UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
<TABLE><CAPTION>
Exact name of Registrants as specified in IRS Employer
Commission their charters, address of principal executive Identification
File Number offices and Registrants' telephone number Number
- ----------- ----------------------------------------------- ---------------
<S> <C> <C>
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
</TABLE>
State or other jurisdiction of incorporation or organization: Florida
<TABLE><CAPTION>
Name of exchange
on which registered
------------------------
<S> <C>
Securities registered pursuant to Section 12(b) of the Act:
FPL Group, Inc.: Common Stock, $.01 Par Value and Preferred Share Purchase Rights New York Stock Exchange
Florida Power & Light Company: None
Securities registered pursuant to Section 12(g) of the Act:
FPL Group, Inc.: None
Florida Power & Light Company: Preferred Stock, $100 Par Value
</TABLE>
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants' knowledge in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock of FPL Group, Inc. held by non-
affiliates as of January 31, 1999 (based on the closing market price on the
Composite Tape on January 31, 1999) was $9,878,526,053 (determined by
subtracting from the number of shares outstanding on that date the number
of shares held by directors and officers of FPL Group, Inc.).
There was no voting stock of Florida Power & Light Company held by non-
affiliates as of January 31, 1999.
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 January 31, 1999: 180,334,935 shares
As of January 31, 1999, there were issued and outstanding 1,000 shares of
Florida Power & Light Company's common stock, without par value, all of
which were held, beneficially and of record, by FPL Group, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of FPL Group, Inc.'s Proxy Statement for the 1999 Annual Meeting
of Shareholders are incorporated by reference in Part III hereof.
______________________________
This combined Form 10-K 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.
DEFINITIONS
Acronyms and defined terms used in the text include the following:
<TABLE><CAPTION>
Term Meaning
<S> <C>
capacity clause Capacity cost recovery clause
Central Maine Central Maine Power Company
charter Restated Articles of Incorporation, as amended, of FPL Group or FPL, as
the case may be
conservation clause Energy conservation cost recovery clause
DOE U.S. Department of Energy
EMF Electric and magnetic fields
environmental clause Environmental compliance cost recovery clause
FDEP Florida Department of Environmental Protection
FERC Federal Energy Regulatory Commission
FGT Florida Gas Transmission Company
FMPA Florida Municipal Power Agency
FPL Florida Power & Light Company
FPL Energy FPL Energy, Inc.
FPL Group FPL Group, Inc.
FPL Group Capital FPL Group Capital Inc
FPSC Florida Public Service Commission
fuel clause Fuel and purchased power cost recovery clause
Holding Company Act Public Utility Holding Company Act of 1935, as amended
IBEW International Brotherhood of Electrical Workers
JEA Jacksonville Electric Authority
kv Kilovolt
kva Kilovolt-ampere
kwh Kilowatt-hour
Management's Discussion Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
mortgage FPL's Mortgage and Deed of Trust dated as of January 1, 1944, as
supplemented and amended
mw Megawatt(s)
NIEHS National Institute of Environmental Health Sciences
Note Note to Consolidated Financial Statements
NRC U.S. Nuclear Regulatory Commission
Nuclear Waste Policy Act Nuclear Waste Policy Act of 1982
O&M expenses Other operations and maintenance expenses in the Consolidated
Statements of Income
Public Counsel State of Florida Office of Public Counsel
PURPA Public Utility Regulatory Policies Act of 1978, as amended
qualifying facilities Non-utility power production facilities meeting the requirements of a
qualifying facility under the PURPA
Reform Act Private Securities Litigation Reform Act of 1995
ROE Return on common equity
SJRPP St. Johns River Power Park
</TABLE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Reform Act, FPL Group
and FPL (collectively, the Company) are hereby filing cautionary statements
identifying important factors that could cause the Company's actual results
to differ materially from those projected in forward-looking statements (as
such term is defined in the Reform Act) made by or on behalf of the Company
which are made in this combined Form 10-K, in presentations, in response to
questions or otherwise. Any statements that express, or involve discussions
as to expectations, beliefs, plans, objectives, assumptions or future events
or performance (often, but not always, through the use of words or phrases
such as will likely result, are expected to, will continue, is anticipated,
estimated, projection, outlook) are not statements of historical facts and
may be forward-looking. Forward-looking statements involve estimates,
assumptions and uncertainties that could cause actual results to differ
materially from those expressed in the forward-looking statements.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the following important factors that could cause
the Company's actual results to differ materially from those contained in
forward-looking statements made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of
each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statement.
Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include
changing governmental policies and regulatory actions, including those of the
FERC, the FPSC and the NRC, with respect to allowed rates of return including
but not limited to ROE and equity ratio limits, industry and rate structure,
operation of nuclear power facilities, acquisition, disposal, depreciation
and amortization of assets and facilities, operation and construction of
plant facilities, recovery of fuel and purchased power costs, decommissioning
costs, and present or prospective wholesale and retail competition (including
but not limited to retail wheeling and transmission costs).
The business and profitability of the Company are also influenced by economic
and geographic factors including political and economic risks, changes in and
compliance with environmental and safety laws and policies, weather
conditions (including natural disasters such as hurricanes), population
growth rates and demographic patterns, competition for retail and wholesale
customers, pricing and transportation of commodities, market demand for
energy from plants or facilities, changes in tax rates or policies or in
rates of inflation, unanticipated 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
Item 1. Business
FPL GROUP
FPL Group is a public utility holding company, as defined in the Holding
Company Act. It was incorporated in 1984 under the laws of Florida. FPL
Group's principal subsidiary, FPL, is engaged in the generation,
transmission, distribution and sale of electric energy. Other operations are
conducted through FPL Group Capital and its subsidiaries and mainly consist
of independent power projects. FPL Group and its subsidiaries employ 10,375
persons.
FPL Group is exempt from substantially all of the provisions of the Holding
Company Act on the basis that FPL Group's and FPL's businesses are
predominantly intrastate in character and carried on substantially in a
single state in which both are incorporated.
FPL OPERATIONS
General. FPL was incorporated under the laws of Florida in 1925 and is a
wholly-owned subsidiary of FPL Group. FPL supplies electric service
throughout most of the east and lower west coasts of Florida with a
population of approximately 7 million. During 1998, FPL served approximately
3.7 million customer accounts. Operating revenues were as follows
<TABLE><CAPTION>
Years Ended December 31,
1998 1997 1996
(Millions of Dollars)
<S> <C> <C> <C>
Residential ........................................... $3,580 $3,394 $3,324
Commercial ............................................ 2,239 2,222 2,116
Industrial ............................................ 197 206 203
Other, including the net change in unbilled revenues .. 350 310 343
$6,366 $6,132 $5,986
</TABLE>
Regulation. The retail operations of FPL provided approximately 99% of FPL's
operating revenues for 1998. Such operations are regulated by the FPSC which
has jurisdiction over retail rates, service territory, issuances of
securities, planning, siting and construction of facilities and other
matters. FPL is also subject to regulation by the FERC in various respects,
including the acquisition and disposition of facilities, interchange and
transmission services and wholesale purchases and sales of electric energy.
FPL's nuclear power plants are subject to the jurisdiction of the NRC. NRC
regulations govern the granting of licenses for the construction and
operation of nuclear power plants and subject such power plants to continuing
review and regulation.
Federal, state and local environmental laws and regulations cover air and
water quality, land use, power plant and transmission line siting, EMF from
power lines and substations, noise and aesthetics, solid waste and other
environmental matters. Compliance with these laws and regulations increases
the cost of electric service by requiring, among other things, changes in the
design and operation of existing facilities and changes or delays in the
location, design, construction and operation of new facilities. Capital
expenditures required to comply with environmental laws and regulations for
1999 through 2001 are included in FPL's projected capital expenditures set
forth in Item 1. Business - FPL Operations - Capital Expenditures and are not
material.
FPL holds franchises with varying expiration dates to provide electric
service in various municipalities and counties in Florida. FPL considers its
franchises to be adequate for the conduct of its business.
Retail Ratemaking. The underlying concept of utility ratemaking is to set
rates at a level that allows the utility to collect from customers total
revenues (revenue requirements) equal to its cost of providing service,
including a reasonable rate of return on invested capital. To accomplish
this, the FPSC uses various ratemaking mechanisms.
The basic costs of providing electric service, other than fuel and certain
other costs, are recovered through base rates, which are designed to recover
the costs of constructing, operating and maintaining the utility system.
These basic costs include O&M expenses, depreciation and taxes, as well as a
return on FPL's investment in assets used and useful in providing electric
service (rate base). The rate of return on rate base approximates FPL's
weighted cost of capital, which includes its costs for debt and preferred
stock and an allowed ROE. FPL's allowed ROE range for 1998 was 11% to 13%
with a midpoint of 12%. The FPSC monitors FPL's ROE through a surveillance
report that is filed monthly by FPL with the FPSC. The FPSC does not provide
assurance that the allowed ROE will be achieved. Base rates are determined
in rate proceedings which occur at irregular intervals at the initiative of
FPL, the FPSC, Public Counsel or a substantially affected party. FPL's last
full rate proceeding was in 1984. In 1990, FPL's base rates were reduced
following a change in federal income tax rates.
In December 1998, after negotiations between FPL and the FPSC staff, the FPSC
issued a proposed order approving a settlement regarding FPL's allowed ROE,
equity ratio and the special amortization program. Under the proposed
settlement, beginning in 1999 FPL's allowed ROE range would be 10.2% to 12.2%
with a midpoint of 11.2%. FPL agreed to a maximum adjusted equity ratio of
55.83% through 2000. The adjusted equity ratio reflected a discounted amount
for off-balance sheet obligations under certain long-term purchase power
contracts. See Note 9 - Contracts. The proposed settlement also extended
the special amortization program through 2000 and modified the program to
include an additional fixed amount of $140 million per year in addition to
the variable amount. FPL continues to record a $30 million fixed nuclear
amount under a previous FPSC order. In January 1999, several parties
challenged the FPSC's proposed order. In mid-February 1999, FPL withdrew
from the settlement agreement; the FPSC subsequently approved this withdrawal
and concluded the proceeding. FPL is authorized to continue to record
special amortization through 1999 in accordance with the extension of the
special amortization program approved by the FPSC in 1997.
In January 1999, Public Counsel petitioned the FPSC to conduct a full rate
proceeding for FPL and requested that certain revenues be held subject to
refund. Other parties have requested participation with Public Counsel. The
FPSC is scheduled to address Public Counsel's request in March 1999. FPL is
unable to predict the outcome of this matter or any potential effect on its
financial statements. See Management's Discussion - Results of Operations
and Note 1 - Regulation.
Fuel costs totaled $1.7 billion in 1998 and are recovered through levelized
charges per kwh established pursuant to the fuel clause. These charges are
calculated annually based on estimated fuel costs and estimated customer
usage for the following year, plus or minus a true-up adjustment to reflect
the variance of actual costs and usage from the estimates used in setting the
fuel adjustment charges for prior periods.
Capacity payments to other utilities and generating companies for purchased
power are recovered through the capacity clause and base rates. In 1998,
$423 million was recovered through the capacity clause. Costs associated
with implementing energy conservation programs totaled $99 million in 1998
and are recovered through the conservation clause. Costs of complying with
federal, state and local environmental regulations enacted after April 1993
totaled $19 million in 1998 and are recovered through the environmental
clause to the extent not included in base rates.
The FPSC has the authority to disallow recovery of costs that it considers
excessive or imprudently incurred. Such costs may include O&M expenses, the
cost of replacing power lost when fossil and nuclear units are unavailable
and costs associated with the construction or acquisition of new facilities.
Competition. The electric utility industry is facing increasing competitive
pressure. FPL currently faces competition from other suppliers of electrical
energy to wholesale customers and from alternative energy sources and self-
generation for other customer groups, primarily industrial customers. In
1998, operating revenues from wholesale and industrial customers combined
represented approximately 4% of FPL's total operating revenues. Various
states, other than Florida, have either enacted legislation or are pursuing
initiatives designed to deregulate the production and sale of electricity.
By allowing customers to choose their electricity supplier, deregulation is
expected to result in a shift from cost-based rates to market-based rates for
energy production and other services provided to retail customers. Similar
initiatives are also being pursued on the federal level. Although the
legislation and initiatives vary substantially, common areas of focus include
when market-based pricing will be available for wholesale and retail
customers, what existing prudently incurred costs in excess of the market-
based price will be recoverable and whether generation assets should be
separated from transmission, distribution and other assets.
In the event the basis of regulation for some or all of FPL's business
changes from cost-based regulation, existing regulatory assets and
liabilities would be written off unless regulators specify an alternative
means of recovery or refund. Further, other aspects of the business, such as
generation assets and long-term power purchase commitments, would need to be
reviewed to assess their recoverability in a changed regulatory environment.
See Management's Discussion - Results of Operations and Note 1 - Regulation.
While legislators and state regulatory commissions will decide what impact,
if any, competitive forces will have on retail transactions, the FERC has
jurisdiction over potential changes which could affect competition in
wholesale transactions. In 1993, FPL filed with the FERC a comprehensive
revision of its service offerings in the wholesale market. FPL proposed
changes to its wholesale sales tariffs for service to municipal and
cooperatively-owned electric utilities and its power sharing (interchange)
agreements with other utilities. A final decision by the FERC on this filing
is pending.
FPL is a defendant in an antitrust suit filed by the FMPA. The complaint
includes an alleged inability to utilize FPL's transmission facilities to
wheel power. See Item 3. Legal Proceedings.
System Capability and Load. FPL's resources for serving load as of
December 31, 1998 consisted of 18,509 mw, of which 16,326 mw are from FPL-
owned facilities (see Item 2. Properties - Generating Facilities) and 2,183
mw are obtained through purchased power contracts. See Note 9 - Contracts.
The compounded annual growth rate of retail kwh sales and retail customers
was 3.4% and 1.8%, respectively, for the three years ended December 31, 1998.
It is anticipated that retail kwh sales will grow at a compounded annual
rate of 2.1% for the next three years. FPL intends to repower the two Fort
Myers units by the end of 2001, repower two of the three Sanford units by the
end of 2002, and build three new gas-fired units, one of which will go in
service in each of the years 2006, 2007 and 2008. These actions will
increase FPL's power generating system by approximately 3,100 mw.
Customer usage and operating revenues are typically higher during the summer
months largely due to the prevalent use of air conditioning in FPL's service
territory. Occasionally extremely cold temperatures during the winter months
result in unusually high electricity usage for a short period of time. From
June 2, 1998 through June 5, 1998, FPL set four consecutive records for
summertime peak demand, ranging from 17,156 mw to 17,897 mw. Adequate
resources were available at the time of each peak to meet customer demand.
Capital Expenditures. FPL's capital expenditures totaled $617 million in
1998, $551 million in 1997 and $474 million in 1996. Capital expenditures for
the 1999-2001 period are expected to be approximately $2.8 billion, including
$910 million in 1999. This estimate is subject to continuing review and
adjustment, and actual capital expenditures may vary from this estimate. See
Management's Discussion - Liquidity and Capital Resources.
Nuclear Operations. FPL owns and operates four nuclear units, two at St.
Lucie and two at Turkey Point. The operating licenses for St. Lucie Units
Nos. 1 and 2 expire in 2016 and 2023, respectively. The operating licenses
for Turkey Point Units Nos. 3 and 4 expire in 2012 and 2013, respectively.
In 1998, FPL informed the NRC of its intent to apply for a 20-year license
renewal for Turkey Point Units Nos. 3 and 4. FPL expects to file the
application with the NRC in approximately 2001. The nuclear units are
periodically removed from service to accommodate normal refueling and
maintenance outages, repairs and certain other modifications. A condition of
the operating license for each unit requires an approved plan for
decontamination and decommissioning. FPL's current plans provide for prompt
dismantlement of the Turkey Point Units Nos. 3 and 4 with decommissioning
activities commencing in 2012 and 2013, respectively. St. Lucie Unit No. 1
will be mothballed beginning in 2016 with decommissioning activities
integrated with the prompt dismantlement of St. Lucie Unit No. 2 beginning in
2023. See estimated cost data in Note 1 - Decommissioning and Dismantlement
of Generating Plant.
Fuel. FPL's generating plants use a variety of fuels. See Item 2.
Properties - Generating Facilities and Note 9 - Contracts. The diverse fuel
options, along with purchased power, enable FPL to shift between sources of
generation to achieve an economical fuel mix. FPL's oil requirements are
obtained under short-term contracts and in the spot market.
FPL has three contracts in place with FGT that satisfy substantially all of
the anticipated needs for natural gas transportation. One of the contracts
was executed in November 1998 to extend gas transportation to the Fort Myers
plant and is subject to approval by the FERC. The three existing contracts
expire in 2010, 2015 and 2021 but can be extended at FPL's option. To the
extent desirable, FPL can also purchase interruptible gas transportation
service from FGT based on pipeline availability. FPL has a 15-year firm
natural gas supply contract at market rates with an affiliate of FGT to
provide approximately two-thirds of FPL's anticipated needs for natural gas.
The remainder of FPL's gas requirements will be purchased under other
contracts and in the spot market.
FPL has, through its joint ownership interest in SJRPP Units Nos. 1 and 2,
long-term coal supply and transportation contracts for a portion of the fuel
needs for those units. All of the transportation requirements and a portion
of the fuel supply needs for Scherer Unit No. 4 are covered by a series of
annual and long-term contracts. The remaining fuel requirements will be
obtained in the spot market.
FPL leases nuclear fuel for all four of its nuclear units. Currently, FPL is
storing spent fuel on site and plans to provide adequate storage capacity
for all of its spent nuclear fuel, pending its removal by the DOE. See
Note 1 - Nuclear Fuel. Under the Nuclear Waste Policy Act, the DOE was
required to construct permanent disposal facilities and take title to and
provide transportation and disposal for spent nuclear fuel by January 31,
1998 for a specified fee based on current generation from nuclear power
plants. Through 1998, FPL has paid approximately $384 million in such fees
to the DOE's Nuclear Waste Fund. The DOE did not meet its statutory
obligation for disposal of spent nuclear fuel under the Nuclear Waste Policy
Act. In 1997, a court ruled, in response to petitions filed by utilities,
state governments and utility commissions, that the DOE could not assert a
claim that its delay was unavoidable in any defense against lawsuits by
utilities seeking money damages arising out of the DOE's failure to perform
its obligations. There are no outstanding appeals relating to this matter.
In 1998, FPL filed a lawsuit against the DOE seeking in excess of $300
million in damages caused by the DOE's failure to dispose of spent nuclear
fuel from FPL's nuclear power plants. The matter is pending.
Energy Marketing and Trading. FPL's Energy Marketing & Trading Division
buys and sells wholesale energy commodities, such as natural gas and electric
power. The division primarily procures natural gas for FPL's own use in
power generation and sells excess electric power. Substantially all of the
results of these activities are passed through to customers in the fuel or
capacity clauses. The level of trading activity is expected to grow as FPL
seeks to manage the risk associated with fluctuating fuel prices and increase
value from its own power generation.
Electric and Magnetic Fields. In recent years, public, scientific and
regulatory attention has been focused on possible adverse health effects of
EMF. These fields are created whenever electricity flows through a power
line or an appliance. Several epidemiological (i.e., statistical) studies
have suggested a linkage between EMF and certain types of cancer, including
leukemia and brain cancer; other studies have been inconclusive, contradicted
earlier studies or have shown no such linkage. Neither these epidemiological
studies nor clinical studies have produced any conclusive evidence that EMF
does or does not cause adverse health effects. In 1998, a working group of
the NIEHS issued a report classifying EMF as a possible human carcinogen.
FPL is in compliance with the FDEP regulations regarding EMF levels within
and at the edge of the rights of way for transmission lines. Future changes
in the FDEP regulations could require additional capital expenditures by FPL
for such things as increasing the right of way corridors or relocating or
reconfiguring transmission facilities. It is not presently known whether any
such expenditures will be required.
Employees. FPL had 9,845 employees at December 31, 1998. Approximately 35%
of the employees are represented by the IBEW under a collective bargaining
agreement with FPL expiring on October 31, 2000.
OTHER FPL GROUP OPERATIONS
FPL Group Capital, a wholly-owned subsidiary of FPL Group, holds the capital
stock and provides funding for the operating subsidiaries other than FPL. At
December 31, 1998, FPL Group Capital and its subsidiaries represented
approximately 10% of FPL Group's total assets. The business activities of
these companies primarily consist of independent power projects.
FPL Energy. FPL Energy, a wholly-owned subsidiary of FPL Group Capital, was
formed in 1998 to aggregate the existing unregulated energy-related
operations. FPL Energy's focus is on environmentally-favored generation
including natural gas, wind, geothermal, solar and biomass.
FPL Energy's participation in the domestic energy market has evolved in
recent years from non-controlling equity investments to a more active role
that includes ownership, development, construction, management and operation
of many projects. FPL Energy is actively involved in managing more than 90%
of its projects. This active role is expected to continue as opportunities
in the unregulated generation market are pursued. As of December 31, 1998,
FPL Energy owned or had non-controlling ownership interests in operating
independent power projects with a generating capacity of 1,878 mw. These
projects are located in eight states and abroad with geographic concentration
in California, Virginia and the Northeast.
Deregulation of the electricity utility market presents both opportunities
and risks for FPL Energy. Opportunities exist for the selective acquisition
of generation assets that are being divested under deregulation plans and for
the construction and operation of efficient plants that can sell low-cost
power in competitive markets. However, market-based pricing, competitive
sources of supply and the reduced availability of long-term power sales
agreements may result in fluctuations in revenues and earnings.
Substantially all of the energy produced by FPL Energy's independent power
projects is sold through long-term power sales agreements with utilities.
FPL Energy is a party to a contract to purchase all of Central Maine's non-
nuclear generation assets for $846 million. The contract is subject to a
civil action initiated by FPL Energy. For more information see Item 3 -
Legal Proceedings and Note 9.
EXECUTIVE OFFICERS OF THE REGISTRANTS (a)(b
<TABLE><CAPTION>
Name Age Position Effective Date
<S> <C> <C> <C>
James L. Broadhead 63 Chairman of the Board and Chief Executive Officer of FPL Group .... May 8, 1990
Chairman of the Board and Chief Executive Officer of FPL .......... January 15, 1990
Dennis P. Coyle 60 General Counsel and Secretary of FPL Group ........................ June 1, 1991
General Counsel and Secretary of FPL .............................. July 1, 1991
K. Michael Davis 52 Controller and Chief Accounting Officer of FPL Group .............. May 13, 1991
Vice President, Accounting, Controller and Chief Accounting
Officer of FPL .................................................. July 1, 1991
Paul J. Evanson 57 President of FPL .................................................. January 9, 1995
Lawrence J. Kelleher 51 Vice President, Human Resources of FPL Group ...................... May 13, 1991
Senior Vice President, Human Resources of FPL ..................... July 1, 1991
Thomas F. Plunkett 59 President, Nuclear Division of FPL ................................ March 1, 1996
Dilek L. Samil 43 Treasurer of FPL Group ............................................ May 13, 1991
Treasurer of FPL .................................................. July 1, 1991
C. O. Woody 60 President, Power Generation Division of FPL Group and FPL ......... January 15, 1998
Michael W. Yackira 47 President of FPL Energy, Inc. ..................................... January 15, 1998
Roger Young 55 President of FPL Group............................................. February 15, 1999
____________________
(a) Executive officers are elected annually by, and serve at the pleasure of, their respective boards of directors.
Except as noted below, each officer has held his or her present position for five years or more and his or her
employment history is continuous.
(b) The business experience of the executive officers is as follows: Mr. Evanson was formerly vice president, finance
and chief financial officer of FPL Group and senior vice president, finance and chief financial officer of FPL; Mr.
Plunkett was site vice president at Turkey Point; Mr. Woody was senior vice president, power generation of FPL; and
Mr. Yackira was vice president, finance and chief financial officer of FPL Group and senior vice president, finance
and chief financial officer of FPL from January 1995 to January 1998. Prior to that, Mr. Yackira was senior vice
president, market and regulatory services of FPL. Mr. Young was formerly chief executive officer of Scottish
Hydro-Electric plc.
</TABLE>
Item 2. Properties
FPL Group and its subsidiaries maintain properties which are adequate for
their operations. At December 31, 1998, the electric generating,
transmission, distribution and general facilities of FPL represent 46%, 13%,
34% and 7%, respectively, of FPL's gross investment in electric utility plant
in service.
Generating Facilities. As of December 31, 1998, FPL Group had the following
generating facilities:
<TABLE><CAPTION>
No. of Net Warm Weather
Facility Location Units Fuel Peaking Capability (mw)
- ------------------------------------------ -------------------- ------ -------- -----------------------
<S> <C> <C> <C> <C>
FPL:
STEAM TURBINES
Cape Canaveral ......................... Cocoa, FL 2 Oil/Gas 800
Cutler ................................. Miami, FL 2 Gas 215
Fort Myers ............................. Fort Myers, FL 2 Oil 544
Manatee ................................ Parrish, FL 2 Oil 1,590
Martin ................................. Indiantown, FL 2 Oil/Gas 1,630
Port Everglades ........................ Port Everglades, FL 4 Oil/Gas 1,241
Riviera ................................ Riviera Beach, FL 2 Oil/Gas 580
St. Johns River Power Park ............. Jacksonville, FL 2 Coal/Petroleum Coke 260(a)
St. Lucie .............................. Hutchinson Island, FL 2 Nuclear 1,553(b)
Sanford ................................ Lake Monroe, FL 3 Oil/Gas 933
Scherer ................................ Monroe County, GA 1 Coal 667(c)
Turkey Point ........................... Florida City, FL 2 Oil/Gas 810
2 Nuclear 1,386
COMBINED-CYCLE
Lauderdale ............................. Dania, FL 2 Gas/Oil 860
Martin ................................. Indiantown, FL 2 Gas 875
Putnam ................................. Palatka, FL 2 Gas/Oil 498
COMBUSTION TURBINES
Fort Myers ............................. Fort Myers, FL 12 Oil 612
Lauderdale ............................. Dania, FL 24 Oil/Gas 840
Port Everglades ........................ Port Everglades, FL 12 Oil/Gas 420
DIESEL UNITS
Turkey Point ........................... Florida City, FL 5 Oil 12
Total FPL............................. 16,326
FPL Energy ............................... Various(d) N/M (e) 1,878(f)
TOTAL 18,204
____________________
(a) Represents FPL's 20% individual ownership interest in SJRPP Units Nos. 1 and 2, which are jointly owned with the JEA.
(b) Excludes Orlando Utilities Commission's and the FMPA's combined share of approximately 15% of St. Lucie Unit No. 2.
(c) Represents FPL's approximately 76% ownership of Scherer Unit No. 4, which is jointly owned with the JEA.
(d) Approximately 697 mw in Virginia, 629 mw in California, 150 mw in New Jersey, 150 mw in Massachusetts, 150 mw in
four other states and 102 mw abroad.
(e) Approximately 61% gas, 18% wind, 8% solar, 6% geothermal, 5% coal and 2% other.
(f) Represents FPL Energy's ownership interest and excludes projects under construction.
</TABLE>
N/M - Not meaningful
Transmission and Distribution. FPL owns and operates 480 substations with a
total capacity of 105,535,440 kva. Electric transmission and distribution
lines owned and in service as of December 31, 1998 are as follows:
<TABLE><CAPTION>
Overhead Lines Trench and Submarine
Nominal Voltage Pole Miles Cable Miles
<S> <C> <C>
500 kv ............................................................ 1,107(a) -
230 kv ............................................................ 2,198 31
138 kv ............................................................ 1,426 48
115 kv ............................................................ 671 -
69 kv ............................................................ 166 11
Less than 69 kv ................................................... 39,510 20,696
Total ............................................................. 45,078 20,786
____________________
(a) Includes approximately 80 miles owned jointly with the JEA.
</TABLE>
Character of Ownership. Substantially all of FPL's properties are subject
to the lien of FPL's mortgage, which secures most debt securities issued by
FPL. The principal properties of FPL Group are held by FPL in fee and are
free from other encumbrances, subject to minor exceptions, none of which is
of such a nature as to substantially impair the usefulness to FPL of such
properties. Some of FPL's electric lines are located on land not owned in
fee but are covered by necessary consents of governmental authorities or
rights obtained from owners of private property.
Item 3. Legal Proceedings
In 1991, FPL entered into 30-year power purchase agreements with two
qualifying facilities (as defined by PURPA) located in Palm Beach County,
Florida. The power plants, which have a total generating capacity of 125 mw,
were intended to sell capacity and energy to FPL and to provide steam to
sugar processors. The plants were to be fueled by bagasse (sugar cane waste)
and wood waste. Construction of the plants was funded, in part, through the
sale of $288.5 million of solid waste industrial development revenue bonds
(the bonds). The plants are owned by Okeelanta Power Limited Partnership
(Okeelanta); Osceola Power Limited Partnership (Osceola); Flo-Energy Corp.;
Glades Power Partnership; Gator Generating Company, Limited Partnership; and
Lake Power Leasing Partnership (collectively, the partnerships).
In January 1997, FPL filed a complaint against Okeelanta and Osceola in the
Circuit Court for Palm Beach County, Florida, seeking an order declaring that
FPL's obligations under the power purchase agreements 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 November
1997, the complaint was amended to include the partnerships.
The partnerships filed for bankruptcy under Chapter XI of the U.S. Bankruptcy
Code in May 1997 and ceased all attempts to operate the power plants in
September 1997. In November 1997, the partnerships entered into an agreement
with the holders of more than 70% of the bonds. This agreement gives the
holders of a majority of the principal amount of the bonds (the majority
bondholders) the right to control, fund and manage any litigation against FPL
and the right to settle with FPL on any terms such majority bondholders
approve, provided that certain agreements with sugar processors are not
affected and certain other conditions are met.
In January 1998, the partnerships (through the attorneys for the majority
bondholders) filed an answer denying the allegations in FPL's complaint and
asserting a counterclaim for approximately $2 billion of actual damages,
consisting of all capacity payments that could have been made over the 30-
year term of the power purchase agreements plus some security deposits. The
partnerships also seek three times their actual damages for alleged
violations of Florida antitrust laws, plus attorneys' fees. In October 1998,
the court dismissed all of the partnerships' antitrust claims against FPL.
The partnerships have since moved for summary judgment on FPL's claims
against them.
In December 1991, the FMPA, an organization comprised of municipal electric
utilities operating in the state, filed a suit against FPL in the Circuit
Court of the Ninth Judicial Circuit in Orange County, Florida. The suit was
subsequently removed to the U.S. District Court for the Middle District of
Florida. The FMPA alleges that FPL is in breach of a "contract," consisting
of several different documents, by refusing to provide transmission service
to the FMPA and its members on the FMPA's terms. The FMPA also alleges that
FPL has violated federal and Florida antitrust laws by monopolizing or
attempting to monopolize the provision, coordination and transmission of
electric power in FPL's area of operation by 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 asks the court to require FPL: to
transmit electric power among the FMPA and its members on "reasonable terms
and conditions"; to permit the FMPA to contribute to and use FPL's
transmission system on "reasonable terms and conditions"; and to recognize
the FMPA transmission investments as part of FPL's transmission system such
that the FMPA can obtain transmission on a basis equivalent to FPL or,
alternatively, to provide transmission service equivalent to such FMPA
transmission ownership. In 1993, the District Court granted summary judgment
in favor of FPL. In 1995, the U.S. Court of Appeals for the Eleventh Circuit
vacated the District Court's summary judgment 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 required
ruling in the FMPA case. The District Court has yet to act further.
In the event that FPL Group or FPL does not prevail in these suits, there may
be a material adverse effect on their financial statements. However, FPL
Group and FPL believe that they have meritorious defenses to the litigation
to which they are parties and are vigorously defending these suits.
Accordingly, the liabilities, if any, arising from these proceedings are not
anticipated to have a material adverse effect on their financial statements.
In November 1989, Johnson Enterprises of Jacksonville, Inc. (Johnson
Enterprises) filed suit in the U.S. Court for the Middle District of Florida
against FPL Group, FPL Group Capital and Telesat Cablevision, Inc. (Telesat),
a subsidiary of FPL Group Capital. The suit alleged breach of contract,
fraud, violation of racketeering statutes and several other claims.
Plaintiff claimed more than $24 million in compensatory damages, treble
damages under racketeering statutes, punitive damages and attorneys' fees.
In December 1998, the U.S. Court of Appeals for the Eleventh Circuit:
affirmed the District Court's 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; reversed the District Court
and directed it to enter judgment in favor of FPL Group on Johnson
Enterprise's breach of contract and tortious interference claims; and vacated
the approximately $6 million damages award against Telesat for breach of
contract and directed the District Court to enter judgment for Johnson
Enterprises for nominal damages no greater than one dollar. No appeal was
filed and all appeal periods have expired.
In November 1998, a subsidiary of FPL Energy filed a civil action with the
U.S. District Court for the Southern District of New York requesting a
declaratory judgment that Central Maine cannot meet essential terms of the
agreement with FPL Energy's subsidiary regarding the purchase of Central
Maine's non-nuclear generating assets. FPL Group believes that recent FERC
rulings regarding transmission prevent Central Maine from delivering on its
contractual obligation that FPL Energy's subsidiary be able to operate the
power plants in a manner that is substantially consistent with Central
Maine's historical operation of the assets. FPL Group believes the FERC
rulings constitute a material adverse effect under the purchase agreement and
that FPL Energy's subsidiary should therefore not be bound to complete the
transaction. The trial is scheduled for March 1999.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrants' Common Equity and Related Stockholder
Matters
Common Stock Data. All of FPL's common stock is owned by FPL Group. FPL
Group's common stock is traded on the New York Stock Exchange. The high and
low sales prices for the common stock of FPL Group as reported in the
consolidated transaction reporting system of the New York Stock Exchange for
each quarter during the past two years are as follows:
<TABLE><CAPTION>
Quarter 1998 1997
High Low High Low
<S> <C> <C> <C> <C>
First ....................................................... $65 3/16 $56 1/16 $46 3/4 $43 5/8
Second ...................................................... $65 5/8 $58 11/16 $48 1/8 $42 5/8
Third ....................................................... $70 $59 11/16 $51 9/16 $45 1/2
Fourth ...................................................... $72 9/16 $60 1/2 $60 $49 1/2
</TABLE>
Approximate Number of Stockholders. As of the close of business on
January 31, 1999, there were 54,655 holders of record of FPL Group's common
stock.
Dividends. Quarterly dividends have been paid on common stock of FPL Group
during the past two years in the following amounts:
<TABLE><CAPTION>
Quarter 1998 1997
<S> <C> <C>
First ....................................................... $.50 $.48
Second ...................................................... $.50 $.48
Third ....................................................... $.50 $.48
Fourth ...................................................... $.50 $.48
</TABLE>
The amount and timing of dividends payable on FPL Group's common stock are
within the sole discretion of FPL Group's board of directors. The board of
directors reviews the dividend rate at least annually (in February) to
determine its appropriateness in light of FPL Group's financial position and
results of operations, legislative and regulatory developments affecting the
electric utility industry in general and FPL in particular, competitive
conditions and any other factors the board deems relevant. The ability of
FPL Group to pay dividends on its common stock is dependent upon dividends
paid to it by its subsidiaries, primarily FPL. There are no restrictions in
effect that currently limit FPL's ability to pay dividends to FPL Group. See
Management's Discussion -Liquidity and Capital Resources and Note 4 - Common
Stock Dividend Restrictions regarding dividends paid by FPL to FPL Group.
Item 6. Selected Financial Data
<TABLE><CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
SELECTED DATA OF FPL GROUP
(Millions of Dollars, except per share amounts):
Operating revenues ...................................... $ 6,661 $ 6,369 $ 6,037 $ 5,592 $ 5,423
Net income .............................................. $ 664 $ 618 $ 579 $ 553 $ 519
Earnings per share of common stock(a) ................... $ 3.85 $ 3.57 $ 3.33 $ 3.16 $ 2.91
Dividends paid per share of common stock ................ $ 2.00 $ 1.92 $ 1.84 $ 1.76 $ 1.88
Total assets ............................................ $12,029 $12,449 $12,219 $12,459 $12,618
Long-term debt, excluding current maturities ............ $ 2,347 $ 2,949 $ 3,144 $ 3,377 $ 3,864
Obligations of FPL under capital lease, excluding
current maturities .................................... $ 146 $ 186 $ 182 $ 179 $ 186
Preferred stock of FPL with sinking fund requirements,
excluding current maturities .......................... $ - - $ 42 $ 50 $ 94
Energy sales (millions of kwh)(b)........................ 91,041 84,642 80,889 79,756 77,096
SELECTED DATA OF FPL (Millions of Dollars):
Operating revenues ...................................... $ 6,366 $ 6,132 $ 5,986 $ 5,530 $ 5,343
Net income available to FPL Group........................ $ 616 $ 608 $ 591 $ 568 $ 529
Total assets ............................................ $10,748 $11,172 $11,531 $11,751 $11,821
Long-term debt, excluding current maturities ............ $ 2,191 $ 2,420 $ 2,981 $ 3,094 $ 3,581
Energy sales (millions of kwh) .......................... 89,362 82,734 80,889 79,756 77,096
Energy sales:
Residential ........................................... 50.9% 50.6% 51.1% 50.8% 50.2%
Commercial ............................................ 38.8 39.8 38.6 38.5 38.8
Industrial ............................................ 4.4 4.7 4.7 4.9 5.0
Interchange power sales ............................... 3.2 2.1 2.6 1.6 2.5
Other(c) .............................................. 2.7 2.8 3.0 4.2 3.5
Total ................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Approximate 60-minute net peak served (mw)(d):
Summer season ......................................... 17,897 16,613 16,064 15,813 15,179
Winter season ......................................... 16,802 13,047 16,490 18,096 16,563
Average number of customer accounts (thousands):
Residential ........................................... 3,266 3,209 3,153 3,097 3,038
Commercial ............................................ 397 389 381 374 366
Industrial ............................................ 15 15 15 15 16
Other ................................................. 2 3 2 3 2
Total ................................................... 3,680 3,616 3,551 3,489 3,422
Average price per kwh sold (cents)(e) ................... 7.01 7.29 7.29 6.83 6.82
____________________
(a) Basic and assuming dilution.
(b) Includes consolidated entities only from the date of consolidation.
(c) Includes the net change in unbilled sales.
(d) The winter season includes November and December of the current year and January through March of the following year.
(e) Includes the net change in unbilled and cost recovery clause revenues.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
During 1998, FPL Group, Inc. (FPL Group) achieved net income and earnings
per share growth of 7.4% and 7.8%, respectively, compared to 1997 growth
rates of 6.7% and 7.2%. The growth reflects better operating results from
FPL Energy, Inc.'s (FPL Energy) independent power projects, primarily from
its natural gas-fired projects.
Florida Power & Light Company's (FPL) operating revenues and net income
represent approximately 96% and 93% of the corresponding amounts of FPL
Group. Approximately 20% of the 1998 growth in earnings per share was
provided by FPL. FPL's growth was primarily associated with an increase in
total kilowatt-hour (kwh) sales and lower interest charges and preferred
stock dividends. Offsetting these items were higher depreciation and other
operations and maintenance (O&M) expenses.
FPL's operating revenues consist primarily of revenues from base rates,
cost recovery clauses and franchise fees. Revenues from FPL's base rates
were $3.7 billion, $3.5 billion and $3.4 billion in 1998, 1997 and 1996,
respectively. There were no changes in base rates during those years.
Revenues from cost recovery clauses and franchise fees 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 retail customer accounts increased 1.8% for the third consecutive
year. In 1998 and 1997, warmer weather contributed to an increase in
retail customer usage of 4.8% and 1.2%, respectively. Together these
factors and changes in sales to other utilities contributed to an increase
in FPL's total energy sales of 8.0%, 2.3% and 1.4% in 1998, 1997 and 1996,
respectively.
The Florida Public Service Commission (FPSC) regulates FPL's retail sales,
which represent approximately 95% of FPL Group's total operating revenues.
FPL reported a retail regulatory return on common equity (ROE) of 12.6%,
12.3% and 12.1% in 1998, 1997 and 1996, respectively. FPL's allowed ROE
range for 1996 through 1998 was 11% to 13% with a midpoint of 12%. In
December 1998, after negotiations between FPL and the FPSC staff, the FPSC
issued a proposed order approving a settlement regarding FPL's allowed ROE,
equity ratio and the special amortization program. Under the proposed
settlement, beginning in 1999 FPL's allowed ROE range would be 10.2% to 12.2%
with a midpoint of 11.2%. FPL agreed to a maximum adjusted equity ratio of
55.83% through 2000. The adjusted equity ratio reflected a discounted
amount for off-balance sheet obligations under certain long-term purchase
power contracts. See Note 9 - Contracts. The proposed settlement also
extended the special amortization program through 2000 and modified the
program to include an additional fixed amount of $140 million per year in
addition to the variable amount. FPL continues to record a $30 million
fixed nuclear amount under a previous FPSC order. In January 1999, several
parties challenged the FPSC's proposed order. In mid-February 1999, FPL
withdrew from the settlement agreement; the FPSC subsequently approved this
withdrawal and concluded the proceeding. FPL is authorized to continue to
record special amortization through 1999 in accordance with the extension
of the special amortization program approved by the FPSC in 1997.
In January 1999, the State of Florida Office of Public Counsel (Public
Counsel) petitioned the FPSC to conduct a full rate proceeding for FPL and
requested that certain revenues be held subject to refund. Other parties
have requested participation with Public Counsel. The FPSC is scheduled to
address Public Counsel's request in March 1999. FPL is unable to predict
the outcome of this matter or any potential effect on its financial
statements. See Note 1 - Regulation.
FPL Group's 1998 operating revenues reflect the receipt by an independent
power project of a settlement relating to a contract dispute. Beginning in
1997, FPL Group's operating revenues, energy sales and fuel, purchased power
and interchange expense include the effects of consolidating some independent
power projects.
O&M expenses increased in 1998, primarily as a result of additional costs
associated with improving the service reliability of FPL's distribution
system. Partly offsetting the higher distribution expenses were lower
nuclear maintenance costs and conservation clause expenses. Conservation
clause expenses are essentially a pass-through and do not affect net
income. In 1997, additional costs associated with the conservation clause
and higher distribution system maintenance costs were partially offset by a
slight decline in nuclear refueling and lower payroll-related costs.
The increases in depreciation and amortization expense are primarily the
result of the FPSC-approved special amortization program. Pursuant to the
FPSC-approved special amortization program, FPL records as depreciation and
amortization expense a fixed amount of $30 million per year for nuclear
assets. FPL also records under this program variable amortization based on
the actual level of retail base revenues compared to a fixed amount. The
variable amounts recorded in 1998, 1997 and 1996 were $348 million, $169
million and $130 million, respectively. These variable amounts include, as
depreciation and amortization expense, $161 million, $169 million and $20
million, respectively, for amortization of regulatory assets. The remaining
variable amounts were applied against nuclear and fossil production assets.
Amortization of debt reacquisition costs, a regulatory asset, was completed
in 1998. In addition to amounts recorded under the special amortization
program in 1998, 1997 and 1996, FPL amortized $24 million, $22 million and
$28 million, respectively, of plant-related regulatory assets deferred
since FPL's last rate case in 1984. Amortization of plant-related
regulatory assets was completed in 1998. In 1998 and 1997, the FPSC
approved higher depreciation rates for certain assets which resulted in
additional depreciation of $26 million and $31 million, respectively.
The 1998 increase in FPL Group's interest charges reflects the cost of
terminating agreements designed to fix interest rates. This was partially
offset by lower interest charges and preferred stock dividends at FPL,
which reflect the impact of reducing debt and preferred stock balances.
FPL Group has reduced these balances, net of commercial paper increases,
over the past three years by $1.0 billion ($1.1 billion for FPL). In 1997,
additional debt was assumed as a result of FPL Energy's portfolio
restructuring and expansion resulting in higher interest charges at FPL
Group.
Improved results in 1998 from independent power partnerships contributed to
an increase in the non-operating line other-net of FPL Group. Also
reflected in other-net for FPL Group is the December 1998 loss from the
sale of Turner Foods Corporation's (Turner) assets. Turner was an
agricultural subsidiary of FPL Group Capital Inc (FPL Group Capital) which
owned and operated citrus groves in Florida. The loss of Turner's revenues
as a result of the sale will not have a significant effect on FPL Group's
future operating revenues or net income.
FPL Group's 1998 lower effective income tax rate reflects adjustments
relating to prior years' tax matters, including the resolution of an audit
issue with the Internal Revenue Service. The effective income tax rates in
1997 and 1996 reflect increased amortization of FPL's deferred investment
tax credits due to the special amortization program and adjustments
relating to prior years' tax matters.
The electric utility industry is facing increasing competitive pressure.
FPL currently faces competition from other suppliers of electrical energy
to wholesale customers and from alternative energy sources and self-
generation for other customer groups, primarily industrial customers. In
1998, operating revenues from wholesale and industrial customers combined
represented approximately 4% of FPL's total operating revenues. Since
there is no deregulation proposal currently under consideration in Florida,
FPL is unable to predict what impact would result from a change to a more
competitive environment or when such a change might occur. Various states,
other than Florida, have either enacted legislation or are pursuing
initiatives designed to deregulate the production and sale of electricity.
Deregulation related activities are also being pursued on the federal
level. See Note 1 - Regulation. Deregulation of the electricity utility
market presents both opportunities and risks for FPL Energy. Opportunities
exist for the selective acquisition of generation assets that are being
divested under deregulation plans and for the construction and operation of
efficient plants that can sell low-cost power in competitive markets.
However, market-based pricing, competitive sources of supply and the reduced
availability of long-term power sales agreements may result in fluctuations
in revenues and earnings. Substantially all of the energy produced by FPL
Energy's independent power projects is sold through long-term power sales
agreements with utilities.
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 completed and approximately 80% of
the necessary modifications have been tested and implemented. FPL Group's
efforts to assess the year 2000 readiness of third parties include
surveying important suppliers. Meetings are being conducted with sole
source and certain suppliers. Results of our supplier readiness assessment
are being considered in the development of our contingency plans to 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 confirmatory testing at St. Lucie Unit No. 1, which will be
completed during a scheduled refueling outage beginning October 1999. The
estimated cost of addressing year 2000 issues is not expected to exceed $50
million, of which approximately 40% had been spent through December 31,
1998. Approximately 80% of the total estimate is for the multi-phase plan.
The remainder is an estimate for project and inventory contingencies. 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. FPL Group's year 2000 contingency planning is
currently underway to address risk scenarios at the operating level (such
as generation, transmission and distribution), as well as at the business
level (such as customer service, procurement and accounting). These plans
are intended to mitigate both internal risks and potential risks in FPL
Group's supply chain. Contingency plans are expected to be completed by
mid-1999, allowing the second half of 1999 for communication and training.
In addition to preparing internal contingency plans, FPL also participated
in the development of the state's electric grid contingency plans and
expects to participate in national drills during 1999 that are designed to
test various operating risk scenarios.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. (FAS) 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. FPL Group and FPL are currently assessing
the effect, if any, on their financial statements of implementing FAS 133.
FPL Group and FPL will be required to adopt the standard in 2000.
In January 1999, an FPL Group Capital subsidiary sold 3.5 million common
shares of Adelphia Communications Corporation stock resulting in an after-tax
gain of approximately $96 million. An agreement was also reached to sell FPL
Group Capital's one-third interest in a limited partnership. While the terms
have not been finalized, the sale of the limited partnership interest is
expected to have a positive effect on FPL Group's results of operations.
Liquidity and Capital Resources
FPL Group's primary capital requirements consist of expenditures to meet
increased electricity usage and customer growth of FPL. Capital
expenditures of FPL for the 1999-2001 period are expected to be
approximately $2.8 billion, including $910 million in 1999. The increase
in FPL Group's 1998 capital expenditures reflects the investment in two
power plants in the Northeast, while the increase in FPL's 1998 capital
expenditures is primarily the result of improving distribution system
reliability. FPL Group Capital and its subsidiaries have guaranteed
approximately $305 million of purchase power agreement obligations, debt
service payments and other payments subject to certain contingencies. FPL
Energy is a party to a contract to purchase all of Central Maine Power
Company's non-nuclear generation assets for $846 million. The contract is
subject to a civil action initiated by FPL Energy. See Note 9 -
Commitments and Contingencies.
Debt maturities of FPL Group's subsidiaries will require cash outflows of
approximately $671 million ($525 million for FPL) through 2003, including
$359 million ($230 million for FPL) in 1999. It is anticipated that cash
requirements for FPL's capital expenditures, energy-related investments and
debt maturities in 1999 will be satisfied with internally generated funds
and debt issuances. Any internally generated funds not required for
capital expenditures and current maturities may be used to reduce
outstanding debt or common stock, or for investment. Any temporary cash
needs will be met by short-term bank borrowings. In January 1999, FPL
Group Capital redeemed $125 million of its 7 5/8% debentures. Bank lines
of credit currently available to FPL Group and its subsidiaries aggregate
$1.9 billion ($900 million for FPL).
During 1998, FPL Group repurchased 1.0 million shares of common stock under
the 10 million share repurchase program. As of December 31, 1998, FPL Group
may repurchase an additional 8.3 million shares under this program.
FPL self-insures for damage to certain transmission and distribution
properties and maintains a funded storm reserve to reduce the financial
impact of storm losses. The balance of the storm fund reserve at December
31, 1998 was $259 million. Bank lines of credit of $300 million, included
in the $1.9 billion above, are also available if needed to provide cash for
storm restoration costs. The FPSC has indicated that it would consider
future storm losses in excess of the funded reserve for possible recovery
from customers.
In 1996, the FASB issued an exposure draft on accounting for obligations
associated with the retirement of long-lived assets. The method proposed by
the FASB in the exposure draft would require the present value of estimated
future cash flows to decommission FPL's nuclear power plants and dismantle
its fossil plants to be recorded as an increase to asset balances and as a
liability. Under that proposal, it is anticipated that there will be no
effect on cash flows and, because of the regulatory treatment, there will
be no significant effect on net income. The matter has been restudied by the
FASB and another exposure draft is scheduled to be issued in 1999.
FPL's charter and mortgage contain provisions which, under certain
conditions, restrict the payment of dividends and the issuance of
additional unsecured debt, first mortgage bonds and preferred stock. Given
FPL's current financial condition and level of earnings, expected financing
activities and dividends are not affected by these limitations.
Market Risk Sensitivity
Substantially all financial instruments and positions held by FPL Group and
FPL described below are held for purposes other than trading.
Interest rate risk - The special use funds of FPL include restricted funds
set aside to cover the cost of storm damage and for the decommissioning of
FPL's nuclear power plants. A portion of these funds is invested in fixed
income debt securities carried at their market value of approximately $650
million and $640 million at December 31, 1998 and 1997, respectively.
Adjustments to market value result in a corresponding adjustment to the
related liability accounts based on current regulatory treatment. Because
the funds set aside for storm damage could be needed at any time, the
related investments are generally more liquid and, therefore, are less
sensitive to changes in interest rates. The nuclear decommissioning funds,
in contrast, are generally invested in longer-term securities, as
decommissioning activities are not expected to begin until at least 2012.
Market risk associated with all of these securities is estimated as the
potential loss in fair value resulting from a hypothetical 10% increase in
interest rates and amounts to $17 million and $19 million at December 31,
1998 and 1997, respectively.
The fair value of FPL Group's and FPL's long-term debt is also affected by
changes in interest rates. The following presents the sensitivity of the
fair value of debt and interest rate swap agreements to a hypothetical 10%
decrease in interest rates
<TABLE><CAPTION>
1998 1997
-------------------------------- ---------------------------------
Hypo- Hypo-
thetical thetical
Increase Increase
Carrying Fair in Fair Carrying Fair in Fair
Value Value Value(a) Value Value Value(a)
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Long-term debt of FPL ...................... $2,421 $2,505(b) $ 54 $2,600 $2,679(b) $ 92
Long-term debt of FPL Group ................ $2,706 $2,797(b) $ 63 $3,147 $3,236(b) $103
Interest rate swap agreements of FPL Group . $ - $ -(c) $ - $ - $ 31(c) $ 6
____________________
(a) Calculated based on the change in discounted cash flow.
(b) Based on quoted market prices for these or similar issues.
(c) Based on the estimated cost to terminate the agreements. The agreements were terminated in 1998.
</TABLE>
While a decrease in interest rates would increase the fair value of debt,
it is unlikely that events that would result in a realized loss will occur.
Equity price risk - Included in the special use funds of FPL are marketable
equity securities carried at their market value of approximately $556
million and $367 million at December 31, 1998 and 1997, respectively. A
hypothetical 10% decrease in the prices quoted by stock exchanges would
result in a $56 million and $37 million reduction in fair value and
corresponding adjustment to the related liability accounts based on current
regulatory treatment at December 31, 1998 and 1997, respectively.
Other risks - Under current cost-based regulation, FPL's cost of fuel is
recovered through the fuel and purchased power cost recovery clause (fuel
clause), with no effect on earnings. FPL's Energy Marketing & Trading
Division buys and sells wholesale energy commodities, such as natural gas
and electric power. The division primarily procures natural gas for FPL's
own use in power generation and sells excess electric power. Substantially
all of the results of these activities are passed through to customers in
the fuel or capacity cost recovery clauses. The level of trading activity
is expected to grow as FPL seeks to manage the risk associated with
fluctuating fuel prices and increase value from its own power generation.
At December 31, 1998, there were no material open positions in these
activities.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
See Management's Discussion - Market Risk Sensitivity
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY:
We have audited the consolidated financial statements of FPL Group, Inc. and
of Florida Power & Light Company, listed in the accompanying index at Item
14(a)1 of this Annual Report (Form 10-K) to the Securities and Exchange
Commission for the year ended December 31, 1998. These financial statements
are the responsibility of the respective company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of FPL Group, Inc. and Florida
Power & Light Company at December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
February 12, 1999
FPL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
OPERATING REVENUES ................................................................. $6,661 $6,369 $6,037
OPERATING EXPENSES:
Fuel, purchased power and interchange ............................................ 2,244 2,255 2,131
Other operations and maintenance ................................................. 1,284 1,231 1,189
Depreciation and amortization .................................................... 1,284 1,061 960
Taxes other than income taxes .................................................... 597 594 586
Total operating expenses ....................................................... 5,409 5,141 4,866
OPERATING INCOME ................................................................... 1,252 1,228 1,171
OTHER INCOME (DEDUCTIONS):
Interest charges ................................................................. (322) (291) (267)
Preferred stock dividends - FPL .................................................. (15) (19) (24)
Other - net ...................................................................... 28 4 (7)
Total other deductions - net ................................................... (309) (306) (298)
INCOME BEFORE INCOME TAXES ......................................................... 943 922 873
INCOME TAXES ....................................................................... 279 304 294
NET INCOME ......................................................................... $ 664 $ 618 $ 579
Earnings per share of common stock (basic and assuming dilution) ................... $3.85 $3.57 $3.33
Dividends per share of common stock ................................................ $2.00 $1.92 $1.84
Average number of common shares outstanding ........................................ 173 173 174
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<TABLE>
<CAPTION>
December 31,
1998 1997
------- --------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and other property ....................................... $17,592 $17,430
Nuclear fuel under capital lease - net...................................................... 146 186
Construction work in progress .............................................................. 214 204
Less accumulated depreciation and amortization ............................................. (9,397) (8,466)
Total property, plant and equipment - net ................................................ 8,555 9,354
CURRENT ASSETS:
Cash and cash equivalents .................................................................. 187 54
Customer receivables, net of allowances of $8 and $9 ...................................... 559 501
Materials, supplies and fossil fuel inventory - at average cost ............................ 282 302
Deferred clause expenses ................................................................... 82 122
Other ...................................................................................... 156 122
Total current assets ..................................................................... 1,266 1,101
OTHER ASSETS:
Special use funds of FPL ................................................................... 1,206 1,007
Other investments .......................................................................... 391 282
Other ...................................................................................... 611 705
Total other assets ....................................................................... 2,208 1,994
TOTAL ASSETS ................................................................................. $12,029 $12,449
CAPITALIZATION:
Common shareholders' equity ................................................................ $ 5,126 $ 4,845
Preferred stock of FPL without sinking fund requirements ................................... 226 226
Long-term debt ............................................................................. 2,347 2,949
Total capitalization ..................................................................... 7,699 8,020
CURRENT LIABILITIES:
Short-term debt ............................................................................ 110 134
Current maturities of long-term debt ....................................................... 359 198
Accounts payable ........................................................................... 338 368
Customers' deposits ........................................................................ 282 279
Accrued interest and taxes ................................................................. 191 180
Deferred clause revenues ................................................................... 89 61
Other ...................................................................................... 272 279
Total current liabilities ................................................................ 1,641 1,499
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes .......................................................... 1,255 1,473
Deferred regulatory credit - income taxes .................................................. 148 166
Unamortized investment tax credits ......................................................... 205 229
Storm and property insurance reserve ....................................................... 259 252
Other ...................................................................................... 822 810
Total other liabilities and deferred credits ............................................. 2,689 2,930
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES ......................................................... $12,029 $12,449
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 664 $ 618 $ 579
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 1,284 1,061 960
Decrease in deferred income taxes and related regulatory credit .............. (237) (30) (76)
Increase (decrease) in accrued interest and taxes ............................ 11 (79) 39
Other - net .................................................................. 21 27 90
Net cash provided by operating activities ...................................... 1,743 1,597 1,592
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures of FPL ...................................................... (617) (551) (474)
Independent power investments .................................................... (521) (291) (52)
Distributions and loan repayments from partnerships and joint ventures ........... 304 53 41
Proceeds from the sale of assets ................................................. 135 43 69
Other - net....................................................................... (96) (51) (110)
Net cash used in investing activities .......................................... (795) (797) (526)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt ....................................................... 343 42 -
Retirement of long-term debt and preferred stock ................................. (727) (717) (338)
Increase (decrease) in short-term debt ........................................... (24) 113 (179)
Repurchase of common stock ....................................................... (62) (48) (82)
Dividends on common stock ........................................................ (345) (332) (320)
Other - net....................................................................... - - 3
Net cash used in financing activities .......................................... (815) (942) (916)
Net increase (decrease) in cash and cash equivalents ............................... 133 (142) 150
Cash and cash equivalents at beginning of year ..................................... 54 196 46
Cash and cash equivalents at end of year ........................................... $ 187 $ 54 $ 196
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ........................................................... $ 308 $ 287 $ 248
Cash paid for income taxes ....................................................... $ 463 $ 434 $ 381
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations ........................................... $ 34 $ 81 $ 86
Debt assumed for property additions .............................................. $ - $ 420 $ 33
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In Millions)
<TABLE>
<CAPTION>
Accumulated
Common Stock (a) Additional Other Common
Aggregate Paid-In Unearned Comprehensive Retained Shareholders'
Shares Par Value Capital Compensation Income Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 .... 185(b) $2 $3,420 $(287) $- $1,259
Net income ................... - - - - - 579
Repurchase of common stock ... (2) - (82) - - -
Dividends on common stock .... - - - - - (320)
Earned compensation under ESOP - - 8 15 - -
Other ........................ - - (1) - - -
Balances, December 31, 1996 .... 183(b) 2 3,345 (272) - 1,518
Net income ................... - - - - - 618
Repurchase of common stock ... (1) - (48) - - -
Dividends on common stock .... - - - - - (332)
Earned compensation under ESOP - - 6 8 - -
Other comprehensive income ... - - - - 1 -
Other ........................ - - (1) - - -
Balances, December 31, 1997..... 182(b) 2 3,302 (264) 1 1,804 $4,845
Net income ................... - - - - - 664
Repurchase of common stock ... (1) - (62) - - -
Dividends on common stock .... - - - - - (345)
Earned compensation under ESOP - - 13 12 - -
Other comprehensive income ... - - - - - -
Other ........................ - - (1) - - -
Balances, December 31, 1998 .... 181(b) $2 $3,252 $(252) $1 $2,123 $5,126
____________________
(a) $.01 par value, authorized - 300,000,000 shares; outstanding 180,712,435 and 181,762,385 at December 31, 1998 and
1997, respectively.
(b) Outstanding and unallocated shares held by the Employee Stock Ownership Plan Trust totaled 8.5 million, 8.9 million
and 9.3 million at December 31, 1998, 1997 and 1996, respectively.
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Millions of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
OPERATING REVENUES ................................................................ $6,366 $6,132 $5,986
OPERATING EXPENSES:
Fuel, purchased power and interchange ........................................... 2,175 2,196 2,131
Other operations and maintenance ................................................ 1,163 1,132 1,127
Depreciation and amortization ................................................... 1,249 1,034 955
Income taxes .................................................................... 356 329 329
Taxes other than income taxes ................................................... 596 592 585
Total operating expenses ...................................................... 5,539 5,283 5,127
OPERATING INCOME .................................................................. 827 849 859
OTHER INCOME (DEDUCTIONS):
Interest charges ................................................................ (196) (227) (246)
Other - net ..................................................................... - 5 2
Total other deductions - net .................................................. (196) (222) (244)
NET INCOME ........................................................................ 631 627 615
PREFERRED STOCK DIVIDENDS ......................................................... 15 19 24
NET INCOME AVAILABLE TO FPL GROUP, INC. ........................................... $ 616 $ 608 $ 591
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
<S> <C> <C>
ELECTRIC UTILITY PLANT:
Plant in service ......................................................................... $17,159 $16,819
Less accumulated depreciation ............................................................ (9,317) (8,355)
Net .................................................................................... 7,842 8,464
Nuclear fuel under capital lease - net.................................................... 146 186
Construction work in progress ............................................................ 159 131
Electric utility plant - net ......................................................... 8,147 8,781
CURRENT ASSETS:
Cash and cash equivalents ................................................................ 152 3
Customer receivables, net of allowances of $8 and $9 ..................................... 521 471
Materials, supplies and fossil fuel inventory - at average cost .......................... 239 242
Deferred clause expenses ................................................................. 82 122
Other .................................................................................... 122 104
Total current assets ................................................................. 1,116 942
OTHER ASSETS:
Special use funds ........................................................................ 1,206 1,007
Other .................................................................................... 279 442
Total other assets ................................................................... 1,485 1,449
TOTAL ASSETS ............................................................................... $10,748 $11,172
CAPITALIZATION:
Common shareholder's equity .............................................................. $ 4,803 $ 4,814
Preferred stock without sinking fund requirements ........................................ 226 226
Long-term debt ........................................................................... 2,191 2,420
Total capitalization ................................................................. 7,220 7,460
CURRENT LIABILITIES:
Commercial paper ......................................................................... - 40
Current maturities of long-term debt ..................................................... 230 180
Accounts payable ......................................................................... 321 344
Customers' deposits ...................................................................... 282 279
Accrued interest and taxes ............................................................... 198 180
Deferred clause revenues ................................................................. 89 61
Other .................................................................................... 231 228
Total current liabilities ............................................................ 1,351 1,312
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes ........................................................ 887 1,070
Deferred regulatory credit - income taxes ................................................ 148 166
Unamortized investment tax credits ....................................................... 205 229
Storm and property insurance reserve ..................................................... 259 252
Other .................................................................................... 678 683
Total other liabilities and deferred credits ......................................... 2,177 2,400
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES ....................................................... $10,748 $11,172
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................... $ 631 $ 627 $ 615
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................ 1,249 1,034 955
Decrease in deferred income taxes and related regulatory credit........... (202) (98) (25)
Increase (decrease) in accrued interest and taxes ........................ 18 (121) 22
Other - net .............................................................. 22 61 41
Net cash provided by operating activities .................................. 1,718 1,503 1,608
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................................................... (617) (551) (474)
Other - net .................................................................. (80) (83) (124)
Net cash used in investing activities ...................................... (697) (634) (598)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt ................................................... 197 - -
Retirement of long-term debt and preferred stock ............................. (389) (505) (333)
Increase (decrease) in commercial paper ...................................... (40) 40 (179)
Capital contributions from FPL Group, Inc. ................................... - 140 195
Dividends .................................................................... (640) (619) (617)
Other - net .................................................................. - - 2
Net cash used in financing activities ...................................... (872) (944) (932)
Net increase (decrease) in cash and cash equivalents ........................... 149 (75) 78
Cash and cash equivalents at beginning of year ................................. 3 78 -
Cash and cash equivalents at end of year ....................................... $ 152 $ 3 $ 78
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ....................................................... $ 181 $ 216 $ 228
Cash paid for income taxes ................................................... $ 510 $ 575 $ 379
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations ....................................... $ 34 $ 81 $ 86
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Millions of Dollars)
<TABLE>
<CAPTION>
Common Additional Retained Common Share-
Stock (a) Paid-In Capital Earnings holder's Equity
--------- --------------- -------- ---------------
<S> <C> <C> <C> <C>
Balances, December 31, 1995 ......................... $1,373 $2,229 $ 872
Contributions from FPL Group ...................... - 195 -
Net income available to FPL Group ................. - - 591
Dividends to FPL Group ............................ - - (593)
Other ............................................. - - 1
Balances, December 31, 1996 ......................... 1,373 2,424 871
Contributions from FPL Group ...................... - 140 -
Net income available to FPL Group ................. - - 608
Dividends to FPL Group ............................ - - (601)
Other ............................................. - 2 (3)
Balances, December 31, 1997 ......................... 1,373 2,566 875 $4,814
Net income available to FPL Group ................. - - 616
Dividends to FPL Group ............................ - - (626)
Other ............................................. - - (1)
Balances, December 31, 1998 ......................... $1,373 $2,566 $ 864 $4,803
____________________
(a) Common stock, no par value, 1,000 shares authorized, issued and outstanding.
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997 and 1996
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation - FPL Group, Inc.'s (FPL Group) operations are
conducted primarily through Florida Power & Light Company (FPL), a rate-
regulated public utility, and FPL Energy, Inc. (FPL Energy). FPL supplies
electric service to approximately 3.7 million customers throughout most of
the east and lower west coasts of Florida. FPL Energy invests in independent
power projects which consist of controlled and consolidated entities and non-
controlling ownership interests in joint ventures.
The consolidated financial statements of FPL Group and FPL include the
accounts of their respective majority-owned and controlled subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts included in prior years' consolidated
financial statements have been reclassified to conform to the current year's
presentation. The preparation of financial statements requires the use of
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets
and liabilities. Actual results could differ from those estimates.
Regulation - FPL is subject to regulation by the Florida Public Service
Commission (FPSC) and the Federal Energy Regulatory Commission (FERC). Its
rates are designed to recover the cost of providing electric service to its
customers including a reasonable rate of return on invested capital. As a
result of this cost-based regulation, FPL follows the accounting practices
set forth in Statement of Financial Accounting Standards No. (FAS) 71,
"Accounting for the Effects of Certain Types of Regulation." FAS 71
indicates that regulators can create assets and impose liabilities that would
not be recorded by non-regulated entities. Regulatory assets and liabilities
represent probable future revenues that will be recovered from or refunded to
customers through the ratemaking process. The continued applicability of FAS
71 is assessed at each reporting period.
Various states, other than Florida, have either enacted legislation or are
pursuing initiatives designed to deregulate the production and sale of
electricity. By allowing customers to choose their electricity supplier,
deregulation is expected to result in a shift from cost-based rates to
market-based rates for energy production and other services provided to
retail customers. Similar initiatives are also being pursued on the federal
level. Although the legislation and initiatives vary substantially, common
areas of focus include when market-based pricing will be available for
wholesale and retail customers, what existing prudently incurred costs in
excess of the market-based price will be recoverable and whether generation
assets should be separated from transmission, distribution and other assets.
It is generally believed transmission and distribution activities would
remain regulated.
In the event that FPL's generating operations are no longer subject to the
provisions of FAS 71, portions of the existing regulatory assets and
liabilities that relate to generation would be written off unless regulators
specify an alternative means of recovery or refund. The principal regulatory
assets and liabilities are as follows:
<TABLE><CAPTION>
December 31,
1998 1997
------ ------
(Millions of Dollars)
<S> <C> <C>
Assets (included in other assets):
Unamortized debt reacquisition costs ...................................................... $ - $171
Plant-related deferred costs .............................................................. $ - $ 24
Nuclear maintenance reserve cumulative effect adjustment .................................. $ - $ 14
Deferred Department of Energy assessment .................................................. $ 44 $ 48
Liabilities:
Deferred regulatory credit - income taxes ................................................. $148 $166
Unamortized investment tax credits ....................................................... $205 $229
Storm and property insurance reserve ...................................................... $259 $252
</TABLE>
The storm and property insurance reserve is primarily related to transmission
and distribution properties. The amounts presented above exclude clause-
related regulatory assets and liabilities that are recovered or refunded over
twelve-month periods. These amounts are included in current assets and
liabilities in the consolidated balance sheets. Further, other aspects of
the business, such as generation assets and long-term power purchase
commitments, would need to be reviewed to assess their recoverability in a
changed regulatory environment. Since there is no deregulation proposal
currently under consideration in Florida, FPL is unable to predict what
impact would result from a change to a more competitive environment or when
such a change might occur.
FPL's allowed return on equity (ROE) range for 1996 through 1998 was 11% to
13% with a midpoint of 12%. In December 1998, after negotiations between FPL
and the FPSC staff, the FPSC issued a proposed order approving a settlement
regarding FPL's allowed ROE, equity ratio and the special amortization
program. Under the proposed settlement, beginning in 1999 FPL's allowed ROE
range would be 10.2% to 12.2% with a midpoint of 11.2%. FPL agreed to a
maximum adjusted equity ratio of 55.83% through 2000. The adjusted equity
ratio reflected a discounted amount for off-balance sheet obligations under
certain long-term purchase power contracts. See Note 9 - Contracts. The
proposed settlement also extended the special amortization program through
2000 and modified the program to include an additional fixed amount of $140
million per year in addition to the variable amount. FPL continues to
record a $30 million fixed nuclear amount under a previous FPSC order. In
January 1999, several parties challenged the FPSC's proposed order. In
mid-February 1999, FPL withdrew from the settlement agreement; the FPSC
subsequently approved this withdrawal and concluded the proceeding. FPL is
authorized to continue to record special amortization through 1999 in
accordance with the extension of the special amortization program approved
by the FPSC in 1997.
In January 1999, the State of Florida Office of Public Counsel (Public
Counsel) petitioned the FPSC to conduct a full rate proceeding for FPL and
requested that certain revenues be held subject to refund. Other parties
have requested participation with Public Counsel. The FPSC is scheduled to
address Public Counsel's request in March 1999. FPL is unable to predict
the outcome of this matter or any potential effect on its financial
statements.
FPL amortized the plant-related deferred costs as approved by the FPSC and
recorded $24 million, $22 million and $28 million, in 1998, 1997 and 1996,
respectively. Pursuant to the FPSC-approved special amortization program,
FPL recorded as depreciation and amortization expense a fixed amount of $30
million per year for nuclear assets. FPL also records under this program
variable amortization based on the actual level of retail base revenues
compared to a fixed amount. The variable amounts recorded in 1998, 1997 and
1996 were $348 million, $169 million and $130 million, respectively. These
variable amounts include, as depreciation and amortization expense, $161
million, $169 million and $20 million, respectively, for amortization of
regulatory assets. The remaining variable amounts were applied against
nuclear and fossil production assets.
Revenues and Rates - FPL's retail and wholesale utility rate schedules are
approved by the FPSC and the FERC, respectively. FPL records unbilled base
revenues for the estimated amount of energy delivered to customers but not
yet billed. Unbilled base revenues are included in customer receivables and
amounted to $152 million and $154 million at December 31, 1998 and 1997,
respectively. Substantially all of the energy produced by FPL Energy's
independent power projects is sold through long-term power sales agreements
with utilities and revenue is recorded on an as-billed basis.
FPL's revenues include amounts resulting from cost recovery clauses, certain
revenue taxes and franchise fees. Cost recovery clauses, which are designed
to permit full recovery of certain costs and provide a return on certain
assets utilized by these programs, include substantially all fuel, purchased
power and interchange expenses, conservation- and environmental-related
expenses and certain revenue taxes. Revenues from cost recovery clauses are
recorded when billed; FPL achieves matching of costs and related revenues by
deferring the net under or over recovery. Any under recovered costs or over
recovered revenues are collected from or returned to customers in subsequent
periods.
Electric Plant, Depreciation and Amortization - The cost of additions to
units of utility property of FPL is added to electric utility plant. The
cost of units of utility property retired, less net salvage, is charged to
accumulated depreciation. Maintenance and repairs of property as well as
replacements and renewals of items determined to be less than units of
utility property are charged to other operations and maintenance (O&M)
expenses. At December 31, 1998, the generating, transmission, distribution
and general facilities of FPL represented approximately 46%, 13%, 34% and 7%,
respectively, of FPL's gross investment in electric utility plant in service.
Substantially all electric utility plant of FPL is subject to the lien of a
mortgage securing FPL's first mortgage bonds.
Depreciation of electric property is primarily provided on a straight-line
average remaining life basis. FPL includes in depreciation expense a
provision for fossil plant dismantlement and nuclear plant decommissioning.
For substantially all of FPL's property, depreciation and fossil fuel plant
dismantlement studies are performed and filed with the FPSC at least every
four years. The most recent depreciation studies were approved by the FPSC
effective for 1998. That approval has since been challenged and hearings
have been requested. Fossil fuel plant dismantlement studies were filed in
September 1998 and will be effective January 1, 1999. The weighted annual
composite depreciation rate for FPL's electric plant in service was
approximately 4.4% for 1998, 4.3% for 1997 and 4.1% for 1996, excluding the
effects of decommissioning and dismantlement. Further, these rates exclude
the special and plant-related deferred cost amortization. See Regulation.
Nuclear Fuel - FPL leases nuclear fuel for all four of its nuclear units.
Nuclear fuel lease expense was $83 million, $85 million and $94 million in
1998, 1997 and 1996, respectively. Included in this expense was an interest
component of $9 million, $9 million and $10 million in 1998, 1997 and 1996,
respectively. Nuclear fuel lease payments and a charge for spent nuclear
fuel disposal are charged to fuel expense on a unit of production method.
These costs are recovered through the fuel and purchased power cost recovery
clause (fuel clause). Under certain circumstances of lease termination, FPL
is required to purchase all nuclear fuel in whatever form at a purchase price
designed to allow the lessor to recover its net investment cost in the fuel,
which totaled $146 million at December 31, 1998. For ratemaking, these
leases are classified as operating leases. For financial reporting, the
capital lease obligation is recorded at the amount due in the event of lease
termination.
Decommissioning and Dismantlement of Generating Plant - FPL accrues nuclear
decommissioning costs over the expected service life of each unit. Nuclear
decommissioning studies are performed at least every five years and are
submitted to the FPSC for approval. Decommissioning expense accruals
included in depreciation and amortization expense, were $85 million in each
of the years 1998, 1997 and 1996. At December 31, 1998 and 1997, the
accumulated provision for nuclear decommissioning totaled $1.205 billion
and $998 million, respectively, and is included in accumulated
depreciation. In October 1998, FPL filed updated nuclear decommissioning
studies with the FPSC. These studies assume prompt dismantlement for the
Turkey Point Units Nos. 3 and 4 with decommissioning activities commencing
in 2012 and 2013, respectively. St Lucie Unit No. 1 will be mothballed
beginning in 2016 with decommissioning activities integrated with the
prompt dismantlement of St. Lucie Unit No. 2 beginning in 2023. These
studies also assume that FPL will be storing spent fuel on site pending
removal to a U.S. Government facility. The studies indicate FPL's portion
of the ultimate costs of decommissioning its four nuclear units, including
costs associated with spent fuel storage, to be $7.3 billion. The updated
studies, which are pending FPSC approval, indicate there is an estimated
reserve deficiency at December 31, 1998, of approximately $535 million.
FPL is proposing to maintain the current approved annual decommissioning
accrual at $85 million per year and to recover the reserve deficiency
through the special amortization program. See Regulation. The annual
accrual will be adjusted once the amount of deficiency is approved and
recovery through the amortization program has been completed.
Similarly, FPL accrues the cost of dismantling its fossil fuel plants over
the expected service life of each unit. Fossil dismantlement expense was $17
million in each of the years 1998, 1997 and 1996, and is included in
depreciation and amortization expense. FPL's portion of the ultimate cost to
dismantle its fossil units is $521 million. At December 31, 1998 and 1997,
the accumulated provision for fossil dismantlement totaled $185 million and
$162 million, respectively, and is included in accumulated depreciation. The
dismantlement studies filed in 1998 indicated an estimated reserve deficiency
of $38 million which FPL is proposing to recover through the special
amortization program. See Regulation.
Restricted trust funds for the payment of future expenditures to decommission
FPL's nuclear units are included in special use funds of FPL. At
December 31, 1998 and 1997, decommissioning fund assets were $1.046 billion
and $850 million, respectively. Securities held in the decommissioning fund
are carried at market value with market adjustments resulting in a
corresponding adjustment to the accumulated provision for nuclear
decommissioning. See Note 3 - Special Use Funds. Contributions to the funds
are based on current period decommissioning expense. Additionally, fund
earnings, net of taxes are reinvested in the funds. The tax effects of
amounts not yet recognized for tax purposes are included in accumulated
deferred income taxes.
In 1996, the Financial Accounting Standards Board (FASB) issued an exposure
draft on accounting for obligations associated with the retirement of long-
lived assets. The method proposed by the FASB in the exposure draft would
require the present value of estimated future cash flows to decommission
FPL's nuclear power plants and dismantle its fossil power plants to be
recorded as an increase to asset balances and as a liability. Under that
proposal, it is anticipated that there will be no effect on cash flows and,
because of the regulatory treatment, there will be no significant effect on
net income. The matter has been restudied by the FASB and another exposure
draft is scheduled to be issued in 1999.
Accrual for Nuclear Maintenance Costs - Estimated nuclear maintenance costs
for each nuclear unit's next planned outage are accrued over the period from
the end of the last outage to the end of the next planned outage. Any
difference between the estimated and actual costs are included in O&M
expenses when known.
Construction Activity - In accordance with an FPSC rule, FPL is not permitted
to capitalize interest or a return on common equity during construction,
except for projects that cost in excess of 1/2% of the plant in service
balance and will require more than one year to complete. The FPSC allows
construction projects below that threshold as an element of rate base. FPL
Group's non-regulated operations capitalize interest on construction
projects.
Storm and Property Insurance Reserve Fund (storm fund) - The storm fund
provides coverage toward storm damage costs and possible retrospective
premium assessments stemming from a nuclear incident under the various
insurance programs covering FPL's nuclear generating plants. The storm fund,
which totaled $160 million and $157 million at December 31, 1998 and 1997,
respectively, is included in special use funds of FPL. Securities held in
the fund are carried at market value with market adjustments resulting in a
corresponding adjustment to the storm and property insurance reserve. See
Note 3 - Special Use Funds and Note 9 - Insurance. Fund earnings, net of
taxes, are reinvested in the fund. The tax effects of amounts not yet
recognized for tax purposes are included in accumulated deferred income
taxes.
Other Investments - Included in other investments in FPL Group's consolidated
balance sheets is FPL Group's participation in leveraged leases of $154
million at both December 31, 1998 and 1997. Additionally, other investments
include non-controlling non-majority owned interests in partnerships and
joint ventures, essentially all of which are accounted for under the equity
method.
Cash Equivalents - Cash equivalents consist of short-term, highly liquid
investments with original maturities of three months or less.
Short-Term Debt - The year end weighted-average interest rate on short-term
debt at December 31, 1998 was 5.2% for FPL Group.
Retirement of Long-Term Debt - The excess of FPL's reacquisition cost over
the book value of long-term debt is deferred and amortized to expense ratably
over the remaining life of the original issue, which is consistent with its
treatment in the ratemaking process. Through this amortization and amounts
recorded under the special amortization program, the remaining balance of
this regulatory asset was fully amortized in 1998. See Regulation. FPL
Group Capital, Inc. (FPL Group Capital) expenses this cost in the period
incurred.
Income Taxes - Deferred income taxes are provided on all significant
temporary differences between the financial statement and tax bases of assets
and liabilities. FPL is included in the consolidated federal income tax
return filed by FPL Group. FPL determines its income tax provision on the
"separate return method." The deferred regulatory credit - income taxes of
FPL represents the revenue equivalent of the difference in accumulated
deferred income taxes computed under FAS 109, "Accounting for Income Taxes,"
as compared to regulatory accounting rules. This amount is being amortized
in accordance with the regulatory treatment over the estimated lives of the
assets or liabilities which resulted in the initial recognition of the
deferred tax amount. Investment tax credits (ITC) for FPL are deferred and
amortized to income over the approximate lives of the related property in
accordance with the regulatory treatment. The special amortization program
included amortization of regulatory assets related to income taxes of $59
million and $20 million in 1997 and 1996, respectively.
Accounting for Derivative Instruments and Hedging Activities - In June 1998,
the FASB 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 and
FPL are currently assessing the effect, if any, on their financial statements
of implementing FAS 133. FPL Group and FPL will be required to adopt the
standard in 2000.
2. Employee Retirement Benefits
FPL Group and its subsidiaries sponsor a noncontributory defined benefit
pension plan and defined benefit postretirement plans for health care and
life insurance benefits (other benefits) for substantially all employees.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period ending
September 30, 1998 and a statement of the funded status of both years:
<TABLE><CAPTION>
Pension Benefits Other Benefits
1998 1997 1998 1997
------ ------ ------ ------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Obligation at October 1 of prior year ...................... $1,146 $1,262 $ 324 $ 297
Service cost ............................................... 45 38 5 5
Interest cost .............................................. 75 76 21 21
Plan amendments ............................................ 8 (290) - -
Actuarial losses - net ..................................... 34 87 10 11
Curtailments ............................................... - 19 - -
Benefit payments ........................................... (135) (46) (15) (10)
Obligation at September 30 ................................... 1,173 1,146 345 324
Change in plan assets:
Fair value of plan assets at October 1 of prior year ....... 2,287 1,996 125 107
Actual return on plan assets ............................... 184 343 7 28
Participant contributions .................................. - - 1 2
Benefit payments and expenses .............................. (142) (52) (18) (12)
Fair value of plan assets at September 30 .................... 2,329 2,287 115 125
Funded Status:
Funded status at September 30 .............................. 1,156 1,141 (230) (199)
Unrecognized prior service cost ............................ (100) (117) - -
Unrecognized transition (asset) obligation ................. (140) (163) 49 53
Unrecognized (gain) loss ................................... (736) (762) 34 23
Prepaid (accrued) benefit cost at FPL Group ................ $ 180 $ 99 $(147) $ (123)
Prepaid (accrued) benefit cost at FPL ...................... $ 173 $ 94 $(145) $ (122)
</TABLE>
The following table provides the components of net periodic benefit cost
for the plans for fiscal years 1998, 1997 and 1996:
<TABLE><CAPTION>
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Service cost ................................. $ 45 $ 38 $ 38 $ 6 $ 6 $ 5
Interest cost ................................ 75 76 90 21 21 18
Expected return on plan assets ............... (149) (135) (126) (8) (7) (6)
Amortization of transition (asset) obligation. (23) (23) (23) 3 3 3
Amortization of prior service cost ........... (8) 1 12 - - -
Amortization of losses (gains) ............... (21) (26) (10) 1 - -
Net periodic (benefit) cost .................. (81) (69) (19) 23 23 20
Effect of special retirement programs ........ - 18 - - - -
Net periodic (benefit) cost at FPL Group ..... $ (81) $ (51) $ (19) $ 23 $ 23 $ 20
Net periodic (benefit) cost at FPL ........... $ (80) $ (50) $ (18) $ 23 $ 23 $ 19
</TABLE>
The weighted-average discount rate used in determining the benefit
obligations was 6.0% and 6.5% for 1998 and 1997, respectively. The assumed
level of increase in future compensation levels was 5.5% for all years. The
expected long-term rate of return on plan assets was 7.75% for all years.
Based on the current discount rates and current health care costs, the
projected 1999 trend assumptions used to measure the expected cost of
benefits covered by the plans are 6.6% and 5.8%, for persons prior to age 65
and over age 65, respectively. The rate is assumed to decrease over the next
4 years to the ultimate trend rate of 5% for all age groups and remain at
that level thereafter.
Assumed health care cost trend rates can have a significant effect on the
amounts reported for the health care plans. A 1% increase (decrease) in
assumed health care cost trend rates would increase (decrease) the service
and interest cost components and the accumulated obligation of other benefits
by $1 million and $13 million, respectively.
3. Financial Instruments
The carrying amounts of cash equivalents and short-term debt approximate
their fair values. Certain investments of FPL Group, included in other
investments, are carried at estimated fair value which was $72 million and
$51 million at December 31, 1998 and 1997, respectively. The following
estimates of the fair value of financial instruments have been made using
available market information and other valuation methodologies. However, the
use of different market assumptions or methods of valuation could result in
different estimated fair values.
<TABLE><CAPTION>
December 31,
1998 1997
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Millions of Dollars)
<S> <C> <C> <C> <C>
Long-term debt of FPL (a) .................................... $2,421 $2,505(b) $2,600 $2,679(b)
Long-term debt of FPL Group (a) .............................. $2,706 $2,797(b) $3,147 $3,236(b)
Interest rate swap agreements of FPL Group ................... $ - $ - $ - $ 31(c)
____________________
(a) Includes current maturities.
(b) Based on quoted market prices for these or similar issues.
(c) Based on estimated cost to terminate the agreements. The agreements were terminated in 1998.
</TABLE>
Special Use Funds - Securities held in the special use funds are carried at
estimated fair value. The nuclear decommissioning fund consists of
approximately one-half equity securities and one-half municipal, government,
corporate and mortgage-backed debt securities with a weighted-average
maturity of approximately 10 years. The storm fund primarily consists of
municipal debt securities with a weighted-average maturity of approximately 3
years. The cost of securities sold is determined on the specific
identification method. The funds had approximate realized gains of $24
million and approximate realized losses of $4 million in 1998, $3 million and
$2 million in 1997 and $8 million and $9 million in 1996, respectively. The
funds had unrealized gains of approximately $210 million and $126 million at
December 31, 1998 and 1997, respectively; the unrealized losses at those
dates were approximately $2 million and $1 million. The proceeds from the
sale of securities in 1998, 1997 and 1996 were approximately $1.2 billion,
$800 million, and $1.1 billion, respectively.
4. Common Stock
Common Stock Dividend Restrictions - FPL Group's charter does not limit the
dividends that may be paid on its common stock. As a practical matter, the
ability of FPL Group to pay dividends on its common stock is dependent upon
dividends paid to it by its subsidiaries, primarily FPL. FPL's charter and a
mortgage securing FPL's first mortgage bonds contain provisions that, under
certain conditions, restrict the payment of dividends and other distributions
to FPL Group. These restrictions do not currently limit FPL's ability to pay
dividends to FPL Group. In 1998, 1997 and 1996, FPL paid, as dividends to
FPL Group, its net income available to FPL Group on a one-month lag basis.
Employee Stock Ownership Plan (ESOP) - The employee thrift plans of FPL Group
include a leveraged ESOP feature. Shares of common stock held by the Trust
for the thrift plans (Trust) are used to provide all or a portion of the
employers' matching contributions. Dividends received on all shares, along
with cash contributions from the employers, are used to pay principal and
interest on an ESOP loan held by FPL Group Capital. Dividends on shares
allocated to employee accounts and used by the Trust for debt service are
replaced with an equivalent amount of shares of common stock at prevailing
market prices.
ESOP-related compensation expense of approximately $19 million in 1998, $19
million in 1997 and $23 million in 1996 was recognized based on the fair
value of shares allocated to employee accounts during the period. Interest
income on the ESOP loan is eliminated in consolidation. ESOP-related
unearned compensation included as a reduction of shareholders' equity at
December 31, 1998 was approximately $248 million, representing 8.5 million
unallocated shares at the original issue price of $29 per share. The fair
value of the ESOP-related unearned compensation account using the closing
price of FPL Group stock as of December 31, 1998 was approximately $526
million.
Long-Term Incentive Plan - Under FPL Group's long-term incentive plan, 9
million shares of common stock are reserved and available for awards to
officers and employees of FPL Group and its subsidiaries as of December 31,
1998. Total compensation charged against earnings under the incentive plan
was not material in any year. The changes in share awards under the
incentive plan are as follows:
<TABLE><CAPTION>
Performance Restricted Non-qualified
Shares(a) Stock Option Shares(a)
----------- ---------- ----------------
<S> <C> <C> <C>
Balances, December 31, 1995 ....................................... 320,336 194,200 11,185
Granted (b) ..................................................... 90,772 23,000 -
Exercised at $30 7/8 ............................................ - - (10,935)
Paid/released ................................................... (60,359) (34,250) -
Forfeited ....................................................... (39,222) (16,650) (250)
Balances, December 31, 1996 ....................................... 311,527 166,300 -
Granted (b) ..................................................... 212,011 71,000 -
Paid/released ................................................... (70,008) - -
Forfeited ....................................................... (10,942) (17,750) -
Balances, December 31, 1997 ....................................... 442,588 219,550 -
Granted (b) ..................................................... 178,518 19,500 -
Paid/released ................................................... (80,920) - -
Forfeited ....................................................... (29,566) (22,250) -
Balances, December 31, 1998 ....................................... 510,620 216,800(c) -
____________________
(a) Performance shares resulted in 128,000, 132,000 and 124,000 assumed incremental shares of common stock outstanding
for purposes of computing diluted earnings per share in 1998, 1997 and 1996, respectively. These incremental
shares did not change basic earnings per share.
(b) The average grant date fair value of equity instruments issued under the incentive plan was $12 million, $13
million and $5 million in 1998, 1997 and 1996, respectively.
(c) Shares of restricted stock were issued at market value at the date of the grant.
</TABLE>
FAS 123, "Accounting for Stock-Based Compensation," encourages a fair value-
based method of accounting for stock-based compensation. FPL Group, however,
uses the intrinsic value-based method of accounting as permitted by the
statement. The results of utilizing the accounting method recommended in
FAS 123 would not have a material effect on FPL Group's results of operations
or change earnings per share.
Other - Each share of common stock has been granted a Preferred Share
Purchase Right (Right), at a price of $120, subject to adjustment, in the
event of certain attempted business combinations. The Rights will cause
substantial dilution to a person or group attempting to acquire FPL Group on
terms not approved by FPL Group's board of directors.
5. Preferred Stock
FPL Group's charter authorizes the issuance of 100 million shares of serial
preferred stock, $.01 par value. None of these shares is outstanding. FPL
Group has reserved 3 million shares for issuance upon exercise of preferred
share purchase rights which expire in June 2006. Preferred stock of FPL
consists of the following: (a)
<TABLE><CAPTION>
December 31, 1998
Shares Redemption December 31,
Outstanding Price 1998 1997
------------------------ ---------------------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Cumulative, $100 Par Value, authorized 15,822,500 shares at
December 31, 1998 and 1997:
Without sinking fund requirements:
4 1/2% Series ........................................... 100,000 $101.00 $ 10 $ 10
4 1/2% Series A ......................................... 50,000 $101.00 5 5
4 1/2% Series B ......................................... 50,000 $101.00 5 5
4 1/2% Series C ......................................... 62,500 $103.00 6 6
4.32% Series D .......................................... 50,000 $103.50 5 5
4.35% Series E .......................................... 50,000 $102.00 5 5
6.98% Series S .......................................... 750,000 $103.49(b) 75 75
7.05% Series T .......................................... 500,000 $103.52(b) 50 50
6.75% Series U .......................................... 650,000 $103.37(b) 65 65
Total preferred stock of FPL without sinking
fund requirements ................................... 2,262,500 $226 $226
____________________
(a) FPL's charter authorizes the issuance of 5 million shares of subordinated preferred stock, no par value. None of
these shares is outstanding. There were no issuances of preferred stock in 1998, 1997 and 1996. In 1996, FPL
redeemed 600,000 shares of its 7.28% Preferred Stock, Series F, $100 Par Value and 400,000 shares of its 7.40%
Preferred Stock, Series G, $100 Par Value.
(b) Not redeemable prior to 2003.
</TABLE>
6. Long-Term Debt
Long-term debt consists of the following:
<TABLE><CAPTION>
December 31,
1998 1997
------ ------
(Millions of Dollars)
<S> <C> <C>
FPL
First mortgage bonds:
Maturing through 2000 - 5 3/8% to 5 1/2% ................................................. $ 355 $ 355
Maturing 2001 through 2015 - 6% to 7 7/8% ................................................ 641 642
Maturing 2016 through 2026 - 7% to 7 3/4% ................................................ 741 741
Medium-term notes:
Maturing 1998 - 5.50% to 6.20% ......................................................... - 180
Maturing 2003 - 5.79% .................................................................. 70 70
Pollution control and industrial development series -
Maturing 2020 through 2027 - 6.7% to 7.5% .............................................. 150 150
Pollution control, solid waste disposal and industrial development revenue bonds -
Maturing 2021 through 2029 - variable, 3.6% and 3.9% average
annual interest rate, respectively ..................................................... 483 484
Unamortized discount - net ................................................................. (19) (22)
Total long-term debt of FPL .............................................................. 2,421 2,600
Less current maturities ................................................................ 230 180
Long-term debt of FPL, excluding current maturities .................................... 2,191 2,420
FPL Group Capital
Debentures:
Maturing 2013 - 7 5/8% (a)................................................................ 125 125
Senior term loan - Maturing 2007 - variable (b) ............................................ - 333
Other long-term debt - 3.4% to 7.645% due various dates to 2018 ............................ 162 91
Unamortized discount ....................................................................... (2) (2)
Total long-term debt of FPL Group Capital ................................................ 285 547
Less current maturities ................................................................ 129 18
Long-term debt of FPL Group Capital, excluding current maturities ...................... 156 529
Total long-term debt ..................................................................... $2,347 $2,949
____________________
(a) Redeemed in January 1999.
(b) A notional principal amount of $267 million at December 31, 1997 was hedged with interest rate swap agreements to
reduce the impact of changes in interest rates on variable rate long-term debt. The swap agreements effectively
changed the variable interest rates to an average fixed rate of 9.7%. The agreements were dedesignated as a hedge
and terminated in 1998, resulting in a loss recorded as interest expense.
</TABLE>
Minimum annual maturities of long-term debt for FPL Group for 1999-2003 are
approximately $359 million, $129 million, $4 million, $4 million and $175
million, respectively. The amounts for FPL are $230 million, $125 million
and $170 million for 1999, 2000 and 2003, respectively. FPL has no amounts
due in 2001 and 2002.
Available lines of credit aggregated approximately $1.9 billion ($900 million
for FPL) at December 31, 1998, all of which were based on firm commitments.
7. Income Taxes
The components of income taxes are as follows:
<TABLE><CAPTION>
FPL Group FPL
Years Ended December 31, Years Ended December 31,
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Federal:
Current ............................................. $467 $308 $355 $492 $377 $388
Deferred ............................................ (215) (34) (77) (169) (83) (81)
ITC and other - net ................................. (27) (22) (31) (24) (22) (31)
Total federal ................................... 225 252 247 299 272 276
State:
Current ............................................. 72 52 63 78 60 53
Deferred ............................................ (18) - (16) (21) (3) -
Total state ..................................... 54 52 47 57 57 53
Income taxes charged to operations - FPL............... 356 329 329
Credited to other income (deductions) - FPL ........... (7) (8) (7)
Total income taxes .................................... $279 $304 $294 $349 $321 $322
</TABLE>
A reconciliation between the effective income tax rates and the applicable
statutory rates is as follows:
<TABLE><CAPTION>
FPL Group FPL
Years Ended December 31, Years Ended December 31,
1998 1997 1996 1998 1997 1996
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax rate ........................ 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
Increases (reductions) resulting from:
State income taxes - net of federal income tax benefit.. 3.7 3.7 3.5 3.7 3.9 3.7
Amortization of ITC .................................... (2.5) (2.4) (3.6) (2.4) (2.3) (3.3)
Amortization of deferred regulatory credit -
income taxes ......................................... (1.8) (1.8) (2.0) (1.7) (1.8) (1.9)
Adjustments of prior years' tax matters ................ (6.3)(a) (2.7) (1.3) 0.1 (1.7) (0.1)
Preferred stock dividends - FPL ........................ 0.5 0.7 1.0 - - -
Other - net ............................................ 1.0 0.5 1.0 .9 0.8 0.9
Effective income tax rate ................................ 29.6% 33.0% 33.6% 35.6% 33.9% 34.3%
____________________
(a) Includes the resolution of an audit issue with the Internal Revenue Service (IRS).
</TABLE>
The income tax effects of temporary differences giving rise to consolidated
deferred income tax liabilities and assets are as follows:
<TABLE><CAPTION>
FPL Group FPL
December 31, December 31,
1998 1997 1998 1997
------ ------ ------ ------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Property-related ................................................... $1,493 $1,663 $1,493 $1,631
Investment-related ................................................. 460 436 - -
Other .............................................................. 255 362 140 185
Total deferred tax liabilities ................................... 2,208 2,461 1,633 1,816
Deferred tax assets and valuation allowance:
Asset writedowns and capital loss carryforward ..................... 113 121 - -
Unamortized ITC and deferred regulatory credit - income taxes ...... 136 153 136 153
Storm and decommissioning reserves ................................. 258 246 258 246
Other .............................................................. 473 496 352 347
Valuation allowance ................................................ (27) (28) - -
Net deferred tax assets .......................................... 953 988 746 746
Accumulated deferred income taxes .................................... $1,255 $1,473 $ 887 $1,070
</TABLE>
The carryforward period for a capital loss from the disposition in a prior
year of an FPL Group Capital subsidiary expired at the end of 1996. The
amount of the deductible loss from this disposition was limited by IRS rules.
FPL Group is challenging the IRS loss limitation and the IRS is disputing
certain other positions taken by FPL Group. Tax benefits, if any, associated
with these matters will be reported in future periods when resolved.
8. Jointly-Owned Electric Utility Plant
FPL owns approximately 85% of St. Lucie Unit No. 2, 20% of the St. Johns
River Power Park units and coal terminal and approximately 76% of Scherer
Unit No. 4. At December 31, 1998, FPL's gross investment in these units was
$1.174 billion, $328 million and $571 million, respectively; accumulated
depreciation was $663 million, $142 million and $239 million, respectively.
FPL is responsible for its share of the operating costs, as well as providing
its own financing. At December 31, 1998, there was no significant balance of
construction work in progress on these facilities.
9. 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 $2.8 billion for 1999 through 2001.
Included in this three-year forecast are capital expenditures for 1999 of
approximately $910 million. FPL Energy is a party to a contract to purchase
all of Central Maine Power Company's (Central Maine) non-nuclear generation
assets for $846 million. The contract is subject to a civil action initiated
by FPL Energy. See Litigation. FPL Group and its subsidiaries, other than
FPL, have guaranteed approximately $305 million of purchase power agreement
obligations, debt service payments and other payments subject to certain
contingencies.
Insurance - Liability for accidents at nuclear power plants is governed by
the Price-Anderson Act, which limits the liability of nuclear reactor
owners to the amount of the insurance available from private sources and
under an industry retrospective payment plan. In accordance with this Act,
FPL maintains $200 million of private liability insurance, which is the
maximum obtainable, and participates in a secondary financial protection
system under which it is subject to retrospective assessments of up to $363
million per incident at any nuclear utility reactor in the United States,
payable at a rate not to exceed $43 million per incident per year.
FPL participates in nuclear insurance mutual companies that provide $2.75
billion of limited insurance coverage for property damage, decontamination
and premature decommissioning risks at its nuclear plants. The proceeds
from such insurance, however, must first be used for reactor stabilization
and site decontamination before they can be used for plant repair. FPL
also participates in an insurance program that provides limited coverage
for replacement power costs if a nuclear plant is out of service because of
an accident. In the event of an accident at one of FPL's or another
participating insured's nuclear plants, FPL could be assessed up to $51
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. As approved by the FPSC, FPL maintains a funded storm and
property insurance reserve, which totaled approximately $259 million at
December 31, 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 long-term purchased power and fuel
contracts. Take-or-pay purchased power contracts with the Jacksonville
Electric Authority (JEA) and with subsidiaries of The Southern Company
(Southern Companies) provide approximately 1,300 megawatts (mw) of power
through mid-2010 and 383 mw thereafter through 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. FPL Energy has
long-term contracts for the transportation and storage of natural gas to
its Doswell plant which expire in 2007, with a five-year renewal option,
and in 2017, respectively.
The required capacity and minimum payments through 2003 under these
contracts are estimated to be as follows:
<TABLE><CAPTION>
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
FPL:
Capacity payments:
JEA and Southern Companies ............................................ $210 $210 $210 $210 $200
Qualifying facilities (a) ............................................. $360 $370 $380 $400 $410
Minimum payments, at projected prices:
Natural gas, including transportation ................................. $210 $210 $240 $260 $270
Coal .................................................................. $ 40 $ 40 $ 30 $ 30 $ 15
FPL Energy:
Natural gas transportation and storage ................................ $ 15 $ 15 $ 15 $ 15 $ 15
_______________
(a) Includes approximately $40 million, $40 million, $40 million, $45 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>
Charges under these contracts were as follows:
<TABLE><CAPTION>
1998 Charges 1997 Charges 1996 Charges
Energy/ Energy/ Energy/
Capacity Fuel Capacity Fuel Capacity Fuel
------------------ ------------------- --------------------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
FPL:
JEA and Southern Companies ............. $192(b) $138(a) $201(b) $153(a) $192(b) $148(a)
Qualifying facilities .................. $299(c) $108(a) $296(c) $128(a) $279(c) $125(a)
Natural gas, including transportation... $ - $280(a) $ - $413(a) $ - $422(a)
Coal ................................... $ - $ 50(a) $ - $ 52(a) $ - $ 49(a)
FPL Energy:
Natural gas transportation and storage.. $ - $ 18 $ - $ 16 $ - $ -
_______________
(a) Recovered through the 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 U.S. Bankruptcy Code, ceased all attempts to
operate the power plants and entered into an agreement with the holders of
more than 70% of the bonds that partially financed the construction of the
plants. This agreement gives the holders of a majority of the principal
amount of the bonds (the majority bondholders) the right to control, fund
and manage any litigation against FPL and the right to settle with FPL on
any terms such majority bondholders approve, provided that certain
agreements are not affected and certain conditions are met. In January
1998, the plant owners (through the attorneys for the majority bondholders)
filed an answer denying the allegations in FPL's complaint and asserting
counterclaims for approximately $2 billion, consisting of all capacity
payments that could have been made over the 30-year term of the power
purchase agreements and three times their actual damages for alleged
violations of Florida antitrust laws, plus attorneys' fees. In October
1998, the court dismissed all of the plant owners' antitrust claims against
FPL. 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, a 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.
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.
In November 1998, a subsidiary of FPL Energy filed a civil action with the
U.S. District Court for the Southern District of New York requesting a
declaratory judgment that Central Maine cannot meet essential terms of the
agreement with FPL Energy's subsidiary regarding the purchase of Central
Maine's non-nuclear generating assets. FPL Group believes that recent FERC
rulings regarding transmission prevent Central Maine from delivering on its
contractual obligation that FPL Energy's subsidiary be able to operate the
power plants in a manner that is substantially consistent with Central
Maine's historical operation of the assets. FPL Group believes the FERC
rulings constitute a material adverse effect under the purchase agreement and
that FPL Energy's subsidiary should therefore not be bound to complete the
transaction. The trial is scheduled for March 1999.
10. Segment Information
Effective December 31, 1998, FPL Group adopted FAS 131, "Disclosures about
Segments of an Enterprise and Related Information." FPL Group's only
reportable segment is FPL, a regulated utility. Differences between FPL
Group and FPL financial statement amounts represent other business activities
and other segments that are not reportable. For the years ended December 31,
1998, 1997 and 1996, approximately 98%, 98% and 97%, respectively, of FPL
Group's operating revenues were derived from the sale of electricity in the
United States. As of December 31, 1998 and 1997, less than 1% of long-lived
assets were located in foreign countries.
<TABLE><CAPTION>
1998 1997 1996
FPL Other(a) Total FPL Other(a) Total FPL Other(a) Total
--------------------------- -------------------------- --------------------------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues ........ $ 6,366 $ 295 $ 6,661 $ 6,132 $ 237 $ 6,369 $5,986 $ 51 $6,037
Interest expense .......... $ 196 $ 126 $ 322 $ 227 $ 64 $ 291 $ 246 $ 21 $ 267
Depreciation and
amortization ............ $ 1,249 $ 35 $ 1,284 $ 1,034 $ 27 $ 1,061 $ 955 $ 5 $ 960
Equity in earnings of
equity method investees . $ - $ 39 $ 39 $ - $ 14 $ 14 $ - $ 2 $ 2
Income tax expense ........ $ 349 $ (70) $ 279 $ 321 $ (17) $ 304 $ 322 $(28) $ 294
Net income ................ $ 616 $ 48 $ 664 $ 608 $ 10 $ 618 $ 591 $(12) $ 579
Significant noncash items . $ - $ - $ - $ - $ 420 $ 420 $ - $ 33 $ 33
Capital expenditures ...... $ 617 $ 329 $ 946 $ 551 $ 291 $ 842 $ 474 $ 52 $ 526
Total assets .............. $10,748 $1,281 $12,029 $11,172 $1,277 $12,449
Investment in equity
method investees ........ $ - $ 165 $ 165 $ - $ 76 $ 76
____________________
(a) Represents other business activities and other segments that are not separately reportable.
</TABLE>
11. Subsequent Event
In January 1999, an FPL Group Capital subsidiary sold 3.5 million common
shares of Adelphia Communications Corporation (Adelphia) stock, which had
been accounted for on the equity method, resulting in an after-tax gain of
approximately $96 million. In addition, an agreement was reached with
Adelphia to sell FPL Group Capital's one-third interest in a limited
partnership. While the terms have not been finalized, the sale of the
limited partnership interest is expected to have a positive effect on FPL
Group's results of operations.
12. Summarized Financial Information of FPL Group Capital (Unaudited)
FPL Group Capital's debentures, when outstanding, are guaranteed by FPL
Group and included in FPL Group's consolidated balance sheets. Operating
revenues of FPL Group Capital for the three years ended December 31, 1998,
1997 and 1996 were $295 million, $237 million and $50 million,
respectively. For the same periods, operating expenses were $225 million,
$186 million and $65 million, respectively. Net income for 1998, 1997 and
1996 was $68 million, $27 million and $11 million, respectively
At December 31, 1998, FPL Group Capital had $317 million of current assets,
$1.445 billion of noncurrent assets, $310 million of current liabilities and
$703 million of noncurrent liabilities. At December 31, 1997, FPL Group
Capital had current assets of $156 million, noncurrent assets of $1.447
billion, current liabilities of $252 million and noncurrent liabilities of
$999 million.
13. Quarterly Data (Unaudited)
Condensed consolidated quarterly financial information for 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
March 31 (a) June 30 (a) September 30 (a) December 31 (a)
------------------ ------------------ ----------------- -----------------
(In millions, except per share amounts)
FPL Group:
<S> <C> <C> <C> <C>
1998
Operating revenues ................ $ 1,338 $ 1,692 $ 1,999 $ 1,632
Operating income .................. $ 218 $ 317 $ 528 $ 189
Net income ........................ $ 108 $ 176 $ 287 $ 93(b)
Earnings per share(c) ............. $ 0.63 $ 1.02 $ 1.66 $ 0.54(b)
Dividends per share ............... $ 0.50 $ 0.50 $ 0.50 $ 0.50
High-low common stock sales prices. $65 3/16 - 56 1/16 $65 5/8 - 58 11/16 $ 70- 59 11/16 $72 9/16- 60 1/2
1997
Operating revenues ................ $ 1,445 $ 1,587 $ 1,859 $ 1,478
Operating income .................. $ 225 $ 321 $ 464 $ 218
Net income ........................ $ 101 $ 164 $ 262 $ 91
Earnings per share(c) ............. $ 0.58 $ 0.95 $ 1.52 $ 0.52
Dividends per share ............... $ 0.48 $ 0.48 $ 0.48 $ 0.48
High-low common stock sales prices. $ 46 3/4 - 43 5/8 $4 8 1/8 - 42 5/8 $51 9/16 - 45 1/2 $ 60 - 49 1/2
FPL:
1998
Operating revenues ................ $ 1,295 $ 1,634 $ 1,878 $ 1,559
Operating income .................. $ 159 $ 216 $ 314 $ 138
Net income ........................ $ 107 $ 167 $ 267 $ 90
Net income available to FPL Group.. $ 103 $ 163 $ 263 $ 87
1997
Operating revenues ................ $ 1,399 $ 1,541 $ 1,819 $ 1,373
Operating income .................. $ 168 $ 220 $ 311 $ 150
Net income ........................ $ 110 $ 164 $ 256 $ 97
Net income available to FPL Group.. $ 104 $ 160 $ 251 $ 93
____________________
(a) In the opinion of FPL Group and FPL, all adjustments, which consist of normal recurring accruals necessary to
present a fair statement of the amounts shown for such periods, have been made. Results of operations for an
interim period may not give a true indication of results for the year.
(b) Includes a loss on the sale of Turner Foods Corporation and the cost of terminating an agreement designed to fix
interest rates, partly offset by the favorable resolution of an audit issue with the IRS.
(c) Basic and assuming dilution.
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrants
FPL Group - The information required by this Item will be included in FPL
Group's Proxy Statement which will be filed with the Securities and Exchange
Commission in connection with the 1999 Annual Meeting of Shareholders (FPL
Group's Proxy Statement) and is incorporated herein by reference, or is
included in Item I. Business - Executive Officers of the Registrants.
FPL DIRECTORS(a)
James L. Broadhead. Mr. Broadhead, 63, is chairman and chief executive
officer of FPL and FPL Group. He is a director of Delta Air Lines, Inc., New
York Life Insurance Company and The Pittston Company, and a trustee of
Cornell University. Mr. Broadhead has been a director of FPL and FPL Group
since 1989.
Dennis P. Coyle. Mr. Coyle, 60, is general counsel and secretary of FPL and
FPL Group. He is a director of Adelphia Communications Corporation. Mr.
Coyle has been a director of FPL since 1990.
Paul J. Evanson. Mr. Evanson, 57, is the president of FPL. He was formerly
senior vice president, finance and chief financial officer of FPL and vice
president, finance and chief financial officer of FPL Group. He is a
director of Lynch Corporation and Southern Energy Homes, Inc. Mr. Evanson
has been a director of FPL since 1992 and a director of FPL Group since 1995.
Lawrence J. Kelleher. Mr. Kelleher, 51, is senior vice president, human
resources of FPL and vice president, human resources of FPL Group. Mr.
Kelleher has been a director of FPL since 1990.
Thomas F. Plunkett. Mr. Plunkett, 59, is president of FPL's nuclear
division. He was formerly site vice president at Turkey Point. Mr. Plunkett
has been a director of FPL since 1996.
C. O. Woody. Mr. Woody, 60, is president of the power generation division.
He was formerly senior vice president, power generation of FPL. Mr. Woody
has been a director of FPL since 1989.
Michael W. Yackira. Mr. Yackira, 47, is the president of FPL Energy, Inc.
He was formerly senior vice president, finance and chief financial officer of
FPL and vice president, finance and chief financial officer of FPL Group from
January 1995 to January 1998. Prior to that, Mr. Yackira was senior vice
president, market and regulatory services of FPL. Mr. Yackira has been a
director of FPL since 1990.
Roger Young. Mr. Young, 55, became the president and a director of FPL Group
and a director of FPL in February 1999. From 1988 until its merger with
Southern Electric plc in December 1998, he was chief executive of Scottish
Hydro-Electric plc, a utility that generated and marketed electricity
throughout Great Britain and operated an electric transmission and
distribution system in northern Scotland.
____________________
(a) Directors are elected annually and serve until their resignation,
removal or until their respective successors are elected. Each
director's business experience during the past five years is noted
either here or in the Executive Officers table in Item 1. Business -
Executive Officers of the Registrants.
Item 11. Executive Compensation
FPL Group - The information required by this Item will be included in FPL
Group's Proxy Statement and is incorporated herein by reference, provided
that the Compensation Committee Report and Performance Graph which are
contained in FPL Group's Proxy Statement shall not be deemed to be
incorporated herein by reference.
FPL - The following table sets forth FPL's portion of the compensation paid
during the past three years to FPL's chief executive officer and the other
four most highly-compensated persons who served as executive officers of FPL
at December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------- ----------------------
Other Re- Long-Term All
Annual stricted Incentive Other
Compen- Stock Plan Compen-
Name and Principal Position Year Salary Bonus sation Awards(a) Payouts(b) sation(c)
- --------------------------------- ---- -------- -------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Broadhead (a) 1998 $847,875 $937,125 $ 9,809 - $ - $12,009
Chairman of the Board and Chief 1997 846,000 824,850 9,813 - 1,402,140 11,286
Executive Officer of FPL and 1996 799,800 633,423 10,601 - 920,892 12,727
FPL Group
Paul J. Evanson 1998 592,500 546,900 2,785 - - 13,746
President of FPL 1997 564,300 423,200 2,646 - 306,741 15,233
1996 540,000 340,200 2,925 - 197,471 15,868
Dennis P. Coyle 1998 357,000 257,040 595 - - 9,737
General Counsel and Secretary 1997 353,628 198,904 3,600 - 310,021 10,653
of FPL and FPL Group 1996 334,800 158,193 - - 203,637 10,742
C.O. Woody 1998 342,300 205,400 2,785 - - 12,029
President of the Power Generation 1997 308,000 135,800 5,663 572,500 279,837 12,959
Division 1996 295,000 142,500 3,882 - 184,711 13,448
Lawrence J. Kelleher 1998 267,750 194,119 3,108 - - 9,724
Senior Vice President, 1997 258,500 147,768 3,273 538,150 222,173 11,655
Human Resources of FPL and 1996 241,800 116,808 3,238 - 145,942 11,659
Vice President, Human Resources
of FPL Group
____________________
(a) At December 31, 1998, Mr. Broadhead held 96,800 shares of restricted common stock with a value of $5,965,300.
These shares were awarded in 1991 for the purpose of financing Mr. Broadhead's supplemental retirement plan and
will offset lump sum benefits that would otherwise be payable to him in cash upon retirement. See Retirement Plans
herein. At December 31, 1998, Mr. Woody held 10,000 shares of restricted stock with a value of $616,250, which
will vest in 1999; Mr. Kelleher held 10,000 shares of restricted stock with a value of $616,250. Dividends at
normal rates are paid on restricted common stock.
(b) Payouts are in cash (for payment of income taxes) and shares of common stock, valued at the closing price on the
last business day preceding payout. As of February 26, 1999, payouts for 1998 were not calculable.
(c) Represents employer matching contributions to employee thrift plans and employer contributions for life insurance
as follows:
Thrift Match Life Insurance
Mr. Broadhead ....................... $6,783 $5,226
Mr. Evanson ......................... 7,600 6,146
Mr. Coyle ........................... 6,783 2,954
Mr. Woody ........................... 7,600 4,429
Mr. Kelleher......................... 6,783 2,941
</TABLE>
Long-Term Incentive Plan Awards - In 1998, performance awards under FPL
Group's Long-Term Incentive Plan were made to the executive officers named in
the Summary Compensation Table as set forth in the following tables.
LONG-TERM INCENTIVE PLAN AWARDS
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price-Based Plans
Number of Shares
Number of Performance Period
Name Shares Until Payout Threshold Target Maximum
<S> <C> <C> <C> <C> <C>
James L. Broadhead ................ 17,166 1/1/98 - 12/31/01 - 17,166 27,466
Paul J. Evanson ................... 6,813 1/1/98 - 12/31/01 - 6,813 10,901
Dennis P. Coyle ................... 3,943 1/1/98 - 12/31/01 - 3,943 6,309
C. O. Woody ....................... 3,374 1/1/98 - 12/31/01 - 3,374 5,398
Lawrence J. Kelleher .............. 2,957 1/1/98 - 12/31/01 - 2,957 4,731
</TABLE>
Shown in the preceding table, the performance share awards are payable at the
end of the four-year performance period. The amount of the payout is
determined by multiplying the participant's target number of shares by his
average level of attainment, expressed as a percentage, which may not exceed
160%, of his targeted awards under the Annual Incentive Plans for each of the
years encompassed by the award period. Annual incentive compensation is
based on the attainment of net income goals for FPL and FPL Group, which are
established by the Compensation Committee of FPL Group's Board of Directors
(the Committee) at the beginning of the year. The amounts earned on the
basis of this performance measure are subject to reduction based on the
degree of achievement of other corporate and business unit performance
measures, and in the discretion of the Committee. Mr. Broadhead's annual
incentive compensation for 1998 was based on the achievement of FPL Group's
net income goals and the following performance measures for FPL (weighted
75%) and the non-utility and/or new businesses (weighted 25%) and upon
certain qualitative factors. For FPL, the incentive performance measures
were financial indicators (weighted 50%) and operating indicators (weighted
50%). The financial indicators were operations and maintenance costs,
capital expenditure levels, net income, regulatory return on equity and
operating cash flow. The operating indicators were service reliability as
measured by the frequency and duration of service interruptions and service
unavailability, system performance as measured by availability factors for
the fossil power plants, WANO index for nuclear power plants, employee
safety, number of significant environmental violations, customer satisfaction
survey results, load management installed capability and conservation
programs' annual installed capacity. For the non-utility and/or new
businesses, the performance measures were total combined net income and
return on equity, the completion of the purchase of the generation assets of
Central Maine, the development of out-of-territory residential product supply
and customer service capabilities, the development and implementation of
energy trading and marketing management policies and procedures and the
evaluation of international and domestic acquisitions. The qualitative
factors included measures to position FPL Group for greater competition and
initiating other actions that significantly strengthen FPL and FPL Group and
enhance shareholder value.
<TABLE><CAPTION>
Estimated Future Payouts
Under Non-Stock Price-Based Plans
Number of Shares
------------------------------------
Number of Performance Period
Name Shares Until Payout Threshold Target Maximum
- ----------------------------------- --------- ------------------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
James L. Broadhead ................ 11,704 1/1/98 - 12/31/00 - 11,704 18,727
Paul J. Evanson ................... 5,840 1/1/98 - 12/31/00 - 5,840 9,344
Dennis P. Coyle ................... 2,957 1/1/98 - 12/31/00 - 2,957 4,731
C. O. Woody ....................... 2,530 1/1/98 - 12/31/00 - 2,530 4,048
Lawrence J. Kelleher .............. 2,218 1/1/98 - 12/31/00 - 2,218 3,549
</TABLE>
Shown in the preceding table, the shareholder value share awards are payable
at the end of the three-year performance period. The amount of the payout is
determined by multiplying the participant's target number of shares by a
factor derived by dividing the average annual total shareholder return of FPL
Group (price appreciation of FPL Group common stock plus dividends) by the
total shareholder return of the Dow Jones Electric Utilities Index companies
over the three-year performance period. This payment may not exceed 160% of
targeted awards.
Retirement Plans - FPL Group maintains a non-contributory defined benefit
pension plan and a supplemental executive retirement plan which covers FPL
employees. The following table shows the estimated annual benefits,
calculated on a straight-line annuity basis, payable upon retirement in 1998
at age 65 after the indicated years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Eligible Average Years of Service
Annual Compensation 10 20 30 40 50
- ------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 300,000 ............................................. $ 58,905 $117,797 $146,702 $155,244 $157,632
400,000 ............................................. 78,905 157,797 196,702 207,744 210,132
500,000 ............................................. 98,905 197,797 246,702 260,244 262,632
600,000 ............................................. 118,905 237,797 296,702 312,744 315,132
700,000 ............................................. 138,905 277,797 346,702 365,244 367,632
800,000 ............................................. 158,905 317,797 396,702 417,744 420,132
900,000 ............................................. 178,905 357,797 446,702 470,244 472,632
1,000,000 ............................................. 198,905 397,797 496,702 522,744 525,132
1,100,000 ............................................. 218,905 437,797 546,702 575,244 577,632
1,200,000 ............................................. 238,905 477,797 596,702 627,744 630,132
1,300,000 ............................................. 258,905 517,797 646,702 680,244 682,632
1,400,000 ............................................. 278,905 557,797 696,702 732,744 735,132
1,500,000 ............................................. 298,905 597,797 746,702 785,244 787,632
1,600,000 ............................................. 318,905 637,797 796,702 837,744 840,132
1,700,000 ............................................. 338,905 677,797 846,702 890,244 892,632
1,800,000 ............................................. 358,905 717,797 896,702 942,744 945,132
1,900,000 ............................................. 378,905 757,797 946,702 995,244 997,632
2,000,000 ............................................. 398,905 797,797 996,702 1,047,744 1,050,132
</TABLE>
The compensation covered by the plans includes annual salaries and bonuses of
certain officers of FPL Group and annual salaries of officers of FPL, as
shown in the respective Summary Compensation Tables, but no other amounts
shown in that table. The estimated credited years of service for the
executive officers named in the Summary Compensation Table are: Mr.
Broadhead, 10 years; Mr. Evanson, 6 years; Mr. Coyle, 9 years; Mr. Woody, 42
years; and Mr. Kelleher, 31 years. Amounts shown in the table reflect
deductions to partially cover employer contributions to Social Security.
A supplemental retirement plan for Mr. Broadhead provides for a lump-sum
retirement benefit equal to the then present value of a joint and survivor
annuity providing annual payments to him or his surviving beneficiary equal
to 61% to 70% of his average annual compensation for the three years prior to
his retirement between age 62 (1998) and age 65 (2001), reduced by the then
present value of the annual amount of payments to which he is entitled under
all other pension and retirement plans of FPL Group and former employers.
This benefit is further reduced by the then value of 96,800 shares of
restricted common stock which vest as to 77,000 shares in 2000 and as to
19,800 shares in 2001. Upon a change of control of FPL Group (as defined
below under Employment Agreements), the restrictions on the restricted stock
lapse and the full retirement benefit becomes payable. Upon termination of
Mr. Broadhead's employment agreement (also described below) without cause,
the restrictions on the restricted stock lapse and he becomes fully vested
under the supplemental retirement plan.
A supplemental retirement plan for Mr. Coyle provides for benefits, upon
retirement at age 62 or more, based on two times his credited years of
service. A supplemental retirement plan for Mr. Evanson provides for
benefits based on two times his credited years of service up to age 65 and
one times his credited years of service thereafter.
FPL Group sponsors a split-dollar life insurance plan for certain of FPL and
FPL Group's senior officers. Benefits under the split-dollar plan are
provided by universal life insurance policies purchased by FPL Group. If the
officer dies prior to retirement, the officer's beneficiaries generally
receive two and one-half times the officer's annual salary at the time of
death. If the officer dies after retirement, the officer's beneficiaries
receive between 50% to 100% of the officer's final annual salary. Each
officer is taxable on the insurance carrier's one year term rate for his or
her life insurance coverage.
Employment Agreements - FPL Group has an employment agreement with Mr.
Broadhead that provides for automatic one-year extensions after 1998 unless
either party elects not to extend. The agreement provides for a minimum base
salary of $765,900 per year, subject to increases based upon corporate and
individual performance and increases in cost-of-living indices, plus annual
and long-term incentive compensation opportunities at least equal to those
currently in effect. If FPL Group terminates Mr. Broadhead's employment
without cause, he is entitled to receive a lump sum payment of two years'
compensation. Compensation is measured by the then current base salary plus
the average of the preceding two years' annual incentive awards. He would
also be entitled to receive all amounts accrued under all performance share
grants in progress, prorated for the year of termination and assuming
achievement of the targeted award, and to full vesting of his benefits under
his supplemental retirement plan.
FPL Group and FPL have entered into employment agreements with certain
officers, including the individuals named in the Summary Compensation Table,
to become effective in the event of a change of control of FPL Group, which
is defined as the acquisition of beneficial ownership of 20% of the voting
power of FPL Group, certain changes in FPL Group's board of directors, or
approval by the shareholders of the liquidation of FPL Group or of certain
mergers or consolidations or of certain transfers of FPL Group's assets.
These agreements are intended to assure FPL Group and FPL of the continued
services of key officers. The agreements provide that each officer shall be
employed by FPL Group or one of its subsidiaries in his or her then current
position, with compensation and benefits at least equal to the then current
base and incentive compensation and benefit levels, for an employment period
of four and, in certain cases, five years after a change in control occurs.
In the event that the officer's employment is terminated (except for death,
disability or cause) or if the officer terminates his or her employment for
good reason, as defined in the agreement, the officer is entitled to
severance benefits in the form of a lump sum payment equal to the
compensation due for the remainder of the employment period or for two years,
whichever is longer. Such benefits would be based on the officer's then base
salary plus an annual bonus at least equal to the average bonus for the two
years preceding the change of control. The officer is also entitled to the
maximum amount payable under all long-term incentive compensation grants
outstanding, continued coverage under all employee benefit plans,
supplemental retirement benefits and reimbursement for any tax penalties
incurred as a result of the severance payments.
Director Compensation - All of the directors of FPL are salaried employees of
FPL Group and its subsidiaries and do not receive any additional compensation
for serving as a director.
Item 12. Security Ownership of Certain Beneficial Owners and Management
FPL Group - The information required by this Item will be included in FPL
Group's Proxy Statement and is incorporated herein by reference.
FPL - FPL Group owns 100% of FPL's common stock. FPL's directors and
executive officers beneficially own shares of FPL Group's common stock as
follows:
<TABLE><CAPTION>
Name Number of Shares (a)
- --------------------------------------------- --------------------
<S> <C>
James L. Broadhead ................................................. 153,141(b)(c)
Dennis P. Coyle .................................................... 10,378(b)
Paul J. Evanson .................................................... 19,722(b)
Lawrence J. Kelleher ............................................... 21,621(b)(c)
Thomas F. Plunkett ................................................. 23,001(b)(c)
C. O. Woody ........................................................ 26,821(b)(c)
Michael W. Yackira ................................................. 25,130(b)(c)
Roger Young ........................................................ -
All directors and executive officers as a group .................... 296,167(d)
(a) Information is as of January 31, 1999, except for executive officers' holdings under the thrift plans and the
Supplemental Executive Retirement Plan, which are as of December 31, 1998. Unless otherwise indicated, each person
has sole voting and sole investment power.
(b) Includes 13,159, 3,188, 3,199, 1,697, 359, 1,224 and 1,908 phantom shares for Messrs. Broadhead, Coyle, Evanson,
Kelleher, Plunkett, Woody and Yackira, respectively, credited to a Supplemental Matching Contribution Account under
the Supplemental Executive Retirement Plan.
(c) Includes 96,800, 10,000, 15,000, 10,000 and 10,000 shares of restricted stock as to which Messrs. Broadhead,
Kelleher, Plunkett, Woody and Yackira, respectively, have voting but not investment power.
(d) Less than 1% of FPL Group's common stock outstanding.
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance - FPL's directors
and executive officers are required to file initial reports of ownership and
reports of changes of ownership of FPL Group common stock with the Securities
and Exchange Commission. Based upon a review of these filings and written
representations from FPL directors and executive officers, all required
filings were timely made in 1998.
Item 13. Certain Relationships and Related Transactions
FPL Group - The information required by this Item will be included in FPL
Group's Proxy Statement and is incorporated herein by reference.
FPL - None
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements Page(s)
Independent Auditors' Report 16
FPL Group:
Consolidated Statements of Income 17
Consolidated Balance Sheets 18
Consolidated Statements of Cash Flows 19
Consolidated Statement of Shareholders' Equity 20
FPL:
Consolidated Statements of Income 21
Consolidated Balance Sheets 22
Consolidated Statements of Cash Flows 23
Consolidated Statement of Shareholder's Equity 24
Notes to Consolidated Financial Statements 25-36
2. Financial Statement Schedules - Schedules are omitted as not
applicable or not required.
3. Exhibits including those Incorporated by Reference
4.
<TABLE>
<CAPTION>
Exhibit FPL
Number Description Group FPL
<S> <C> <C> <C>
*3(i)a Restated Articles of Incorporation of FPL Group dated December 31, 1984, x
as amended through December 17, 1990 (filed as Exhibit 4(a) to Post-
Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*3(i)b Amendment to FPL Group's Restated Articles of Incorporation dated June 27, x
1996 (filed as Exhibit 3 to Form 10-Q for the quarter ended June 30, 1996,
File No. 1-8841)
*3(i)c Restated Articles of Incorporation of FPL dated March 23, 1992 (filed as x
Exhibit 3(i)a to Form 10-K for the year ended December 31, 1993, File No.
1-3545)
*3(i)d Amendment to FPL's Restated Articles of Incorporation dated March 23, 1992 x
(filed as Exhibit 3(i)b to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)e Amendment to FPL's Restated Articles of Incorporation dated May 11, 1992 x
(filed as Exhibit 3(i)c to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)f Amendment to FPL's Restated Articles of Incorporation dated March 12, 1993 x
(filed as Exhibit 3(i)d to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)g Amendment to FPL's Restated Articles of Incorporation dated June 16, 1993 x
(filed as Exhibit 3(i)e to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)h Amendment to FPL's Restated Articles of Incorporation dated August 31, 1993 x
(filed as Exhibit 3(i)f to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)i Amendment to FPL's Restated Articles of Incorporation dated November 30, x
1993 (filed as Exhibit 3(i)g to Form 10-K for the year ended December 31,
1993, File No. 1-3545)
*3(ii)a Bylaws of FPL Group dated November 15, 1993 (filed as Exhibit 3(ii) to Form x
10-K for the year ended December 31, 1993, File No. 1-8841)
*3(ii)b Bylaws of FPL dated May 11, 1992 (filed as Exhibit 3 to Form 8-K dated x
May 1, 1992, File No. 1-3545)
*4(a) Form of Rights Agreement, dated as of July 1, 1996, between FPL Group x
and the First National Bank of Boston (filed as Exhibit 4 to Form 8-K
dated June 17, 1996, File No. 1-8841)
*4(b) Mortgage and Deed of Trust dated as of January 1, 1944, and Ninety-eight x x
Supplements thereto between FPL and Bankers Trust Company and The
Florida National Bank of Jacksonville (now First Union National Bank of
Florida), Trustees (as of September 2, 1992, the sole trustee is Bankers
Trust Company) (filed as Exhibit B-3, File No. 2-4845; Exhibit 7(a),
File No. 2-7126; Exhibit 7(a), File No. 2-7523; Exhibit 7(a), File No.
2-7990; Exhibit 7(a), File No. 2-9217; Exhibit 4(a)-5, File No. 2-10093;
Exhibit 4(c), File No. 2-11491; Exhibit 4(b)-1, File No. 2-12900;
Exhibit 4(b)-1, File No. 2-13255; Exhibit 4(b)-1, File No. 2-13705;
Exhibit 4(b)-1, File No. 2-13925; Exhibit 4(b)-1, File No. 2-15088;
Exhibit 4(b)-1, File No. 2-15677; Exhibit 4(b)-1, File No. 2-20501;
Exhibit 4(b)-1, File No. 2-22104; Exhibit 2(c), File No. 2-23142; Exhibit
2(c), File No. 2-24195; Exhibit 4(b)-1, File No. 2-25677; Exhibit 2(c),
File No. 2-27612; Exhibit 2(c), File No. 2-29001; Exhibit 2(c), File
No. 2-30542; Exhibit 2(c), File No. 2-33038; Exhibit 2(c), File No.
2-37679; Exhibit 2(c), File No. 2-39006; Exhibit 2(c), File No. 2-41312;
Exhibit 2(c), File No. 2-44234; Exhibit 2(c), File No. 2-46502; Exhibit
2(c), File No. 2-48679; Exhibit 2(c), File No. 2-49726; Exhibit 2(c),
File No. 2-50712; Exhibit 2(c), File No. 2-52826; Exhibit 2(c), File No.
2-53272; Exhibit 2(c), File No. 2-54242; Exhibit 2(c), File No. 2-56228;
Exhibits 2(c) and 2(d), File No. 2-60413; Exhibits 2(c) and 2(d), File
No. 2-65701; Exhibit 2(c), File No. 2-66524; Exhibit 2(c), File No.
2-67239; Exhibit 4(c), File No. 2-69716; Exhibit 4(c), File No. 2-70767;
Exhibit 4(b), File No. 2-71542; Exhibit 4(b), File No. 2-73799; Exhibits
4(c), 4(d) and 4(e), File No. 2-75762; Exhibit 4(c), File No. 2-77629;
Exhibit 4(c), File No. 2-79557; Exhibit 99(a) to Post-Effective Amendment
No. 5 to Form S-8, File No. 33-18669; Exhibit 99(a) to Post-Effective
Amendment No. 1 to Form S-3, File No. 33-46076; Exhibit 4(b) to Form
10-K for the year ended December 31, 1993, File No. 1-3545; Exhibit
4(i) to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3545;
Exhibit 4(b) to Form 10-Q for the quarter ended June 30, 1995, File
No. 1-3545; Exhibit 4(a) to Form 10-Q for the quarter ended March 31,
1996, File No. 1-3545; and Exhibit 4 to Form 10-Q for the quarter ended
June 30, 1998, File No. 1-3545)
*10(a) Supplemental Executive Retirement Plan, amended and restated effective x
January 1, 1994 (filed as Exhibit 10(a) to Form 10-K for the year ended
December 31, 1995, File No. 1-8841)
*10(b) FPL Group Amended and Restated Supplemental Executive Retirement Plan for x
James L. Broadhead effective January 1, 1990
*10(c) Supplement to the FPL Group Supplemental Executive Retirement Plan x
as it applies to Paul J. Evanson effective January 1, 1996 (filed as
Exhibit 10(b) to Form 10-K for the year ended December 31, 1996, File
No. 1-8841)
*10(d) Supplement to the FPL Group Supplemental Executive Retirement Plan as x
it applies to Thomas F. Plunkett
*10(e) FPL Group Long-Term Incentive Plan of 1985, as amended (filed as Exhibit x
99(h) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(f) Long-Term Incentive Plan 1994 (filed as Exhibit 4(d) to Form S-8, File x
No. 33-57673)
*10(g) Annual Incentive Plan dated as of March 31, 1994 (filed as Exhibit 10(k) x
to Form 10-Q for the quarter ended March 31, 1994, File No. 1-8841)
*10(h) FPL Group Deferred Compensation Plan, amended and restated effective x
January 1, 1995 (filed as Exhibit 10(f) to Form 10-K for the year ended
December 31, 1995, File No. 1-8841)
*10(i) FPL Group Executive Long Term Disability Plan effective January 1, 1995 x
(filed as Exhibit 10(g) to Form 10-K for the year ended December 31,
1995, File No. 1-8841)
*10(j) Employment Agreement between FPL Group and James L. Broadhead dated as of x
December 13, 1993 (filed as Exhibit 10(j) to Form 10-K for the year ended
December 31, 1993, File No. 1-8841)
*10(k) Employment Agreement between FPL Group and James L. Broadhead dated as of x
December 11, 1995 (filed as Exhibit 10(i) to Form 10-K for the year ended
December 31, 1995, File No. 1-8841)
*10(l) Employment Agreement between FPL Group and Dennis P. Coyle dated as of x
December 11, 1995 (filed as Exhibit 10(j) to Form 10-K for the year
ended December 31, 1995, File No. 1-8841)
*10(m) Employment Agreement between FPL Group and Paul J. Evanson dated as of x
December 11, 1995 (filed as Exhibit 10(k) to Form 10-K for the year
ended December 31, 1995, File No. 1-8841)
*10(n) Employment Agreement between FPL Group and Lawrence J. Kelleher dated x
as of December 11, 1995 (filed as Exhibit 10(l) to Form 10-K for the
year ended December 31, 1995, File No. 1-8841)
*10(o) Employment Agreement between FPL Group and Thomas F. Plunkett dated as of x
September 16, 1996 (filed as Exhibit 10 to Form 10-Q for the quarter
ended September 30, 1996)
*10(p) Employment Agreement between FPL Group and C.O. Woody dated as of x
December 11, 1995 (filed as Exhibit 10(m) to Form 10-K for the year
ended December 31, 1995, File No. 1-8841)
*10(q) Employment Agreement between FPL Group and Michael W. Yackira as of x
December 11, 1995 (filed as Exhibit 10(n) to Form 10-K for the year
ended December 31, 1995, File No. 1-8841)
*10(r) FPL Group, Inc. Non-Employee Directors Stock Plan dated as of March 17, x
1997 (filed as Appendix A to FPL Group's 1997 Proxy Statement, File No.
1-8841)
12 Computation of Ratios x
21 Subsidiaries of the Registrant x
23 Independent Auditors' Consent x x
27 Financial Data Schedule x x
____________________
* Incorporated herein by reference
</TABLE>
(b) Reports on Form 8-K
On November 19, 1998 a Current Report on Form 8-K was filed by FPL
Group relating to one event under Item 5. Other Events.
On December 2, 1998 a Current Report on Form 8-K was filed by FPL
Group and FPL reporting one event under Item 5. Other Events.
FPL GROUP, INC. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FPL Group, Inc.
JAMES L. BROADHEAD
------------------
James L. Broadhead
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer and Director)
Date: February 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE><CAPTION>
Signature and Title as of February 25, 1999:
<S> <C>
K. MICHAEL DAVIS
- ----------------
K. Michael Davis
Controller and Chief Accounting Officer
(Principal Financial and Accounting Officer)
Directors:
H. JESSE ARNELLE WILLARD D. DOVER
- ------------------------- --------------------------
H. Jesse Arnelle Willard D. Dover
SHERRY S. BARRAT ALEXANDER W. DREYFOOS JR.
- ------------------------- --------------------------
Sherry S. Barrat Alexander W. Dreyfoos Jr.
ROBERT M. BEALL, II PAUL J. EVANSON
- ------------------------- --------------------------
Robert M. Beall, II Paul J. Evanson
J. HYATT BROWN DREW LEWIS
- ------------------------- --------------------------
J. Hyatt Brown Drew Lewis
ARMANDO M. CODINA FREDERIC V. MALEK
- ------------------------- --------------------------
Armando M. Codina Frederic V. Malek
MARSHALL M. CRISER PAUL R. TREGURTHA
- ------------------------- --------------------------
Marshall M. Criser Paul R. Tregurtha
B. F. DOLAN ROGER YOUNG
- ------------------------- --------------------------
B. F. Dolan Roger Young
</TABLE>
FLORIDA POWER & LIGHT COMPANY SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Florida Power & Light Company
PAUL J. EVANSON
-----------------
Paul J. Evanson
President and Director
Date: February 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE><CAPTION>
Signature and Title as of February 25, 1999:
<S> <C>
JAMES L. BROADHEAD
James L. Broadhead
Chairman of the Board
(Principal Executive Officer and Director)
K. MICHAEL DAVIS
- -------------------------
K. Michael Davis
Vice President, Accounting,
Controller and Chief Accounting Officer
(Principal Financial and Accounting Officer)
Directors:
DENNIS P. COYLE C. O. WOODY
- ------------------------- -------------------------
Dennis P. Coyle C. O. Woody
LAWRENCE J. KELLEHER MICHAEL W. YACKIRA
- ------------------------- -------------------------
Lawrence J. Kelleher Michael W. Yackira
THOMAS F. PLUNKETT ROGER YOUNG
- ------------------------- -------------------------
Thomas F. Plunkett Roger Young
</TABLE>
EXHIBIT 12
FLORIDA POWER & LIGHT COMPANY
COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Millions of Dollars)
<S> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings, as defined:
Net income .................................................... $ 631 $ 627 $ 615 $ 611 $ 568
Income taxes .................................................. 349 321 322 342 319
Fixed charges, as below ....................................... 209 240 262 286 310
Total earnings, as defined .................................. $1,189 $1,188 $1,199 $1,239 $1,197
Fixed charges, as defined:
Interest charges .............................................. $ 196 $ 227 $ 246 $ 270 $ 292
Rental interest factor ........................................ 4 4 5 5 7
Fixed charges included in nuclear fuel cost ................... 9 9 11 11 11
Total fixed charges, as defined ............................. $ 209 $ 240 $ 262 $ 286 $ 310
Ratio of earnings to fixed charges .............................. 5.69 4.95 4.58 4.33 3.86
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Earnings, as defined:
Net income .................................................... $ 631 $ 627 $ 615 $ 611 $ 568
Income taxes .................................................. 349 321 322 342 319
Fixed charges, as below ....................................... 209 240 262 286 310
Total earnings, as defined .................................. $1,189 $1,188 $1,199 $1,239 $1,197
Fixed charges, as defined:
Interest charges .............................................. $ 196 $ 227 $ 246 $ 270 $ 292
Rental interest factor ........................................ 4 4 5 5 7
Fixed charges included in nuclear fuel cost ................... 9 9 11 11 11
Total fixed charges, as defined ............................. 209 240 262 286 310
Non-tax deductible preferred stock dividends .................... 15 19 24 43 40
Ratio of income before income taxes to net income ............... 1.55 1.51 1.52 1.56 1.56
Preferred stock dividends before income taxes ................... 23 29 36 68 62
Combined fixed charges and preferred stock dividends ............ $ 232 $ 269 $ 298 $ 354 $ 372
Ratio of earnings to combined fixed charges
and preferred stock dividends ................................. 5.13 4.42 4.02 3.50 3.22
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF FPL GROUP, INC.
<TABLE>
<CAPTION>
State or Jurisdiction
Subsidiary of Incorporation
- ------------------------------------------------------- ---------------------
<S> <C>
1. Florida Power & Light Company (100%-Owned) ............................... Florida
2. Bay Loan and Investment Bank (a) ......................................... Rhode Island
3. Palms Insurance Company, Limited (a) ..................................... Cayman Islands
____________________
(a) 100%-owned subsidiary of FPL Group Capital Inc
</TABLE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-56869 on Form S-3; Registration Statement No. 33-57673 on Form S-8;
Post-Effective Amendment No. 2 to Registration Statement No. 33-31487 on Form
S-8; Post-Effective Amendment No. 2 to Registration Statement No. 33-33215 on
Form S-8; Registration Statement No. 33-11631 on Form S-8; Post-Effective
Amendment No. 1 to Registration Statement No. 33-39306 on Form S-3;
Registration Statement No. 33-57470 on Form S-3; Post-Effective Amendment
No. 6 to Registration Statement No. 33-18669 on Form S-8; Registration
Statement No. 333-27079 on Form S-8; Registration Statement No. 333-30695 on
Form S-8; Registration Statement 333-30697 on Form S-8; and Registration
Statement No. 333-64685 on Form S-3 of FPL Group, Inc., of our report dated
February 12, 1999 appearing in this Annual Report on Form 10-K of FPL Group,
Inc. for the year ended December 31, 1998.
We also consent to the incorporation by reference in Registration Statement
No. 33-40123 on Form S-3; Post-Effective Amendment No. 1 to Registration
Statement No. 33-46076 on Form S-3; Registration Statement No. 33-61390 on
Form S-3; and Registration Statement No. 333-53053 on Form S-3 of Florida
Power & Light Company, of our report dated February 12, 1999 appearing in
this Annual Report on Form 10-K of Florida Power & Light Company for the year
ended December 31, 1998.
We also consent to the incorporation by reference in Registration Statement
No. 33-47813 on Form S-3; Registration Statement No. 33-69786 on Form S-3;
and Registration Statement No. 333-64685-01 on Form S-3 of FPL Group Capital
Inc, of our report dated February 12, 1999 appearing in this annual report on
Form 10-K of FPL Group, Inc., for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Miami, Florida
March 2, 1999
<TABLE> <S> <C>
<S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from FPL Group's and FPL's consolidated balance sheet as of
December 31, 1998 and consolidated statements of income and cash flows for the year ended December 31, 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-31-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $8,147
<OTHER-PROPERTY-AND-INVEST> $2,005
<TOTAL-CURRENT-ASSETS> $1,266
<TOTAL-DEFERRED-CHARGES> $0
<OTHER-ASSETS> $611
<TOTAL-ASSETS> $12,029
<COMMON> $2
<CAPITAL-SURPLUS-PAID-IN> $3,001
<RETAINED-EARNINGS> $2,123
<TOTAL-COMMON-STOCKHOLDERS-EQ> $5,126
$0
$226
<LONG-TERM-DEBT-NET> $2,347
<SHORT-TERM-NOTES> $110
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $359
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $3,861
<TOT-CAPITALIZATION-AND-LIAB> $12,029
<GROSS-OPERATING-REVENUE> $6,661
<INCOME-TAX-EXPENSE> $279
<OTHER-OPERATING-EXPENSES> $5,409
<TOTAL-OPERATING-EXPENSES> $5,409
<OPERATING-INCOME-LOSS> $1,252
<OTHER-INCOME-NET> $28
<INCOME-BEFORE-INTEREST-EXPEN> $986
<TOTAL-INTEREST-EXPENSE> $322
<NET-INCOME> $664
$15
<EARNINGS-AVAILABLE-FOR-COMM> $664
<COMMON-STOCK-DIVIDENDS> $345
<TOTAL-INTEREST-ON-BONDS> $0
<CASH-FLOW-OPERATIONS> $1,743
<EPS-PRIMARY> $3.85 <F1>
<EPS-DILUTED> $3.85 <F1>
<FN>
<F1> Earnings per share (EPS) amounts have been computed in accordance with Statement of Financial Accounting Standards
No. 128, "Earnings per Share." The basic and diluted EPS amounts have been entered in place of primary and fully
diluted, respectively.
</FN>
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from FPL's consolidated balance sheet as of December 31,
1998 and consolidated statements of income and cash flows for the year ended December 31, 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-31-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $8,147
<OTHER-PROPERTY-AND-INVEST> $1,206
<TOTAL-CURRENT-ASSETS> $1,116
<TOTAL-DEFERRED-CHARGES> $0
<OTHER-ASSETS> $279
<TOTAL-ASSETS> $10,748
<COMMON> $1,373
<CAPITAL-SURPLUS-PAID-IN> $2,566
<RETAINED-EARNINGS> $864
<TOTAL-COMMON-STOCKHOLDERS-EQ> $4,803
$0
$226
<LONG-TERM-DEBT-NET> $2,191
<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> $3,298
<TOT-CAPITALIZATION-AND-LIAB> $10,748
<GROSS-OPERATING-REVENUE> $6,366
<INCOME-TAX-EXPENSE> $356
<OTHER-OPERATING-EXPENSES> $5,183
<TOTAL-OPERATING-EXPENSES> $5,539
<OPERATING-INCOME-LOSS> $827
<OTHER-INCOME-NET> $0
<INCOME-BEFORE-INTEREST-EXPEN> $827
<TOTAL-INTEREST-EXPENSE> $196
<NET-INCOME> $631
$15
<EARNINGS-AVAILABLE-FOR-COMM> $616
<COMMON-STOCK-DIVIDENDS> $0
<TOTAL-INTEREST-ON-BONDS> $0
<CASH-FLOW-OPERATIONS> $1,718
<EPS-PRIMARY> $0
<EPS-DILUTED> $0
</TABLE>
