors and executive officers are required to file initial reports
of ownership and reports of changes of ownership of FPL Group common
stock with the Securities and Exchange Commission. Based upon a
review of these filings and written representations from FPL
directors and executive officers, all required filings were timely
made in 1996.
Item 13. Certain Relationships and Related Transactions
FPL Group - The information required by this Item will be included in
FPL Group's Proxy Statement and is incorporated herein by reference.
FPL - None
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) 1. Financial Statements Page(s)
Independent Auditors' Report 14
FPL Group:
Consolidated Statements of Income 15
Consolidated Balance Sheets 16
Consolidated Statements of Cash Flows 17
FPL:
Consolidated Statements of Income 18
Consolidated Balance Sheets 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21-33
2. Financial Statement Schedules - Schedules are omitted as
not applicable or not required.
3. Exhibits including those Incorporated by Reference
Exhibit FPL
Number Description Group FPL
*3(i)a Restated Articles of Incorporation of FPL Group dated December 31, 1984, x
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(i)b Amendment to FPL Group's Restated Articles of Incorporation dated June 27, x
1996 (filed as Exhibit 3 to Form 10-Q for the quarter ended June 30, 1996,
File No. 1-8841)
*3(i)c Restated Articles of Incorporation of FPL dated March 23, 1992 (filed as x
Exhibit 3(i)a to Form 10-K for the year ended December 31, 1993, File No.
1-3545)
*3(i)d Amendment to FPL's Restated Articles of Incorporation dated March 23, 1992 x
(filed as Exhibit 3(i)b to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)e Amendment to FPL's Restated Articles of Incorporation dated May 11, 1992 x
(filed as Exhibit 3(i)c to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)f Amendment to FPL's Restated Articles of Incorporation dated March 12, 1993 x
(filed as Exhibit 3(i)d to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)g Amendment to FPL's Restated Articles of Incorporation dated June 16, 1993 x
(filed as Exhibit 3(i)e to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)h Amendment to FPL's Restated Articles of Incorporation dated August 31, 1993 x
(filed as Exhibit 3(i)f to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)i Amendment to FPL's Restated Articles of Incorporation dated November 30, x
1993 (filed as Exhibit 3(i)g to Form 10-K for the year ended December 31,
1993, File No. 1-3545)
*3(ii)a Bylaws of FPL Group dated November 15, 1993 (filed as Exhibit 3(ii) to Form x
10-K for the year ended December 31, 1993, File No. 1-8841)
*3(ii)b Bylaws of FPL dated May 11, 1992 (filed as Exhibit 3 to Form 8-K dated x
May 1, 1992, File No. 1-3545)
*4(a) Form of Rights Agreement, dated as of July 1, 1996, between FPL Group x
and the First National Bank of Boston (filed as Exhibit 4 to Form 8-K
dated June 17, 1996, File No. 1-8841)
FPL
Group FPL
*4(b) Mortgage and Deed of Trust dated as of January 1, 1944, and Ninety-seven x x
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; Exhibit
4(i) to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3545;
Exhibit 4(b) to Form 10-Q for the quarter ended June 30, 1995, File
No. 1-3545; and Exhibit 4(a) to Form 10-Q for the quarter ended March 31,
1996, File No. 1-3545)
*4(c)(i) Indenture, dated as of November 1, 1995 between FPL and The Chase x x
Manhattan Bank (National Association), as Trustee (filed as Exhibit 4(c)(i)
to Form 10-K for the year ended December 31, 1995, File No. 1-3545)
*4(c)(ii) Excerpts from Unanimous Consent of the Finance Committee of the Board of x x
Directors in lieu of meeting, dated July 10, 1995, establishing certain
terms of the 8.75% Quarterly Income Debt Securities (Subordinated
Deferrable Interest Debentures, Due 2025) (filed as Exhibit 4(c)(ii) to
Form 10-K for the year ended December 31, 1995, File No. 1-3545)
*4(c)(iii) Officer's Certificate of FPL, dated November 10, 1995, establishing certain x x
terms of the 8.75% Quarterly Income Debt Securities (Subordinated Deferrable
Interest Debentures, Due 2025) (filed as Exhibit 4(c)(iii) to Form 10-K for
the year end December 31, 1995, File No. 1-3545)
*10(a) Supplemental Executive Retirement Plan, amended and restated effective x
January 1, 1994 (filed as Exhibit 10(a) to Form 10-K for the year ended
December 31, 1995, File No. 1-8841)
10(b) Supplement to the FPL Group Supplemental Executive Retirement Plan x
as it applies to Paul J. Evanson effective January 1, 1996
*10(c) FPL Group Amended and Restated Supplemental Executive Retirement Plan for x
James L. Broadhead effective January 1, 1990 (filed as Exhibit 99(d) to
Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(d) FPL Group Long-Term Incentive Plan of 1985, as amended (filed as Exhibit x
99(h) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(e) Long-Term Incentive Plan 1994 (filed as Exhibit 4(d) to Form S-8, File x
No. 33-57673)
*10(f) Annual Incentive Plan dated as of March 31, 1994 (filed as Exhibit 10(k) x
to Form 10-Q for the quarter ended March 31, 1994, File No. 1-8841)
*10(g) FPL Group Deferred Compensation Plan, amended and restated effective x
January 1, 1995 (filed as Exhibit 10(f) to Form 10-K for the year ended
December 31, 1995, File No. 1-8841)
FPL
Group FPL
*10(h) FPL Group Executive Long Term Disability Plan effective January 1, 1995 x
(filed as Exhibit 10(g) to Form 10-K for the year ended December 31,
1995, File No. 1-8841)
*10(i) Employment Agreement between FPL Group and James L. Broadhead dated as of x
December 13, 1993 (filed as Exhibit 10(j) to Form 10-K for the year ended
December 31, 1993, File No. 1-8841)
*10(j) Employment Agreement between FPL Group and James L. Broadhead dated as of x
December 11, 1995 (filed as Exhibit 10(i) to Form 10-K for the year ended
December 31, 1995, File No. 1-8841)
*10(k) Employment Agreement between FPL Group and Dennis P. Coyle dated as of x
December 11, 1995 (filed as Exhibit 10(j) to Form 10-K for the year
ended December 31, 1995, File No. 1-8841)
*10(l) Employment Agreement between FPL Group and Paul J. Evanson dated as of x
December 11, 1995 (filed as Exhibit 10(k) to Form 10-K for the year
ended December 31, 1995, File No. 1-8841)
*10(m) Employment Agreement between FPL Group and Lawrence J. Kelleher dated x
as of December 11, 1995 (filed as Exhibit 10(l) to Form 10-K for the
year ended December 31, 1995, File No. 1-8841)
*10(n) Employment Agreement between FPL Group and Thomas F. Plunkett dated as of x
September 16, 1996 (filed as Exhibit 10 to Form 10-Q for the quarter
ended September 30, 1996)
*10(o) Employment Agreement between FPL Group and C.O. Woody dated as of x
December 11, 1995 (filed as Exhibit 10(m) to Form 10-K for the year
ended December 31, 1995, File No. 1-8841)
*10(p) Employment Agreement between FPL Group and Michael W. Yackira as of x
December 11, 1995 (filed as Exhibit 10(n) to Form 10-K for the year
ended December 31, 1995, File No. 1-8841)
12 Computation of Ratios x
21 Subsidiaries of the Registrant x
23 Independent Auditors' Consent x x
27 Financial Data Schedule x x
* Incorporated herein by reference
(b) Reports on Form 8-K - None
FPL GROUP, INC. 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 5, 1997
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.
Signature and Title as of March 5, 1997:
MICHAEL W. YACKIRA K. MICHAEL DAVIS
Michael W. Yackira K. Michael Davis
Vice President, Finance and Chief Controller and Chief Accounting Officer
Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
Directors:
H. JESSE ARNELLE B. F. DOLAN
H. Jesse Arnelle B. F. Dolan
ROBERT M. BEALL, II WILLARD D. DOVER
Robert M. Beall, II Willard D. Dover
DAVID BLUMBERG ALEXANDER W. DREYFOOS JR.
David Blumberg Alexander W. Dreyfoos Jr.
J. HYATT BROWN PAUL J. EVANSON
J. Hyatt Brown Paul J. Evanson
LYNNE V. CHENEY DREW LEWIS
Lynne V. Cheney Drew Lewis
ARMANDO M. CODINA FREDERIC V. MALEK
Armando M. Codina Frederic V. Malek
MARSHALL M. CRISER PAUL R. TREGURTHA
Marshall M. Criser Paul R. Tregurtha
FLORIDA POWER & LIGHT COMPANY 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.
Florida Power & Light Company
PAUL J. EVANSON
Paul J. Evanson
President and Director
Date: March 5, 1997
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.
Signature and Title as of March 5, 1997:
JAMES L. BROADHEAD
James L. Broadhead
Chairman of the Board
(Principal Executive Officer and Director)
MICHAEL W. YACKIRA
Michael W. Yackira
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial Officer and Director)
K. MICHAEL DAVIS
K. Michael Davis
Vice President, Accounting,
Controller and Chief Accounting Officer
(Principal Accounting Officer)
Directors:
DENNIS P. COYLE C. W. WOODY
Dennis P. Coyle C. O. Woody
THOMAS F. PLUNKETT LAWRENCE J. KELLEHER
Thomas F. Plunkett Lawrence J. Kelleher