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 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 0-15607
FPL GROUP CAPITAL INC
(Exact name of registrant as specified in its charter)
Florida 59-2576416
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Universe Boulevard
Juno Beach, Florida 33408
(Address of principal executive office)
(Zip Code)
(407) 694-3509
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 Par Value
Indicate by check mark whether the registrant (1) has 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) has been subject to such filing
requirements for the past 90 days.
Yes X No
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1994 was zero.
As of February 28, 1994 there were issued and outstanding 100 shares of the
registrant's common stock, $.01 par value, all of which were held,
beneficially and of record, by FPL Group, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
None
FPL Group Capital Inc meets the conditions set forth under General
Instruction J(1)(a) and (b) and is therefore filing this Form with reduced
disclosure.<PAGE>
<PAGE>
PART I
Item 1. Business
FPL Group Capital Inc (Company) holds the capital stock of the non-utility
subsidiaries of FPL Group, Inc. (FPL Group) and provides most of their
funding. The Company was incorporated in 1985 under the laws of Florida.
All of its common stock is owned by FPL Group.
FPL Group is the parent of Florida Power & Light Company (FPL) and is,
therefore, a public utility holding company as defined in the Public Utility
Holding Company Act of 1935, as amended (Holding Company Act). FPL Group,
however, is exempt from substantially all of the provisions thereof 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.
The Company's principal business activities consist of investments in non-
utility energy projects and agricultural operations. Energy production from
the Company's non-utility energy investments is generally higher during the
third quarter due to increased energy demand and resource availability. The
agricultural operations of the Company are seasonal, with the majority of the
citrus harvest taking place between January and April. Seasonality is not
material to the Company's other businesses. For information regarding the
Company's business segments, see Note 14 to the Consolidated Financial
Statements (Note 14).
The Company is continuing its efforts to exit substantially all of its
non-energy and non-agricultural business activities, including cable
television and real estate. In 1991, the sale of Colonial Penn Group, Inc.
(Colonial Penn), formerly the Company's largest subsidiary, was completed, as
were the sales of the environmental remediation and utility-related services
divisions. Bay Loan and Investment Bank (Bay Loan), a former subsidiary of
Colonial Penn, is winding down its operations and is expected to be dissolved
with no anticipated adverse effect on future operating results. Contracts
for the sale of all of the directly-owned and operated cable television
systems were recently terminated. All of the developed real estate
properties are under contract for sale. The Company cannot estimate the
likelihood of consummating this sale; however, if completed, this sale and
the currently estimated result of disposing of the balance of the Company's
cable television and real estate assets are not expected to have a
significant adverse effect on net income. See Management's Discussion and
Analysis of Financial Condition and Results of Operations (Management's
Discussion) and Notes 4 and 5 for additional information regarding businesses
to be discontinued and discontinued operations.
The Company and its subsidiaries had approximately 400 employees at
December 31, 1993.
Non-Utility Energy
The Company invests in non-utility energy projects through ESI Energy, Inc.
(ESI). ESI provides equity capital, loans, transaction management and
project structuring for non-utility energy projects.
Federal and state legislation, including the Public Utility Regulatory
Policies Act of 1978 (PURPA) and, more recently, the Energy Policy Act of
1992 (Energy Act), have increased opportunities for non-utility entities to
develop and operate generating facilities. ESI develops and invests in non-
utility energy projects and performs various management roles associated with
certain projects. All of ESI's projects are structured to be exempt from the
Holding Company Act. The passage of the Energy Act resulted in the creation
of a class of exempt wholesale generators (EWGs) that are exempt from the
Holding Company Act. An EWG can more readily enter the power generation
market which may have the effect of increasing competition in the market to
supply energy to utilities and large wholesale customers. To date, ESI has
invested in one project that qualifies as an EWG. Substantially all other
projects in which it invests are qualifying facilities under PURPA. In order
to achieve qualifying facility status under PURPA, a project must meet
certain requirements, including that the project not provide more than 50% of
its financial benefits to a regulated electric utility or a public utility
holding company. An electric generating project that is a qualifying
facility enjoys certain advantages under PURPA, including certain exemptions
from federal and state legislation and regulation. PURPA also requires
electric utilities to purchase electric power generated by qualifying
facilities at rates not to exceed the utility's avoided cost of generating
that power.
The Energy Act also increased the opportunity for participation in foreign
power markets and provides certain tax benefits for future alternative energy
projects. Currently, ESI is exploring investment opportunities in several
international markets. As the non-utility energy industry has matured, ESI
has faced increased competition in identifying investment opportunities which
meet ESI's desired levels of risk and return.<PAGE>
<PAGE>
ESI participates in 27 non-utility energy projects primarily through
non-controlling ownership interests in joint ventures or leveraged lease
investments. ESI has become more actively involved in management and
development related activities of the projects in which it invests. Projects
in which ESI invests are subject to federal, state and local environmental
laws and regulations. Compliance with these laws can require changes in
design and operation of facilities and the securing of licenses, permits and
approvals from authorities. To the extent that unforeseen costs necessary to
comply with such regulations can not be passed through to utilities
purchasing power from projects in which ESI invests, investment returns may
be adversely affected.
The projects in which ESI has invested are typically dependent upon one
electric utility customer. Based on ESI's invested capital at December 31,
1993, the projects are concentrated in California (48%), Virginia (32%) and
Pennsylvania (11%) and are safeguarded, to the extent possible, from
unfavorable economic conditions in those regions by long-term contracts
between each of the projects and the local electric utility. The terms of
the contracts vary but generally include fixed capacity payments, provided
the project meets certain performance minimums, and either fixed or variable
energy payments. Fluctuating energy payments will affect each project
differently; however, for most of ESI's projects, this is not considered to
pose a significant risk because the prices paid to those projects for the
energy they sell is directly, or indirectly, tied to the projects' cost of
fuel.
The projects in which ESI has equity investments or to which financing has
been provided use a diversified mix of technologies to produce electricity.
At December 31, 1993, the breakdown of the Company's investments in and loans
to the projects was as follows:
<TABLE>
<CAPTION>
Percentage
of Total Gross
Technology Investment(1) Megawatts Description
<S> <C> <C> <C>
Biomass (wood) 26% 129 Wood, principally wood chips produced as a by-product of the lumber and pulp
industries, is burned in circulating fluidized bed boilers to produce steam
to power turbine generators.
Wind 19 377 Wind is utilized to power turbine generators.
Waste Coal 13 178 Anthracite coal mining spoils are burned in circulating fluidized bed
boilers to produce steam to power turbine generators.
Natural Gas 12 814 Natural gas powers either advanced or conventional combined cycle combustion
turbine generators.
Waste-to-Energy 10 107 Solid waste is shredded and burned to produce steam to power turbine
generators. Municipal and private suppliers of waste pay fees for waste
fuel disposal (tipping fees).
Solar 8 160 Solar energy is utilized to produce steam to power turbine generators.
Natural gas fired heaters augment solar production.
Geothermal 7 116 Natural underground steam is captured and utilized to power turbine
generators.
Fuel Oil 5 30 Barge mounted boilers produce steam to power turbine generators providing
immediate short-term power supply to countries outside the U.S.
Total 100% 1,911
(1) Includes equity investments, investments in leveraged leases, loans receivable and a wholly-owned project.
/TABLE
<PAGE>
<PAGE>
Agriculture
The Company's agricultural subsidiary, Turner Foods Corporation (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 international frozen-concentrate, orange juice
markets. Turner's production is 86% juice oranges, 7% grapefruit and 7%
specialty fruits.
As of December 31, 1993, Turner owned or leased approximately 29,000 acres of
citrus properties which included 18,000 planted acres, 4,000 acres of
undeveloped land and 7,000 acres of infrastructure, wetlands and reservoirs.
The corresponding amounts for 1992 included 17,000 planted acres, 1,000 acres
in the process of being developed for citrus production, 4,000 acres of
undeveloped land and 7,000 acres of infrastructure, wetlands and reservoirs.
For 1993 and 1992, the groves had approximately 2.3 million planted orange,
grapefruit and specialty fruit trees. Production volumes increased 25% to
7.1 million boxes in the 1992-93 crop year. Production volumes are expected
to continue to increase as existing groves mature. Turner's diversified
grove locations, with major holdings located in southern Florida, reduce the
risk of significant production losses resulting from freezing weather.
The citrus industry experienced a significant decline in prices during the
year, primarily due to increases in worldwide citrus production. On average,
prices received by Turner in 1993 declined 17% from the previous year. In
1994, prices may remain below recent years' averages depending on the total
amount of fruit brought to market. However, grapefruit and specialty fruit
for the 1993-94 crop year have been sold at contract prices above those
received in the previous crop year. Essentially all of Turner's 1994 orange
crop is under contract at prices indexed to monthly frozen concentrated
orange juice (FCOJ) commodity futures prices.
Turner faces competition from domestic growers, as well as international
producers, primarily those located in Brazil. Turner sells essentially all
of its fruit through one to three year contracts. One customer, Tropicana
Products, Inc., represented approximately 57% of total fruit volume sales in
the 1992-93 crop year and is under contract for 50% of the 1993-94 crop. The
Tropicana Products, Inc. contract expires in 1996 but contains renewal
options through 1998. Approximately 28% of fruit production is converted to
FCOJ under contracts with various processors. The FCOJ is sold by Turner
directly to private label distributors.
Cable Television
Telesat Cablevision, Inc. (Telesat) provides franchised and/or private cable
television service in the Orlando area, Citrus County and the Tampa area, all
of which are major population centers of Florida, through directly-owned and
operated cable television systems. As of December 31, 1993 and 1992, Telesat
directly served approximately 41,000 and 51,000 subscribers, respectively.
Also, Telesat has ownership positions in four joint ventures throughout
Florida, having exchanged subscribers for ownership positions in those
entities in prior years. Telesat is not the predominant provider of cable
television service in any of the markets served, and as a result, faces
intense competition in those areas.
In 1993, Telesat sold directly-owned systems totaling approximately 14,000
subscribers, or 27% of the year's beginning subscriber count. In addition,
Telesat sold or otherwise liquidated its interest in three joint ventures.
The Company is actively pursuing the sale of the remainder of its
directly-owned and operated cable television systems and is liquidating its
interests in joint ventures as opportunities arise. In the interim, the
Company implemented operating changes that are intended to increase operating
cash flow.
Other
Real Estate. The Company's subsidiary, Alandco, Inc. (Alandco), owns
commercial, industrial and mixed-use real estate in major population centers
of Florida. Alandco's remaining assets are approximately 50% developed with
the balance being undeveloped land held for sale. Currently, no significant
development activities are underway. Occupancy rates on the developed
properties are greater than 90%. The Company is continuing its efforts to
sell or otherwise dispose of its real estate operations. During 1993,
Alandco sold a portion of its rental properties resulting in a pretax loss of
$3.8 million. Its remaining developed real estate properties are under
contract for sale.<PAGE>
<PAGE>
Consulting Services. The Company's subsidiary, Qualtec Quality Services, Inc.
(Qualtec), provides consulting and training in total quality management and
licensing of its products to companies worldwide. Training services related
to quality concepts are offered through a variety of programs and represent
substantially all of Qualtec's on-going operations. Qualtec's operations
consist primarily of short to intermediate-term contracts which are intended
to provide the client sufficient background to self-administer quality
training throughout their organization. No single client or contract is
considered significant to Qualtec's operations. Qualtec faces increasing
competition for training and consulting service contracts from larger
providers of these services, from new entrants into the market and from the
development of new training programs in an expanding market. Consulting
services, by their nature, do not require a significant investment in
property or other assets.
Other Activities. The Company, through ESI, holds a diversified portfolio of
leveraged leases, which were entered into from 1985 through 1990. These
leases relate primarily to property and were entered into with companies with
investment grade credit ratings. At December 31, 1993, the remaining lease
terms range from 14 to 22 years.
In December 1990, the Company loaned $360.0 million to the Trust for the
Employee Thrift Plans of FPL Group and FPL (Trust) to finance the Trust's
purchase from FPL Group of approximately 12 million shares of FPL Group
common stock. The Trust is repaying the loan with dividends received on FPL
Group common shares it holds, along with cash contributions from the
participating employers. See Management's Discussion and Note 13.
Discontinued Operations
In 1991, the sale of Colonial Penn was completed. The sale did not include
Bay Loan, a former subsidiary of Colonial Penn. As part of the intended exit
from certain non-energy related businesses, the Company wrote off its
investment in Bay Loan during 1990 and accounts for Bay Loan as a
discontinued operation. Bay Loan is winding down its operations and will be
dissolved with no anticipated adverse effect on future operating results.
See Management's Discussion and Note 5.
Item 2. Properties
The Company and its subsidiaries maintain properties which are adequate for
their operations. Substantially all of the operating properties of the
Company's subsidiaries are owned; however, office space is generally leased,
at prevailing market rates.
The Company's principal executive offices are located in Juno Beach, Florida
in facilities owned by FPL with costs allocated to the Company. See Note 13.
ESI maintains office space in West Palm Beach, Florida and directly holds
general purpose office equipment, as well as a barge outfitted with equipment
to supply short-term power to countries outside the U.S. Property and
equipment held by Turner totaled approximately $151.1 million, or 74% of the
Company's properties at December 31, 1993. Of this amount, 86% represented
the cost of citrus groves and 14% represented equipment used in citrus
operations. Turner's headquarters are located in Punta Gorda, Florida with
citrus groves located in seven counties in south-central Florida (Hendry,
Desoto, Collier, Highlands, Manatee, Martin and Charlotte).
The Company is continuing its efforts to sell or otherwise dispose of the
real estate and cable television operations which represented approximately
17% and less than 1%, respectively, of the Company's total properties at
December 31, 1993. Alandco's main offices are in North Palm Beach, Florida,
and its properties are located in southeast Florida, the Tampa area and
Tallahassee, Florida. Telesat's administrative offices are located in
Pompano Beach, Florida. The cable television systems, which consist
primarily of electronic signal receiving and processing equipment and cable
routed to homes, are located primarily in Florida's Orlando area, Citrus
County and the Tampa area. Qualtec leases office space in North Palm Beach,
Florida. See Note 8.
Item 3. Legal Proceedings
In November 1988, TEC Cogeneration, Inc. (TEC), its affiliate Thermo Electron
Corporation, RRD Corp. and its affiliate Rolls Royce Inc. filed suit in the
United States District Court for the Southern District of Florida against
ESI, FPL Group and its affiliate FPL, on behalf of South Florida Cogeneration
Associates (SFCA), a joint venture which since 1986 has operated a
cogeneration facility for Metropolitan Dade County within FPL's service
territory in Miami, Florida. The suit alleges that the defendants have
engaged in anti-competitive conduct intended to prevent and defeat
competition from<PAGE>
<PAGE>
cogenerators within FPL's service territory, and from SFCA's Metropolitan
Dade County facility in particular. It alleges that the defendants' actions
constitute monopolization and attempts to monopolize in violation of
Section 2 of the Sherman Antitrust Act (Sherman Act); conspiracy in restraint
of trade in violation of Section 1 of the Sherman Act; unlawful
discrimination in prices, services or facilities in violation of Section 2 of
the Clayton Act; and intentional interference with SFCA's contractual
relationship with Metropolitan Dade County in violation of Florida law. The
suit seeks damages in excess of $100 million, to be trebled under the Sherman
and Clayton Acts, as well as compensatory and punitive damages under Florida
law, and injunctive relief. A motion for summary judgment by ESI, FPL Group
and FPL has been denied.
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 the Company, its subsidiary company Telesat, and
FPL Group. The suit, which arises out of a cable television facilities
installation agreement between Johnson Enterprises and Telesat, alleges
breach of contract, fraud and violation of racketeering statutes. The suit
seeks compensatory damages in excess of $24 million, treble damages under
racketeering activity statutes, punitive damages and attorneys' fees, as well
as the revocation of Telesat's corporate charter and cable television
franchises.
The Company believes that it and its affiliates have meritorious defenses to
all of the litigation described above and is vigorously defending these
suits. Accordingly, the liabilities, if any, arising from this litigation
are not anticipated to have a material adverse effect on the Company's
financial position.<PAGE>
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
All of the Company's common stock is owned by FPL Group. For information
regarding dividends paid to FPL Group, see Management's Discussion and
Note 10.
Item 6. Selected Financial Data
Certain amounts included in prior years' selected financial data were
reclassified to conform to current year's presentation.
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991 1990 1989
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Total operating revenues $ 92,417 $ 93,318 $ 91,888 $ 107,065 $ 87,234
Income (loss) from
continuing operations
before extraordinary loss $ 5,175 $ 734 $ (8,906) $ (78,105)(1) $ (18,125)
Net loss $ (7,636)(2) $ (4,539)(2) $ (144,476)(3) $ (767,285)(1)(3) $ (1,631)
Total assets $1,265,939 $1,180,496 $1,112,668 $1,211,414 $1,310,875
Long-term debt, excluding
current maturities $ 285,918 $ 555,692 $ 481,311 $ 743,302 $ 487,439
(1) Reduced by charges related to the write-down of businesses to be discontinued. See Note 4.
(2) Reduced by charges related to early extinguishment of debt. See Note 9.
(3) Reduced by charges related to the disposition of Colonial Penn. See Note 5.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The operations of the Company consist primarily of investments in non-utility
energy projects through ESI and the agricultural operations of Turner. In
the following discussion, all comparisons are with the corresponding items in
the prior year.
Overview - The improvement in income from continuing operations, before
extraordinary loss, over the past two years was primarily due to a decrease
in interest expense and an increase in equity in earnings of non-utility
energy projects. The significant loss reported in 1991 resulted from the
sale of the Company's major insurance subsidiary as part of FPL Group's
strategy to focus on its energy-related businesses and to sell or otherwise
dispose of certain of its non-energy subsidiaries. The Company is continuing
its efforts to dispose of certain assets, including cable television and real
estate, as well as the winding down of its financial services business. See
Notes 4 and 5.
In 1992, the Energy Act was passed resulting in the creation of a class of
wholesale generators that are exempt from the Holding Company Act. The
Energy Act is expected to increase competition in the wholesale power
purchase market and also create business opportunities for ESI. In addition,
the loosening of restrictions on exempt holding companies under the Holding
Company Act is expected to allow ESI to more readily compete for
opportunities to provide energy in foreign markets.
1993 compared to 1992 - Earnings from the agricultural operations declined in
1993 despite an increase in citrus production, primarily due to lower citrus
prices. The citrus industry experienced a decline in prices during the year,
largely as a result of increases in worldwide citrus production. Costs of
goods sold increased overall as a result of increased citrus production.
This increase was partially offset by a reduction in Turner's unit costs due
to increased efficiencies in production and harvesting and as a result of
grove maturation. Substantially all of Turner's 1994 orange crop is under
contract at prices indexed to monthly FCOJ commodity futures prices.
Turner's citrus production is expected to continue to increase as existing
citrus groves mature.<PAGE>
<PAGE>
The sale of certain cable television operating systems during the year
resulted in a reduction of service revenues and related costs of services.
In addition, the Company sold or otherwise liquidated its interests in three
cable television joint ventures. Contracts for the sale of all of the
remaining directly-owned and operated cable television systems were recently
terminated. The Company's remaining developed real estate properties are
under contract for sale. The Company cannot estimate the likelihood of
consummating this sale; however, if completed, this sale and the currently
estimated result of disposing of the balance of the Company's cable
television and real estate assets are not expected to have a significant
adverse effect on net income, but future service revenues and related
expenses would decrease accordingly.
Increase in other operating revenues and other operating expenses was
attributable to rental properties of Alandco that were sold at the end of
1993. The sale resulted in a $3.8 million loss included in other - net. The
increase in other operating revenues was partially offset by a decline in
leveraged leasing revenues. Such revenues fluctuate over the life of the
lease based on a constant lease yield applied to an investment balance which
changes based on scheduled cash flows. Also, other operating expenses
increased due to additional costs incurred in connection with certain non-
utility energy projects, including those under leveraged leases and a
wholly-owned project.
Equity in earnings from partnerships and joint venture investments increased
approximately $9.1 million primarily due to earnings from non-utility energy
projects because of the full year impact of certain project operations which
began in 1992, principally a natural gas EWG project, and a substantial
increase in production from certain wind projects resulting from improved
wind conditions. This increase occurred despite a $7.1 million loss
representing ESI's proportionate share of losses from two solar power plant
investments.
Interest expense decreased for the period as the Company refinanced higher
cost debt at lower interest rates. The net loss for 1993 reflects an
extraordinary loss of approximately $12.8 million, net of income tax benefits
of $8.0 million, resulting from the early extinguishment of debt. See Note
9.
The adoption in 1993 of new accounting standards relating to income taxes and
postretirement benefits other than pensions did not have a material effect on
the Company's results of operations. However, the standard relating to
income taxes did require a $3.5 million adjustment to the Company's income
tax expense for 1993 and accumulated deferred income tax balance to reflect
the change in the federal income tax rate from 34% to 35%, effective January
1, 1993, resulting from the enactment of The Omnibus Budget Reconciliation
Act of 1993 (OBRA). Other provisions of OBRA are not expected to have a
material effect on the Company's results of operations. Also increasing tax
expense in 1993 was the recording of tax audit-related accruals and
adjustments of prior year taxes. See Notes 2 and 3 - Other Postretirement
Benefits.
1992 compared to 1991 - The contribution from agricultural operations in 1992
remained relatively constant compared with 1991. Earnings reflected a
significant increase in production volume resulting from the maturing of
young trees, partially offset by a decline in citrus prices and an increase
in costs of goods sold. The agricultural industry experienced declining
citrus prices throughout 1992, with year-end prices at approximately fifty
percent of prices at the beginning of the year. A significant portion of
Turner's 1992 harvest was sold under contracts with specified floor prices,
alleviating much of the effects of the decline in prices.
The decrease in other operating revenues was due to a reduction in leveraged
leasing revenues. ESI recorded a $5.8 million charge to other operating
expenses in 1991 to recognize an impairment of certain leveraged lease
investments which were being converted to investments in partnerships and
joint ventures. The decrease in general and administrative expenses was due
to reduced costs incurred at Telesat.
Equity in earnings of partnerships and joint ventures increased due to the
first full year of operations from certain projects and the absence of
certain start-up costs experienced in 1991. The improvement in 1992 was
partially offset by $8.9 million of losses representing ESI's proportionate
share of losses from two solar power plant investments. A restructuring of
the solar projects was completed in 1992 and included additional capital
contributions by the partners to fund site repairs and modifications which
were required to return the plants to operation. Following these
modifications, the plants performed at a level sufficient to receive capacity
payments under existing contracts.
Interest expense decreased during the period due to lower interest rates and
a reduction in the average amount of debt outstanding. In 1992, an
extraordinary loss of $5.3 million, net of tax benefits of $3.2 million, was
incurred as a result of the early extinguishment of debt.<PAGE>
<PAGE>
Adjustments of prior year taxes increased the effective tax rate for 1992.
The income tax benefit in 1991 included the recognition of tax credits
associated with new investments in non-utility energy projects.
In 1991, the Company completed the sale of Colonial Penn, the Company's
largest operating subsidiary, resulting in a $135.6 million after-tax loss.
Bay Loan, formerly a subsidiary of Colonial Penn, is winding down its
operations. Both of these entities are reported as discontinued operations.
The Company does not anticipate that the winding down of Bay Loan's
operations will adversely affect its future operating results. See Note 5.
Tax benefits associated with the sale of Colonial Penn and a related charge
recorded in 1991 reflect the Company's assessment of loss disallowance rules
and the availability of offsetting capital gains. These rules limit the
amount of loss from the sale of a subsidiary stock that can be deducted. The
Company plans to challenge the loss disallowance rules. Approximately $170.0
million of tax benefits have not been recognized for financial reporting
purposes pending the outcome of the challenge and realization of offsetting
capital gains. See Note 2.
LIQUIDITY AND CAPITAL RESOURCES
Capital Requirements and Resources - The Company requires funds to service its
debt, for general and administrative expenses, for investments in or advances
to subsidiaries and for payments of dividends to FPL Group. As shown in the
consolidated statements of cash flows, the Company has generated positive
cash flow from its operating activities, but has relied, in the past, on
equity contributions from FPL Group for a substantial portion of the funds
needed for investments and retirement of long-term debt. Funds to meet these
requirements in the future are expected to be provided through cash dividends
from subsidiaries including proceeds from the sale of certain assets,
proceeds from short or long-term borrowings and, if needed, through
contributions from FPL Group.
The Company and ESI have committed to invest approximately $3.2 million in,
and lend approximately $4.2 million to, partnerships and joint ventures
entered into through ESI, all of which are expected to be funded in 1994.
Additionally, the Company and its subsidiaries, primarily ESI, have
guaranteed up to approximately $89.2 million of lease obligations, debt
service payments and other payments subject to certain contingencies.
In 1992, the Company renegotiated the terms of a $100.0 million bank loan by
extending the term to December 1994 and increasing the principal amount to
$125.0 million. The interest rate varies based on certain short-term
interest rate indices. Proceeds from the original bank borrowings were used
to partially fund, in 1990, the Company's $360.0 million 9.69% loan for a
term of 20 years to the Trust (ESOP Loan). The Trust intends to repay the
ESOP Loan with dividends received on FPL Group common shares it holds, along
with cash contributions from the participating employers. The amount of
additional contributions required in the future is primarily dependent on the
level of dividends paid by FPL Group. See Note 13.
Debt maturities will require cash outflows of approximately $432.3 million
through 1998, including $278.2 million in 1994. See Note 9. Current
maturities of long-term debt at December 31, 1993 include $150.0 million of
debentures called in December 1993. The debentures were redeemed in January
1994 using proceeds from short-term borrowings. An additional $125.0 million
represents the Company's bank loan which is due December 1994, and is
expected to be repaid with available cash, including proceeds from the sale
of cable television and real estate assets, or to be extended. Bank lines of
credit currently available to the Company and its subsidiaries aggregate
$150.0 million.
Financial Covenants - The Company, under a financial covenant in connection
with its bank loan, is required to maintain a minimum level of consolidated
net worth which is reduced as loan prepayments are made. At December 31,
1993, the required level was $100.0 million and actual consolidated net worth
was approximately $332.5 million. See Note 10 - Debt Covenant.
Under the terms of the Company's Indenture dated March 1, 1987 (Indenture)
relating to the issuance of its debentures, the Company is subject to certain
restrictions on the pledging of property to secure debt. The Indenture also
requires the Company to maintain a support agreement entered into with FPL
Group until such time as the credit rating on the debt securities outstanding
under the Indenture would be the same or better, whether or not the support
agreement was in effect. See Note 10 - Support Agreement.<PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
FPL GROUP CAPITAL INC:
We have audited the consolidated financial statements of FPL Group Capital
Inc and its subsidiaries, listed in the accompanying index as Item 14(a)1 of
this Annual Report (Form 10-K) to the Securities and Exchange Commission for
the year ended December 31, 1993. Our audits also comprehended the financial
statement schedules of FPL Group Capital Inc and its subsidiaries, listed in
the accompanying index as Item 14(a)2. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules 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 Capital Inc and its
subsidiaries at December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information shown
therein.
As discussed in Notes 2 and 3 to the consolidated financial statements, FPL
Group Capital Inc and its subsidiaries changed their method of accounting for
income taxes and postretirement benefits other than pensions effective
January 1, 1993.
DELOITTE & TOUCHE
Certified Public Accountants
Miami, Florida
February 11, 1994<PAGE>
<PAGE>
FPL GROUP CAPITAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
OPERATING REVENUES:
Agricultural revenues $ 44,038 $ 46,294 $ 42,422
Service revenues 26,862 27,922 27,826
Other operating revenues 21,517 19,102 21,640
Total operating revenues 92,417 93,318 91,888
OPERATING EXPENSES:
Costs of goods sold 36,018 34,590 30,278
Costs of services 17,430 20,907 21,006
General and administrative 22,264 22,111 26,651
Other operating expenses 12,361 7,772 15,959
Total operating expenses 88,073 85,380 93,894
OPERATING INCOME (LOSS) 4,344 7,938 (2,006)
EQUITY IN EARNINGS OF PARTNERSHIPS
AND JOINT VENTURES 14,427 5,316 111
OTHER INCOME (DEDUCTIONS):
Interest income (including $34,707,
$34,933 and $34,837,
respectively, on related party
ESOP loan) 40,441 43,064 37,976
Interest expense (40,006) (50,390) (58,644)
Other - net (1,654) (627) (974)
Total other income (deductions) (1,219) (7,953) (21,642)
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 17,552 5,301 (23,537)
INCOME TAX EXPENSE (BENEFIT):
Current (47,156) (28,379) (5,518)
Deferred 59,533 32,946 (9,113)
Total income taxes 12,377 4,567 (14,631)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY LOSS 5,175 734 (8,906)
Loss on sale of discontinued operations,
net of income tax benefits of $28,900 - - (135,570)
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 5,175 734 (144,476)
Extraordinary loss on early
extinguishment of debt, net of
income tax benefits of $8,046 in
1993 and $3,181 in 1992 (12,811) (5,273) -
NET LOSS $ (7,636) $(4,539) $(144,476)
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.<PAGE>
<PAGE>
FPL GROUP CAPITAL INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
1993 1992
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $29,640 $11,731
Receivables from affiliated companies 34,041 38,635
Other receivables 15,730 18,424
Other 16,976 20,564
Total current assets 96,387 89,354
INVESTMENTS:
Receivable from Employee Stock Ownership
Plan Trust 353,989 356,976
Investments in partnerships and joint ventures 368,724 296,593
Investments in leveraged leases 155,449 144,398
Other 77,045 55,494
Total investments 955,207 853,461
OTHER ASSETS:
Property, plant and equipment - net 205,474 225,532
Other 8,871 12,149
Total other assets 214,345 237,681
TOTAL ASSETS $1,265,939 $1,180,496
LIABILITIES
CURRENT LIABILITIES:
Current maturities of long-term debt $ 278,179 $3,458
Advances payable to FPL Group, Inc. - 6,000
Accounts payable 14,004 8,380
Interest accrued 14,267 14,508
Other 7,155 7,309
Total current liabilities 313,605 39,655
OTHER LIABILITIES:
Long-term debt 285,918 555,692
Accumulated deferred income taxes 228,813 172,292
Other 105,087 72,705
Total other liabilities 619,818 800,689
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY 332,516 340,152
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,265,939 $1,180,496
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.<PAGE>
<PAGE>
FPL GROUP CAPITAL INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,636) $(4,539) $(144,476)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Extraordinary loss on early extinguishment of debt 20,857 8,454 -
Equity in earnings of partnerships and joint ventures (14,427) (5,316) (111)
Depreciation and amortization 11,846 12,108 10,967
Earned income from leveraged leases (4,610) (7,002) (11,068)
Loss from discontinued operations - - 135,570
Increase in deferred income taxes 56,521 52,827 1,887
Decrease in receivables from affiliated companies 3,394 10,267 2,996
Increase (decrease) in other liabilities - net (262) (13,101) 17,372
Other 8,180 (5,286) 1,893
Net cash provided by operating activities 73,863 48,412 15,030
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from partnerships and joint ventures 29,066 12,181 7,678
Contributions to partnerships and joint ventures (119,093) (66,942) (83,498)
Sale of investments in joint ventures 48,396 - -
Increase in loans receivable (23,937) (9,862) (39,804)
Net cash provided (used) by leveraged lease investments (4,128) 3,412 523
Sale of property, plant and equipment 39,246 17,896 1,820
Purchase of property, plant and equipment (17,913) (42,576) (20,711)
Sale of Colonial Penn Group, Inc. - - 128,380
Net cash used by discontinued operations - - (49,827)
Other 2,119 (4,313) 10,335
Net cash used in investing activities (46,244) (90,204) (45,104)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debentures and other long-term debt 125,889 149,063 -
Retirement of long-term debt (122,114) (204,792) (170,036)
Premiums paid on early extinguishment of debt (7,485) (7,270) -
Proceeds from bank loans - 25,000 -
Capital contributions from FPL Group, Inc. - 65,000 205,000
Dividends to FPL Group, Inc. - - (8,680)
Increase (decrease) in advances from FPL Group, Inc. (6,000) 6,000 -
Decrease in notes payable - - (45,814)
Net cash provided (used) by financing activities (9,710) 33,001 (19,530)
Net increase (decrease) in cash and cash equivalents 17,909 (8,791) (49,604)
Cash and cash equivalents at beginning of year 11,731 20,522 70,126
Cash and cash equivalents at end of year $29,640 $11,731 $20,522
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest (net of amount capitalized) $40,247 $47,272 $58,159
Cash received from FPL Group, Inc. for income tax benefits $52,075 $58,601 $28,561
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.<PAGE>
<PAGE>
FPL GROUP CAPITAL INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1993, 1992 and 1991
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of FPL Group Capital Inc (Company) and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. The Company is a wholly-owned subsidiary of FPL Group, Inc.
(FPL Group) and is organized as a holding company with its operations
consisting primarily of investments in non-utility energy projects through
ESI Energy, Inc. (ESI) and the citrus operations of Turner Foods Corporation
(Turner). Certain amounts included in prior years' consolidated financial
statements have been reclassified to conform to the current year's
presentation.
Cash Equivalents - Cash equivalents consist of short-term, highly liquid
investments with original maturities of three months or less. The carrying
amount of these investments approximates their market value.
Investments in Partnerships and Joint Ventures - The majority of the Company's
investments in partnerships and joint ventures are accounted for under the
equity method. The cost method is used when the Company has virtually no
ability to influence the operating or financial decisions of the investee.
Investments in Leveraged Leases - For leveraged leases, aggregate rentals
receivable are reduced by the related principal and interest on nonrecourse
debt (net rentals receivable). The difference between net rentals receivable
and the cost of the asset, less estimated residual value at the end of the
lease term, is recorded as unearned income. Earned income is recognized over
the life of the lease at a constant rate of return on the positive net
investment, which includes the effects of tax credits and deferred taxes.
Revenue Recognition - The Company recognizes revenues as goods and services
are delivered and exchanged for cash or claims to cash. Revenues associated
with agricultural products sold under contract are recognized, as provided in
the related contracts, at the higher of the market price or the contract
floor price. Estimated agricultural revenues in excess of initial cash
payments received are accrued. Revenues from consulting contracts and cable
television services are recognized at stated prices as services are provided.
Revenues from real estate sales are recorded when property is sold, provided
that the collectibility of the sales price is assured and the Company does
not have substantial continuing involvement with the property.
Property, Plant and Equipment - Depreciation on property, plant and equipment
is provided primarily on a straight-line basis over the estimated useful
lives of the property, plant and equipment. The Company follows the policy
of capitalizing interest as a component of the cost of property and certain
structures under development. During 1993, 1992 and 1991 total interest of
approximately $40.6 million, $51.4 million and $61.2 million was incurred, of
which $0.6 million, $1.0 million and $2.6 million was capitalized,
respectively, with the balance charged to operations.
Income Taxes - Deferred income taxes are provided on all significant temporary
differences between the financial statement and tax bases of assets and
liabilities. Deferred income taxes on the balance sheet are net of
recognized alternative minimum tax (AMT) credits. Investment tax credits
(ITCs) are used to reduce current federal income taxes. The Company
determines its income tax provision on the "separate return method." See
Note 2.
2. Income Taxes
The Company and its subsidiaries are included in consolidated income tax
returns filed by FPL Group. FPL Group has entered into a tax allocation
agreement (Tax Allocation Agreement) with certain of its affiliates,
including the Company and its subsidiaries, whereby each affiliate is charged
its share of the consolidated federal and state tax liability based on the
affiliate's separate income tax computation. In addition, each affiliate is
reimbursed currently for the benefit derived from losses, deductions and
credits which are utilized in the consolidated income tax return filed by FPL
Group. For 1992 and 1991, the Company was in an AMT position which reduced
the income tax benefits utilized by FPL Group and paid to the Company under
the Tax Allocation Agreement. The resulting AMT credits can be carried
forward for an indefinite period of time.<PAGE>
<PAGE>
In 1993, the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 109, "Accounting for Income Taxes," which requires the use of the
liability method in accounting for income taxes. Under the liability method,
the tax effect of temporary differences between the financial statement and
tax bases of assets and liabilities are reported as deferred taxes measured
at current tax rates. The standard did not affect accounting for deferred
income taxes related to leveraged leases. Substantially all of the Company's
operations have taken place while the federal corporate tax rate was 34%;
consequently, adoption of SFAS No. 109 in the first quarter of 1993 did not
have a significant effect on results of operations. However, upon enactment
of the Omnibus Budget Reconciliation Act of 1993 which increased the federal
corporate rate to 35%, the Company adjusted its income tax expense and
accumulated deferred income tax balance by $3.5 million to reflect this
change in the tax rate.
The principal effect of adopting SFAS No. 109 was to establish a deferred tax
asset of approximately $170.0 million for a capital loss carryforward which,
if unrecognized, will expire in 1996. This carryforward may not be allowed
because of loss disallowance rules adopted by the Internal Revenue Service
which deny recognition for tax purposes of a significant portion of losses
resulting from FPL Group's disposition of discontinued operations in a prior
period. The Company plans to challenge the loss disallowance rules. Based
on the uncertainties associated with the ultimate outcome of this challenge
and recognition of offsetting capital gains, a valuation allowance was
recorded to fully offset the effect of establishing this deferred tax asset
under SFAS No. 109.
The components of income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
Federal:
Current. . . . . . . . . . . . . . . . . .$(39,482) $(26,410) $(8,432)
Deferred:
Accelerated depreciation . . . . . . . . 22,615 39,794 74,581
Leveraged leases . . . . . . . . . . . . 7,880 36,605 (7,651)
AMT credits. . . . . . . . . . . . . . . 34,058 (48,450) (66,148)
Other. . . . . . . . . . . . . . . . . . (15,306) 2,741 (7,327)
Total federal. . . . . . . . . . . . . 9,765 4,280 (14,977)
State:
Current. . . . . . . . . . . . . . . . . . (7,674) (1,969) 2,914
Deferred:
Accelerated depreciation . . . . . . . . 3,761 1,806 6,392
Leveraged leases . . . . . . . . . . . . 1,310 4,238 (2,314)
AMT credits. . . . . . . . . . . . . . . 12,385 (862) (5,563)
Other. . . . . . . . . . . . . . . . . . (7,170) (2,926) (1,083)
Total state. . . . . . . . . . . . . . 2,612 287 346
Total income taxes . . . . . . . . . . . . . $12,377 $4,567 $(14,631)
</TABLE>
<PAGE>
<PAGE>
A reconciliation between income tax expense (benefit) and the expected income
tax expense (benefit) at the applicable statutory rates is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
Computed at statutory federal income tax rate. . . . . . . . . $6,143 $1,802 $(8,003)
Increases (reductions) resulting from:
State income taxes - net of federal income tax benefit . . . 1,399 189 228
Amortization of ITCs . . . . . . . . . . . . . . . . . . . . (349) (633) (8,344)
Federal tax rate change. . . . . . . . . . . . . . . . . . . 3,567 - -
Other - net. . . . . . . . . . . . . . . . . . . . . . . . . 1,617(1) 3,209(2) 1,488
Total income taxes . . . . . . . . . . . . . . . . . . . . . . $12,377 $4,567 $(14,631)
(1) Includes tax audit-related accruals and adjustments of prior year taxes totaling approximately $1.0 million.
(2) Includes adjustments of prior year taxes totaling approximately $2.5 million.
</TABLE>
The income tax effects of discontinued operations in 1991 differ from the
effects computed at statutory rates primarily due to the Company's assessment
of loss disallowance rules and limitations on the ability to utilize capital
loss benefits.
The income tax effects of temporary differences giving rise to the Company's
consolidated deferred income tax assets and liabilities after adoption of
SFAS No. 109 are as follows:
<TABLE>
<CAPTION>
December 31, 1993 January 1, 1993
(Thousands of Dollars)
<S> <C> <C>
Deferred tax liabilities:
Leveraged leases . . . . . . . . . . . . . . $167,467 $159,256
Partnerships and joint ventures. . . . . . . 166,376 153,786
Property related . . . . . . . . . . . . . . 43,118 34,303
Other. . . . . . . . . . . . . . . . . . . . 45,963 44,124
Total deferred tax liabilities . . . . . . 422,924 391,469
Deferred tax assets and valuation allowance:
Asset writedowns and capital loss
carryforward . . . . . . . . . . . . . . 236,865 215,121
AMT credits. . . . . . . . . . . . . . . . . 140,906 187,349
Other. . . . . . . . . . . . . . . . . . . . 3,428 2,615
Valuation allowance. . . . . . . . . . . . . (187,088) (182,896)
Net deferred tax assets. . . . . . . . . . 194,111 222,189
Accumulated deferred income taxes . . . . . . . . $228,813 $169,280
</TABLE>
Real estate and personal property taxes were approximately $1.5 million, $1.2
million and $1.4 million for 1993, 1992 and 1991, respectively, and are
included in other operating expenses in the Consolidated Statements of
Operations.
3. Employee Retirement Benefits
Pension Benefits - Substantially all employees of the Company and its
subsidiaries are covered by FPL Group's 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. Plan assets consist primarily of
bonds, common stocks and short-term investments. Any pension cost recognized
by FPL Group is allocated to the Company on a pro rata basis. Amounts
allocated to the Company for 1993, 1992 and 1991 were not material. For the
same periods, no contributions to the pension plans were required. During
1992, the method used for valuing plan assets in the calculation of pension
cost was changed from fair value to a calculated market-related value. The
new method was<PAGE>
<PAGE>
adopted to reduce the volatility in annual pension expense that results from
short-term fluctuations in the securities markets. This change did not have
a significant effect on results of operations.
In 1993, the pension plans of FPL Group and its subsidiary, Florida Power &
Light Company (FPL) were combined. Accordingly, the 1992 amounts have been
restated to present the position of the combined plans. As of December 31,
1993 and 1992, the fair market value of FPL Group plan assets was
approximately $1,662.0 million and $1,549.3 million, respectively, the
projected benefit obligation was $1,066.5 million and $1,119.4 million,
respectively, and the prepaid pension cost was $2.8 million and $22.5
million, respectively. For the same periods, the unrecognized prior service
cost was approximately $212.9 million and $79.6 million, respectively,
unrecognized net gain was $548.7 million and $206.7 million, respectively,
and the unrecognized net transition asset was $256.9 million and $280.3
million, respectively. During 1993, the effect of a prior plan amendment
that changed the manner in which benefits accrue, was recognized and included
as part of prior service cost to be amortized over the remaining service life
of the employees.
As of December 31, 1993 and 1992, the weighted-average discount rate used in
determining the actuarial present value of the projected benefit obligation
was 7.0% and 6.0%, respectively. The assumed rate of increase in future
compensation levels at those respective dates was 5.5% and 6.0%. The
expected long-term rate of return on plan assets used in determining pension
cost was 7.75% for 1993 and 7.0% for 1992 and 1991.
Other Postretirement Benefits - Substantially all employees of the Company are
covered by FPL Group's defined benefit postretirement plans for health care
and life insurance benefits. Costs associated with the plans are allocated
to the Company 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 2000. 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.
In 1993, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." Postretirement benefit cost
allocated to the Company on a pro rata basis amounted to $0.3 million for
1993. As of December 31, 1993, the fair market value of the FPL Group plan
assets was approximately $109.4 million, the accumulated postretirement
benefit obligation was $253.0 million, the unrecognized net transition
obligation was $66.2 million and unrecognized net loss amounted to $32.6
million. The accrued postretirement benefit cost at December 31, 1993 is
$44.8 million, of which $0.3 million represents the portion allocated to the
Company.
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) for 1993 is 10.5% for
retirees under age 65 and 6.5% for retirees over age 65. These rates are
assumed to decrease gradually to 6.0% by the year 2000, which is when it is
anticipated that benefit costs will reach the defined level at which FPL
Group's contributions will be capped. 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 December 31, 1993 by $8
million, and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost of the plan for 1993 by approximately $1
million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at December 31, 1993. The
expected long-term rate of return on plan assets was 7.75% at
December 31, 1993.
4. Businesses To Be Discontinued
In 1990, the Company decided to sell or otherwise dispose of the real estate,
cable television, environmental remediation and utility-related services
businesses. In 1991, the environmental remediation and utility-related
services businesses were sold with no significant impact on net income.
During 1993, the Company sold or otherwise liquidated certain cable
television and real estate assets, including cable television operating
systems, interests in three cable television joint ventures and real estate
rental properties. The Company's remaining developed real estate properties
are under contract for sale. This pending<PAGE>
<PAGE>
sale, if closed, and the currently estimated result of disposing of the
balance of the Company's cable television and real estate assets are not
expected to have a significant adverse effect on net income.
5. Discontinued Operations
In 1991, Colonial Penn Group, Inc. (Colonial Penn) was sold, resulting in a
$135.6 million after-tax loss. The sale did not include Bay Loan and
Investment Bank (Bay Loan), a former Colonial Penn subsidiary, which is
winding down its operations and will be dissolved. The principal business of
Bay Loan was investing in loans secured by real estate using funds provided
from the issuance of insured certificates of deposit. Bay Loan ceased
investing in new loans in 1990 and is in the process of effecting an orderly
liquidation. The date when such liquidation will be completed cannot be
predicted with certainty because it is dependent on the timing of loan
prepayments and asset sales. The Company has no legal obligation and has no
intention to contribute additional equity to Bay Loan. The investment in Bay
Loan was written off in 1990; the orderly liquidation of its operations is
not expected to have an adverse effect on the Company's future operating
results.
Colonial Penn and Bay Loan have been accounted for as discontinued
operations. Operating revenues of Bay Loan were $16.3 million and
$21.4 million for 1993 and 1992, respectively. Combined operating revenues
of Colonial Penn (through date of closing) and Bay Loan were $714.1 million
for 1991. Bay Loan reported operating income of $5.1 million in 1993 and
operating losses of $5.9 million and $8.5 million in 1992 and 1991,
respectively. The losses incurred subsequent to the measurement date (date
on which Bay Loan was initially classified as discontinued operations) had no
effect on the Company's results of operations as such losses had been
provided for in the loss on disposal of discontinued operations in 1991.
The remaining assets of Bay Loan consist primarily of loans secured by real
estate and real estate owned as a result of foreclosures. Most of Bay Loan's
loan customers and the real estate securing their loans are located in the
northeast United States. The remaining liabilities of Bay Loan consist
primarily of FDIC-insured certificates of deposit, which will be settled with
funds generated from loan repayments and the sale of Bay Loan assets. Total
assets and liabilities of Bay Loan at December 31, 1993 were $149.3 million
and $129.7 million, respectively. Total assets and liabilities of Bay Loan
at December 31, 1992 were $194.9 million and $180.4 million, respectively.
The carrying amounts of assets and liabilities at December 31, 1993 and 1992,
approximate the estimated fair values of the financial instruments of Bay
Loan.
6. Investments in Partnerships and Joint Ventures
ESI holds interests in partnerships and joint ventures which are engaged in
non-utility energy production in various parts of the United States,
including California, Virginia and Pennsylvania. ESI's ownership percentages
in these partnerships and joint ventures vary throughout the terms of the
investments. Its participation in the expected financial benefits, which
range from 5% to 50% over the life of the projects, does not exceed the
maximum allowed under the Public Utility Regulatory Policies Act of 1978
(PURPA). The projects utilize a diverse mix of technologies, including wind
power, waste coal, natural gas, solar power, geothermal and waste-to-energy.
The investments are accounted for under the equity method. The difference
between ESI's initial investment and the underlying equity in net assets of
the partnerships and joint ventures at the date the investments were entered
into is amortized over the projects' estimated useful lives as an adjustment
to equity in earnings of partnerships and joint ventures. As of December 31,
1993 and 1992, the unamortized balance was approximately $17.4 million.<PAGE>
<PAGE>
Summarized information from the financial statements of ESI's investments,
which represent essentially all of the Company's investments in partnerships
and joint ventures accounted for under the equity method, is as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
Gross revenues . . . . . . . . . . . . . . . $ 606,912 $ 502,937 $ 305,734
Net operating income . . . . . . . . . . . . $ 306,377 $ 259,323 $ 136,290
Net income . . . . . . . . . . . . . . . . . $ 74,797 $ 37,566 $ 6,396
ESI's equity in earnings . . . . . . . . . . $ 14,487 $ 5,352 $ 152
Current assets . . . . . . . . . . . . . . . $ 379,384 $ 328,807 $ 172,342
Noncurrent assets. . . . . . . . . . . . . . $2,525,851 $2,472,034 $2,129,385
Current liabilities. . . . . . . . . . . . . $ 198,209 $ 197,955 $ 111,117
Noncurrent liabilities . . . . . . . . . . . $2,151,183 $2,179,978 $1,793,150
Partners' capital. . . . . . . . . . . . . . $ 555,843 $ 422,908 $ 397,460
ESI's investments in partnerships
and joint ventures . . . . . . . . . . $ 361,195 $ 266,798 $ 214,421
</TABLE>
In addition to those investments reflected above, the Company holds other
investments in partnerships and joint ventures accounted for under the equity
method which contributed losses of approximately $60 thousand, $36 thousand
and $41 thousand in 1993, 1992 and 1991, respectively, to the Company's
aggregate equity in earnings of partnerships and joint ventures. At
December 31, 1993 and 1992, these investments totaled approximately
$4.5 million and $4.1 million, respectively.
7. Investments in Leveraged Leases
ESI is the lessor in several diversified leveraged lease agreements entered
into from 1985 through 1990. At December 31, 1993, the leased properties
have remaining lease terms ranging from 14 to 22 years. ESI has supplied
equity in varying amounts up to 20% of the purchase prices. The remaining
funds were supplied by other equity contributors and by third-party financing
in the form of nonrecourse long-term debt and are secured by first liens on
the property. At the end of the lease term, the property is turned back to
the equity participants. In some instances, the agreements provide for the
lessee to have the option to purchase the property at a fixed price or at
fair market value. These are not considered to be bargain purchase options.
The estimated residual values at the end of the leases range from 5% to 25%
of cost.
The components of the net investment in leveraged leases are as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
(Thousands of Dollars)
<S> <C> <C>
Rentals receivable (net of principal and
interest on the nonrecourse debt). . . . . . . . . . $ 209,061 $202,462
Estimated residual value of leased assets. . . . . . . . . 82,290 84,054
Unearned and deferred income . . . . . . . . . . . . . . . (135,902) (142,118)
Investments in leveraged leases. . . . . . . . . . . . . . 155,449 144,398
Deferred income taxes arising from leveraged leases. . . . (122,991) (106,014)
Net investment in leveraged leases . . . . . . . . . . . . $32,458 $38,384
</TABLE>
ITCs related to leveraged leases recognized during the years ended December
31, 1993, 1992 and 1991 were approximately $0.4 million, $0.6 million and
$0.5 million, respectively. Pretax income from leveraged leases totaled
approximately $4.6<PAGE>
<PAGE>
million, $7.0 million and $11.1 million for the years ended December 31,
1993, 1992 and 1991, respectively. Leveraged lease income, after-tax,
totaled approximately $2.1 million, $6.2 million and $7.9 million for the
same periods, respectively.
8. Property, Plant and Equipment
Property, plant and equipment, at cost (or estimated net realizable value for
property held by businesses to be discontinued), less accumulated
depreciation is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
(Thousands of Dollars)
<S> <C> <C>
Land and land development. . . . . . . . . . . . . . . . . $ 65,989 $71,708
Citrus trees . . . . . . . . . . . . . . . . . . . . . . . 97,302 95,445
Cable television systems . . . . . . . . . . . . . . . . . 7,401 12,665
Buildings and improvements . . . . . . . . . . . . . . . . 25,114 54,738
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 24,531 24,372
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 35,237 14,429
Total property, plant and equipment. . . . . . . . . . . . 255,574 273,357
Less accumulated depreciation. . . . . . . . . . . . . . . 50,100 47,825
Total property, plant and equipment - net. . . . . . . . . $205,474 $225,532
</TABLE>
9. Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
(Thousands of Dollars)
<S> <C> <C>
Debentures:
6 1/2% Series maturing in July 1997. . . . . . . . . $150,000 $150,000
7 5/8% Series maturing in May 2013 . . . . . . . . . 125,000 -
8 7/8% Series maturing in March 2017 . . . . . . . . 150,000 150,000
10 1/8% Series maturing in June 2017 . . . . . . . . - 100,000
Bank loans - 3.7% to 4.2% in 1993 and
4.0% to 4.2% in 1992 due December 1994 . . . . . . . 125,000 125,000
Other - 7.0% to 9.9% due various dates
to 2013, secured by various equipment,
land, buildings and improvements . . . . . . . . . . 16,399 35,288
Unamortized discount . . . . . . . . . . . . . . . . . . . (2,302) (1,138)
Total long-term debt . . . . . . . . . . . . . . . . 564,097 559,150
Less current maturities. . . . . . . . . . . . . . . 278,179 3,458
Total long-term debt, excluding current maturities . . . . $285,918 $555,692
</TABLE>
In 1993 and 1992, the Company issued debentures totaling $125.0 million and
$150.0 million, respectively, and redeemed debt totaling $115.0 million and
$200.0 million, respectively. Early debt extinguishments resulted in net
losses of $12.8 million and $5.3 million, respectively, and have been
reflected in the Consolidated Statements of Operations as extraordinary
losses. In December 1993, the Company issued a redemption notice for $150.0
million of its 8 7/8% Debentures. The debentures were redeemed in January
1994, using the proceeds from short-term borrowings. <PAGE>
<PAGE>
Under the terms of the Company's Indenture dated March 1, 1987 (Indenture)
relating to the issuances of its debentures, the Company is subject to
certain restrictions on the pledging of property to secure debt.
Annual maturities of long-term debt for the years ended December 31, 1994
through 1998 are approximately $278.2 million, $2.4 million, $1.0 million,
$150.6 million and $0.1 million, respectively.
Available bank lines of credit for the Company aggregated $150.0 million at
December 31, 1993, all of which are based on firm commitments.
10. Stockholder's Equity
The changes in Stockholder's Equity accounts are as follows:
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Stockholder's
Stock(1) Capital Deficit Equity
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balances, December 31, 1990 $ 1 $995,131 $(767,285)
Capital contributions from FPL Group - 205,000 -
Net loss - - (144,476)
Distribution of capital effected in the
form of a dividend on common stock - (8,680) -
Balances, December 31, 1991 1 1,191,451 (911,761)
Capital contributions from FPL Group - 65,000 -
Net loss - - (4,539)
Balances, December 31, 1992 1 1,256,451 (916,300) $340,152
Capital contributions from FPL Group - - -
Net loss - - (7,636)
Balances, December 31, 1993 $ 1 $1,256,451 $(923,936) $332,516
(1) Common stock, $.01 par value, 10,000 shares authorized, 100 shares issued and outstanding.
</TABLE>
Support Agreement - Under the terms of a support agreement between the Company
and FPL Group (Support Agreement), FPL Group has agreed: to retain ownership
of 100% of the voting stock of the Company; to ensure that the Company
maintains a net worth of not less than $1.00; and to make sufficient liquid
asset contributions to the Company to permit the Company to pay its debt and,
subject to certain limitations, its other obligations as they become due.
With respect to such other obligations, FPL Group, in any calendar year,
shall not be required to make payments in excess of the lesser of 110% of the
debt outstanding at the time such payment may be required or $25.0 million.
The Support Agreement provides that it may be terminated by either the
Company or FPL Group, only if two nationally recognized securities rating
organizations confirm in writing that their ratings for the Company's
outstanding debt would be the same or better, whether or not the Support
Agreement was in effect.
Debt Covenant - The Company, under a financial covenant in connection with a
bank loan, may not permit its consolidated net worth at any time to fall
below $100.0 million minus 50% of the aggregate amount of the loan which has
been prepaid by the Company. At December 31, 1993, the required level of
consolidated net worth under this provision was $100.0 million and actual
consolidated net worth was $332.5 million.
<PAGE>
<PAGE>
11. Fair Value of Financial Instruments
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.
<TABLE>
<CAPTION>
December 31,
1993 1992
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Other investments $77,045 $77,045(1) $55,494 $55,494(1)
Receivable from Employee Stock Ownership
Plan Trust, including current portion $356,976 $432,896(2) $358,890 $420,024(2)
Advances payable to FPL Group $ - $ - $6,000 $6,000(1)
Long-term debt, including current maturities:
Debentures, net of discount $422,698 $439,845(3) $398,862 $411,890(3)
Bank loans $125,000 $125,000(1) $125,000 $125,000(1)
Other $16,399 $17,134(1)(4) $35,288 $36,558(1)(4)
(1) Includes variable rate loans or short-term instruments. Carrying amount is a reasonable estimate of fair value.
(2) Based on discounted cash flows at current market rate for instruments of similar risk and remaining maturity.
(3) Based on quoted market prices for the same or similar issues.
(4) Includes Medium-Term Notes based on call price and/or bonds based on quoted market price for same or similar issues.
</TABLE>
The Company's investment in cable joint ventures accounted for under the cost
method totaled approximately $3.0 million and $21.1 million at December 31,
1993 and 1992, respectively. The fair value of these investments cannot be
practicably estimated.
The fair value of the Company's commitments and guarantees (see Note 12) is
based on fees currently charged for similar arrangements. The fair value of
such amounts was not material at December 31, 1993 and 1992.
12. Commitments and Contingencies
Leases - Rental expense for the years ended December 31, 1993, 1992 and 1991
was approximately $1.5 million, $1.7 million and $1.6 million, respectively.
Future minimum rental commitments for noncancellable leases for the years
ended December 31, 1994 through 1998 and thereafter are approximately $0.9
million, $0.8 million, $0.8 million, $0.8 million, $0.6 million and $2.0
million, respectively.
Litigation - A suit brought by the partners in a cogeneration project located
in Dade County, Florida, alleges that ESI, FPL Group and FPL have engaged in
anti-competitive conduct intended to eliminate competition from cogenerators
generally, and from their facility in particular, in violation of federal
antitrust laws and have wrongfully interfered with the cogeneration project's
contractual relationship with Metropolitan Dade County. The suit seeks
damages in excess of $100 million, before trebling under antitrust law, plus
other unspecified compensatory and punitive damages. A motion for summary
judgment by ESI, FPL Group and FPL has been denied.
A former cable installation contractor for Telesat Cablevision, Inc.
(Telesat) has sued the Company, FPL Group and Telesat for breach of contract,
fraud and violation of racketeering statutes. The suit seeks compensatory
damages in excess of $24 million, treble damages under racketeering activity
statutes, punitive damages and attorneys' fees, as well as the revocation of
Telesat's corporate charter and cable television franchises.<PAGE>
<PAGE>
The Company believes that it and its affiliates have meritorious defenses to
all of the litigation described above and is vigorously defending these
suits. Accordingly, the liabilities, if any, arising from this litigation
are not anticipated to have a material adverse effect on the Company's
financial position.
Other - The Company and ESI have committed to invest approximately $3.2
million in, and lend approximately $4.2 million to, partnerships and joint
ventures entered into through ESI, all of which are expected to be funded in
1994. Additionally, the Company and its subsidiaries, primarily ESI, have
guaranteed up to approximately $89.2 million of lease obligations, debt
service payments and other payments subject to certain contingencies.
13. Related Party Transactions
FPL Group and FPL periodically provide, at cost, the services of certain
executive officers, administrative and clerical personnel, and various
equipment to the Company and its subsidiaries. Such direct services are
charged to the Company and its subsidiaries primarily on the full cost
method. In addition, certain indirect costs of FPL Group, not identifiable
to a specific company, are allocated based on each subsidiary's equity, which
in management's opinion is reasonable. Such direct and indirect costs for
the three years ended December 31, 1993 represented an insignificant portion
of total operating expenses. The related amounts due to affiliated companies
at December 31, 1993 and 1992 were not material. Advances payable to FPL
Group totaled $6.0 million at December 31, 1992 and were repaid during 1993.
Receivables from affiliated companies result primarily from income tax
benefits due from FPL Group in accordance with the Tax Allocation Agreement.
During 1993, 1992 and 1991 FPL Group paid approximately $52.1 million, $58.6
million and $28.6 million, respectively, to the Company and its subsidiaries
in connection with this agreement.
In 1990, the Company loaned $360.0 million, bearing an interest rate of 9.69%
for a term of 20 years, to the Trust for the Employee Thrift Plans of FPL
Group and FPL (Trust). The noncurrent portion of the remaining loan balance
is reflected in receivable from Employee Stock Ownership Plan Trust in the
Consolidated Balance Sheets, with the current portion of approximately $3.0
million and $1.9 million included in other receivables at December 31, 1993
and 1992, respectively. The Trust used the loan proceeds to purchase
approximately 12 million shares of FPL Group common stock at a price of $29
per share, the closing price on the New York Stock Exchange on
December 19, 1990. The Trust is repaying the loan with dividends received on
the shares it holds, along with certain cash contributions from the
participating employers.<PAGE>
<PAGE>
14. Business Segment Information
Summarized financial information by industry segment is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues:
Non-utility energy $4,953 $5,100 $8,243
Agriculture (1) 44,038 46,294 42,422
Cable television 12,996 14,118 14,230
Consulting services 13,866 13,804 13,596
Leasing 1,966 3,006 5,296
Corporate items and other 14,598 10,996 8,101
Total operating revenues $92,417 $93,318 $91,888
Operating Income (Loss):
Non-utility energy $(5,371) $411 $(5,122)
Agriculture 7,477 10,965 10,548
Cable television (2,945) (6,016) (12,482)
Consulting services 2,995 792 3,326
Leasing 1,908 2,984 5,041
Corporate items and other 280 (1,198) (3,317)
Total operating income (loss) $4,344 $7,938 $(2,006)
Equity in Earnings of Partnerships and Joint Ventures:
Non-utility energy (2) $14,487 $5,352 $152
Corporate items and other (60) (36) (41)
Total equity in earnings of partnerships
and joint ventures $14,427 $5,316 $111
Assets:
Non-utility energy (2) $437,829 $345,103 $284,482
Agriculture 170,579 174,602 169,256
Cable television 7,482 24,883 38,501
Consulting services 5,502 8,669 5,965
Leasing 194,812 131,739 110,975
Corporate items and other 449,735 495,500 503,489
Total assets $1,265,939 $1,180,496 $1,112,668
Depreciation and Amortization:
Non-utility energy $138 $88 $78
Agriculture 4,459 4,444 3,755
Cable television 3,744 4,829 5,106
Consulting services 767 716 464
Corporate items and other 2,738 2,031 1,564
Total depreciation and amortization $11,846 $12,108 $10,967
Capital Expenditures for Property, Plant and Equipment:
Non-utility energy $12,054 $155 $87
Agriculture 3,295 6,134 11,078
Cable television 1,936 2,767 3,718
Consulting services 84 1,139 466
Corporate items and other 544 32,381 5,362
Total capital expenditures for property,
plant and equipment $17,913 $42,576 $20,711
(1) Approximately 27.3%, 18.0% and 11.4% of the Company's total operating revenues in this industry for 1993, 1992 and 1991,
respectively, is from a single customer.
(2) See Note 6.
/TABLE
<PAGE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements Page(s)
Independent Auditors' Report 10
Consolidated Statements of Operations for the Years
Ended December 31, 1993, 1992 and 1991 11
Consolidated Balance Sheets at December 31, 1993
and 1992 12
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1993, 1992 and 1991 13
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1993, 1992 and 1991 14-24
2. Financial Statement Schedules (1)
Schedule IX Short-Term Borrowings 27
Doswell II Limited Partnership Financial Statements (2) 28-43
Sky River Partnership Financial Statements (2) 44-57
(1) All other schedules are omitted as not applicable or not
required.
(2) Filed as required by Rule 210.3-09 of Regulation S-X.
3. Exhibits including those Incorporated by Reference
Exhibit
Number Description
*3(i) Articles of Incorporation of the Company (filed as
Exhibit 3.1, File No. 33-6215)
*3(ii) Bylaws of the Company, as amended (filed as Exhibit
4(b), File No. 33-69786)
*4(a) Indenture dated as of March 1, 1987 between the Company
and Irving Trust Company, as Trustee, including form of
Debenture (filed as Exhibit 4.2 to Amendment No. 3, File
No. 33-6215)
*4(b) First Supplemental Indenture dated as of March 1, 1987
(filed as Exhibit 4.3 to Amendment No. 3, File No. 33-
6215)
*4(c) Second Supplemental Indenture dated as of June 1, 1987
(filed as Exhibit 4(e), File No. 33-69786)
*4(d) Third Supplemental Indenture dated as of September 1,
1987 (filed as Exhibit 4(f), File No. 33-69786)
*4(e) Fourth Supplemental Indenture dated as of February 1,
1988 (filed as Exhibit 4(g), File No. 33-69786)
*4(f) Fifth Supplemental Indenture dated as of July 1, 1992
(filed as Exhibit 4(h), File No. 33-69786)
*4(g) Sixth Supplemental Indenture dated as of May 1, 1993
(filed as Exhibit 4(i), File No. 33-69786)
10 Support Agreement dated as of December 18, 1985, between
the Company and FPL Group
12 Computation of Ratio of Earnings to Fixed Charges<PAGE>
<PAGE>
23(a) Independent Auditors' Consent of Deloitte & Touche
23(b) Independent Auditors' Consent of Price Waterhouse
* Incorporated herein by reference
(b) Reports on Form 8-K
(1) A Current Report on Form 8-K dated November 10, 1993 was filed
November 15, 1993 reporting one event under Item 5. Other Events.
(2) A Current Report on Form 8-K dated November 24, 1993 was filed
November 29, 1993 reporting one event under Item 5. Other Events.
<PAGE>
<PAGE>
SCHEDULE IX
<TABLE>
<CAPTION>
FPL GROUP CAPITAL INC AND SUBSIDIARIES
SHORT-TERM BORROWINGS
Column A Column B Column C Column D Column E Column F
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest Rate
Category of Aggregate at End Interest During the During the During the
Short-Term Borrowings of Year Rate Year (1) Year (2) Year (3)
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Commercial paper - - - - -
Year Ended December 31, 1992
Commercial paper - - $19,100 $2,779 4.1%
Year Ended December 31, 1991
Commercial paper - - $38,000 $5,852 8.7%
(1) Represents the maximum amount outstanding at any month end.
(2) Computed by dividing the sum of the daily ending balances by the number of days in the year.
(3) Computation is based upon the principal amounts weighted by the number of days outstanding.
</TABLE>
<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
Consolidated Financial Statements and Financial Statement
Schedules for the Years Ended December 31, 1993 and 1992 and the
Period October 4, 1991 (Date of Inception) to
December 31, 1991 and
Independent Auditors' Report<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Doswell II Limited Partnership:
We have audited the accompanying consolidated balance sheets of Doswell II
Limited Partnership as of December 31, 1993 and 1992, and the related
consolidated statements of operations, partners' capital (deficiency), and
cash flows for the years ended December 31, 1993 and 1992 and the period
October 4, 1991 (date of inception) to December 31, 1991. Our audits also
included the related financial statement schedules. These financial
statements and financial statement schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedules 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 the Partnership at December 31,
1993 and 1992, and the results of its operations and its cash flows for the
years ended December 31, 1993 and 1992 and the period October 4, 1991 (date
of inception) to December 31, 1991 in conformity with generally accepted
accounting principles. Also in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 7 to the consolidated financial statements, Doswell
Limited Partnership is involved in litigation relating to the amount and
manner of calculating one component of electricity sales. The ultimate
outcome of the litigation cannot presently be determined.
DELOITTE & TOUCHE
Certified Public Accountants
Los Angeles, California
March 18, 1994<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,741,283 $29,650,113
Restricted cash and cash equivalents 23,309,955 1,665,917
Accounts receivable - trade 23,258,167 23,548,884
Accounts receivable - other (Note 7) 6,004,262 3,255,829
Fuel inventories (Note 4) 24,436,876 22,943,831
Spare parts inventories 3,388,670 2,607,829
Other current assets 443,456 391,105
Total current assets 91,582,669 84,063,508
PROPERTY, PLANT AND EQUIPMENT - Net (Note 2) 378,181,034 390,452,151
DEFERRED FINANCING COSTS - Net 14,605,201 15,612,868
DEFERRED PREOPERATING EXPENSES - Net 9,186,875 13,131,013
OTHER ASSETS - Net 13,863,894 15,522,320
TOTAL $507,419,673 $518,781,860
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $4,524,688 $4,263,003
Accrued interest payable 5,569,373 5,302,980
Short-term debt (Note 4) 33,802,522 29,668,871
Notes payable - current portion (Note 3) 12,500,000 18,000,000
Subordinated affiliate note payable (Note 5) 2,723,093
Total current liabilities 56,396,583 59,957,947
NOTES PAYABLE (Note 3) 379,500,000 436,500,000
SUBORDINATED NOTES PAYABLE (Note 3) 40,000,000
PARTNER NOTE PAYABLE (Note 5) 25,500,000
MINORITY INTERESTS 717,432 391,334
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
PARTNERS' CAPITAL (DEFICIENCY) 30,805,658 (3,567,421)
TOTAL $507,419,673 $518,781,860
</TABLE>
See notes to consolidated financial statements.<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
PERIOD OCTOBER 4, 1991 (DATE OF INCEPTION) TO DECEMBER 31, 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
REVENUES:
Electricity sales (Notes 6 and 7) $144,542,562 $75,469,206
Natural gas sales 9,185,845 4,421,516
Gain on sale of partnership interest 3,394,000
Interest income 1,014,944 379,629 $3,203
Other income 218,642 3,577
Total revenues 154,961,993 83,667,928 3,203
EXPENSES:
Cost of fuel 58,812,391 20,324,129
Operating 9,110,784 4,933,874
Interest (Notes 3, 4 and 5) 43,067,674 27,684,598 237,985
Depreciation and amortization 18,616,691 12,739,802
General and administrative 3,941,260 3,128,883 129
Taxes other than income taxes 1,065,394 777,419
Insurance 955,470 643,549
Minority interests 1,089,903 527,451 (2,349)
Total expenses 136,659,567 70,759,705 235,765
NET INCOME (LOSS) $18,302,426 $12,908,223 $(232,562)
</TABLE>
See notes to consolidated financial statements.<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
PERIOD OCTOBER 4, 1991 (DATE OF INCEPTION) TO DECEMBER 31, 1991
<TABLE>
<CAPTION>
General Limited
Total Partner Partners
<S> <C> <C> <C>
BALANCE, OCTOBER 4, 1991 $(13,243,082) $(218,511) $(13,024,571)
Net loss (232,562) (3,355) (229,207)
BALANCE, DECEMBER 31, 1991 (13,475,644) (221,866) (13,253,778)
Net income 12,908,223 95,142 12,813,081
Special distribution (3,000,000) (3,000,000)
BALANCE, DECEMBER 31, 1992 (3,567,421) (126,724) (3,440,697)
Net income 18,302,426 183,024 18,119,402
Contributions from partners 29,950,000 29,950,000
Distributions to partners (13,879,347) (138,793) (13,740,554)
BALANCE, DECEMBER 31, 1993 $30,805,658 $(82,493) $30,888,151
</TABLE>
See notes to consolidated financial statements.<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1992
AND PERIOD OCTOBER 4, 1991 (DATE OF INCEPTION) TO DECEMBER 31, 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $18,302,426 $12,908,223 $(232,562)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 18,616,691 12,739,802
Minority interests 1,089,903 527,451 (2,349)
Gain on sale of partnership interest (3,394,000)
Preoperating expenses deferred 976,706 (11,403,478) (2,223,459)
Changes in operating assets and liabilities:
Accounts receivable (2,457,716) (24,064,881)
Inventories (2,273,886) (16,821,525) (5,019,186)
Other current assets (52,351) (3,129,754) (1,183)
Accounts payable and accrued liabilities 261,685 1,179,931 361,367
Accrued interest payable 266,393 5,195,845 107,135
Net cash provided by (used in)
operating activities 34,729,851 (26,262,386) (7,010,237)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (555,453) (6,479,884) (19,568,450)
Increase in restricted cash and cash equivalents (21,644,038) (1,665,917)
Increase in other assets (4,509) (6,548,367)
Proceeds from sale of partnership interest 3,000,000
Net cash used in investing activities (22,204,000) (11,694,168) (19,568,450)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments of) proceeds from notes payable (62,500,000) 46,765,179 24,153,780
Proceeds from short-term debt 4,133,651 26,407,918
Proceeds from subordinated notes payable 40,000,000
Special distribution to partner (3,000,000)
Repayment of notes payable (25,500,000)
Proceeds from partner note payable 25,500,000
(Repayments of) proceeds from subordinated
affiliate note payable (2,723,093) 302,220 2,420,873
Increase in deferred financing costs (152,087) (3,267,327) (240,218)
Contributions by partners 4,450,000
Net distributions to minority interests (763,805)
Distributions to partners (13,879,347)
Net cash (used in) provided by
financing activities (31,434,681) 67,207,990 26,334,435
</TABLE>
See notes to consolidated financial statements.(Continued)<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
PERIOD OCTOBER 4, 1991 (DATE OF INCEPTION) TO DECEMBER 31, 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $(18,908,830) $29,251,436 $(244,252)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 29,650,113 398,677 642,929
CASH AND CASH EQUIVALENTS,
END OF PERIOD $10,741,283 $29,650,113 $398,677
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION - Cash paid
during the year for interest
(net of amount capitalized) $42,801,281 $7,766,421
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITY -
During 1993 the $25,500,000
partner note payable was
converted to partners' capital
(see Notes 3 and 5).
</TABLE>
See notes to consolidated financial statements.(Concluded)<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
PERIOD OCTOBER 4, 1991 (DATE OF INCEPTION) TO DECEMBER 31, 1991
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
General - Doswell II Limited Partnership (Doswell II LP) was formed to
replace Doswell II, Inc. (Doswell II) as the sole limited partner of
Doswell Limited Partnership (DLP). DLP was formed to develop, construct,
own and operate a 665 megawatt independent power production facility (the
Facility) in Hanover County, Virginia. The Facility generates electric
power for sale to Virginia Electric and Power Company (Virginia Power)
primarily by burning natural gas with oil as a backup fuel. Commercial
operations commenced in May 1992.
DLP Reorganization - On October 4, 1991, the ownership structure of DLP
was reorganized (the Reorganization). Under the terms of the
Reorganization, Diamond Energy, Inc. (DEI), a wholly owned subsidiary of
Mitsubishi Corporation (Mitsubishi), sold all of the capital stock of
Doswell I, Inc. (Doswell I), the general partner of DLP, to Diamond -
Hanover, Inc. (DHI), also a wholly owned subsidiary of Mitsubishi and an
affiliate of DEI; Doswell II, Inc. (Doswell II) was replaced by Doswell
II LP as the sole limited partner of DLP; Doswell II LP's initial
partners were Doswell II and Doswell III, Inc. (Doswell III), both wholly
owned subsidiaries of DEI. Doswell III is the sole general partner of
Doswell II LP.
On December 6, 1991, ESI Doswell Limited Partnership (ESI Doswell LP),
whose partners are both wholly owned subsidiaries of ESI Energy, Inc.
(ESI), a wholly owned subsidiary of FPL Group Capital Inc (FPL), which
is a wholly owned subsidiary of FPL Group, Inc., became a limited partner
in Doswell II LP by assuming $25,500,000 of the $30,000,000 equity
obligation required to convert DLP's construction loan to a term
facility.
On July 14, 1992, Doswell II LP sold a portion of its interest in DLP to
North Anna Power Company (NAPC) and recognized a gain of $3,394,000.
Doswell I is the general partner, and NAPC and Doswell II LP are the
limited partners in DLP; and Doswell III is the general partner, and
Doswell II and ESI Doswell LP are the limited partners in Doswell II LP.
Under the terms of the Third Amended and Restated Articles of Limited
Partnership of DLP, Doswell I is allocated one percent of all income,
loss, tax deductions and cash distributions; allocations to Doswell II
LP and NAPC are in varying ratios over time based upon the after-tax net
present value of allocations to NAPC at the end of each prior calendar
year. Under the terms of the Amended and Restated Agreement of Limited
Partnership of Doswell II LP, Doswell III is allocated one percent of all
income, loss, tax deductions and cash distributions; allocations to
Doswell II and ESI Doswell LP are in varying ratios over time based upon
the net present value of aggregate cash distributions to ESI Doswell LP
at the end of each prior calendar year.
The following is a summary of Doswell II LP's significant accounting
policies:
Principles of Consolidation - Doswell II LP's consolidated financial
statements include the accounts of, and reflect Doswell I's and NAPC's
minority interests in, DLP. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial
statements.
Cash Equivalents - Doswell II LP considers all highly liquid investments
purchased within three months of their maturity to be cash equivalents.
Restricted Cash and Cash Equivalents - Restricted cash and cash
equivalents represent amounts, consisting primarily of debt service and
operations and maintenance reserves, which are restricted as to their
use.
Inventories - Fuel inventories are stated at the lower of weighted
average cost or market; spare parts inventories are stated at cost,
determined by specific identification.<PAGE>
<PAGE>
Property, Plant and Equipment - Property, plant and equipment are stated
at cost. Depreciation is generally provided using the straight-line
method over estimated useful lives ranging from three to forty years.
Interest of $9,209,079 was capitalized during 1992 prior to the
commencement of commercial operations. Interest of $8,242,781 was
capitalized during the period October 4, 1991 to December 31, 1991.
Deferred Financing Costs - Loan origination and other financing costs
have been capitalized and are being amortized over the lives of the term
loan and subordinated debt. Accumulated amortization at December 31,
1993 and 1992 was $1,723,295 and $563,541, respectively.
Deferred Preoperating Expenses - Start-up expenses, consisting primarily
of fuel and labor costs net of start-up revenues, have been capitalized
and are being amortized over five years. Accumulated amortization at
December 31, 1993 and 1992 was $4,943,444 and $1,976,012, respectively.
Other Assets - Costs associated with the acquisition of power purchase
and operating agreements have been capitalized and are being amortized
over the twenty-five year lives of the agreements. Organization costs
are being amortized over five years. Accumulated amortization at
December 31, 1993 and 1992 was $1,902,689 and $239,754, respectively.
Income Taxes - Doswell II LP has no liability for income taxes. Income
is taxed to the partners based on their allocated share of taxable income
(loss). Therefore, no provision or liability for income taxes has been
included in these financial statements.
Fair Value of Financial Instruments - The carrying amount of cash and cash
equivalents approximates fair value because of the short maturities of
these instruments. DLP's notes payable and short-term debt approximate
fair value because their interest rates are based upon variable reference
rates. The fair value of DLP's interest rate swaps (used for hedging
purposes) is the estimated amount DLP would have to pay to terminate the
swap agreements taking into account current interest rates and the
current creditworthiness of the swap counterparties. The estimated
termination cost associated with the interest rate swaps at December 31,
1993 and 1992 is approximately $59,000,000 and $60,400,000, respectively.
The carrying amount of the subordinated notes payable approximates fair
value at December 31, 1993.
Reclassifications - Certain reclassifications have been made to the 1992
and 1991 financial statements to conform with the 1993 presentation.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Land $4,766,221 $4,766,221
Plant, machinery and equipment 395,598,308 395,361,268
Furniture, fixtures and equipment 603,574 285,157
400,968,103 400,412,646
Less accumulated depreciation and
amortization (22,787,069) (9,960,495)
Net property, plant and equipment $378,181,034 $390,452,151
</TABLE>
<PAGE>
<PAGE>
3. NOTES PAYABLE
DLP entered into a Construction Loan and Term Facility dated June 4, 1990
with Credit Suisse (the Agreement). DLP also entered into an eighteen-
year Subordinated Credit Agreement whereby the lender agreed to fund
$40,000,000 to be used to repay a portion of the construction loan on the
date the construction loan converted to a term facility.
On April 30, 1993, DLP converted its construction loan into a
$410,000,000, fifteen-year senior term loan by the partners' contribution
of $30,000,000 of equity required to pay down the construction loan and
the satisfaction of various other conditions. In addition, the
$40,000,000 subordinated loan was funded on April 30, 1993, with the
proceeds used to pay down an additional portion of the construction loan.
DLP may select the interest rate for the senior term loan from three
alternatives: two bank reference rates plus applicable margins or the
London Interbank Offer Rate plus a margin. The interest rate on the
subordinated debt is fixed at 12.79%. The subordinated loan will
amortize over eighteen years.
Obligations under the Agreement and the Subordinated Credit Agreement
will mature as follows:
<TABLE>
<CAPTION>
Year Ending
December 31
<S> <C>
1994 $12,500,000
1995 14,250,000
1996 16,250,000
1997 18,000,000
1998 19,750,000
Years subsequent to December 31, 1998 351,250,000
$432,000,000
</TABLE>
The Agreement and the Subordinated Credit Agreement contain various
restrictive covenants, including the maintenance of certain reserve
accounts and debt coverage ratios. Failure to meet such covenants may
result in penalties which include restrictions on distributable cash and
increases in borrowing costs. Substantially all assets, rights, income
and title of the Facility are pledged as collateral on the notes payable
and the subordinated debt.
DLP has entered into interest rate swap agreements to reduce the impact
of changes in interest rates on its floating rate long-term debt. At
December 31, 1993, DLP had four interest rate swap agreements outstanding
with total notional principal amounts of $313,600,000. Those agreements
effectively change DLP's interest rate exposure on a portion of the
senior term loan through 2002 to an average all-in borrowing cost of 10.7
percent. DLP is exposed to credit loss in the event of nonperformance
by the other parties to the interest rate swap agreements. However, DLP
does not anticipate nonperformance by the counterparties, all of whom are
affiliated with Credit Suisse.
4. SHORT-TERM DEBT
The Agreement also provides for a working capital loan commitment up to
an aggregate maximum principal amount of $38,000,000 for natural gas and
fuel oil purchased by DLP (the Working Capital Facility) which will
remain available until 2007. Working capital loan repayments are tied
to fuel inventory usage. Interest rate and period alternatives are
similar to those for the senior term loan (see Note 3).
5. RELATED PARTY TRANSACTIONS
Under the terms of a project service agreement, DLP paid DEI $330,000 and
$220,000 during 1992 and the period October 4, 1991 to December 31, 1991,
for project management services, which amounts have been capitalized.
Under the terms of the Articles of Limited Partnership, DLP reimbursed
Doswell I $56,135 and $39,032 during 1993 and 1992, respectively, for
management expenses incurred.<PAGE>
<PAGE>
On December 6, 1991, FPL loaned $25,500,000 to Doswell II LP (the Partner
Note Payable), which Doswell II LP loaned to DLP. The Partner Note
Payable had an interest rate and period identical to the construction
loan notes payable and was classified as long-term at December 31, 1992
as it had a mandatory conversion provision whereby it funded $25,500,000
of the $30,000,000 of equity required to convert DLP's construction loan
to a term facility. On April 30, 1993, the Partner Note Payable was
converted to equity in conjunction with the conversion of the
construction loan to a term loan (see Note 3). Interest of $493,507 on
the Partner Note Payable was capitalized during 1992 prior to commercial
operations and $107,135 was capitalized during the period October 4, 1991
to December 31, 1991. During 1993 and 1992, interest expense of $362,954
and $849,845, respectively, on the Partner Note Payable was recognized
subsequent to the commencement of commercial operations.
DLP had also borrowed funds from Doswell I, which loans were subordinated
to all other DLP debt (the Subordinated Affiliate Note Payable) and bore
interest at prime plus two percent. Principal and interest were repaid
in May 1993. Interest of $83,678 on the Subordinated Affiliate Note
Payable has been capitalized, including $73,418 and $10,260 in 1992 and
1991, respectively. Interest expense of $83,397 and $122,143 on the
Subordinated Affiliate Note Payable was recognized subsequent to the
commencement of commercial operations during 1993 and 1992, respectively.
Doswell II LP pays Doswell III $5,000 per month for general management
services.
6. COMMITMENTS AND CONTINGENCIES
DLP has entered into two long-term power purchase and operating
agreements with Virginia Power for the sale of all electricity produced
at the Facility for periods of twenty-five years each; long-term natural
gas transportation and storage agreements with CNG Transportation
Corporation for periods of fifteen years with options to extend for an
additional five years; and a twenty-five year natural gas transportation
agreement with Virginia Natural Gas. At December 31, 1993, letters of
credit established as security for payments to be made under certain of
these agreements total $14,075,000.
DLP has entered into various contracts committing it to make substantial
payments in the ordinary course of its business to certain vendors in
connection with the operation of the Facility.
7. LITIGATION
DLP and Virginia Power are involved in litigation related to the amount
and manner of calculating one component of electricity sales. DLP has
accrued an aggregate $5,940,000 through December 31, 1993 in accounts
receivable-other and has recognized revenue of $3,200,000 and $2,740,000
during the years ended December 31, 1993 and 1992, respectively, which
is less than the amount to which management believes it is entitled. The
issues in dispute include a determination of Virginia Power's costs for
certain elements of fuel transportation and whether the payments to DLP
should be based upon all or only a portion of those costs. The ultimate
outcome of this litigation cannot presently be determined.
* * * * * *<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
SCHEDULE IV - INDEBTEDNESS OF AND TO RELATED PARTIES - NOT CURRENT
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
PERIOD OCTOBER 4, 1991 (DATE OF INCEPTION) TO DECEMBER 31, 1991
<TABLE>
<CAPTION>
Indebtedness of Indebtedness to
Balance at Balance Balance at Balance
Beginning Additions Deductions at End Beginning Additions Deductions at End
<S> <C> <C> <C> <C>
Period October 4, 1991
to December 31, 1991
FPL Group Capital Inc $ - $25,500,000 $ - $25,500,000
Year ended December 31, 1992
FPL Group Capital Inc $25,500,000 $ - $ - $25,500,000
Year ended December 31, 1993
FPL Group Capital Inc $25,500,000 $ - $25,500,000(a) $ -
(a) Note converted to equity in conjunction with the conversion of the construction loan to a term loan.
/TABLE
<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
PERIOD OCTOBER 4, 1991 (DATE OF INCEPTION) TO DECEMBER 31, 1991
<TABLE>
<CAPTION>
Balance at Other Balance at
Beginning Additions Retirements Add End of
of Period at Cost and Sales (Deduct) Period
<S> <C> <C> <C> <C> <C>
Period October 4, 1991
to December 31, 1991
Land $ - $4,504,932 $ - $ - $4,504,932
Plant, machinery and equipment - - - - -
Furniture, fixtures and equipment - - - - -
Construction work-in-progress - 389,033,830 - - 389,033,830
$ - $393,538,762 $ - $ - $393,538,762
Year ended December 31, 1992
Land $4,504,932 $261,289 $ - $ - $4,766,221
Plant, machinery and equipment - - - 395,361,268 395,361,268
Furniture, fixtures and equipment - 285,157 - - 285,157
Construction work-in-progress 389,033,830 6,327,438 - (395,361,268) -
$393,538,762 $6,873,884 $ - $ - $400,412,646
Year ended December 31, 1993
Land $4,766,221 $ - $ - $ - $4,766,221
Plant, machinery and equipment 395,361,268 237,040 - - 395,598,308
Furniture, fixtures and equipment 285,157 318,417 - - 603,574
$400,412,646 $555,457 $ - $ - $400,968,103
</TABLE>
<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 AND THE
PERIOD OCTOBER 4, 1991 (DATE OF INCEPTION) TO DECEMBER 31, 1991
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and Retirements End of
of Period Expenses and Sales Period
<S> <C> <C> <C> <C>
Period October 4, 1991
to December 31, 1991
Plant, machinery and equipment $ - $ - $ - $ -
Furniture, fixtures and equipment - - - -
$ - $ - $ - $ -
Year ended December 31, 1992
Plant, machinery and equipment $ - $ 9,951,146 $ - $9,951,146
Furniture, fixtures and equipment - 9,349 - 9,349
$ - $ 9,960,495 $ - $9,960,495
Year ended December 31, 1993
Plant, machinery and equipment $9,951,146 $12,569,776 $ - $22,520,922
Furniture, fixtures and equipment 9,349 256,798 - 266,147
$9,960,495 $12,826,574 $ - $22,787,069
/TABLE
<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992 AND
THE PERIOD OCTOBER 4, 1991 (DATE OF INCEPTION) TO DECEMBER 31, 1991
<TABLE>
<CAPTION>
Weighted
Average average
Maximum amount interest
Weighted amount outstanding rate
Balance at average outstanding during during the
end of interest during the the period period
Period rate period (b) (c)
<S> <C> <C> <C> <C> <C>
December 31, 1991
Working Capital Facility (a) $ 3,260,953 5.875% $3,738,161 $ 1,664,246 5.9762%
December 31, 1992
Working Capital Facility (a) $29,668,871 4.3125% $ 38,000,000 $21,610,328 4.7917%
December 31, 1993
Working Capital Facility (a) $33,802,522 4.0313% $ 38,000,000 $27,323,663 4.2157%
(a) Working Capital Facility provides up to an aggregate maximum principal amount of
$38,000,000 for fuel and oil purchases until 2007.
(b) Average amount outstanding computed by dividing the sum of the daily outstanding balances by the number of days in the
period.
(c) Weighted average interest rate computed by dividing total interest expense for the period by the average amount
outstanding.
</TABLE>
<PAGE>
<PAGE>
DOSWELL II LIMITED PARTNERSHIP
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Maintenance and repairs $ 1,746,484 $ 198,739
Depreciation $ 12,826,574 $9,960,495
Amortization - Deferred preoperating costs $ 2,967,425 $1,976,012
</TABLE>
<PAGE>
<PAGE>
SKY RIVER PARTNERSHIP
REPORT AND FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Sky River Partnership
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' capital and of cash flows present fairly,
in all material respects, the financial position of Sky River Partnership at
December 31, 1993 and 1992, and the results of its operations and its cash
flows for each of the three years ended December 31, 1993, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As further described in the notes to the financial statements, the
Partnership has extensive transactions and relationships with its affiliates.
Because of these relationships, it is possible that the terms of these
transactions may not be the same as those that would result from transactions
among wholly unrelated parties.
PRICE WATERHOUSE
Woodland Hills, California
February 11, 1994<PAGE>
<PAGE>
SKY RIVER PARTNERSHIP
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1993 1992
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,979,000 $ 7,111,000
Restricted cash (Note 3) 2,777,000 757,000
Accounts receivable 2,954,000 3,127,000
Prepaid assets 1,473,000 1,754,000
Total current assets 17,183,000 12,749,000
Noncurrent assets:
Wind energy generating system (Notes 2 and 3) 136,233,000 136,233,000
Less: Accumulated depreciation (17,301,000) (10,489,000)
118,932,000 125,744,000
Deferred debt issue costs, net of accumulated
amortization of $1,502,000 and $904,000 4,601,000 5,199,000
Deferred organization costs, net of accumulated
amortization of $717,000 and $517,000 283,000 484,000
Investment in Sagebrush Line (Note 5) 8,785,000 9,287,000
$149,784,000 $153,463,000
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Current portion of notes payable (Note 3) $ 1,662,000 $ 992,000
Accounts payable and accrued expenses 2,039,000 2,778,000
Amounts due to related parties (Note 4) 112,000 101,000
Accrued insurance 401,000 406,000
Total current liabilities 4,214,000 4,277,000
Note payable, less current portion (Note 3) 119,250,000 120,250,000
Subordinated notes payable to ESI Energy, Inc. (Note 3) 13,496,000 14,458,000
Total noncurrent liabilities 132,746,000 134,708,000
Partners' capital (deficit): (Note 1)
ESI Sky River Limited Partnership 13,774,000 15,277,000
Zond Sky River Development Corporation (950,000) (799,000)
Total partners' capital 12,824,000 14,478,000
$149,784,000 $153,463,000
</TABLE>
See accompanying notes to financial statements.<PAGE>
<PAGE>
SKY RIVER PARTNERSHIP
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For The Year Ended
December 31,
1993 1992 1991
<S> <C> <C> <C>
Revenues:
Electricity sales $26,707,000 $ 20,753,000 $ 7,677,000
Interest income 155,000 114,000 215,000
Total revenues 26,862,000 20,867,000 7,892,000
Costs and expenses:
Depreciation and amortization 7,610,000 7,448,000 4,357,000
Interest 8,277,000 8,825,000 4,922,000
Maintenance and operating costs
(Notes 1 and 4) 3,493,000 3,092,000 1,539,000
Equity in loss of Sagebrush Line 502,000 502,000 461,000
Other 2,148,000 1,858,000 1,062,000
Total costs and expenses 22,030,000 21,725,000 12,341,000
Net income (loss) $ 4,832,000 ($ 858,000) ($4,449,000)
</TABLE>
See accompanying notes to financial statements.<PAGE>
<PAGE>
SKY RIVER PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
DECEMBER 31, 1993
<TABLE>
<CAPTION>
ESI Zond
Sky River Sky River
Limited Development
Partnership Corporation Total
<S> <C> <C> <C>
Net loss for the period from June 7,
1990 (inception) through December 31,
1990 (Note 1) ($ 309,000) ($ 3,000) ($ 312,000)
Capital contributions, net of placement
costs of $903,000 through December 31,
1991 20,097,000 - 20,097,000
Net loss (Note 1) (3,782,000) (667,000) (4,449,000)
Balance at December 31, 1991 16,006,000 (670,000) 15,336,000
Net loss (Note 1) (729,000) (129,000) (858,000)
Balance at December 31, 1992 15,277,000 (799,000) 14,478,000
Distributions to partners (Note 1) (5,610,000) (876,000) (6,486,000)
Net income (Note 1) 4,107,000 725,000 4,832,000
Balance at December 31, 1993 $ 13,774,000 ($ 950,000) $12,824,000
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE>
SKY RIVER PARTNERSHIP
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
For The Year Ended
December 31,
1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,832,000 ($ 858,000) ($ 4,449,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities -
Depreciation and amortization 7,610,000 7,448,000 4,357,000
Equity in loss of Sagebrush Line 502,000 502,000 461,000
Changes in assets and liabilities:
Accounts receivable 173,000 (438,000) (2,689,000)
Prepaid expenses 281,000 (669,000) (534,000)
Interest receivable - - 126,000
Other assets - (17,000) 400,000
Accounts payable and accrued expenses (738,000) 1,781,000 (1,692,000)
Amounts due to related parties 11,000 (28,000) (13,195,000)
Accrued insurance (5,000) (86,000) 418,000
Net cash provided by (used in) operating activities 12,666,000 7,635,000 (16,797,000)
Cash flows from investing activities:
Payments for construction of wind energy
generating system - - (93,817,000)
Investment in Sagebrush Line - - (50,000)
Collection on note from related party - - 2,000,000
Payments of organization costs - - (100,000)
Total cash used in investing activities - - (91,967,000)
Cash flows from financing activities:
Payments under loan agreements (1,292,000) (1,300,000) (10,200,000)
Distributions to partners (6,486,000) - -
Proceeds from capital contribution - - 21,000,000
Borrowings under Construction Loan Agreement - - 123,138,000
Repayments of Construction Loan - - (158,000,000)
Borrowings under Term Loan Agreement - - 122,000,000
Subordinated borrowings from related party - - 15,000,000
Repayment of note payable to related party - - (2,000,000)
Payments of debt issue costs - - (1,276,000)
Total cash (used in) provided by financing activities (7,778,000) (1,300,000) 109,662,000
Net increase in cash 4,888,000 6,335,000 898,000
Unrestricted and restricted cash and cash equivalents at beginning
of period 7,868,000 1,533,000 635,000
Unrestricted and restricted cash and cash equivalents at end
of period $12,756,000 $ 7,868,000 $ 1,533,000
Supplemental disclosures:
Cash paid during the year for interest $ 9,280,000 $ 6,482,000 $ 9,461,000
</TABLE>
See accompanying notes to financial statements.<PAGE>
<PAGE>
SKY RIVER PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP:
Sky River Partnership, a California general partnership (the "Partnership" or
"Sky River"), was formed on June 7, 1990 to design, construct and operate a
system of 342 Vestas model V27-225 KW wind turbine electric generators (the
"Turbines"). The Turbines, together with a power transfer system, form an
integrated power generating facility (the "Windsystem") near Tehachapi,
California. Power generated by the Windsystem is sold to Southern California
Edison ("SCE") under thirty-year power purchase agreements ("Power Purchase
Contracts"). The Project became fully operational in November 1991.
The general partners of the Partnership are Zond Sky River Development
Corporation ("Zond SR"), a wholly owned subsidiary of Zond Systems, Inc.
("Zond"), and ESI Sky River Limited Partnership ("ESI SR"), an affiliate of
ESI Energy Inc. ("ESI"). Zond is a developer and operator of commercial
wind-powered electric generating facilities. ESI is a wholly owned
subsidiary of the FPL Group, a major regional utility holding company. Under
the terms of the Partnership Agreement, Zond SR acts as the managing partner.
The Project was constructed for a total cost of $158,000,000. Under the
Partnership Agreement, ESI SR and Zond SR earned $6,200,000 and $8,000,000,
respectively, in net developers' fees as compensation for certain services
provided in developing the Project.
Upon conversion to term debt financing on December 18, 1991, ESI made a
capital contribution of $21,000,000 in cash and provided subordinated
financing of $15,000,000, the proceeds of which were used by the Partnership
to pay construction loans (see Note 3). Zond contributed certain intangible
assets, including Power Purchase Contracts and land easements. These
contributions have not been assigned a value by the Partnership.
The accompanying financial statements include substantial transactions with
related parties. These transactions are further described in Notes 3 and 4.
A summary of the major agreements entered into by the Partnership is set
forth below:
(1) Windsystem Construction Agreement
During the construction period of the Windsystem, Zond
provided construction, installation, engineering, project
management and technical services to the Partnership. Zond
received reimbursement of direct construction costs,
comprised principally of subcontract labor, substation and
transmission line equipment, and equipment rental, under a
fixed price contract of $45,000,000.
<PAGE>
<PAGE>
NOTE 1: (Continued)
(2) Grant of Wind Park Easement and Easement Agreement
Zond owns and holds leasehold rights to the land on which the
Windsystem is located. Zond has granted the Partnership
exclusive easement rights to the operating site. In return,
the Partnership will pay Zond a quarterly easement royalty of
2% of gross operating proceeds arising from Windsystem
operations. Easement royalties totalled $587,000, $407,000
and $115,000 for 1993, 1992 and 1991, respectively.
(3) Windsystem Management Agreement
The Partnership has contracted with Zond for the operation
and management of the Windsystem (exclusive of the Turbines).
The agreement also requires the performance of certain
ancillary management services, including the monitoring and
collection of Partnership revenues, insurance and warranty
claims (see Note 4).
(4) Partnership Agreement
The Partnership agreement designates Zond SR as managing
partner. In that capacity, Zond SR provides managerial
services including administration and payment of all
Partnership expenses (see Note 4).
(5) Wind Turbine Generator Warranty and Maintenance Agreement
The Partnership has contracted with Vestas Windsystems A/S
("Vestas"), the Danish manufacturer of the Turbines, to
provide turbine maintenance and repair services. The
agreement also requires Vestas to replace defective parts,
correct design flaws and warrant specified levels of Turbine
performance for a period of five years from the date the
final turbine is placed in service (see Note 4).
(6) SCE Power Purchase Contracts
The Partnership sells the electric power provided by the
turbines to SCE pursuant to three power purchase contracts
which have a term of thirty years. During the initial ten
years of the agreement, SCE purchases the power produced
based upon forecasted annual marginal costs of energy and
capacity (which range from $.0944 per kilowatt hour ("kwh")
to $.1828 per kwh). Subsequent to the initial ten years, the
agreements provide for energy and capacity payments based on
SCE's variable avoided costs of providing capacity and
producing energy.
<PAGE>
<PAGE>
NOTE 1: (Continued)
(7) Lease of Vestas V-39 Turbine
In November 1991, the Partnership entered into an operating
lease of a single V39-500 KW Turbine with Vestas Windsystems
A/S ("Vestas"). The ten-year lease (commencing January 1992)
is cancelable at the option of Vestas upon thirty days
written notice. Quarterly lease payments represent 85% of
the gross operating proceeds less insurance and taxes. Such
lease costs totalled $154,000, $109,000 and $0 for 1993, 1992
and 1991, respectively.
The Partnership's significant distributions and allocations are as follows:
(1) Profits and losses will be allocated to ESI SR and Zond SR in the
following manner:
Period ESI SR ZSI SR
Inception to December 31, 1990 99% 1%
January 1, 1991 - December 31, 1999 85% 15%
January 1, 2000 - December 31, 2009 60% 40%
January 1, 2010 - December 31, 2020 40% 60%
(2) Cash is distributable to partners to the extent not needed to make debt
service payments, maintain a minimum operating cash balance, and to
fund the debt service reserve as prescribed by the credit agreement.
Distributions of cash will be made pursuant to decisions of a
management committee composed of representatives of ESI SR and Zond
SR. Distributions to each partner will be allocated as follows:
Period ESI SR ZSI SR
June 7, 1990 - December 31, 1995 86.5% 13.5%
January 1, 1996 - December 31, 2006 60.0% 40.0%
January 1, 2007 - December 31, 2010 50.0% 50.0%
January 1, 2011 - December 31, 2020 40.0% 60.0%
Generally, gains or losses, if any, upon the eventual liquidation of the
Partnership are to be based on the relative value of each partner's tax basis
capital account. No distributions were made prior to 1993. Cash
distributions in 1993 totalled $6,486,000. During January 1994, cash
distributions totalling $5,546,000 were made to the partners.
<PAGE>
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Wind Energy Generating and Electrical Transfer System
All costs, including interest of $5,301,000, incidental to the construction
of the Windsystem have been capitalized. Additions to the Windsystem
totalled $93,817,000 during 1991; there have been no additions to the
Windsystem in 1992 and 1993. Depreciation is being charged using the
straight-line method over the Windsystem's and electrical transfer system's
estimated useful lives of twenty years, which commenced as turbines were
placed in service by the Partnership. Depreciation expense totalled
$6,812,000, $6,812,000 and $3,677,000 for 1993, 1992 and 1991, respectively.
Accumulated depreciation totalled $17,301,000, $10,489,000 and $3,678,000 at
December 31, 1993, 1992 and 1991, respectively.
Electricity Sales
Power generated by the Windsystem is recognized as income upon delivery of
power to SCE at fixed prices as stipulated under the Power Purchase Contracts
with SCE.
Restricted Cash
Certain cash accounts are subject to restrictions pursuant to the project
financing agreement.
Financial Instruments
Financial instruments which potentially subject the Partnership to
concentration of credit risk consist of temporary cash investments. The
Partnership places its temporary cash investments in money market accounts
with the financial institution to which the Partnership is indebted under its
financing agreements (Note 3). Historically, the Partnership has not
incurred any credit related losses.
Investment in Sagebrush Line
The Partnership accounts for its interests in the Sagebrush power
transmission line (the "Sagebrush Line") using the equity method (Note 5).
Income Taxes
No provision for federal income taxes is necessary in the financial
statements of the Partnership because, as a partnership, it is not subject to
federal income tax and the tax effect of its activities accrues to the
partners.
Deferred Organizational Costs
The Partnership deferred certain organizational costs and is amortizing these
costs using the straight-line method over a five-year period. Amortization
expense relating to deferred organizational costs totalled $200,000, $200,000
and $217,000 for 1993, 1992 and 1991, respectively.<PAGE>
<PAGE>
NOTE 2: (Continued)
Deferred Debt Issue Costs
The Partnership deferred certain debt issue costs, principally legal fees
relating to the issuance of the construction loans and conversion to a term
loan, and is amortizing these costs using the interest method over the
twelve-year term of the loans (see Note 3). Amortization expense relating to
deferred debt issue costs totalled $598,000, $436,000 and $468,000 for 1993,
1992 and 1991, respectively.
Prepaid Insurance
The Partnership is amortizing its prepaid insurance premiums using the
straight-line method over the related policies' terms.
NOTE 3 - PROJECT FINANCING:
Construction and Term Loans
In December 1990, the Partnership entered into a $158 million credit
agreement (the "Agreement") with a group of banks which provided funding for
the construction of the Windsystem in the form of a series of notes payable
(the "Construction Loans"). The Construction Loans matured on the date of
conversion to term financing. During the construction period, the
Partnership entered into various interest rate swap transactions to hedge
against changes in LIBOR. These transactions effectively fixed the interest
rate at 6.56% from May 14, 1991 through November 29, 1991. The net effect of
the hedge transactions is recorded as an adjustment to interest costs during
the period.
Upon maturity of the Construction Loans, ESI SR contributed $36,000,000
towards repayment of the Construction Loans, comprising $21,000,000 in a
capital contribution (see Note 1) and $15,000,000 in subordinated debt as
described below. The remaining balance of $122,000,000 was converted to a
twelve-year term loan (the "Term Loan"). The Term Loan is payable in semi-
annual installments, plus interest at LIBOR plus 1.875%. The Partnership may
from time to time fix the interest rate for a period of time based upon the
LIBOR rate at that time. The Partnership fixed the interest rate for the
period from October 30, 1993 through January 31, 1994 at 5.3125%. The Term
Loan is secured by the Partnership's assignment of all of its rights in all
tangible property, as well as all agreements and contracts relating to the
Windsystem, its operations, maintenance and management. The Partnership is
required to remit an annual administration fee of $75,000 on the Term Loan.
The Partnership must periodically submit operating and capital budgets to the
lenders as a condition of the use of any operating cash. The fair value of
the Term Loan is equivalent to the value carried in the financial statements
due to the loan's variable LIBOR rate provisions.
<PAGE>
<PAGE>
NOTE 3: (Continued)
The Partnership is required to maintain a debt reserve account which is
funded on each term facility repayment date to the extent the balance is less
than projected debt service for the following six-month period, and only
after cash is provided for working capital requirements. Deposits to this
account are subject to funding of the Partnership's current operating cash
requirements and a $750,000 working capital balance. The debt reserve
account balance at December 31, 1993 and 1992 was $2,777,000 and $757,000,
respectively. For the initial six term facility repayments, the maximum debt
reserve contributions are prescribed by the credit agreement. Subject to
working capital funding and the six month limitation, the balance would reach
$7,500,000 by the sixth term facility repayment date. Thereafter, the
maximum reserve balance will equal projected debt service for the six-month
period following each term facility repayment date. The projected debt
service reserve requirement is not expected to exceed approximately
$11,000,000 in any six-month period.
ESI Participation
ESI has purchased a subordinated fractional interest in the Term Loan
commitment of Credit Suisse in the amount of $20,000,000.
Subordinated Debt
At the date of conversion to the Term Loan, ESI purchased from the Project
lenders $15,000,000 of the original Construction Loans and converted such
debt into unsecured notes payable, which are subordinated to the Term Loan.
Repayment is due semiannually, subject to the priority repayment of the Term
Loan installments and availability of funds after operating expense and
minimum balance requirements, as described above, have been met. Interest is
payable on the outstanding balance at LIBOR plus 5%. In 1991, ESI received
a $150,000 financing fee from the Partnership for its loan. Interest costs
of approximately $1,290,000, $389,000 and $50,000 relative to this agreement
were incurred in 1993, 1992 and 1991, respectively. The fair value of the
subordinated loan is equivalent to the value carried in the financial
statements due to the loan's variable LIBOR rate provisions.
Future Maturities
Future scheduled principal repayments under the project financing agreements
are as follows:
<TABLE>
<CAPTION>
For the Year Ending Subordinated
December 31 Term Loan Notes Payable Total
<S> <C> <C> <C>
1994 $ 1,000,000 $ 662,000 $ 1,662,000
1995 2,250,000 757,000 3,007,000
1996 3,500,000 864,000 4,364,000
1997 5,500,000 987,000 6,487,000
1998 8,200,000 1,127,000 9,327,000
Thereafter 99,800,000 9,761,000 109,561,000
$120,250,000 $14,158,000 $134,408,000
</TABLE>
<PAGE>
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS:
In addition to transactions and relationships described elsewhere in the
footnotes to the financial statements, the Partnership has the following
related party transactions and relationships:
(1) Prior to finalization of the Agreement, the Partnership obtained interim
financing from ESI. The borrowings from ESI consisted of two notes: one
for $8,500,000 and the other for $12,000,000, each were unsecured and
earned interest at an annual rate of 11.5%. At the time of the first
advance (December 26, 1990) under the Agreement, ESI was repaid
$18,212,000 of principal and $497,000 of accrued interest. All interest
costs relating to this loan have been capitalized. The remaining note
balance and accrued interest in the amount of $291,000 was paid in full
during the construction phase of the project.
(2) Zond SR and ESI SR were entitled to receive developers' fees of up to
$10,000,000 and $7,000,000, respectively, as compensation for their
services in developing the projects, subject to reduction due to
construction overruns in accordance with a formula specified in the
Partnership Agreement. Zond SR and ESI SR earned $8,000,000 and
$6,200,000, respectively, in developers' fees from the project.
(3) The Partnership has contracted with Vestas to maintain the Turbines
during their first five years of operation (see Note 1). Under the terms
of this agreement, the Partnership pays Vestas $4,500 per turbine per
year, commencing on the date each turbine became operational. Of this
amount, $2,700 is paid to Zond for maintenance services under a turbine
maintenance subcontract. These amounts are adjusted annually for
increases in the Consumer Price Index. The remainder is held in a
reserve account by one of the Term Lenders described in Note 3 as a means
of providing for future warranty costs of the Turbines. At the end of
the five year warranty period, any funds in this account are to be
distributed to the Partnership and Vestas in the ratio of 65% and 35%,
respectively. As of December 31, 1993, the balance in the reserve
account was $1,239,000. At the end of the warranty period, management
believes Zond will assume responsibility for maintenance of the Turbines
under a contract to be negotiated.
(4) The Partnership has contracted with Zond to operate the Windsystem and
perform certain ancillary management services. As compensation for these
services, Zond receives $675 per turbine per year commencing in 1992;
this amount will be revised each January to reflect changes in the
Consumer Price Index. Management services totalled $246,000, $237,000
and $128,000 for 1993, 1992 and 1991, respectively.
(5) The Partnership agreement designates Zond SR as managing partner. In
that capacity, Zond SR provides managerial and administrative services
in exchange for an annual fee of $250,000, adjusted annually for
increases in the Consumer Price Index, in addition to reimbursement of
direct expenses incurred. Such management fees totalled $266,000,
$257,000 and $250,000 for 1993, 1992 and 1991, respectively.
<PAGE>
<PAGE>
NOTE 5 - OTHER TRANSACTIONS:
The Partnership acquired certain entities (the "Sagebrush Entities"), whose
sole assets are ownership interests representing approximately 41% of the
capacity in a high voltage transmission line (the "Sagebrush Line"). The
Sagebrush Line delivers power produced by the Partnership's turbines to the
SCE Grid. The purchase of these interests was initially financed through the
issuance of a $10,200,000 note payable, which was paid in full from proceeds
of the Construction Loan in 1991.
Sky River assigned its interests in approximately 50% of its share of the
Sagebrush Line to existing turbine owner groups located in Tehachapi, also
managed by Zond. The existing turbine owner groups relinquished their access
rights to a separate interconnect facility. In consideration for moving
their interconnect point from those existing facilities to the Sagebrush
Line, Sky River agreed to absorb all maintenance and operating costs of the
Sagebrush Line in lieu of any liability by the other turbine owner groups.
Such maintenance and operating costs totalled $279,000, $271,000 and $237,000
for 1993, 1992 and 1991, respectively. Upon the expiration or termination of
the power purchase contracts held by the other turbine owner groups, the
interests in the Sagebrush Entities revert to the Partnership.
The Partnership interests in all of the Sagebrush Entities is accounted for
using the equity method.
NOTE 6 - SUPPLEMENTARY FINANCIAL DATA:
The following amounts have been reported in the related income statement:
<TABLE>
<CAPTION>
Item 1993 1992 1991
<S> <C> <C> <C>
1. Maintenance and repairs $ 1,961,000 $1,811,000 $ 809,000
2. Depreciation and amortization $ 7,610,000 $7,448,000 $4,357,000
3. Property Taxes $ 1,280,000 $1,085,000 $ 169,000
</TABLE>
Prepaid assets are comprised of the following items:
<TABLE>
<CAPTION>
December 31,
1993 1992
<S> <C> <C>
Prepaid property taxes $ 581,000 $ 679,000
Prepaid insurance 587,000 639,000
Other prepaid expenses 305,000 436,000
$1,473,000 $1,754,000
</TABLE>
<PAGE>
<PAGE>
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.
Date: March 21, 1994 FPL Group Capital Inc
By JAMES L. BROADHEAD
James L. Broadhead
(President and Chief Executive
Officer and Director)
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 Title Date
PAUL J. EVANSON Principal Financial Officer
Paul J. Evanson and Director
(Vice President and
Chief Financial Officer)
K. MICHAEL DAVIS Principal Accounting March 21, 1994
K. Michael Davis Officer
(Controller and
Chief Accounting Officer)
DILEK L. SAMIL Director
Dilek L. Samil
(Vice President, Treasurer and
Assistant Secretary)
EXHIBIT 10
SUPPORT AGREEMENT
THIS AGREEMENT, dated as of December 18, 1985, between FPL Group, Inc.,
a Florida corporation (Group), and FPL Group Capital Inc, a Florida
corporation (Capital),
WITNESSETH:
WHEREAS, Group is the owner of 100% of the outstanding shares of Capital;
and
WHEREAS, Capital intends to incur Debt, as hereinafter defined, from time
to time from parties other than Group to enable Capital to carry on its
business; and
WHEREAS, "Debt" shall mean indebtedness for borrowed money, including the
payment of interest, principal, or premium, if any, thereon, capital leases,
or any guarantee of such indebtedness; and
WHEREAS, Group and Capital desire to take certain actions to enhance and
maintain the financial condition of Capital as hereinafter set forth in order
to insure its ability to incur such Debt;
NOW THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
1. Stock Ownership. During the term of this Agreement, Group shall own,
directly or through one or more of its wholly-owned subsidiaries, all the
outstanding shares of stock of Capital having the right to vote for the
election of members of the Board of Directors of Capital (except for any
shares of Capital's stock having the special right to vote for directors in
circumstances involving Capitals' default in the payment of dividends or
sinking funds), and will not pledge, encumber or dispose of any of such
shares unless required to do so pursuant to a court order or decree of any
governmental authority which, in the opinion of counsel to Group, may not be
successfully challenged.
2. Maintenance of Net Worth. During the term of this Agreement, Group
shall take all action necessary to ensure that the Net Worth of Capital is
maintained at not less than $1.00. Net worth shall mean the excess of assets
over liabilities as determined in accordance with generally accepted
accounting principles in effect at the time of such determination. Group
hereby consents to all the terms and conditions of all Debt and hereby waives
notice of any extension of time of any payment or any other action which any
holder of Debt may agree or consent to, either expressly, by acquiescence or
otherwise. Group shall make sufficient liquid asset contributions to Capital
to permit Capital to pay its Debt and its other obligations as they become
due; provided, however, that with respect to such other obligations, Group,
in any calendar year, shall not be required to make payments to Capital in
excess of the lesser of an amount equal to 110% of the amount of Debt
outstanding at the time such payment may be required, or $25,000,000.
3. No Guarantee of Indebtedness. This Agreement is not, and nothing
herein contained, and no action taken pursuant hereto by Group shall be
construed as, or deemed to constitute, a direct or indirect guarantee by
Group to any person of the payment of any Debt or any other indebtedness, or
of any liability or obligation of any kind or character whatsoever of Capital
of any subsidiary of Capital.
4. Waivers. Group hereby waives any failure or delay on the part of
Capital in asserting or enforcing any of its rights or in making any claims
or demands hereunder.
5. Amendments and Termination: This Agreement may be amended or
modified at any time by the parties hereto; provided, however, that no such
amendment or modification which adversely affects the holders of Debt
outstanding at the time of execution thereof shall be binding on or in any
manner become effective with respect to such Debt except with the prior
written consent of the holders of not less than a majority in principal
amount of Debt at the time outstanding. This Agreement may be terminated by
either party hereto upon 30 days prior written notice to the other party;
provided, however, that this Agreement shall not terminate until such time as
all Debt outstanding on or prior to the date of the giving of notice of
termination shall have been paid. Notwithstanding the foregoing, the parties
hereto may modify or terminate any or all of the provisions of this Agreement
with respect to any Debt if two nationally recognized rating organizations
confirm in writing that their rating for such Debt would be the same whether
or not such provisions were in effect.<PAGE>
<PAGE>
6. Successors. This Agreement shall be binding upon the parties hereto
and their respective successors and assigns and is also intended for the
benefit of the holders from time to time of the Debt and, notwithstanding
that such holders are not parties hereto, each such holder shall be entitled
to the full benefits of this Agreement and to enforce the covenants and
agreements contained herein. This Agreement is not intended for the benefit
of any person other than holders of Debt, and shall not confer or be deemed
to confer upon any other such person any benefits, rights or remedies
hereunder.
7. Governing Law. This Agreement shall be governed by the laws of the
State of Florida.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the day and year first above written.
FPL Group, Inc.
By: J. L. HOWARD
Treasurer
FPL Group Capital Inc
By: R. R. SEARS
Treasurer
EXHIBIT 12
FPL GROUP CAPITAL INC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991 1990 1989
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Earnings, as defined:
Income (loss) from continuing operations $ 5,175 $ 734 $ (8,906) $(78,105) $(18,125)
Income tax expense (benefit) 12,377 4,567 (14,631) (49,322) (14,838)
Fixed charges, included in determination
of net income, as below 40,501 50,942 59,056 47,056 47,005
Total earnings, as defined $58,053 $56,243 $ 35,519 $(80,371) $ 14,042
Fixed charges, as defined:
Interest expense $40,006 $50,390 $ 58,644 $ 46,605 $ 46,845
Rental interest factor 495 552 412 451 160
Fixed charges, included in
determination of net income 40,501 50,942 59,056 47,056 47,005
Capitalized interest 592 978 2,562 5,822 6,456
Total fixed charges, as defined $41,093 $51,920 $ 61,618 $ 52,878 $ 53,461
Ratio of earnings to fixed charges 1.41 1.08 .58(1) -(1) .26(1)
(1) Earnings were inadequate to cover fixed charges. The amount of such deficiency was approximately $26 million, $133
million and
$39 million for the years ended December 31, 1991, 1990 and 1989, respectively.
</TABLE>
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-18645 on Form S-3, Registration Statement No. 33-47813 on Form S-3, as
amended by Amendment No. 1 thereto, and Registration Statement No. 33-69786
on Form S-3, as amended by Amendments No. 1 and 2 thereto, of FPL Group
Capital Inc, of our report dated February 11, 1994 on FPL Group Capital Inc
and our report dated March 18, 1994 on Doswell II Limited Partnership
appearing in this Annual Report on Form 10-K of FPL Group Capital Inc for the
year ended December 31, 1993.
DELOITTE & TOUCHE
Miami, Florida
March 21, 1994
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-18645 on Form S-3, Registration Statement No. 33-47813 on Form S-3, as
amended by Amendment No. 1 thereto, and Registration Statement No. 33-69786
on Form S-3, as amended by Amendments No. 1 and 2 thereto, of FPL Group
Capital Inc, of our report dated February 11, 1994 appearing in this Annual
Report on Form 10-K of FPL Group Capital Inc for the year ended December 31,
1993.
PRICE WATERHOUSE
Woodland Hills, California
March 21, 1994
