01—Abstract
Summary
Summary of the 10-K filed March 6, 1997. Cited figures are marked; the original filing is the authoritative source.
FPL Group, Inc. (NYSE: NEE, parent of Florida Power & Light Company) reported 1996 results in this combined 10-K for FPL Group and FPL.
Consolidated net income rose to $579.5 milliona ($3.33 per share) from $553.3 million ($3.16) in 1995, and operating revenues increased about 8% to $6.04 billion. Growth was driven mainly by FPL's service territory expansion (customer accounts up roughly 2%) and higher fuel and capacity clause pass-through revenues. Earnings were supported by management's cost-reduction efforts, including lower O&M expenses and accelerated amortization under an FPSC-approved special amortization program ($160 million recorded in 1996).
Note that the 1996 effective tax rate of 33.6% was lower than in prior years, partly reflecting that amortization of deferred investment tax credits. FPL's regulated retail business accounts for roughly 97-99% of revenues and earns a retail regulatory ROE of 12.1%, within the FPSC's authorized 11%-13% range. Balance sheet deleveraging continued: long-term debt fell to $3.14 billionb from $3.38 billion, and more than $1.3 billion of debt, preferred stock and commercial paper was retired over three years.
The board also authorized repurchase of up to 10 million shares in February 1997, and the dividend held at $1.84c per share for 1996. Key risks include the St. Lucie nuclear plant's operational problems and NRC scrutiny, the planned steam generator replacement at St. Lucie Unit 1 (which will lift 1997 capital expenditures to about $590 million), pending FMPA antitrust litigation seeking $140 million before trebling, the Orimulsion permit denial at Manatee, and the long-term possibility of retail competition and deregulation in Florida. Management does not expect any of these to have a material adverse effect on financial statements, though a decision against FPL in the FMPA suit could do so.
02—Key points
Key Highlights
- Net income grew 4.7% to $579.5 million, and EPS rose to $3.33 from $3.16, helped by a lower effective tax rate and reduced share count from buybacks.
- Operating revenues increased 8% to $6.04 billion, with fuel and capacity clause pass-through revenues driving much of the increase.
- FPL's retail ROE was 12.1%, inside the FPSC's authorized 11%-13% range (midpoint 12%); base rates have not changed since 1984.
- Long-term debt was reduced to $3.14 billion, and over $1.3 billion of debt, preferred stock and commercial paper was retired over three years.
- The board authorized repurchase of up to 10 million shares in February 1997, following 1.9 million shares repurchased in 1996.
- St. Lucie nuclear plant faces heightened NRC scrutiny after mid-1995 mechanical problems, and steam generator replacement at Unit 1 is planned for September 1997.
- Pending FMPA antitrust and breach-of-contract suit seeks $140 million in damages before trebling; the Orimulsion burn permit for Manatee was denied and is under appeal.
03—Questions
Frequently Asked Questions
How did FPL Group's earnings perform in 1996?
Net income was $579.5 million, or $3.33 per share, up from $553.3 million, or $3.16 per share, in 1995. Earnings growth reflected customer growth, cost-reduction efforts, and a lower effective tax rate of 33.6%, though the company also recorded accelerated amortization of about $160 million under the special amortization program.
Is FPL Group's dividend secure?
The quarterly dividend was $0.46 per share in 1996 ($1.84 annually), up from $1.76 in 1995. The board reviews the dividend annually and has discretion over it. The dividend depends primarily on upstream payments from FPL, and no charter or mortgage restrictions currently limit those payments.
What are the biggest risks to investors?
The most significant risks are the St. Lucie nuclear plant's operating performance and NRC oversight, the steam generator replacement and resulting higher 1997 capital spending, the FMPA antitrust suit (which could have a material adverse effect if FPL loses), and the possibility of retail deregulation in Florida, which could force write-offs of regulatory assets. Management says no proposal for Florida deregulation is currently under consideration.
How much is FPL Group investing and how is it funded?
FPL's capital expenditures are expected to total about $1.6 billion for 1997-1999, including $590 million in 1997. Management expects to fund these needs primarily from internally generated cash, with commercial paper for temporary needs, and has $1.3 billion in bank credit lines available. No new generating plants are expected before 2004.
What is FPL Group's non-utility business?
Non-utility operations, held through FPL Group Capital, represent less than 6% of total assets. They include ESI Energy's interests in about 27 projects totaling roughly 2,000 MW (concentrated in California, Virginia, and Nevada), FPL Group International's early-stage overseas power projects, and Turner Foods' Florida citrus groves. Management says the effect of California's pending pricing changes on ESI's earnings is uncertain.
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