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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
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
</TABLE>
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)
<TABLE>
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
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
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
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
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
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
</TABLE>
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)
<TABLE>
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
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
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
Capacity, energy and fuel charges under these contracts were as follows:
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
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
<TABLE>
<CAPTION>
Exhibit FPL
Number Description Group FPL
<S> <C> <C> <C>
12(a) Computation of Ratio of Earnings to Fixed Charges x
12(b) Computation of Ratios x
27 Financial Data Schedule x x
</TABLE>
(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)
EXHIBIT 12(a)
FPL GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Years Ended December 31,
1998 1997 1996 1995 1994 1993
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
EXHIBIT 12(b)
FLORIDA POWER & LIGHT COMPANY
COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998
(Millions of Dollars)
RATIO OF EARNINGS TO FIXED CHARGES
<S> <C>
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
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
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.
<CIK> 0000753308
<NAME> FPL Group, Inc.
<MULTIPLIER> 1,000,000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $8,329
<OTHER-PROPERTY-AND-INVEST> $1,971
<TOTAL-CURRENT-ASSETS> $1,771
<TOTAL-DEFERRED-CHARGES> $0
<OTHER-ASSETS> $773
<TOTAL-ASSETS> $12,844
<COMMON> $2
<CAPITAL-SURPLUS-PAID-IN> $3,005
<RETAINED-EARNINGS> $2,116
<TOTAL-COMMON-STOCKHOLDERS-EQ> $5,123
$0
$226
<LONG-TERM-DEBT-NET> $2,785
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $0
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $4,710
<TOT-CAPITALIZATION-AND-LIAB> $12,844
<GROSS-OPERATING-REVENUE> $5,030
<INCOME-TAX-EXPENSE> $297
<OTHER-OPERATING-EXPENSES> $3,965
<TOTAL-OPERATING-EXPENSES> $3,965
<OPERATING-INCOME-LOSS> $1,065
<OTHER-INCOME-NET> $42
<INCOME-BEFORE-INTEREST-EXPEN> $799
<TOTAL-INTEREST-EXPENSE> $228
<NET-INCOME> $571
$11
<EARNINGS-AVAILABLE-FOR-COMM> $571
<COMMON-STOCK-DIVIDENDS> $259
<TOTAL-INTEREST-ON-BONDS> $0
<CASH-FLOW-OPERATIONS> $1,532
<EPS-PRIMARY> $3.31
<EPS-DILUTED> $3.31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
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.
<CIK> 0000037634
<NAME> Florida Power & Light Company
<MULTIPLIER> 1,000,000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $8,329
<OTHER-PROPERTY-AND-INVEST> $1,093
<TOTAL-CURRENT-ASSETS> $1,424
<TOTAL-DEFERRED-CHARGES> $0
<OTHER-ASSETS> $437
<TOTAL-ASSETS> $11,283
<COMMON> $0
<CAPITAL-SURPLUS-PAID-IN> $0
<RETAINED-EARNINGS> $0
<TOTAL-COMMON-STOCKHOLDERS-EQ> $4,879
$0
$226
<LONG-TERM-DEBT-NET> $2,190
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $230
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $3,758
<TOT-CAPITALIZATION-AND-LIAB> $11,283
<GROSS-OPERATING-REVENUE> $4,807
<INCOME-TAX-EXPENSE> $311
<OTHER-OPERATING-EXPENSES> $3,807
<TOTAL-OPERATING-EXPENSES> $4,118
<OPERATING-INCOME-LOSS> $689
<OTHER-INCOME-NET> $0
<INCOME-BEFORE-INTEREST-EXPEN> $689
<TOTAL-INTEREST-EXPENSE> $149
<NET-INCOME> $540
$11
<EARNINGS-AVAILABLE-FOR-COMM> $529
<COMMON-STOCK-DIVIDENDS> $0
<TOTAL-INTEREST-ON-BONDS> $0
<CASH-FLOW-OPERATIONS> $1,479
<EPS-PRIMARY> $0
<EPS-DILUTED> $0
</TABLE>
