UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Exact name of Registrants as specified
Commission in their charters, address of principal IRS Employer
File Number executive offices and Registrants' telephone number Identification Number
- -------------------------------------------------------------------------------------------------
1-8841 FPL GROUP, INC. 59-2449419
1-3545 FLORIDA POWER & LIGHT COMPANY 59-0247775
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 694-4000
State or other jurisdiction of incorporation or organization: Florida
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) have been subject to such
filing requirements for the past 90 days. Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each class of FPL Group, Inc. common
stock, as of the latest practicable date: Common Stock, $.01 par value,
outstanding at September 30, 1999: 179,141,435 shares.
As of September 30, 1999, there were issued and outstanding 1,000 shares of
Florida Power & Light Company's common stock, without par value, all of
which were held, beneficially and of record, by FPL Group, Inc.
______________________________
This combined Form 10-Q represents separate filings by FPL Group, Inc. and
Florida Power & Light Company. Information contained herein relating to an
individual registrant is filed by that registrant on its own behalf. Florida
Power & Light Company makes no representations as to the information relating
to FPL Group, Inc.'s other operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) and
Florida Power & Light Company (FPL) (collectively, the Company) are hereby
filing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made
by or on behalf of the Company which are made in this combined Form 10-Q, in
presentations, in response to questions or otherwise. Any statements that
express, or involve discussions as to expectations, beliefs, plans,
objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as will likely result, are
expected to, will continue, is anticipated, estimated, projection, outlook)
are not statements of historical facts and may be forward-looking. Forward-
looking statements involve estimates, assumptions and uncertainties that
could cause actual results to differ materially from those expressed in the
forward-looking statements. Accordingly, any such statements are qualified
in their entirety by reference to, and are accompanied by, the following
important factors that could cause the Company's actual results to differ
materially from those contained in forward-looking statements made by or on
behalf of the Company.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of
each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statement.
Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include
changing governmental policies and regulatory actions, including those of the
Federal Energy Regulatory Commission (FERC), the Florida Public Service
Commission (FPSC) and the Nuclear Regulatory Commission (NRC), with respect
to allowed rates of return including but not limited to return on common
equity (ROE) and equity ratio limits, industry and rate structure, operation
of nuclear power facilities, acquisition, disposal, depreciation and
amortization of assets and facilities, operation and construction of plant
facilities, recovery of fuel and purchased power costs, decommissioning
costs, and present or prospective wholesale and retail competition (including
but not limited to retail wheeling and transmission costs).
The business and profitability of the Company are also influenced by economic
and geographic factors including political and economic risks, changes in and
compliance with environmental and safety laws and policies, weather
conditions (including natural disasters such as hurricanes), population
growth rates and demographic patterns, competition for retail and wholesale
customers, pricing and transportation of commodities, market demand for
energy from plants or facilities, changes in tax rates or policies or in
rates of inflation, unanticipated delays or changes in costs for capital
projects, unanticipated changes in operating expenses and capital
expenditures, capital market conditions, competition for new energy
development opportunities, legal and administrative proceedings (whether
civil, such as environmental, or criminal) and settlements, and any
unanticipated impact of the year 2000, including delays or changes in costs
of year 2000 readiness, or the failure of major suppliers, customers and
others with whom the Company does business to resolve their own year 2000
issues on a timely basis.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results, and are beyond the control of the Company.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FPL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
OPERATING REVENUES ............................................... $1,892 $1,999 $4,918 $5,030
OPERATING EXPENSES:
Fuel, purchased power and interchange .......................... 693 659 1,788 1,652
Other operations and maintenance................................ 309 327 910 945
Depreciation and amortization .................................. 245 314 768 911
Impairment loss on Maine assets ................................ - - 176 -
Taxes other than income taxes .................................. 175 171 462 457
Total operating expenses ..................................... 1,422 1,471 4,104 3,965
OPERATING INCOME ................................................. 470 528 814 1,065
OTHER INCOME (DEDUCTIONS):
Interest charges ............................................... (58) (101) (163) (228)
Preferred stock dividends - FPL ................................ (4) (4) (11) (11)
Gain on sale of Adelphia Communications Corporation stock ...... - - 149 -
Other - net .................................................... 39 21 79 42
Total other income (deductions) - net ........................ (23) (84) 54 (197)
INCOME BEFORE INCOME TAXES ....................................... 447 444 868 868
INCOME TAXES ..................................................... 156 157 291 297
NET INCOME ....................................................... $ 291 $ 287 $ 577 $ 571
Earnings per share of common stock (basic and assuming dilution).. $ 1.70 $ 1.66 $ 3.36 $ 3.31
Dividends per share of common stock .............................. $ 0.52 $ 0.50 $ 1.56 $ 1.50
Average number of common shares outstanding ...................... 171 172 171 173
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on pages 9 through 13 herein and the Notes
to Consolidated Financial Statements appearing in the combined Annual Report
on Form 10-K for the fiscal year ended December 31, 1998 (1998 Form 10-K) for
FPL Group and FPL.
FPL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
September 30, December 31,
1999 1998
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and other property,
including nuclear fuel and construction work in progress ....................... $19,171 $17,952
Less accumulated depreciation and amortization ................................... (10,029) (9,397)
Total property, plant and equipment - net ...................................... 9,142 8,555
CURRENT ASSETS:
Cash and cash equivalents ........................................................ 370 187
Customer receivables, net of allowance of $8 for both periods .................... 658 559
Materials, supplies and fossil fuel inventory - at average cost .................. 308 282
Other ............................................................................ 282 238
Total current assets ........................................................... 1,618 1,266
OTHER ASSETS:
Special use funds of FPL ......................................................... 1,336 1,206
Other investments ................................................................ 578 391
Other ............................................................................ 846 611
Total other assets ............................................................. 2,760 2,208
TOTAL ASSETS ....................................................................... $13,520 $12,029
CAPITALIZATION:
Common stock ..................................................................... $ 2 $ 2
Additional paid-in capital........................................................ 2,923 3,000
Retained earnings................................................................. 2,433 2,123
Accumulated other comprehensive income............................................ - 1
Total common shareholders' equity............................................... 5,358 5,126
Preferred stock of FPL without sinking fund requirements ......................... 226 226
Long-term debt ................................................................... 3,091 2,347
Total capitalization ........................................................... 8,675 7,699
CURRENT LIABILITIES:
Debt due within one year ......................................................... 519 469
Accounts payable ................................................................. 462 338
Accrued interest, taxes and other ................................................ 1,276 834
Total current liabilities ...................................................... 2,257 1,641
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes ................................................ 1,112 1,255
Unamortized regulatory and investment tax credits ................................ 322 353
Other ............................................................................ 1,154 1,081
Total other liabilities and deferred credits ................................... 2,588 2,689
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES ............................................... $13,520 $12,029
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on pages 9 through 13 herein and the Notes
to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL
Group and FPL.
FPL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
Nine Months Ended
September 30,
1999 1998
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................. $1,518 $1,532
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures of FPL ......................................................... (607) (474)
Independent power investments ....................................................... (1,448) (425)
Distributions and loan repayments from partnerships and joint ventures .............. 99 280
Other - net ......................................................................... 61 (58)
Net cash used in investing activities ........................................... (1,895) (677)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt .......................................................... 1,216 343
Retirement of long-term debt ........................................................ (584) (398)
Increase (decrease) in short-term debt .............................................. 284 (96)
Repurchase of common stock .......................................................... (89) (52)
Dividends on common stock ........................................................... (267) (259)
Net cash provided by (used in) financing activities ............................. 560 (462)
Net increase in cash and cash equivalents ............................................. 183 393
Cash and cash equivalents at beginning of period ...................................... 187 54
Cash and cash equivalents at end of period ............................................ $ 370 $ 447
Supplemental disclosures of cash flow information:
Cash paid for interest .............................................................. $ 161 $ 217
Cash paid for income taxes .......................................................... $ 323 $ 238
Supplemental schedule of noncash investing and financing activities:
Additions to capital lease obligations .............................................. $ 56 $ 29
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on pages 9 through 13 herein and the Notes
to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL
Group and FPL.
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
OPERATING REVENUES ................................................. $1,769 $1,878 $4,638 $4,807
OPERATING EXPENSES:
Fuel, purchased power and interchange ............................ 646 637 1,679 1,614
Other operations and maintenance ................................. 258 293 791 846
Depreciation and amortization .................................... 234 306 743 891
Income taxes ..................................................... 156 157 306 311
Taxes other than income taxes .................................... 172 171 460 456
Total operating expenses ....................................... 1,466 1,564 3,979 4,118
OPERATING INCOME ................................................... 303 314 659 689
OTHER INCOME (DEDUCTIONS):
Interest charges ................................................. (39) (50) (125) (149)
Other - net ...................................................... 4 3 8 -
Total other deductions - net ................................... (35) (47) (117) (149)
NET INCOME ......................................................... 268 267 542 540
PREFERRED STOCK DIVIDENDS .......................................... 4 4 11 11
NET INCOME AVAILABLE TO FPL GROUP .................................. $ 264 $ 263 $ 531 $ 529
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on pages 9 through 13 herein and the Notes
to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL
Group and FPL.
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
September 30, December 31,
1999 1998
ELECTRIC UTILITY PLANT:
Plant in service, including nuclear fuel and construction work in progress ....... $17,872 $17,464
Less accumulated depreciation and amortization ................................... (9,928) (9,317)
Electric utility plant - net ................................................... 7,944 8,147
CURRENT ASSETS:
Cash and cash equivalents ........................................................ 283 152
Customer receivables, net of allowance of $8 for both periods .................... 590 521
Materials, supplies and fossil fuel inventory - at average cost .................. 264 239
Other ............................................................................ 260 204
Total current assets ........................................................... 1,397 1,116
OTHER ASSETS:
Special use funds ................................................................ 1,336 1,206
Other ............................................................................ 370 279
Total other assets ............................................................. 1,706 1,485
TOTAL ASSETS ....................................................................... $11,047 $10,748
CAPITALIZATION:
Common shareholder's equity ...................................................... $ 4,876 $ 4,803
Preferred stock without sinking fund requirements ................................ 226 226
Long-term debt ................................................................... 2,079 2,191
Total capitalization ........................................................... 7,181 7,220
CURRENT LIABILITIES:
Debt due within one year ......................................................... 125 230
Accounts payable ................................................................. 445 321
Accrued interest, taxes and other ................................................ 1,145 800
Total current liabilities ...................................................... 1,715 1,351
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes ................................................ 834 887
Unamortized regulatory and investment tax credits ................................ 322 353
Other ............................................................................ 995 937
Total other liabilities and deferred credits ................................... 2,151 2,177
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES ............................................... $11,047 $10,748
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on pages 9 through 13 herein and the Notes
to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL
Group and FPL.
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
Nine Months Ended
September 30,
1999 1998
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................. $1,494 $1,479
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................ (607) (474)
Other - net ......................................................................... (55) (64)
Net cash used in investing activities ........................................... (662) (538)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt .......................................................... 224 197
Retirement of long-term debt ........................................................ (455) (389)
Decrease in commercial paper ........................................................ - (40)
Dividends ........................................................................... (470) (475)
Net cash used in financing activities ............................................. (701) (707)
Net increase in cash and cash equivalents ............................................. 131 234
Cash and cash equivalents at beginning of period ...................................... 152 3
Cash and cash equivalents at end of period ............................................ $ 283 $ 237
Supplemental disclosures of cash flow information:
Cash paid for interest .............................................................. $ 126 $ 142
Cash paid for income taxes .......................................................... $ 268 $ 277
Supplemental schedule of noncash investing and financing activities:
Additions to capital lease obligations .............................................. $ 56 $ 29
This report should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements on pages 9 through 13 herein and the Notes
to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL
Group and FPL.
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying condensed consolidated financial statements should be read
in conjunction with the combined 1998 Form
10-K for FPL Group and FPL. In the opinion of FPL Group and FPL management,
all adjustments (consisting of normal recurring accruals) considered
necessary for fair financial statement presentation have been made. Certain
amounts included in the prior year's consolidated financial statements have
been reclassified to conform to the current year's presentation. The results
of operations for an interim period may not give a true indication of results
for the year.
1. Summary of Significant Accounting and Reporting Policies
Regulation - In March 1999, the FPSC approved an agreement between FPL, the
State of Florida's Office of Public Counsel (Public Counsel), The Florida
Industrial Power Users Group (FIPUG) and The Coalition for Equitable Rates
(Coalition) regarding FPL's retail base rates, authorized regulatory ROE,
capital structure and other matters. As a result of the approval of this
agreement, all matters raised in Public Counsel's petition to the FPSC to
conduct a full rate proceeding were resolved. The three-year agreement
became effective April 15, 1999.
The agreement provides for a $350 million reduction in annual revenue from
retail base operations allocated to all customers on a cents-per-kilowatt-
hour basis. Additionally, the rate reduction agreement sets forth a
revenue sharing mechanism for each of the three years covered by the
agreement, whereby revenue from retail base operations in excess of a
stated threshold will be shared with retail customers on the basis of two-
thirds refunded to retail customers and one-third retained by FPL. Revenue
from retail base operations in excess of a second threshold will be
refunded 100% to retail customers.
The thresholds are as follows:
Twelve Months Ended
April 14,
2000 2001 2002
(Millions of Dollars)
Threshold to refund 66 2/3% to customers ..... $3,400 $3,450 $3,500
Threshold to refund 100% to customers ........ $3,556 $3,606 $3,656
Offsetting the annual revenue reduction will be lower special depreciation.
The rate reduction agreement allows for special depreciation of up to $100
million, at FPL's discretion, in each year of the three-year agreement
period to be applied to nuclear and/or fossil generating assets. This new
depreciation program replaced the previous program whereby $378 million of
special amortization was recorded in 1998. For the three and nine months
ended September 30, 1999, FPL recorded approximately $21 million and $103
million under these special depreciation/amortization programs compared to
approximately $90 million and $238 million for the three and nine months
ended September 30, 1998, respectively.
In addition, the agreement lowered FPL's authorized regulatory ROE range to
10% - 12%. During the term of the agreement, the achieved ROE may, from
time to time, be outside the authorized range and the revenue sharing
mechanism described above is intended to be the appropriate and exclusive
mechanism to address that circumstance. The agreement establishes a cap on
FPL's adjusted equity ratio of 55.83%. The adjusted equity ratio reflects
a discounted amount for off-balance sheet obligations under certain long-
term purchase power contracts. Finally, included in the agreement are
provisions which limit depreciation rates and accruals for nuclear
decommissioning and fossil dismantlement costs to currently approved levels
and limit amounts recoverable under the environmental cost recovery clause
during the three-year term of the agreement.
The agreement states that Public Counsel, FIPUG and Coalition will neither
seek nor support any additional base rate reductions during the three-year
term of the agreement unless such reduction is initiated by FPL. Further,
FPL agreed to not petition for any base rate increases that would take
effect during the three-year term of the agreement.
Electric Plant, Depreciation and Amortization - In April 1999, the FPSC
granted final approval on FPL's most recent depreciation studies, which
were effective beginning in 1998.
2. Acquisition of Maine Assets
During the second quarter of 1999, FPL Energy, Inc. completed the purchase
of Central Maine Power Company's (CMP) non-nuclear generating assets,
primarily fossil and hydro power plants, for $866 million. The purchase
price was based on an agreement, subject to regulatory approvals, reached
with CMP in January 1998. In October 1998, the FERC struck down
transmission rules that had been in effect in New England since the 1970s.
FPL Energy, Inc. filed a lawsuit in November 1998 requesting a declaratory
judgment that CMP could not meet the essential terms of the purchase
agreement and, as a result, FPL Energy, Inc. should not be required to
complete the transaction. FPL Energy, Inc. believed these FERC rulings
regarding transmission constituted a material adverse effect under the
purchase agreement because of the significant decline in the value of the
assets caused by the rulings. The request for declaratory judgment was
denied in March 1999, and the acquisition was completed on April 7,1999.
The acquisition was accounted for under the purchase method of accounting
and the results of operating the Maine plants have been included in the
condensed consolidated financial statements since the acquisition date.
The FERC rulings regarding transmission, as well as the announcement of new
entrants into the market and changes in fuel prices since January 1998,
resulted in FPL Energy, Inc. recording a $176 million pre-tax impairment
loss related to the fossil assets. The fossil assets are now reflected at
their fair value, which was determined based on a discounted cash flow
analysis. The impairment loss reduced FPL Group's year-to-date 1999
results of operations and earnings per share by $104 million and $0.61 per
share, respectively.
Most of the remainder of the purchase price was allocated to the hydro
operations. The hydro plants and related goodwill are being amortized on a
straight-line basis over the 40-year term of the hydro plant operating
licenses.
3. Capitalization
FPL Group Common Stock - During the three and nine months ended September 30,
1999, FPL Group repurchased 100,000 shares and 1,570,000 shares of common
stock, respectively, under its share repurchase program. A total of
approximately 3.3 million shares have been repurchased under the share
repurchase program that began in April 1997.
Long-Term Debt - In January 1999, FPL Group Capital Inc (FPL Group Capital)
redeemed $125 million principal amount of 7 5/8% debentures, maturing in
2013. This redemption resulted in a loss on reacquired debt of approximately
$8 million, which is included in other-net in FPL Group's condensed
consolidated statements of income for the nine months ended September 30,
1999. In April 1999, FPL sold $225 million principal amount of first
mortgage bonds maturing in 2009, with an interest rate of 5 7/8%. The
proceeds were used in May 1999 to redeem approximately $216 million principal
amount of first mortgage bonds, maturing in 2013, bearing interest at 7 7/8%.
In June 1999, FPL Group Capital sold $175 million principal amount of 6 7/8%
debentures, maturing in 2004 and $225 million principal amount of 7 3/8%
debentures, maturing in 2009. In September 1999, FPL Group Capital sold $600
million principal amount of 7 5/8% debentures, maturing in 2006.
Long-Term Incentive Plan - Performance shares granted to date under FPL
Group's long-term incentive plan resulted in assumed incremental shares of
common stock outstanding for purposes of computing both basic and diluted
earnings per share for the three and nine months ended September 30, 1999 and
1998. These incremental shares were not material in the periods presented
and did not cause diluted earnings per share to differ from basic earnings
per share.
Other - Comprehensive income of FPL Group, totaling $290 million and $288
million for the three months ended September 30, 1999 and 1998 and $575
million and $572 million for the nine months ended September 30, 1999 and
1998, respectively, includes net income and changes in unrealized gains
(losses) on securities and foreign currency translation adjustments.
Accumulated other comprehensive income is separately displayed in the
condensed consolidated balance sheets of FPL Group.
4. Commitments and Contingencies
Commitments - FPL has made commitments in connection with a portion of its
projected capital expenditures. Capital expenditures for the construction or
acquisition of additional facilities and equipment to meet customer demand
are estimated to be approximately $3.0 billion for 1999 through 2001.
Included in this three-year forecast are capital expenditures for 1999 of
approximately $900 million, of which $610 million had been spent through
September 30, 1999. As of September 30, 1999, FPL Energy, LLC (FPL Energy),
formerly FPL Energy, Inc. (see Part II - Item 5), has made commitments in
connection with the development of an independent power project totaling $146
million. FPL Group and its subsidiaries, other than FPL, have guaranteed
approximately $689 million of purchase power agreement obligations, debt
service payments and other payments subject to certain contingencies.
Insurance - Liability for accidents at nuclear power plants is governed by
the Price-Anderson Act, which limits the liability of nuclear reactor
owners to the amount of the insurance available from private sources and
under an industry retrospective payment plan. In accordance with this Act,
FPL maintains $200 million of private liability insurance, which is the
maximum obtainable, and participates in a secondary financial protection
system under which it is subject to retrospective assessments of up to $363
million per incident at any nuclear utility reactor in the United States,
payable at a rate not to exceed $43 million per incident per year.
FPL participates in nuclear insurance mutual companies that provide $2.75
billion of limited insurance coverage for property damage, decontamination
and premature decommissioning risks at its nuclear plants. The proceeds
from such insurance, however, must first be used for reactor stabilization
and site decontamination before they can be used for plant repair. FPL
also participates in an insurance program that provides limited coverage
for replacement power costs if a nuclear plant is out of service because of
an accident. In the event of an accident at one of FPL's or another
participating insured's nuclear plants, FPL could be assessed up to $50
million in retrospective premiums.
In the event of a catastrophic loss at one of FPL's nuclear plants, the
amount of insurance available may not be adequate to cover property damage
and other expenses incurred. Uninsured losses, to the extent not recovered
through rates, would be borne by FPL and could have a material adverse
effect on FPL Group's and FPL's financial condition.
FPL self-insures the majority of its transmission and distribution (T&D)
property due to the high cost and limited coverage available from third-
party insurers. As approved by the FPSC, FPL maintains a funded storm and
property insurance reserve, which totaled approximately $278 million at
September 30, 1999, for T&D property storm damage or assessments under the
nuclear insurance program. Recovery from customers of any losses in excess
of the storm and property insurance reserve will require the approval of
the FPSC. FPL's available lines of credit include $300 million to provide
additional liquidity in the event of a T&D property loss.
Contracts - FPL has entered into long-term purchased power and fuel
contracts. Take-or-pay purchased power contracts with the Jacksonville
Electric Authority (JEA) and with subsidiaries of The Southern Company
(Southern Companies) provide approximately 1,300 megawatts (mw) of power
through mid-2010 and 383 mw thereafter through 2021. FPL also has various
firm pay-for-performance contracts to purchase approximately 1,000 mw from
certain cogenerators and small power producers (qualifying facilities) with
expiration dates ranging from 2002 through 2026. The purchased power
contracts provide for capacity and energy payments. Energy payments are
based on the actual power taken under these contracts. Capacity payments
for the pay-for-performance contracts are subject to the qualifying
facilities meeting certain contract conditions. Fuel contracts provide for
the transportation and supply of natural gas and coal. FPL Energy has
long-term contracts for the transportation and storage of natural gas with
expiration dates ranging from 2005 through 2017, and a 24-month contract
commencing in mid-2000 for the supply of natural gas.
The required capacity and minimum payments through 2003 under these
contracts are estimated to be as follows:
1999 2000 2001 2002 2003
(Millions of Dollars)
FPL:
Capacity payments:
JEA and Southern Companies ............................................ $210 $210 $210 $210 $200
Qualifying facilities (a) ............................................. $360 $370 $380 $400 $410
Minimum payments, at projected prices:
Natural gas, including transportation ................................. $340 $210 $240 $260 $260
Coal .................................................................. $ 40 $ 40 $ 30 $ 30 $ 15
FPL Energy:
Natural gas, including transportation and storage ..................... $ 15 $ 17 $ 20 $ 18 $ 16
_______________
(a) Includes approximately $38 million, $42 million, $44 million, $47 million and $49 million, respectively, for
capacity payments associated with two contracts that are currently in dispute. These capacity payments are subject
to the outcome of the related litigation. See Litigation.
Charges under these contracts were as follows
Three Months Ended September 30, Nine Months Ended September 30,
1999 Charges 1998 Charges 1999 Charges 1998 Charges
---------------------------------------- ---------------------------------------
Energy/ Energy/ Energy/ Energy/
Capacity Fuel Capacity Fuel Capacity Fuel Capacity Fuel
-------- ------- -------- ------- -------- ------- -------- -------
(Millions of Dollars)
FPL:
JEA and Southern Companies .. $46(b) $ 40(a) $42(b) $38(a) $146(b) $ 94(a) $147(b) $104(a)
Qualifying facilities........ $76(c) $ 35(a) $75(c) $31(a) $227(c) $ 83(a) $224(c) $ 85(a)
Natural gas, including
transportation ............ $ - $104(a) $ - $77(a) $ - $290(a) $ - $215(a)
Coal ........................ $ - $ 10(a) $ - $12(a) $ - $ 32(a) $ - $ 37(a)
FPL Energy:
Natural gas transportation
and storage ............... $ - $ 4 $ - $ 5 $ - $ 12 $ - $ 14
_______________
(a) Recovered through the fuel and purchased power cost recovery clause.
(b) Recovered through base rates and the capacity cost recovery clause (capacity clause).
(c) Recovered through the capacity clause.
Litigation - In 1997, FPL filed a complaint against the owners of two
qualifying facilities (plant owners) seeking an order declaring that FPL's
obligations under the power purchase agreements with the qualifying
facilities were rendered of no force and effect because the power plants
failed to accomplish commercial operation before January 1, 1997, as
required by the agreements. In 1997, the plant owners filed for bankruptcy
under Chapter XI of the U.S. Bankruptcy Code, ceased all attempts to
operate the power plants and entered into an agreement with the holders of
more than 70% of the bonds that partially financed the construction of the
plants. This agreement gives the holders of a majority of the principal
amount of the bonds (the majority bondholders) the right to control, fund
and manage any litigation against FPL and the right to settle with FPL on
any terms such majority bondholders approve, provided that certain
agreements are not affected and certain conditions are met. In January
1998, the plant owners (through the attorneys for the majority bondholders)
filed an answer denying the allegations in FPL's complaint and asserting
counterclaims for approximately $2 billion, consisting of all capacity
payments that could have been made over the 30-year term of the power
purchase agreements and three times their actual damages for alleged
violations of Florida antitrust laws, plus attorneys' fees. In October
1998, the court dismissed all of the plant owners' antitrust claims against
FPL. In June 1999, the plant owners' motion for summary judgment was
denied. FPL believes that it has meritorious defenses to this litigation
and is vigorously defending the suit. Accordingly, the liabilities, if
any, arising from this proceeding are not anticipated to have a material
adverse effect on its financial statements.
Accounting for Derivative Instruments and Hedging Activities - In June 1998,
the Financial Accounting Standards Board (FASB) issued Financial Accounting
Standards No. (FAS) 133, "Accounting for Derivative Instruments and Hedging
Activities." The statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement
requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. FPL Group and
FPL are currently assessing the effect, if any, on their financial statements
of implementing FAS 133. In June 1999, the FASB issued FAS 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133," which delayed the adoption of FAS 133 for
one year. As a result of FAS 137, FPL Group and FPL will not be required to
adopt FAS 133 until 2001.
5. Segment Information
FPL Group's reportable segments include FPL, a regulated utility, and FPL
Energy, an unregulated energy generating subsidiary. FPL Group's segment
information is as follows
Three Months Ended September 30,
1999 1998
----------------------------------------- ------------------------------------------
FPL Corporate FPL Corporate
FPL Energy & Other Total FPL Energy(a) & Other(a) Total
(Millions of Dollars)
Operating revenues ..... $1,769 $ 103 $ 20 $ 1,892 $ 1,878 $ 107 $ 14 $ 1,999
Net income ............. $ 264 $ 27 $ - $ 291 $ 263 $ 18 $ 6 $ 287
Nine Months Ended September 30,
1999 1998
----------------------------------------- ------------------------------------------
FPL Corporate FPL Corporate
FPL Energy & Other Total FPL Energy(a) & Other(a) Total
(Millions of Dollars)
Operating revenues ..... $ 4,638 $ 238 $ 42 $ 4,918 $ 4,807 $ 172 $ 51 $ 5,030
Net income ............. $ 531 $ (50)(b) $ 96(c) $ 577 $ 529 $ 29 $ 13 $ 571
September 30, 1999 December 31, 1998
----------------------------------------- ------------------------------------------
FPL Corporate FPL Corporate
FPL Energy & Other Total FPL Energy & Other Total
(Millions of Dollars)
Total assets ........... $11,047 $2,220 $253 $13,520 $10,748 $1,092 $189 $12,029
(a) FPL Energy began imputing interest in the second quarter of 1999 based
on an assumed capital structure of 50% debt for operating projects and 100%
debt for projects under construction. For comparability, 1998 amounts
have been restated.
(b) Includes effect of $104 million after-tax impairment loss. See Note 2
and Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations - FPL Energy.
(c) Includes effect of $96 million after-tax gain on the sale of an
investment in Adelphia Communications Corporation (Adelphia) common
stock. See Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations - Corporate and Other.
6. Summarized Financial Information of FPL Group Capital
FPL Group Capital provides funding for and holds ownership interest in FPL
Group's operating subsidiaries other than FPL. FPL Group Capital's
debentures are guaranteed by FPL Group and included in FPL Group's
condensed consolidated balance sheets. Summarized financial information of
FPL Group Capital is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
(Millions of Dollars)
Operating revenues ..................... $123 $122 $280 $223
Operating expenses ..................... $112 $ 65 $432(a) $160
Net income ............................. $ 33 $ 29 $ 63(a)(b) $ 58
September 30, 1999 December 31, 1998
(Millions of Dollars)
Current assets ......................... $ 419 $ 317
Noncurrent assets ...................... $2,544 $1,445
Current liabilities .................... $ 680 $ 310
Noncurrent liabilities ................. $1,472 $ 703
(a) Includes effect of $104 million after-tax impairment loss. See Note 2
and Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations - FPL Energy.
(b) Includes effect of $96 million after-tax gain on the sale of an
investment in Adelphia common stock. See Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations - Corporate and Other.
Management has not presented separate financial statements and other
disclosures concerning FPL Group Capital because management has determined
that such information is not material to holders of the FPL Group Capital
debentures.
7. Subsequent Events
Redemption of Interest in Cable Limited Partnership - In October 1999, an FPL
Group Capital subsidiary had its one-third ownership interest in a cable
limited partnership redeemed, which had been accounted for on the equity
method, resulting in an after-tax gain of approximately $66 million.
Settlement of Litigation - In October 1999, FPL and the Florida Municipal
Power Agency (FMPA) entered into a settlement agreement pursuant to which FPL
agreed to pay FMPA a cash settlement; FPL agreed to reduce the demand charge
on an existing power purchase agreement; and FPL and FMPA agreed to enter
into a new power purchase agreement giving FMPA the right to purchase limited
amounts of power in the future at a specified price. FMPA agreed to dismiss
the lawsuit with prejudice, and both parties agreed to exchange mutual
releases. The settlement will reduce FPL's fourth quarter 1999 net income by
approximately $42 million.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion should be read in conjunction with the Notes to Condensed
Consolidated Financial Statements contained herein and Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing in the 1998 Form 10-K for FPL Group and FPL. The results of
operations for an interim period may not give a true indication of results
for the year. In the following discussion, all comparisons are with the
corresponding items in the prior year.
RESULTS OF OPERATIONS
While the majority of FPL Group's earnings continue to come from FPL, the
growth in quarterly earnings is primarily the result of growth and improved
results at FPL Energy. Year-to-date 1999 earnings reflect a $149 million
($96 million after-tax) gain recorded in the first quarter by FPL Group
Capital on the sale on an investment in Adelphia common stock and a $176
million ($104 million after-tax) impairment loss recorded in the second
quarter by FPL Energy related to the fossil assets purchased from CMP.
Excluding these items, FPL Group's year-to-date earnings growth is also
primarily the result of FPL Energy's growth and improved results.
FPL - FPL's net income was up slightly for the three and nine months ended
September 30, 1999. FPL's revenue from retail base operations for the
three and nine months ended September 30, 1999, were $1.0 billion and $2.7
billion, respectively, and $1.1 billion and $2.9 billion for the same
periods in 1998. Lower revenues from retail base operations resulted
mainly from the rate reduction agreement, which became effective in April
1999, as well as a decline in energy usage per retail customer. Usage per
retail customer was down 0.3% and 1.4% for the three and nine months ended
September 30, 1999, respectively, mainly as a result of warmer weather in
the summer of 1998. The number of customer accounts, however, increased
2.1% and 2.0% for the same periods.
The rate reduction agreement provides for a $350 million reduction in
annual revenue from retail base operations allocated to all customers on a
cents-per-kilowatt-hour basis. Additionally, the rate reduction agreement
sets forth a revenue sharing mechanism for each of the three years covered
by the agreement, whereby revenue from retail base operations in excess of
a stated threshold will be shared with retail customers on the basis of
two-thirds refunded to retail customers and one-third retained by FPL.
Revenues from retail base operations in excess of a second threshold will
be refunded 100% to retail customers. The thresholds for the twelve months
ended April 14, 2000, are $3.4 billion and $3.556 billion, respectively.
Offsetting the annual revenue reduction will be lower special depreciation.
The rate reduction agreement allows for special depreciation of up to $100
million, at FPL's discretion, in each year of the three-year agreement
period to be applied to nuclear and/or fossil generating assets. This new
depreciation program replaced the previous program whereby $378 million of
special amortization was recorded in 1998. See Note 1 - Regulation.
FPL's other operations and maintenance expense decreased for both the three
and nine months ended September 30, 1999, primarily reflecting successful
cost control efforts as well as the timing of expenditures. Depreciation
and amortization expense also decreased for those periods as a result of
lower special depreciation. For the three and nine months ended September
30, 1999, FPL recorded approximately $21 million and $103 million of
special depreciation/amortization compared to approximately $90 million and
$238 million for the three and nine months ended September 30, 1998,
respectively. Lower interest expense for the three and nine months ended
September 30, 1999 is the result of lower average debt balances and the
full amortization in 1998 of deferred costs associated with reacquired
debt.
In October 1999, FPL and FMPA entered into a settlement agreement pursuant to
which FPL agreed to pay FMPA a cash settlement; FPL agreed to reduce the
demand charge on an existing power purchase agreement; and FPL and FMPA
agreed to enter into a new power purchase agreement giving FMPA the right to
purchase limited amounts of power in the future at a specified price. FMPA
agreed to dismiss the lawsuit with prejudice, and both parties agreed to
exchange mutual releases. The settlement will reduce FPL's fourth quarter
1999 net income by approximately $42 million. See Note 7 - Settlement of
Litigation.
FPL Energy - FPL Energy's net income for the three and nine months ended
September 30, 1999 benefited from improved results from its natural gas
operations in the eastern United States, as well as the addition of the
Maine generating assets and new and repowered wind projects. FPL Energy's
net income for the nine months ended September 30, 1999 includes the effect
of a $176 million ($104 million after-tax) impairment loss recorded in the
second quarter of 1999. Earnings in all periods include the effect of
imputed interest expense on an assumed capital structure of 50% debt for
operating projects and 100% debt for projects under construction.
Corporate and Other - Net income for the three and nine months ended
September 30, 1999 for the corporate and other segment reflects a $149
million ($96 million after-tax) gain recorded by FPL Group Capital on the
sale of an investment in Adelphia common stock in the first quarter of
1999.
In October 1999, an FPL Group Capital subsidiary redeemed its one-third
ownership interest in a cable limited partnership, which had been accounted
for on the equity method, resulting in an after-tax gain of approximately $66
million. See Note 7 - Redemption of Interest in Cable Limited Partnership.
Year 2000 - FPL Group is essentially complete with its plan to address the
potential impact of the year 2000 on its technology systems. FPL Group has
prepared its year 2000 contingency plans, which are based upon certain
hypothetical year 2000 scenarios at the operating level (such as
generation, transmission and distribution), as well as at the business
level (such as customer service, procurement and accounting). These plans
are intended to mitigate both internal risks and potential risks in FPL
Group's supply chain. During the remainder of 1999, FPL Group will
continue to conduct training and drills, as well as evaluate and update its
contingency plans. In addition, FPL Group has retained independent
engineering and hardware/software remediation firms to validate and verify
mission critical and other important aspects of its year 2000 program. The
estimated cost of addressing year 2000 issues is expected to be
approximately $40 million, of which approximately 83% had been spent
through September 30, 1999. The remainder is a cost estimate for
verification, mitigation, training and rollover staffing. FPL Group
believes that the most reasonably likely worst case scenarios relating to
the year 2000 could include a temporary disruption of service to customers,
caused by a potential disruption in fuel supply, water supply and
telecommunications, as well as transmission grid disruptions caused by
other companies whose electrical systems are interconnected with FPL.
LIQUIDITY AND CAPITAL RESOURCES
See Note 3 - Long-Term Debt for financing activity during the nine months
ended September 30, 1999. In addition, approximately $230 million
principal amount of FPL's 5 1/2% first mortgage bonds matured in July 1999.
During the three and nine months ended September 30, 1999, FPL Group
repurchased 100,000 and 1,570,000 shares of common stock, respectively. As
of September 30, 1999, available bank lines of credit, which support the
commercial paper program, aggregated approximately $2.5 billion ($900
million for FPL).
For information concerning capital commitments see Note 4 - Commitments.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3. Legal Proceedings in the 1998 Form 10-K
for FPL Group and FPL.
In October 1999, FPL and FMPA entered into a settlement agreement
pursuant to which FPL agreed to pay FMPA a cash settlement; FPL
agreed to reduce the demand charge on an existing power purchase
agreement; and FPL and FMPA agreed to enter into a new power
purchase agreement giving FMPA the right to purchase limited amounts
of power in the future at a specified price. FMPA agreed to dismiss
the lawsuit with prejudice, and both parties agreed to exchange
mutual releases. The settlement will reduce FPL's fourth quarter
1999 net income by approximately $42 million.
Item 5. Other Information
Reference is made to Item 1. Business - Other FPL Group Operations -
FPL Energy in the 1998 Form 10-K for FPL Group and FPL.
Effective September 30, 1999, FPL Energy, Inc. was converted from a
corporation to a limited liability company. The new name is FPL
Energy, LLC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Exhibit FPL
Number Description Group FPL
4 Officer's Certificate of FPL Group Capital dated September 7, 1999,
creating the 7 5/8% Debentures, series due September 15, 2006 x
10(a) Employment Agreement between FPL Group and James L. Broadhead, amended
and restated as of May 10, 1999 x
10(b) Employment Agreement between FPL Group and Dennis P. Coyle, amended
and restated as of May 10, 1999 x
10(c) Employment Agreement between FPL Group and Paul J. Evanson, amended
and restated as of May 10, 1999 x
10(d) Employment Agreement between FPL Group and Lewis Hay III, dated as
of September 13, 1999 x
10(e) Employment Agreement between FPL Group and Lawrence J. Kelleher, amended
and restated as of May 10, 1999 x
10(f) Employment Agreement between FPL Group and Thomas F. Plunkett, amended
and restated as of May 10, 1999 x
10(g) Employment Agreement between FPL Group and Michael W. Yackira, amended
and restated as of May 10, 1999 x
12(a) Computation of Ratio of Earnings to Fixed Charges x
12(b) Computation of Ratios x
27 Financial Data Schedule x x
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the Securities and
Exchange Commission on July 20, 1999 by FPL Group filing exhibits
under Item 7. Financial Statements and Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
FPL GROUP, INC.
FLORIDA POWER & LIGHT COMPANY
(Registrants)
Date: November 10,1999 K. MICHAEL DAVIS
----------------
K. Michael Davis
Controller and Chief Accounting Officer of FPL Group, Inc.
Vice President, Accounting, Controller and
Chief Accounting Officer of Florida Power & Light Company
(Chief Accounting Officer of the Registrants)