JUNO BEACH, Fla. - FPL Group, Inc. (NYSE: FPL) today reported 2004 third quarter net income on a GAAP basis of $320 million, or $1.76 per share, compared with $331 million, or $1.86 per share, in the third quarter of 2003. FPL Group’s net income for the third quarter of 2004 included a net unrealized loss of $6 million after-tax associated with the mark-to-market effect of non-qualifying hedges. Results in the prior-year quarter included an after-tax charge of $3 million due to a change in accounting principle (FIN 46 – Consolidation of Variable Interest Entities) and a net unrealized gain of $8 million after-tax associated with the mark-to-market effect of non-qualifying hedges.
Excluding these items, FPL Group’s earnings would have been $326 million, or $1.79 per share for the third quarter of 2004, compared with $326 million, or $1.83 per share, in the third quarter of 2003. FPL Group’s management uses adjusted earnings internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and for the company’s employee incentive compensation plan. FPL Group also uses earnings expressed in this fashion when communicating its earnings outlook to analysts and investors. FPL Group management believes that adjusted earnings provide a more meaningful representation of FPL Group’s fundamental earnings power.
"Despite the challenges brought on by an unprecedented hurricane season in Florida, FPL Group and its employees performed remarkably well during the third quarter under extraordinary personal and professional circumstances,” said Lew Hay, chairman and chief executive officer. “In the span of six weeks, Florida Power & Light’s service territory took direct hits from three major hurricanes, creating a total of approximately 5.4 million customer outages. We estimate the lost revenues and other impacts from the hurricanes totaled approximately $0.15 per share. Otherwise, FPL performed well with continued strong customer growth and excellent operational performance.
"FPL Energy again delivered double-digit adjusted earnings growth despite milder than normal summer weather throughout much of the nation. Outstanding operational performance, increased contract coverage and a larger wind portfolio contributed to its increased earnings contribution.
"Excluding the impact of what was an unprecedented hurricane season for FPL, we are on track to achieve the level of performance earlier forecasted,” said Hay. “Considering that the hurricanes caused lost revenues and other impacts estimated to total approximately $0.15 per share, we have reduced our full-year earnings forecast accordingly to a range of $4.90 to $5.00.” Hay said the full-year earnings expectation assumes normal weather for the balance of the year and excludes the effect of adopting new accounting standards as well as the mark-to-market effect of non-qualifying hedges, neither of which can be determined at this time.
Florida Power & Light
Third quarter 2004 net income for Florida Power & Light, FPL Group's principal subsidiary, was $275 million or $1.52 per share, down slightly from $277 million or $1.55 per share from the prior-year quarter. Since the 2003 third quarter, FPL has added 116,000 customer accounts over the last twelve months, an increase of 2.8 percent.
"FPL’s third quarter was dominated by the impact of an extraordinary series of direct hits by three hurricanes, each of which did major damage in parts of our service territory and caused extensive power outages,” said Hay.
"Employees and customers alike suffered damage to homes and personal property, and businesses were closed or disrupted for extended periods. In spite of the devastation, we restored power to our customers in record time. We are proud of the achievements of all our people and grateful for the support we have received from our contractors and from the many other utilities who came to our aid,” he said.
The company said it estimates the three storms will reduce FPL’s earnings for the year by approximately $0.15 per share. Of this, $0.14 is recognized in the third quarter, with the balance in the fourth quarter.
Since 1993, FPL has been collecting monthly a small fee from its customers and applying that amount to a storm fund to be used for restoration efforts after tropical storms or hurricanes damage the electrical system. FPL had accumulated approximately $349 million in its storm reserve.
"While we have not completed the final accounting of all restoration costs for the three hurricanes, to date we have accrued a total of approximately $650 million recoverable from the storm reserve. This exceeds the value of the reserve by approximately $300 million,” said Hay. “After finalizing and auditing these numbers, we intend to seek recovery of the excess costs in a manner consistent with Florida Public Service Commission directives. The PSC order of October 8 reiterated that prudently incurred restoration costs are recoverable. The exact timing and manner of recovery have yet to be determined.”
Excluding the impact of the hurricanes, operations and maintenance expenses were up compared to the prior-year quarter. The major drivers of O&M continued to be nuclear maintenance and insurance costs. Depreciation increased slightly in the quarter, reflecting investment in new power plants and delivery systems to help meet the continued growth in Florida .
"Although, due to the hurricanes, our earnings for the quarter are not what we had expected, I am very proud of the performance of the FPL team during a very difficult period,” said Hay.
FPL Energy, the wholesale energy subsidiary of FPL Group, reported 2004 third quarter net income on a GAAP basis of $61 million or $0.34 per share, compared to $63 million or $0.35 per share in the prior-year quarter.
FPL Energy’s results for the third quarter 2004 included a net unrealized loss of $6 million after-tax associated with the mark-to-market effect of non-qualifying hedges. Results in the prior-year quarter included an after-tax charge of $3 million due to a change in accounting principle (FIN 46 – Consolidation of Variable Interest Entities) and a net unrealized gain of $8 million after-tax associated with the mark-to-market effect of non-qualifying hedges.
Excluding these items, FPL Energy earnings would have been $67 million or $0.37 per share compared to $58 million or $0.32 per share in 2003.
New wind projects, increased contract coverage, better market conditions in Texas , and continued strong operating performance across the portfolio contributed to FPL Energy’s earnings growth in the quarter. These positives were somewhat offset by losses associated with a new natural gas-fired merchant power plant brought on-line last year and increased interest expense associated with the expansion of FPL Energy’s asset base since the third quarter of last year.
With the recent extension of the federal wind production tax credit, FPL Energy said it has begun to execute a number of projects in its wind power development pipeline. Earlier this week, the company announced it will build, own and operate the 114-megawatt (MW) Callahan Divide Wind Energy Center located southwest of Abilene, Texas. The Callahan project is in addition to the previously announced 106.5MW Weatherford Wind Energy Center located near Weatherford in western Oklahoma . The company said it now expects to add in the range of 250MW to 750MW of new wind-driven power plants to its portfolio by the end of 2005, with a small amount of that becoming operational by the end of this year.
"FPL Energy continues to perform extremely well across all facets of its business,” said Hay. “With the recent extension of the federal wind production tax credit and our strong pipeline of wind development projects, coupled with continued strong operating performance, I am more confident than ever in the future earnings growth at FPL Energy.”
Corporate and Other
Corporate and Other had a negative $16 million impact to net income or $0.10 per share for the third quarter 2004 driven primarily by interest expense. FPL FiberNet, an FPL Group subsidiary that provides fiber-optic networks and related services in Florida, had a net loss of $1 million, compared to a net loss of $2 million in the prior year’s quarter.
Outlook for 2005
The company said it expects that 2005 earnings will likely be in the range of $5.00 to $5.20 per share. The outlook is based on the expectation of Florida Power & Light contributing $3.95 to $4.10 per share, FPL Energy contributing $1.30 to $1.45 and Corporate & Other reducing earnings by $0.30 to $0.35 per share. The company said its earnings outlook is based on the assumption of normal weather and excludes the cumulative effect of adopting new accounting standards, as well as the mark-to-market effect of non-qualifying hedges neither of which can be determined at this time.
"Although we expect the fundamentals of Florida Power & Light’s business to remain strong over the long-term, next year will be a challenging year for FPL due to near-term uncertainty of customer growth and usage trends in the aftermath of an unprecedented hurricane season. In addition, we will have increased interest and depreciation expense associated with 1,900 megawatts of new generating capacity coming on-line at our Martin and Manatee plant sites,” said Hay. “However, we do expect continued strong earnings growth at FPL Energy. We already have contracted a significant percentage of the overall portfolio, accounting for more than 85 percent of our anticipated 2005 gross margin. Additional wind-driven power plants also are expected to contribute to improved earnings for FPL Energy. On balance, looking at FPL Group as a whole, we are confident that we will be able to continue to grow earnings and enhance shareholder value.”
FPL Group’s third quarter earnings conference call is scheduled for 9 a.m. ET on Thursday, Oct. 21, 2004 . The webcast is available on FPL Group’s website by accessing the following link,http://www.fplgroup.com/investor/contents/investor_index.shtml
FPL Group, with annual revenues of more than $9 billion, is nationally known as a high-quality, efficient, and customer-driven organization focused on energy-related products and services. With a growing presence in 26 states, it is widely recognized as one of the country's premier power companies. Its principal subsidiary, Florida Power & Light Company, serves more than 4.2 million customer accounts in Florida . FPL Energy, LLC, an FPL Group energy-generating subsidiary, is a leader in producing electricity from clean and renewable fuels. Additional information is available on the Internet at www.fplgroup.com, www.fpl.com andwww.fplenergy.com.
CAUTIONARY STATEMENTS AND RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) and Florida Power & Light Company (FPL) are hereby filing cautionary statements identifying important factors that could cause FPL Group's or FPL's actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of FPL Group and FPL in this press release, 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, believe, could, estimated, may, plan, potential, projection, target, outlook) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could cause FPL Group's or FPL's actual results to differ materially from those contained in forward-looking statements made by or on behalf of FPL Group and FPL.
Any forward-looking statement speaks only as of the date on which such statement is made, and FPL Group and FPL undertake no obligation to update any forward-looking statement 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 statement.
The following are some important factors that could have a significant impact on FPL Group's and FPL's operations and financial results, and could cause FPL Group's and FPL's actual results or outcomes to differ materially from those discussed in the forward-looking statements:
The issues and associated risks and uncertainties described above are not the only ones FPL Group and FPL may face. Additional issues may arise or become material as the energy industry evolves. The risks and uncertainties associated with these additional issues could impair FPL Group's and FPL's businesses in the future.