JUNO BEACH, Fla. - FPL Group, Inc. (NYSE: FPL) today reported 2006 fourth quarter net income on a GAAP basis of $268 million, or $0.67 per share, compared with $209 million, or $ 0.54 per share, in the fourth quarter of 2005. FPL Group’s net income for the fourth quarter 2006 included a net unrealized after-tax gain of $15 million associated with the mark-to-market effect of non-qualifying hedges and $1 million of after-tax merger related costs. The results of last year’s fourth quarter included a net unrealized after-tax gain of $27 million associated with the mark-to-market effect of non-qualifying hedges.
Excluding the mark-to-market effect of non-qualifying hedges and merger related costs, FPL Group’s earnings would have been $254 million, or $0.63 per share for the fourth quarter of 2006, compared with $182 million, or $0.47 per share, in the fourth quarter of 2005.
For the full year 2006, FPL Group reported net income on a GAAP basis of approximately $1.3 billion or $3.23 per share, compared with $901 million or $2.34 per share, in 2005.
FPL Group’s results for the full year 2006 included a net unrealized after-tax gain of $92 million associated with the mark-to-market effect of non-qualifying hedges and $14 million of after-tax merger related costs. Results for the full year 2005 included a net unrealized after-tax loss of $112 million associated with the mark-to-market effect of non-qualifying hedges.
Excluding the mark-to-market effect of non-qualifying hedges and merger related costs, FPL Group’s 2006 earnings would have been approximately $1.2 billion, or $3.04 per share for the full year, compared with approximately $1 billion, or $2.63 per share, for the full year 2005.
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 as input to the company’s employee incentive compensation plans. 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.
"FPL Group performed well in 2006 posting record adjusted earnings of approximately $1.2 billion driven by continued outstanding results at FPL Energy and solid execution across virtually every segment of our business,” said Lew Hay, chairman and chief executive officer of FPL Group. “FPL Energy had a remarkable year. New project additions, primarily wind and nuclear, along with a strong performance from the merchant portfolio contributed significantly to these exceptional results. Florida Power & Light also had a solid year financially. Earnings per share at Florida Power & Light increased approximately 4 percent year over year, with continued strong customer growth.
“During the year, we undertook a number of initiatives to position FPL Group for continued growth. Most notably, we continued the disciplined expansion of our industry leading wind program and announced the planned acquisition of the Point Beach Nuclear Power Plant in Wisconsin. With numerous growth prospects for the future in place, we remain comfortable with our earnings expectations for 2007 and 2008.”
GAAP and adjusted earnings results for the fourth quarter contain several unusual items that impacted quarterly and full year results. These items include:
Florida Power & Light
Fourth quarter 2006 net income for Florida Power & Light Company, FPL Group's principal subsidiary, was $170 million, or $0.43 per share, compared to $124 million, or $0.32 per share, in the prior year quarter. For the full year, net income increased to $802 million, or $2.02 per share, compared to $748 million, or $1.94 per share in 2005.
Florida Power & Light continued to enjoy solid customer growth during the fourth quarter of 2006. The average number of customer accounts increased by 95,000, or 2.2 percent. For the full year, the average number of customer accounts increased by 88,000, an increase of 2 percent.
“Lower than anticipated usage stemming from higher underlying commodity prices, the initial implementation of the Storm SecureSM initiative, rising operating costs and the storm cost disallowance by the Florida Public Service Commission all contributed to a challenging year for Florida Power & Light,” said Hay. “Despite the challenges, Florida Power & Light fared well financially in the quarter and for the year, delivering results largely in line with our revised expectations, except for the storm cost disallowance from the 2004-2005 hurricane seasons.”
For the fourth quarter of 2006, operations and maintenance (O&M) expenses were essentially flat compared to the prior-year quarter. Comparisons with the 2005 fourth quarter are favored by the elimination of the storm reserve accrual in 2006 as well as lower nuclear maintenance costs. This was largely offset by continued cost pressures in other areas of the business. Employee benefits, customer care, and distribution costs all increased relative to the 2005 fourth quarter.
For the full year, O&M expense increased. Higher operating costs in distribution, customer care, and nuclear drove O&M expenses as well as costs associated with the Storm SecureSM initiative and employee benefits. Productivity improvements and the absence of the $20 million storm reserve accrual helped mitigate these O&M increases.
Looking forward, Florida Power & Light expects cost increases due to the Storm SecureSM initiative, fossil generation, customer service, insurance, and employee benefits to be partially offset by continued productivity gains.
Depreciation and amortization expense decreased $44 million to $199 million for the fourth quarter of 2006, primarily driven by the extension of the useful lives on the generation fleet which was implemented as a result of the 2005 base rate stipulation and settlement agreement.
Depreciation and amortization expense decreased $164 million to $787 million for the full year compared to the full year 2005, primarily driven by the same factors that impacted the fourth quarter partially offset by the introduction of the Martin and Manatee plant expansions in mid-2005.
During the year, Florida Power & Light invested approximately $1.7 billion to expand and enhance its electric system and generating facilities to ensure continued reliable service to meet the growing power needs of present and future customers.
Florida Power & Light continues to make good progress on its approximately 1,140 megawatt combined-cycle natural gas plant in Miami-Dade County that is expected to reach commercial operation in the second quarter of 2007 and will be capable of serving approximately 230,000 homes and businesses.
In December former Governor Bush and his cabinet, sitting as the state’s Power Plant Siting Board, approved construction of a new natural gas, combined-cycle generating plant to be located in Palm Beach County. The two unit plant will have a capacity of more than 2,400 megawatts and will be capable of serving approximately 466,000 homes and businesses. The first unit of the plant is expected to go online in 2009.
Also in December, Florida Power & Light filed a site certification application with the Florida Department of Environmental Protection for its advanced technology coal power plant, which will be comprised of two 980-megawatt generating units in Glades County, Florida. Later this year, the company plans to file for a Determination of Need with the Florida Public Service Commission requesting that the Commission determine that the proposed Glades Power Park is needed to provide for the increased demand for power in South Florida. Licensing is expected to take approximately 12 to 18 months. Construction of the new plant is expected to take five years with Unit 1 scheduled to become operational in the 2012/2013 timeframe. Once complete, the facility will generate enough power for more than 650,000 homes. The units are expected to have emissions profiles better than currently available IGCC technology.
FPL Energy, the competitive energy subsidiary of FPL Group, reported fourth quarter 2006 net income on a GAAP basis of $148 million, or $0.37 per share, compared to $89 million, or $0.23 per share, in the prior-year quarter.
FPL Energy’s net income for the fourth quarter 2006 included a net unrealized after-tax gain of $15 million associated with the mark-to-market effect of non-qualifying hedges. The results of last year’s fourth quarter included a net unrealized after-tax gain of $27 million associated with the mark-to-market effect of non-qualifying hedges.
Excluding the mark-to-market effect of non-qualifying hedges, earnings would have been $133 million or $0.33 per share for 2006, compared to $62 million, or $0.16 per share, in 2005.
For the full year 2006, FPL Energy reported net income on a GAAP basis of $610 million, or $1.54 per share, compared to $203 million, or $0.53 per share in 2005.
FPL Energy’s results for the full year 2006 included a net unrealized after-tax gain of $92 million associated with the mark-to-market effect of non-qualifying hedges. Results in the full year 2005 included a net after-tax loss of $112 million associated with the mark-to-market effect of non-qualifying hedges.
Excluding the mark-to-market effect of non-qualifying hedges, FPL Energy’s earnings would have been $518 million, or $1.31 per share, for the full year 2006, compared with $315 million, or $0.82 per share, for the full year 2005. Included in adjusted earnings results is the gain related to a legal judgment mentioned earlier.
FPL Energy had an excellent quarter and year. The fourth quarter showed good growth, while the full-year growth in adjusted earnings was exceptional. Driving growth for the year were strong contributions from new assets, primarily new wind projects and Duane Arnold, as well as margin expansion at existing assets, good hydro conditions and growth in the retail and full requirements businesses. Both the fourth quarter and the full year include the gain related to the legal judgment mentioned previously. Operational performance was outstanding, with the fossil and nuclear plants collectively having their best year ever for reliability.
FPL Energy completed another successful year in its wind development program. FPL Energy’s 2006 wind program included new projects in Texas, Minnesota and North Dakota as well as the purchase of existing assets in Texas, California and Minnesota. In all, FPL Energy added more than 800 megawatts to its wind portfolio and now owns 4,016 net megawatts of wind capacity.
With the Production Tax Credit (PTC) for wind and other renewable energy technologies extended for one additional year – through December 31, 2008 – equipment secured and a strong pipeline of wind projects, FPL Energy expects to add at least 1,500 megawatts of new wind projects to its portfolio in the 2007 and 2008 timeframe. Initial construction is already underway on two projects representing approximately 450 megawatts that are expected to reach commercial operation by the end of the third quarter 2007.
In addition to the growth of the wind business, FPL Energy expanded its portfolio and its strategic position through the completion of the acquisition of a 70 percent interest in the Duane Arnold Energy Center a nuclear power plant located northwest of Cedar Rapids, Iowa as well as the completion of a power uprate at the Seabrook Nuclear Plant bringing the net capacity of the plant to 1,098 megawatts. FPL Energy also announced an agreement to acquire the dual unit 1,033-megawatt Point Beach Nuclear Power Plant from a subsidiary of Wisconsin Energy.
“FPL Energy had an outstanding year and continues to drive the growth of FPL Group,” said Hay. “Excellent performance from the existing portfolio, strong contributions from new projects, primarily wind and nuclear, and growth in our retail and asset optimization and trading businesses all contributed to our 2006 success. As the industry leader in wind and solar generation, and with more than 90 percent of our more than 13,000 megawatt power generation portfolio utilizing clean or renewable fuels, I am particularly pleased that FPL Energy is proving that environmental responsibility and financial success are not mutually exclusive.”
Corporate and Other
Corporate and Other negatively impacted fourth quarter 2006 net income by $50 million, or a loss of $0.13 per share, primarily driven by the impairment at FPL FiberNet partially offset by the impact of certain state tax benefits. For the full year, Corporate and Other negatively impacted net income by $131 million or a loss of $0.33 per share. The 2006 full year drivers include the impairment at FPL FiberNet, interest and merger-related expenses partially offset by the impact of certain state tax benefits.
“FPL Group is well positioned for the future with many visible drivers of earnings growth in place,” Hay said. “We continue to expect very strong growth from FPL Energy, driven both by contributions from new investment as well as the roll-over of existing hedges to new values more closely approximating current market conditions. Florida Power & Light faces a more challenging year, with significant impact from the Storm SecureSM initiative and uncertainty around revenue growth, but we still look for modest growth from that business.”
The Company reported that there has been little change in FPL Energy’s hedged gross margin position for 2007 and 2008 from the previous quarter. The hedged gross margin position for each year remains essentially unchanged with about 90 percent and 80 percent, respectively, of expected equivalent gross margin hedged against commodity price volatility.
For 2007, FPL Group expects adjusted earnings of $3.35 to $3.45 per share assuming normal weather and excluding 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. The outlook for 2007 reflects continued customer growth at Florida Power & Light and normal weather at both the utility and FPL Energy. The earnings contribution from Florida Power & Light is expected to be in the range of $2.10 to $2.15, from FPL Energy of $1.45 to $1.55, and a negative impact from Corporate & Other of $0.20 to $0.25 per share.
Similarly, for 2008 FPL Group expects adjusted earnings to be in the range of $3.60 to $3.80 per share. The outlook is based on Florida Power & Light contributing $2.15 to $2.25 per share, FPL Energy contributing $1.65 to $1.85 per share and Corporate and Other reducing earnings by $0.20 to $0.25 per share.
As previously announced, FPL Group’s fourth quarter earnings conference call is scheduled for 9 a.m. ET on Friday, Jan. 26, 2007. The webcast is available on FPL Group’s website by accessing the following link,http://www.FPLGroup.com/investor/contents/investor_index.shtml. The slides accompanying the presentation may be downloaded at www.FPLGroup.com beginning at 7:30 a.m. ET today. For persons unable to listen to the live webcast, a replay will be available for 90 days by accessing the same link as listed above.
This press release should be read in conjunction with the attached unaudited financial information.
FPL Group, with annual revenues of nearly $16 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 4.4 million customer accounts in Florida. FPL Energy, LLC, an FPL Group competitive energy 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 providing 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, on their respective websites, 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, including unanticipated events, after the date on which such statement is made. 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:
FPL Group and FPL are subject to complex laws and regulations and to changes in laws and regulations as well as changing governmental policies and regulatory actions, including initiatives regarding deregulation and restructuring of the energy industry and environmental matters. FPL holds franchise agreements with local municipalities and counties, and must renegotiate expiring agreements. These factors may have a negative impact on the business and results of operations of FPL Group and FPL.
The operation and maintenance of power generation facilities, including nuclear facilities, involve significant risks that could adversely affect the results of operations and financial condition of FPL Group and FPL.
The construction of, and capital improvements to, power generation facilities involve substantial risks. Should construction or capital improvement efforts be unsuccessful, the results of operations and financial condition of FPL Group and FPL could be adversely affected.
The use of derivative contracts by FPL Group and FPL in the normal course of business could result in financial losses that negatively impact the results of operations of FPL Group and FPL.
FPL Group's competitive energy business is subject to risks, many of which are beyond the control of FPL Group, that may reduce the revenues and adversely impact the results of operations and financial condition of FPL Group.
FPL Group's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including the effect of increased competition for acquisitions resulting from the consolidation of the power industry.
Because FPL Group and FPL rely on access to capital markets, the inability to maintain current credit ratings and access capital markets on favorable terms may limit the ability of FPL Group and FPL to grow their businesses and would likely increase interest costs.
Customer growth in FPL's service area affects FPL Group's results of operations.
Weather affects FPL Group's and FPL's results of operations.
FPL Group and FPL are subject to costs and other effects of legal proceedings as well as changes in or additions to applicable tax laws, rates or policies, rates of inflation, accounting standards, securities laws and corporate governance requirements.
Threats of terrorism and catastrophic events that could result from terrorism may impact the operations of FPL Group and FPL in unpredictable ways.
The ability of FPL Group and FPL to obtain insurance and the terms of any available insurance coverage could be affected by national, state or local events and company-specific events.
FPL Group and FPL are subject to employee workforce factors that could affect the businesses and financial condition of FPL Group and FPL.
The risks described herein are not the only risks facing FPL Group and FPL. Additional risks and uncertainties not currently known to FPL Group or FPL, or that are currently deemed to be immaterial, also may materially adversely affect FPL Group's or FPL's business, financial condition and/or future operating results.