UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 <TABLE> <CAPTION> 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 <S> <C> <C> 1-8841 FPL GROUP, INC. 59-2449419 1-3545 FLORIDA POWER & LIGHT COMPANY 59-0247775 700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4647 </TABLE> State or other jurisdiction of incorporation or organization: Florida 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 ___ APPLICABLE ONLY TO CORPORATE ISSUERS: 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 October 31, 1996: 182,998,435 shares As of October 31, 1996 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. ______________________________ This combined Form 10-Q 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.
PART I - FINANCIAL INFORMATION Item 1. Financial Statements FPL GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (In thousands, except per share amounts) <S> <C> <C> <C> <C> OPERATING REVENUES ....................................... $1,769,599 $1,587,037 $4,601,392 $4,231,126 OPERATING EXPENSES: Fuel, purchased power and interchange .................. 628,464 480,912 1,578,293 1,284,187 Other operations and maintenance........................ 264,239 297,201 848,849 847,376 Depreciation and amortization .......................... 257,761 212,675 757,341 675,767 Taxes other than income taxes .......................... 160,002 148,314 435,115 414,874 Total operating expenses ............................. 1,310,466 1,139,102 3,619,598 3,222,204 OPERATING INCOME ......................................... 459,133 447,935 981,794 1,008,922 OTHER INCOME (DEDUCTIONS): Interest charges ....................................... (65,525) (70,514) (202,642) (221,811) Dividend requirements on preferred stock of FPL ........ (5,767) (8,990) (17,966) (30,182) Other - net ............................................ 4,421 9,179 (5,443) 15,487 Total other deductions - net ......................... (66,871) (70,325) (226,051) (236,506) INCOME BEFORE INCOME TAXES ............................... 392,262 377,610 755,743 772,416 INCOME TAXES ............................................. 142,146 137,161 261,602 293,826 NET INCOME ............................................... $ 250,116 $ 240,449 $ 494,141 $ 478,590 Earnings per share of common stock ....................... $ 1.44 $ 1.37 $ 2.84 $ 2.73 Dividends per share of common stock ...................... $ 0.46 $ 0.44 $ 1.38 $ 1.32 Average number of common shares outstanding .............. 173,850 175,112 174,217 175,450 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 8 through 10 herein and the Notes to Consolidated Financial Statements appearing in the combined Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (1995 Form 10-K) for FPL Group, Inc. (FPL Group) and Florida Power & Light Company (FPL).
FPL GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> September 30, 1996 December 31, (Unaudited) 1995 (Thousands of Dollars) <S> <C> <C> PROPERTY, PLANT AND EQUIPMENT: Electric utility plant and other property - at original cost, including nuclear fuel and construction work in progress ...................... $16,901,317 $16,725,231 Less accumulated depreciation and amortization .................................. 7,444,071 6,873,250 Total property, plant and equipment - net ..................................... 9,457,246 9,851,981 CURRENT ASSETS: Cash and cash equivalents ....................................................... 91,715 46,177 Customer receivables, net of allowances of $12,508 and $11,929, respectively .... 564,246 482,326 Materials, supplies and fossil fuel stock - at average cost ..................... 274,751 247,323 Other ........................................................................... 345,632 209,522 Total current assets .......................................................... 1,276,344 985,348 OTHER ASSETS: Special use funds of FPL ........................................................ 745,055 646,846 Other investments ............................................................... 400,195 447,006 Unamortized debt reacquisition costs of FPL ..................................... 287,668 294,844 Other ........................................................................... 215,323 233,201 Total other assets ............................................................ 1,648,241 1,621,897 TOTAL ASSETS ...................................................................... $12,381,831 $12,459,226 CAPITALIZATION: Common shareholders' equity ..................................................... $ 4,597,537 $ 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 .................................................................. 3,262,857 3,376,613 Total capitalization .......................................................... 8,191,974 8,108,702 CURRENT LIABILITIES: Accounts payable ................................................................ 327,104 305,126 Debt and preferred stock due within one year .................................... 4,672 390,402 Accrued interest, taxes and other ............................................... 952,020 808,615 Total current liabilities ..................................................... 1,283,796 1,504,143 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes ............................................... 1,587,499 1,587,449 Unamortized regulatory and investment tax credits ............................... 411,744 426,317 Other ........................................................................... 906,818 832,615 Total other liabilities and deferred credits .................................. 2,906,061 2,846,381 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES .............................................. $12,381,831 $12,459,226 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 8 through 10 herein and the Notes to Consolidated Financial Statements appearing in the 1995 Form 10-K for FPL Group and FPL.
FPL GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Nine Months Ended September 30, 1996 1995 (Thousands of Dollars) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income .......................................................................... $ 494,141 $ 478,590 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................................................... 757,341 675,767 Other - net ....................................................................... 63,707 144,863 Net cash provided by operating activities ....................................... 1,315,189 1,299,220 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1) ............................................................ (343,862) (499,783) Other - net ......................................................................... (108,784) 24,378 Net cash used in investing activities ........................................... (452,646) (475,405) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of debt .................................................................... - 110,349 Retirement of long-term debt and preferred stock .................................... (333,292) (417,604) Repurchase of common stock .......................................................... (65,746) (59,496) Decrease in commercial paper ........................................................ (178,500) (183,979) Dividends on common stock ........................................................... (240,487) (231,604) Other - net ......................................................................... 1,020 (23,751) Net cash used in financing activities ........................................... (817,005) (806,085) Net increase in cash and cash equivalents ............................................. 45,538 17,730 Cash and cash equivalents at beginning of period ...................................... 46,177 85,750 Cash and cash equivalents at end of period ............................................ $ 91,715 $ 103,480 Supplemental disclosures of cash flow information: Cash paid for interest .............................................................. $ 202,586 $ 228,760 Cash paid for income taxes .......................................................... $ 208,200 $ 242,800 Supplemental schedule of noncash investing and financing activities: Additions to capital lease obligations .............................................. $ 59,392 $ 55,502 (1) Capital expenditures exclude allowance for equity funds used during construction. </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 8 through 10 herein and the Notes to Consolidated Financial Statements appearing in the 1995 Form 10-K for FPL Group and FPL.
FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (Thousands of Dollars) <S> <C> <C> <C> <C> OPERATING REVENUES ....................................... $1,760,939 $1,579,549 $4,556,678 $4,182,021 OPERATING EXPENSES: Fuel, purchased power and interchange .................. 628,464 480,912 1,578,293 1,284,187 Other operations and maintenance ....................... 256,369 288,808 806,939 795,514 Depreciation and amortization .......................... 256,395 211,000 753,188 668,982 Income taxes ........................................... 142,948 143,956 281,058 307,699 Taxes other than income taxes .......................... 159,837 148,091 434,713 413,687 Total operating expenses ............................. 1,444,013 1,272,767 3,854,191 3,470,069 OPERATING INCOME ......................................... 316,926 306,782 702,487 711,952 OTHER INCOME (DEDUCTIONS): Interest charges - net ................................. (62,217) (63,979) (186,150) (201,664) Other - net ............................................ (1,682) 2,944 2,200 8,705 Total other deductions - net ......................... (63,899) (61,035) (183,950) (192,959) NET INCOME ............................................... 253,027 245,747 518,537 518,993 DIVIDEND REQUIREMENTS ON PREFERRED STOCK ................. 5,767 8,990 17,966 30,182 NET INCOME AVAILABLE TO FPL GROUP ........................ $ 247,260 $ 236,757 $ 500,571 $ 488,811 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 8 through 10 herein and the Notes to Consolidated Financial Statements appearing in the 1995 Form 10-K for FPL Group and FPL.
FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> September 30, 1996 December 31, (Unaudited) 1995 (Thousands of Dollars) <S> <C> <C> ELECTRIC UTILITY PLANT: At original cost, including nuclear fuel and construction work in progress ....... $16,700,189 $16,531,492 Less accumulated depreciation and amortization ................................... 7,399,429 6,832,201 Electric utility plant - net ................................................... 9,300,760 9,699,291 CURRENT ASSETS: Cash and cash equivalents ........................................................ 65,639 412 Customer receivables, net of allowances of $12,317 and $11,737, respectively ..... 561,738 479,838 Materials, supplies and fossil fuel stock - at average cost ...................... 254,597 230,553 Other ............................................................................ 321,071 180,414 Total current assets ........................................................... 1,203,045 891,217 OTHER ASSETS: Special use funds ................................................................ 745,055 646,846 Unamortized debt reacquisition costs ............................................. 287,668 294,844 Other ............................................................................ 204,828 219,061 Total other assets ............................................................. 1,237,551 1,160,751 TOTAL ASSETS ....................................................................... $11,741,356 $11,751,259 CAPITALIZATION: Common shareholder's equity ...................................................... $ 4,668,156 $ 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 ................................................................... 2,980,701 3,094,050 Total capitalization ........................................................... 7,980,437 7,907,338 CURRENT LIABILITIES: Accounts payable ................................................................. 324,874 299,987 Debt and preferred stock due within one year ..................................... 4,000 382,500 Accrued interest, taxes and other ................................................ 936,521 778,465 Total current liabilities ...................................................... 1,265,395 1,460,952 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes ................................................ 1,258,331 1,204,315 Unamortized regulatory and investment tax credits ................................ 411,744 426,317 Other ............................................................................ 825,449 752,337 Total other liabilities and deferred credits ................................... 2,495,524 2,382,969 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES ............................................... $11,741,356 $11,751,259 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 8 through 10 herein and the Notes to Consolidated Financial Statements appearing in the 1995 Form 10-K for FPL Group and FPL.
FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Nine Months Ended September 30, 1996 1995 (Thousands of Dollars) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income .......................................................................... $ 518,537 $ 518,993 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................................................... 753,188 668,982 Other - net ....................................................................... 99,844 92,735 Net cash provided by operating activities ....................................... 1,371,569 1,280,710 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1) ............................................................ (335,523) (490,837) Other - net ......................................................................... (136,672) (13,626) Net cash used in investing activities ........................................... (472,195) (504,463) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of debt .................................................................... - 110,349 Retirement of long-term debt and preferred stock .................................... (332,669) (417,438) Decrease in commercial paper ........................................................ (178,500) (174,000) Dividends ........................................................................... (468,975) (463,443) Capital contributions from FPL Group ................................................ 145,000 200,000 Other - net ......................................................................... 997 (29,504) Net cash used in financing activities ........................................... (834,147) (774,036) Net increase in cash and cash equivalents ............................................. 65,227 2,211 Cash and cash equivalents at beginning of period ...................................... 412 535 Cash and cash equivalents at end of period ............................................ $ 65,639 $ 2,746 Supplemental disclosures of cash flow information: Cash paid for interest .............................................................. $ 186,967 $ 210,811 Cash paid for income taxes .......................................................... $ 161,516 $ 321,135 Supplemental schedule of noncash investing and financing activities: Additions to capital lease obligations .............................................. $ 59,392 $ 55,502 (1) Capital expenditures exclude allowance for equity funds used during construction. </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 8 through 10 herein and the Notes to Consolidated Financial Statements appearing in the 1995 Form 10-K for FPL Group and FPL.
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The accompanying condensed consolidated financial statements should be read in conjunction with the combined 1995 Form 10-K for FPL Group and FPL. In the opinion of FPL Group and FPL, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 1996, the results of operations for the three and nine months ended September 30, 1996 and 1995 and cash flows for the nine months ended September 30, 1996 and 1995 have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period may not give a true indication of results for the year. 1. Summary of Significant Accounting and Reporting Policies Depreciation and Amortization - In the second quarter of 1995, the Florida Public Service Commission (FPSC) approved, on an interim basis, accelerated amortization of FPL's nuclear units of $30 million per year plus additional amounts based on the level of sales. In March 1996, the FPSC granted final approval of the $30 million per year of special nuclear amortization. The FPSC also approved the additional expense amounts recorded in 1995 based on the level of sales, added certain fossil and regulatory assets to the program and extended the program through 1997. The aggregate amount relating to nuclear and fossil plant assets was fully amortized by the end of the third quarter of 1996. FPL will continue to recognize $30 million of special nuclear amortization per year and the additional expense amounts based on the level of sales are now applied against regulatory assets. Allowance for Funds Used During Construction (AFUDC) - In October 1996, the FPSC approved an accounting rule change that eliminates AFUDC, except for projects that cost in excess of 1/2% of a company's electric utility plant in-service. FPL adopted the rule change retroactive to January 1, 1996. Accrual for Nuclear Maintenance Costs - In October 1996, the FPSC approved a change in the accounting for costs associated with nuclear refueling outages. Under the new method of accounting, FPL will accrue estimated nuclear refueling and maintenance costs relating to each unit's next planned outage while the unit is in operation. Any cost overruns will be expensed 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 will be expensed over a period not to exceed five years. 2. Capitalization FPL Group Common Stock - During the nine months ended September 30, 1996, FPL Group repurchased approximately 1.5 million shares of common stock under its share repurchase program. A total of approximately 7.4 million shares have been repurchased since the inception of the share repurchase program in May 1994. Preferred Stock - In January 1996, FPL redeemed all 600,000 outstanding shares of its 7.28% Preferred Stock, Series F, $100 Par Value and all 400,000 outstanding shares of its 7.40% Preferred Stock, Series G, $100 Par Value. The 1996 sinking fund requirements for the 6.84% Preferred Stock, Series Q, $100 Par Value and the 8.625% Preferred Stock, Series R, $100 Par Value were met by redeeming and retiring, in April 1996, 30,000 shares of Series Q and 50,000 shares of Series R. There are no preferred stock sinking fund requirements for the remainder of 1996. Long-Term Debt - In September 1996, FPL redeemed $87 million principal amount of First Mortgage Bonds, 8 1/2% Series due 2022. During the nine months ended September 30, 1996, FPL purchased on the open market and retired approximately $29 million in aggregate principal amount of several series of First Mortgage Bonds, due on dates ranging from 2013 through 2023, at interest rates ranging from 7 3/4% to 8 1/2%. 3. 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 primarily to meet customer demand are estimated to be approximately $1.5 billion for the years 1996 through 1998. Included in this three-year forecast are capital expenditures for 1996 of $511 million, of which $335 million had been spent through September 30, 1996. FPL Group Capital Inc (FPL Group Capital) and its subsidiaries, primarily ESI Energy, Inc., have guaranteed up to approximately $86 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 $69 million in retrospective premiums. In the event of a subsequent accident at such nuclear plants during the policy period, the maximum additional assessment would be $30 million under the programs in effect at September 30, 1996. 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 $217 million at September 30, 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 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, subject to regulatory approvals. In April 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 annual capacity and minimum payments through 2000 under these contracts are estimated to be as follows: <TABLE> <CAPTION> 1996 1997 1998 1999 2000 (Millions of Dollars) <S> <C> <C> <C> <C> <C> Capacity payments: JEA and Southern Companies ............................................... $210 $210 $210 $220 $220 Qualifying facilities .................................................... $300 $310 $320 $340 $350 Minimum payments, at projected prices: Natural gas .............................................................. $280 $210 $210 $210 $210 Orimulsion (1) ........................................................... - - - $140 $140 Coal ..................................................................... $ 50 $ 50 $ 40 $ 40 $ 40 (1) All of FPL's Orimulsion-related contract obligations are subject to obtaining the required regulatory approvals. </TABLE> Capacity, energy and fuel charges under these contracts were as follows: <TABLE> <CAPTION> Three Months Ended September 30, Nine Months Ended September 30, 1996 Charges 1995 Charges 1996 Charges 1995 Charges Energy/ Energy/ Energy/ Energy/ Capacity Fuel (1) Capacity Fuel (1) Capacity Fuel (1) Capacity Fuel (1) (Millions of Dollars) <S> <C> <C> <C> <C> <C> <C> <C> <C> JEA and Southern Companies ... $51(2) $ 45 $45(2) $44 $143(2) $112 $165(2) $110 Qualifying facilities......... $70(3) $ 34 $40(3) $25 $209(3) $ 96 $116(3) $ 63 Natural gas .................. - $131 - $97 $ - $314 $ - $259 Coal ......................... - $ 14 - $13 $ - $ 37 $ - $ 38 (1) Recovered through the fuel and purchased power cost recovery clause. (2) Recovered through base rates and the capacity cost recovery clause (capacity clause). (3) Recovered through the capacity clause. </TABLE> 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 September 1996, the District Court ordered the FMPA to seek a declaratory ruling from the Federal Energy Regulatory Commission (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 all of 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. 4. Summarized Financial Information of FPL Group Capital FPL Group Capital's debentures are guaranteed by FPL Group. Operating revenues of FPL Group Capital for the nine months ended September 30, 1996 and 1995 were approximately $45 million and $49 million, respectively. For the same period, operating expenses were approximately $49 million and $59 million. Net income for the nine months ended September 30, 1996 and 1995 was approximately $11 million and $1 million, respectively. At September 30, 1996, FPL Group Capital had current assets of approximately $92 million, noncurrent assets of approximately $892 million, current liabilities of approximately $15 million and noncurrent liabilities of approximately $745 million. At December 31, 1995, FPL Group Capital had approximately $89 million of current assets, $934 million of noncurrent assets, $24 million of current liabilities and $787 million of noncurrent liabilities.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with the Notes to Condensed Consolidated Financial Statements contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the 1995 Form 10-K for FPL Group and FPL. The results of operations for an interim period may not give a true indication of results for the year. In the following discussion, all comparisons are with the corresponding items in the prior year. RESULTS OF OPERATIONS Net income for the three and nine months ended September 30, 1996 increased due to higher energy sales, resulting from customer growth and weather conditions, and lower interest and preferred stock dividend requirements, partly offset by higher depreciation expense. The three- month period ended September 30, 1996 also benefitted from lower operations and maintenance expenses (O&M). FPL's revenues from base rates for the three and nine months ended September 30, 1996 increased to approximately $1.03 billion and $2.71 billion, respectively, from approximately $1.00 billion and $2.65 billion for the same periods in 1995. The increases reflect a 1.8% increase in customer accounts and increases in energy usage per retail customer of 1.2% and 0.1%, respectively, primarily due to weather conditions. Revenues from cost recovery clauses and franchise fees comprise substantially all of the remaining portion of operating revenues. Such revenues and costs increased mainly as a result of higher gas prices. These revenues represent a pass-through of costs and do not significantly affect net income. O&M decreased for the three months ended September 30, 1996, primarily due to continued efforts to control costs and costs associated with ongoing organizational reviews recorded in 1995. Included in O&M for the third quarter, and the primary reason for the increase in O&M for the nine months ended September 30, 1996, was a change in the accounting for costs associated with nuclear refueling outages. Under this FPSC-approved method, FPL will accrue estimated nuclear refueling and maintenance costs relating to each unit's next planned outage while the unit is in operation. Any cost overruns will be expensed 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. Two refueling outages occurred in the fourth quarter of 1995, two refueling outages occurred in the first half of 1996 and no additional refueling outages are scheduled for the remainder of 1996. The cumulative effect of adopting this accounting method was $35 million and will be expensed over a period not to exceed five years. See Note 1 - Accrual for Nuclear Maintenance Costs. In 1995, FPL began recording $30 million of special nuclear amortization per year plus an additional amount based on the level of sales. The additional expense amounts were to be applied against certain fossil and nuclear generating assets, as well as regulatory assets. For the three and nine months ended September 30, 1996, depreciation and amortization expense increased mainly as a result of the special amortization of generating assets and regulatory assets, which amounted to approximately $61 million and $162 million, respectively. In future periods, FPL will continue to recognize $30 million of special nuclear amortization per year and the additional expense amounts based on the level of sales will be applied against regulatory assets. See Note 1 - Depreciation and Amortization. The increased depreciation of nuclear and fossil assets also resulted in increased amortization of related deferred investment tax credits, lowering income tax expense in 1996. In October 1996, the FPSC approved an accounting rule change that eliminates AFUDC, except for projects that cost in excess of 1/2% of a company's electric utility plant in-service. FPL adopted the rule change retroactive to January 1, 1996. The effect of eliminating AFUDC in 1996 and the contribution of AFUDC in prior periods is included in other - net. LIQUIDITY AND CAPITAL RESOURCES Using available cash flows from operations, FPL has redeemed certain series of its preferred stock and first mortgage bonds, thereby reducing dividend requirements on preferred stock and interest expense, and has increased the funding for special use funds. Additionally, FPL Group has repurchased approximately 1.5 million shares of common stock. These actions are consistent with management's intent to reduce debt and preferred stock balances and the number of outstanding shares of common stock. See Note 2. Other cash flows from operations at FPL Group decreased mainly as a result of non-recurring alternative minimum tax benefits realized in 1995. For information concerning capital commitments, see Note 3.
PART II - OTHER INFORMATION Item 5. Other Information (a) Reference is made to Item 1. Business - FPL Operations - Retail Ratemaking in the 1995 Form 10-K for FPL Group and FPL. For information regarding the FPSC's approval of a change in the accounting for costs associated with planned nuclear refueling outages, see Note 1 - Accrual for Nuclear Maintenance Costs. (b) Reference is made to Item 1. Business - FPL Operations - System Capability and Load in the 1995 Form 10-K for FPL Group and FPL. In September 1996, FPL received approval from the Nuclear Regulatory Commission (NRC) to increase the output of each of the Turkey Point nuclear units by 31 mw. The uprating of Turkey Point Units Nos. 3 and 4 was completed in October and November 1996, respectively. (c) Reference is made to Item 1. Business - FPL Operations - Nuclear in the 1995 Form 10-K for FPL Group and FPL. 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 review St. Lucie's overall operations and to identify additional performance issues. In September 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. (d) 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 (the Reform Act), FPL Group and FPL (collectively, the 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 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 historical facts and may be forward-looking and, accordingly, such statements involve estimates, assumptions, and uncertainties which 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. The Company cautions that the following important factors could cause actual results or outcomes to differ materially from those expressed in any 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. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits <TABLE> <CAPTION> Exhibit FPL Number Description Group FPL <S> <C> <C> <C> 10 Employment Agreement between FPL Group and Thomas F. Plunkett dated as of x September 16, 1996 12 Computation of Ratios x 27 Financial Data Schedule x x </TABLE> (b) Reports on Form 8-K - None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FPL GROUP, INC. FLORIDA POWER & LIGHT COMPANY (Registrants) Date: November 4, 1996 MICHAEL W. YACKIRA Michael W. Yackira Vice President, Finance and Chief Financial Officer of FPL Group, Inc., Senior Vice President, Finance and Chief Financial Officer of Florida Power & Light Company (Principal Financial Officer of the Registrants)