-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T4jrnRMi/xNDRle0Egw1tvhHAJuSDRntggUCBa8qaU0eU5XiTLV7mlMZu+/tidqD 0gVJUS15Q7SnLR9hdTO8Ig== 0000753308-98-000018.txt : 19981105 0000753308-98-000018.hdr.sgml : 19981105 ACCESSION NUMBER: 0000753308-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FPL GROUP INC CENTRAL INDEX KEY: 0000753308 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 592449419 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08841 FILM NUMBER: 98737949 BUSINESS ADDRESS: STREET 1: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408 BUSINESS PHONE: 5616944000 MAIL ADDRESS: STREET 1: P O BOX 14000 CITY: JUNO BEACH STATE: FL ZIP: 33408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLORIDA POWER & LIGHT CO CENTRAL INDEX KEY: 0000037634 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590247775 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03545 FILM NUMBER: 98737950 BUSINESS ADDRESS: STREET 1: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408 BUSINESS PHONE: 5616944000 MAIL ADDRESS: STREET 1: P O BOX 14000 CITY: JUNO BEACH STATE: FL ZIP: 33408 10-Q 1 FPL GROUP AND FPL 9/30/98 10-Q 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Exact name of Registrants as specified in their charters, address of principal IRS Employer Commission executive offices and Identification File Number Registrants' telephone number 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, 1998: 180,883,935 shares. As of September 30, 1998, 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) of the Company 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 of the Company made by or on behalf of the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Some important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements include prevailing governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC), the Florida Public Service Commission (FPSC) and the Nuclear Regulatory Commission, with respect to allowed rates of return, industry and rate structure, operation of nuclear power facilities, acquisition and disposal of assets and facilities, operation and construction of plant facilities, recovery of 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 development project delays or changes in project costs, unanticipated changes in operating expenses and capital expenditures, capital market conditions, competition for new energy development opportunities, 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 compliance, 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, 1998 1997 1998 1997 OPERATING REVENUES .............................................. $1,999 $1,859 $5,030 $4,891 OPERATING EXPENSES: Fuel, purchased power and interchange ......................... 659 674 1,652 1,777 Other operations and maintenance............................... 327 290 945 858 Depreciation and amortization ................................. 314 266 911 797 Taxes other than income taxes ................................. 171 165 457 448 Total operating expenses .................................... 1,471 1,395 3,965 3,880 OPERATING INCOME ................................................ 528 464 1,065 1,011 OTHER INCOME (DEDUCTIONS): Interest charges .............................................. (101) (70) (228) (215) Preferred stock dividends - FPL ............................... (4) (5) (11) (15) Other - net ................................................... 21 17 42 29 Total other deductions - net ................................ (84) (58) (197) (201) INCOME BEFORE INCOME TAXES ...................................... 444 406 868 810 INCOME TAXES .................................................... 157 144 297 282 NET INCOME ...................................................... $ 287 $ 262 $ 571 $ 528 Earnings per share of common stock (basic and assuming dilution). $ 1.66 $ 1.52 $ 3.31 $ 3.05 Dividends per share of common stock ............................. $ 0.50 $ 0.48 $ 1.50 $ 1.44 Average number of common shares outstanding ..................... 172 173 173 173
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 9 through 12 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, 1997 (1997 Form 10-K) for FPL Group and FPL. FPL GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Millions of Dollars)
September 30, 1998 December 31, (Unaudited) 1997 PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and other property, including nuclear fuel and construction work in progress ....................... $17,991 $17,820 Less accumulated depreciation and amortization ................................... (9,153) (8,466) Total property, plant and equipment - net ...................................... 8,838 9,354 CURRENT ASSETS: Cash and cash equivalents ........................................................ 447 54 Customer receivables, net of allowances of $10 and $9, respectively .............. 705 501 Materials, supplies and fossil fuel inventory - at average cost .................. 278 302 Other ............................................................................ 341 244 Total current assets ........................................................... 1,771 1,101 OTHER ASSETS: Special use funds of FPL ......................................................... 1,093 1,007 Other investments ................................................................ 369 282 Other ............................................................................ 773 705 Total other assets ............................................................. 2,235 1,994 TOTAL ASSETS .. .................................................................... $12,844 $12,449 CAPITALIZATION: Common stock ..................................................................... $ 2 $ 2 Additional paid-in capital........................................................ 3,004 3,038 Retained earnings................................................................. 2,116 1,804 Accumulated other comprehensive income............................................ 1 1 Total common shareholders' equity............................................... 5,123 4,845 Preferred stock of FPL without sinking fund requirements ......................... 226 226 Long-term debt ................................................................... 2,785 2,949 Total capitalization ........................................................... 8,134 8,020 CURRENT LIABILITIES: Debt and preferred stock due within one year ..................................... 287 332 Accounts payable ................................................................. 401 368 Accrued interest, taxes and other ................................................ 1,131 799 Total current liabilities ...................................................... 1,819 1,499 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes ................................................ 1,364 1,473 Unamortized regulatory and investment tax credits ................................ 365 395 Other ............................................................................ 1,162 1,062 Total other liabilities and deferred credits ................................... 2,891 2,930 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES ............................................... $12,844 $12,449
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1997 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, 1998 1997 NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................. $1,532 $1,497 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures of FPL ......................................................... (474) (355) Independent power investments ....................................................... (425) (247) Distributions and loan repayments from partnerships and joint ventures .............. 280 42 Other - net ......................................................................... (58) 15 Net cash used in investing activities ........................................... (677) (545) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt .......................................................... 343 30 Retirement of long-term debt and preferred stock .................................... (398) (428) Decrease in short-term debt ......................................................... (96) - Repurchase of common stock .......................................................... (52) (41) Dividends on common stock ........................................................... (259) (249) Net cash used in financing activities ........................................... (462) (688) Net increase in cash and cash equivalents ............................................. 393 264 Cash and cash equivalents at beginning of period ...................................... 54 196 Cash and cash equivalents at end of period ............................................ $ 447 $ 460 Supplemental disclosures of cash flow information: Cash paid for interest .............................................................. $ 217 $ 212 Cash paid for income taxes .......................................................... $ 238 $ 198 Supplemental schedule of noncash investing and financing activities: Additions to capital lease obligations .............................................. $ 29 $ 49 Debt assumed for property additions .................................................. - $ 420
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1997 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, 1998 1997 1998 1997 OPERATING REVENUES ................................................ $1,878 $1,819 $4,807 $4,759 OPERATING EXPENSES: Fuel, purchased power and interchange ........................... 637 661 1,614 1,737 Other operations and maintenance ................................ 293 272 846 796 Depreciation and amortization ................................... 306 262 891 781 Income taxes .................................................... 157 149 311 299 Taxes other than income taxes ................................... 171 164 456 447 Total operating expenses ...................................... 1,564 1,508 4,118 4,060 OPERATING INCOME .................................................. 314 311 689 699 OTHER INCOME (DEDUCTIONS): Interest charges ................................................ (50) (57) (149) (173) Other - net ..................................................... 3 2 - 4 Total other deductions - net .................................. (47) (55) (149) (169) NET INCOME ........................................................ 267 256 540 530 PREFERRED STOCK DIVIDENDS ......................................... 4 5 11 15 NET INCOME AVAILABLE TO FPL GROUP ................................. $ 263 $ 251 $ 529 $ 515
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1997 Form 10-K for FPL Group and FPL. FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Millions of Dollars)
September 30, 1998 December 31, (Unaudited) 1997 ELECTRIC UTILITY PLANT: Plant in service, including nuclear fuel and construction work in progress ....... $17,358 $17,136 Less accumulated depreciation and amortization ................................... (9,029) (8,355) Electric utility plant - net ................................................... 8,329 8,781 CURRENT ASSETS: Cash and cash equivalents ........................................................ 237 3 Customer receivables, net of allowances of $10 and $9, respectively ............... 654 471 Materials, supplies and fossil fuel inventory - at average cost .................. 216 242 Other ............................................................................ 317 226 Total current assets ........................................................... 1,424 942 OTHER ASSETS: Special use funds ................................................................ 1,093 1,007 Other ............................................................................ 437 442 Total other assets ............................................................. 1,530 1,449 TOTAL ASSETS ....................................................................... $11,283 $11,172 CAPITALIZATION: Common shareholder's equity ...................................................... $ 4,879 $ 4,814 Preferred stock without sinking fund requirements ................................ 226 226 Long-term debt ................................................................... 2,190 2,420 Total capitalization ........................................................... 7,295 7,460 CURRENT LIABILITIES: Debt and preferred stock due within one year ..................................... 230 220 Accounts payable ................................................................. 351 344 Accrued interest, taxes and other ................................................ 1,052 748 Total current liabilities ...................................................... 1,633 1,312 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes ................................................ 970 1,070 Unamortized regulatory and investment tax credits ................................ 365 395 Other ............................................................................ 1,020 935 Total other liabilities and deferred credits ................................... 2,355 2,400 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES ............................................... $11,283 $11,172
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1997 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, 1998 1997 NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................. $1,479 $1,368 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ................................................................ (474) (355) Other - net ......................................................................... (64) (64) Net cash used in investing activities ........................................... (538) (419) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt .......................................................... 197 - Retirement of long-term debt and preferred stock .................................... (389) (269) Decrease in commercial paper ........................................................ (40) - Dividends ........................................................................... (475) (460) Net cash used in financing activities ............................................. (707) (729) Net increase in cash and cash equivalents ............................................. 234 220 Cash and cash equivalents at beginning of period ...................................... 3 78 Cash and cash equivalents at end of period ............................................ $ 237 $ 298 Supplemental disclosures of cash flow information: Cash paid for interest .............................................................. $ 142 $ 171 Cash paid for income taxes .......................................................... $ 277 $ 361 Supplemental schedule of noncash investing and financing activities: Additions to capital lease obligations .............................................. $ 29 $ 49
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on Pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1997 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 1997 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 Revenues and Rates - In March 1998, a large customer of FPL withdrew its petition requesting a limited scope proceeding to reduce FPL's base rates. The docket was subsequently closed by the FPSC. On November 3, 1998, the FPSC deferred consideration of an FPSC Staff recommendation requesting a limited proceeding on the appropriateness of FPL's regulatory return on equity and equity ratio, and encouraged FPL and the FPSC Staff to continue negotiations to reach a settlement. The FPSC Staff has questioned whether FPL's regulatory return on equity and equity ratio should be reduced. The parties have been directed to report back to the FPSC on December 1, 1998. If a settlement is not reached by December 1, 1998, the FPSC is expected to vote on whether a limited proceeding on these issues should take place. Decommissioning of Generating Plant - In October 1998, FPL filed updated nuclear decommissioning studies with the FPSC. The updated studies indicate an increase in FPL's portion of the ultimate cost of decommissioning its four nuclear units, expressed in 1998 dollars, to approximately $1.7 billion. This results in a nuclear decommissioning reserve deficiency of approximately $536 million. FPL is proposing to maintain the decommissioning expense accrual at $85 million per year and recover the reserve deficiency through the special amortization program. 2. Capitalization FPL Group Common Stock - During the three and nine months ended September 30, 1998, FPL Group repurchased 311,600 shares and 856,200 shares of common stock, respectively, under its share repurchase program. A total of approximately 1.5 million shares have been repurchased under the share repurchase program that began in April 1997. Long-Term Debt - In June 1998, FPL sold $200 million principal amount of first mortgage bonds maturing in June 2008, with an interest rate of 6%. The proceeds were used in July 1998 to redeem approximately $200 million principal amount of first mortgage bonds, maturing in 2007 and 2012, bearing interest at 7.875%. In July 1998, a subsidiary of FPL Group Capital Inc (FPL Group Capital) sold $150 million of senior secured bonds maturing in 2018, bearing interest at 7.645%. In September 1998, FPL redeemed $600,000 principal amount of variable rate tax-exempt pollution control, solid waste disposal revenue bonds, maturing in 2027. 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 nine months ended September 30, 1998 and 1997. 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 - In the first quarter of 1998, FPL Group adopted Statement of Financial Accounting Standards No. (FAS) 130, "Reporting Comprehensive Income." The statement establishes standards for reporting comprehensive income and its components. Comprehensive income of FPL Group totaling $288 million and $263 million for the three months ended September 30, 1998 and 1997, respectively, and, $572 million and $528 million for the nine months ended September 30, 1998 and 1997, 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. 3. Commitments and Contingencies Commitments - FPL has made commitments in connection with a portion of its projected capital expenditures. Capital expenditures for the construction or acquisition of additional facilities and equipment to meet customer demand are estimated to be approximately $2.2 billion for 1998 through 2000. Included in this three-year forecast are capital expenditures for 1998 of approximately $600 million, of which $474 million had been spent through September 30, 1998. Also, in January 1998 FPL Group announced plans to purchase all of Central Maine Power Company's (Central Maine) non-nuclear generation assets. The Central Maine transaction is expected to close in the first quarter of 1999, subject to approval by federal and state regulators. Commitments for independent power investments, including the acquisition mentioned above, are approximately $850 million for 1999. FPL Group Capital and its subsidiaries have guaranteed approximately $219 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 $362 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 $53 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 certain of its transmission and distribution (T&D) property due to the high cost and limited coverage available from third-party insurers. FPL maintains a funded storm and property insurance reserve, which totaled approximately $262 million at September 30, 1998, for T&D property storm damage or assessments under the nuclear insurance program. Recovery from customers of any losses in excess of the storm and property insurance reserve will require the approval of the FPSC. FPL's available lines of credit include $300 million to provide additional liquidity in the event of a T&D property loss. Contracts - FPL has entered into certain long-term purchased power and fuel contracts. Take-or-pay purchased power contracts with the Jacksonville Electric Authority (JEA) and with subsidiaries of the Southern Company (Southern Companies) provide approximately 1,300 megawatts (mw) of power through mid-2010, and thereafter 383 mw through 2022. FPL also has various firm pay-for-performance contracts to purchase approximately 1,000 mw from certain cogenerators and small power producers (qualifying facilities) with expiration dates ranging from 2002 through 2026. The purchased power contracts provide for capacity and energy payments. Energy payments are based on the actual power taken under these contracts. Capacity payments for the pay-for-performance contracts are subject to the qualifying facilities meeting certain contract conditions. Fuel contracts provide for the transportation and supply of natural gas and coal. The required capacity and minimum payments through 2002 under these contracts are estimated to be as follows:
1998 1999 2000 2001 2002 (Millions of Dollars) Capacity payments: JEA and Southern Companies ............................................ $210 $210 $210 $210 $210 Qualifying facilities (a) ............................................. $350 $360 $370 $380 $400 Minimum payments, at projected prices: Natural gas, including transportation ................................. $270 $210 $210 $240 $260 Coal .................................................................. $ 50 $ 40 $ 40 $ 40 $ 40 (a) Includes approximately $35 million, $40 million, $40 million, $40 million and $45 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.
Capacity, energy and fuel charges under these contracts were as follows:
Three Months Ended September 30, Nine Months Ended September 30, 1998 Charges 1997 Charges 1998 Charges 1997 Charges Energy/ Energy/ Energy/ Energy/ Capacity Fuel (a) Capacity Fuel (a) Capacity Fuel (a) Capacity Fuel (a) (Millions of Dollars) JEA and Southern Companies .. $42(b) $38 $51(b) $ 36 $147(b) $104 $153(b) $109 Qualifying facilities ....... $75(c) $31 $77(c) $ 40 $224(c) $ 85 $225(c) $100 Natural gas ................. - $77 - $129 - $215 - $333 Coal ........................ - $12 - $ 13 - $ 37 - $ 40 (a) Recovered through the fuel and purchased power cost recovery clause (fuel 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 United States 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 holders 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. The plant owners have since moved for summary judgment on FPL's claims against them. The Florida Municipal Power Agency (FMPA), an organization comprised of municipal electric utilities, has sued FPL for allegedly breaching a "contract" to provide transmission service to the FMPA and its members and for breaching antitrust laws by monopolizing or attempting to monopolize the provision, coordination and transmission of electric power in refusing to provide transmission service, or to permit the FMPA to invest in and use FPL's transmission system, on the FMPA's proposed terms. The FMPA seeks $140 million in damages, before trebling for the antitrust claim, and court orders requiring FPL to permit the FMPA to invest in and use FPL's transmission system on "reasonable terms and conditions" and on a basis equal to FPL. In 1995, the Court of Appeals vacated the District Court's summary judgment in favor of FPL and remanded the matter to the District Court for further proceedings. In 1996, the District Court ordered the FMPA to seek a declaratory ruling from the FERC regarding certain issues in the case. In November 1998, the FERC declined to make the requested ruling. The District Court has yet to act further. A former cable installation contractor for Telesat Cablevision, Inc. (Telesat), a wholly-owned subsidiary of FPL Group Capital, sued FPL Group, FPL Group Capital and Telesat for breach of contract, fraud, violation of racketeering statutes and several other claims. The trial court entered a judgment in favor of FPL Group and Telesat on nine of twelve counts, including all of the racketeering and fraud claims, and in favor of FPL Group Capital on all counts. It also denied all parties' claims for attorneys' fees. However, the jury in the case awarded the contractor damages totaling approximately $6 million against FPL Group and Telesat for breach of contract and tortious interference. All parties have appealed. FPL Group and FPL believe that they have meritorious defenses to the litigation to which they are parties and are vigorously defending the suits. Accordingly, the liabilities, if any, arising from the proceedings are not anticipated to have a material adverse effect on their financial statements. 4. Summarized Financial Information of FPL Group Capital FPL Group Capital's debenture is guaranteed by FPL Group and included in FPL Group's condensed consolidated balance sheets. For the three months ended September 30, 1998 and 1997, operating revenues of FPL Group Capital were approximately $122 million and $40 million, respectively. For the same periods, operating expenses were approximately $65 million and $36 million, respectively, and net income was approximately $29 million and $16 million, respectively. For the nine months ended September 30, 1998 and 1997, operating revenues of FPL Group Capital were approximately $223 million and $132 million, respectively. For the same periods, operating expenses were approximately $160 million and $119 million, respectively, and net income was approximately $58 million and $26 million, respectively. At September 30, 1998, FPL Group Capital had approximately $361 million of current assets, $1.5 billion of noncurrent assets, $218 million of current liabilities and $1.2 billion of noncurrent liabilities. At December 31, 1997, FPL Group Capital had current assets of approximately $156 million, noncurrent assets of $1.4 billion, current liabilities of $252 million and noncurrent liabilities of $999 million. 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 debenture. 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 1997 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 The generation, transmission, distribution and sale of electric energy by FPL continues to represent the principal operations of FPL Group. However, growth in FPL Group's net income for the three and nine months ended September 30, 1998 was primarily due to additional investments and better operating results at FPL Energy, Inc.'s (FPL Energy) independent power investments. FPL's net income available to FPL Group also increased, mainly due to higher customer usage and customer growth, partly offset by higher depreciation and O&M expenses. FPL's revenues from base rates for the three and nine months ended September 30, 1998 increased to $1.1 billion and $2.8 billion, respectively, from $1.0 billion and $2.7 billion for the same period in 1997. The improvements resulted from increases in energy usage per retail customer of 5.3% and 3.5%, respectively, primarily due to weather conditions, and customer growth of 1.9% and 1.8%, respectively. Cost recovery clause revenues and franchise fees comprise substantially all of the remaining operating revenues. Such revenues represent a pass-through of costs and do not significantly affect net income. Fluctuations in these revenues are primarily driven by changes in energy sales, fuel prices and capacity charges. FPL's O&M expenses increased for the three and nine months ended September 30, 1998, primarily due to additional spending associated with improving the reliability of the distribution system. Depreciation and amortization expense in all periods presented includes amortization recorded under the special amortization program, which is a function of retail base revenues. Depreciation and amortization expense increased for the three and nine months ended September 30, 1998 mainly due to the increase in revenues discussed above. FPL's interest expense and preferred stock dividend requirements declined for the three and nine months ended September 30, 1998, resulting from continued reductions in average debt and preferred stock balances. On November 3, 1998, the FPSC deferred consideration of an FPSC Staff recommendation requesting a limited proceeding on the appropriateness of FPL's regulatory return on equity and equity ratio, and encouraged FPL and the FPSC Staff to continue negotiations to reach a settlement. The FPSC Staff has questioned whether FPL's regulatory return on equity and equity ratio should be reduced. The parties have been directed to report back to the FPSC on December 1, 1998. If a settlement is not reached by December 1, 1998, the FPSC is expected to vote on whether a limited proceeding on these issues should take place. FPL Energy's operating results improved for the three and nine months ended September 30, 1998. The improvements primarily reflect additional investments and better over-all results from independent power investments. In addition, during the third quarter of 1998, one of FPL Energy's independent power investments received a settlement relating to a contract dispute, which was partially offset by costs associated with an interest rate swap which is no longer designated as a hedge. FPL Group is continuing to work to resolve the potential impact of the year 2000 on the processing of information by its computer systems. A multi-phase plan has been developed consisting of inventorying potential problems, assessing what will be required to address each potential problem, taking the necessary action to fix each problem, testing to see that the action taken did result in year 2000 readiness and implementing the required solution. The inventory and assessment of the information technology infrastructure, computer applications and computerized processes embedded in operating equipment has been substantially completed and approximately 60% of the necessary modifications have been tested and implemented. FPL Group's efforts to assess the year 2000 readiness of third parties are ongoing. These communications will help ensure that critical supplies are not interrupted, that large customers are able to receive power and that transactions with or processed by financial institutions will occur as intended. FPL Group is on schedule with its multi-phase plan and all phases are expected to be completed by mid-1999, except for work at St. Lucie Unit No. 1, which will be completed during a scheduled refueling outage beginning in October 1999. The cost of addressing year 2000 issues is estimated to be approximately $50 million, approximately 20% of which had been spent through September 30, 1998. The majority of these costs represent the redeployment of existing resources and therefore, are not expected to have a significant effect on O&M expenses. At this time, 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. A contingency planning team has been established to identify the risks associated with the year 2000, as well as to coordinate with other utilities in the region. A preliminary contingency plan is expected to be developed by the end of the first quarter of 1999, and will be continually updated as additional information becomes available. In June 1998, the Financial Accounting Standards Board issued 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 is currently assessing the effect, if any, on its financial statements of implementing FAS 133. FPL's energy marketing and trading division uses forward contracts and options to manage fuel costs and to market any excess generation. Substantially all of the results of these activities are reflected in the fuel or the capacity clauses and, accordingly, do not affect net income. FPL Group will be required to adopt the standard in 2000. LIQUIDITY AND CAPITAL RESOURCES Using available cash flows from operations, FPL repaid certain series of secured medium-term notes that matured during the first quarter of 1998. Additionally, during the three and nine months ended September 30, 1998, FPL Group repurchased 311,600 and 856,200 shares of common stock, respectively. These actions are consistent with management's intent to reduce debt and preferred stock balances and the number of outstanding shares of common stock. See Note 2. In September 1998, FPL announced plans to accelerate expansion of its power generating system. FPL intends to repower two existing plants by the end of 2001 and 2003, respectively, and build two new gas-fired units within ten years at the Martin power plant. In October 1998, FPL selected Florida Gas Transmission Company to construct a natural gas pipeline approximately 100 miles long to bring natural gas to the Ft. Myers plant, the first plant to be repowered. For information concerning capital commitments, see Note 3. MARKET RISK SENSITIVITY An interest rate swap agreement entered into by an FPL Group subsidiary was undesignated as a hedge during the third quarter of 1998, and was recorded at its market value as of September 30, 1998. An interest rate lock agreement entered into by an FPL Group subsidiary during the third quarter of 1998 had a fair value of $29 million at September 30, 1998 (based on the cost to terminate the agreement). A hypothetical 10% decrease in interest rates would result in a $13 million increase in the fair value of that agreement. Other than the above changes, the risk associated with FPL Group's and FPL's market risk sensitive instruments has not materially changed from that discussed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Sensitivity in the 1997 Form 10-K for FPL Group and FPL. Item 3. Quantitative and Qualitative Disclosures About Market Risk See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II - OTHER INFORMATION Item 1. Legal Proceedings (a) Reference is made to Item 3. Legal Proceedings in the 1997 Form 10-K for FPL Group and FPL. In October 1998, the court dismissed all of the qualifying facilities plant owners' antitrust claims against FPL. The plant owners have since moved for summary judgment on FPL's claims against them. In November 1998, the FERC declined to make the required ruling in the FMPA case. The District Court has yet to act further. Item 5. Other Information (a) Reference is made to Item 1. Business - FPL Operations - Retail Ratemaking in the 1997 Form 10-K for FPL Group and FPL. On November 3, 1998, the FPSC deferred consideration of an FPSC Staff recommendation requesting a limited proceeding on the appropriateness of FPL's regulatory return on equity and equity ratio, and encouraged FPL and the FPSC Staff to continue negotiations to reach a settlement. The FPSC Staff has questioned whether FPL's regulatory return on equity and equity ratio should be reduced. The parties have been directed to report back to the FPSC on December 1, 1998. If a settlement is not reached by December 1, 1998, the FPSC is expected to vote on whether a limited proceeding on these issues should take place. (b) Reference is made to Item 1. Business - FPL Operations - System Capability and Load in the 1997 Form 10-K for FPL Group and FPL and Item 5. (b) Other Information in the FPL Group and FPL Form 10-Q for the quarterly period ended March 31, 1998. In September 1998, FPL announced plans to accelerate expansion of its power generating system. FPL intends to repower two existing plants by the end of 2001 and 2003, respectively, and build two new gas-fired units within ten years at the Martin power plant. In October 1998, FPL selected Florida Gas Transmission Company to construct a natural gas pipeline approximately 100 miles long to bring natural gas to the Ft. Myers plant, the first plant to be repowered. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit FPL Number Description Group FPL 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 - None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FPL GROUP, INC. FLORIDA POWER & LIGHT COMPANY (Registrants) Date: November 4, 1998 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 (Principal Financial Officer of the Registrants) EX-12.A 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12(a) FPL GROUP, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Ended September 30, Years Ended December 31, 1998 1997 1996 1995 1994 1993 (Millions of Dollars) Earnings, as defined: Net income ............................................ $ 571 $ 618 $ 579 $ 553 $ 519 $ 429 Income taxes .......................................... 297 304 294 329 307 250 Fixed charges, included in the determination of net income, as below ................................ 238 304 283 308 337 388 Total earnings, as defined ........................ $1,106 $1,226 $1,156 $1,190 $1,163 $1,067 Fixed charges, as defined: Interest charges ...................................... $ 228 $ 291 $ 267 $ 291 $ 319 $ 367 Rental interest factor ................................ 3 4 5 6 7 10 Fixed charges included in nuclear fuel cost ........... 7 9 11 11 11 11 Fixed charges, included in the determination of net income .............................................. 238 304 283 308 337 388 Capitalized interest .................................. 2 5 - - - 1 Total fixed charges, as defined ................... $ 240 $ 309 $ 283 $ 308 $ 337 $ 389 Ratio of earnings to fixed charges ...................... 4.61 3.97 4.08 3.86 3.45 2.74
EX-12.B 3 COMPUTATION OF RATIOS EXHIBIT 12(b) FLORIDA POWER & LIGHT COMPANY COMPUTATION OF RATIOS
Nine Months Ended September 30, 1998 (Millions of Dollars) RATIO OF EARNINGS TO FIXED CHARGES Earnings, as defined: Net income .............................................................................. $ 540 Income taxes ............................................................................ 305 Fixed charges, as below ................................................................. 159 Total earnings, as defined ............................................................ $1,004 Fixed charges, as defined: Interest charges ........................................................................ $ 149 Rental interest factor .................................................................. 3 Fixed charges included in nuclear fuel cost ............................................. 7 Total fixed charges, as defined ....................................................... $ 159 Ratio of earnings to fixed charges ........................................................ 6.31 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Earnings, as defined: Net income .............................................................................. $ 540 Income taxes ............................................................................ 305 Fixed charges, as below ................................................................. 159 Total earnings, as defined ............................................................ $1,004 Fixed charges, as defined: Interest charges ........................................................................ $ 149 Rental interest factor .................................................................. 3 Fixed charges included in nuclear fuel cost ............................................. 7 Total fixed charges, as defined ....................................................... 159 Non-tax deductible preferred stock dividends .............................................. 11 Ratio of income before income taxes to net income ......................................... 1.56 Preferred stock dividends before income taxes ............................................. 17 Combined fixed charges and preferred stock dividends ...................................... $ 176 Ratio of earnings to combined fixed charges and preferred stock dividends ................. 5.70
EX-27 4 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from FPL Group's and FPL's condensed consolidated balance sheet as of September 30, 1998 and condensed consolidated statements of income and cash flows for the nine months ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 0000753308 FPL Group, Inc. 1,000,000 DEC-31-1997 SEP-30-1998 9-MOS PER-BOOK $8,329 $1,971 $1,771 $0 $773 $12,844 $2 $3,005 $2,116 $5,123 $0 $226 $2,785 $0 $0 $0 $0 $0 $0 $0 $4,710 $12,844 $5,030 $297 $3,965 $3,965 $1,065 $42 $799 $228 $571 $11 $571 $259 $0 $1,532 $3.31 $3.31
EX-27 5 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from FPL's condensed consolidated balance sheet as of September 30, 1998 and condensed consolidated statements of income and cash flows for the nine months ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 0000037634 Florida Power & Light Company 1,000,000 DEC-31-1997 SEP-30-1998 9-MOS PER-BOOK $8,329 $1,093 $1,424 $0 $437 $11,283 $0 $0 $0 $4,879 $0 $226 $2,190 $0 $0 $0 $230 $0 $0 $0 $3,758 $11,283 $4,807 $311 $3,807 $4,118 $689 $0 $689 $149 $540 $11 $529 $0 $0 $1,479 $0 $0
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