UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Exact name of Registrants as specified in their charters, address of principal IRS Employer Commission executive offices and Identification File Number Registrants' telephone number Number - ----------- --------------------------------------- -------------- 1-8841 FPL GROUP, INC. 59-2449419 1-3545 FLORIDA POWER & LIGHT COMPANY 59-0247775 700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000 State or other jurisdiction of incorporation or organization: Florida Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have been subject to such filing requirements for the past 90 days. Yes X No ___ APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of each class of FPL Group, Inc. common stock, as of the latest practicable date: Common Stock, $.01 par value, outstanding at March 31, 1999: 180,164,535 shares. As of March 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. ______________________________ This combined Form 10-Q represents separate filings by FPL Group, Inc. and Florida Power & Light Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Florida Power & Light Company makes no representations as to the information relating to FPL Group, Inc.'s other operations. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) and Florida Power & Light Company (FPL) (collectively, the Company) are hereby filing cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward- looking statements (as such term is defined in the Reform Act) made by or on behalf of the Company which are made in this combined Form 10-Q, in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projection, outlook) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause the Company's actual results to differ materially from those contained in forward-looking statements made by or on behalf of the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Some important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements include changing governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC), the Florida Public Service Commission (FPSC) and the Nuclear Regulatory Commission (NRC), with respect to allowed rates of return including but not limited to return on common equity (ROE) and equity ratio limits, industry and rate structure, operation of nuclear power facilities, acquisition, disposal, depreciation and amortization of assets and facilities, operation and construction of plant facilities, recovery of fuel and purchased power costs, decommissioning costs, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission costs). The business and profitability of the Company are also influenced by economic and geographic factors including political and economic risks, changes in and compliance with environmental and safety laws and policies, weather conditions (including natural disasters such as hurricanes), population growth rates and demographic patterns, competition for retail and wholesale customers, pricing and transportation of commodities, market demand for energy from plants or facilities, changes in tax rates or policies or in rates of inflation, unanticipated development project delays or changes in project costs, unanticipated changes in operating expenses and capital expenditures, capital market conditions, competition for new energy development opportunities, legal and administrative proceedings (whether civil, such as environmental, or criminal) and settlements, and any unanticipated impact of the year 2000, including delays or changes in costs of year 2000 compliance, or the failure of major suppliers, customers and others with whom the Company does business to resolve their own year 2000 issues on a timely basis. All such factors are difficult to predict, contain uncertainties which may materially affect actual results, and are beyond the control of the Company. PART I - FINANCIAL INFORMATION Item 1. Financial Statements FPL GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, -------------------- 1999 1998 ------ ------ <S> <C> <C> OPERATING REVENUES ............................................... $1,412 $1,338 OPERATING EXPENSES: Fuel, purchased power and interchange .......................... 506 436 Other operations and maintenance................................ 275 299 Depreciation and amortization .................................. 279 249 Taxes other than income taxes .................................. 144 136 Total operating expenses ..................................... 1,204 1,120 OPERATING INCOME ................................................. 208 218 OTHER INCOME (DEDUCTIONS): Interest charges ............................................... (47) (63) Preferred stock dividends - FPL ................................ (4) (4) Gain on sale of Adelphia Communications Corporation stock....... 149 - Other - net .................................................... 9 7 Total other income (deductions) - net ........................ 107 (60) INCOME BEFORE INCOME TAXES ....................................... 315 158 INCOME TAXES ..................................................... 106 50 NET INCOME ....................................................... $ 209 $ 108 Earnings per share of common stock (basic and assuming dilution).. $ 1.22 $ 0.63 Dividends per share of common stock .............................. $ 0.52 $ 0.50 Average number of common shares outstanding ...................... 172 173 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the combined Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (1998 Form 10-K) for FPL Group and FPL. FPL GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Millions of Dollars) (Unaudited) <TABLE> <CAPTION> March 31, December 31, 1999 1998 --------- ------------ <S> <C> <C> PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and other property, including nuclear fuel and construction work in progress ....................... $18,346 $17,952 Less accumulated depreciation and amortization ................................... (9,672) (9,397) Total property, plant and equipment - net ...................................... 8,674 8,555 CURRENT ASSETS: Cash and cash equivalents ........................................................ 548 187 Customer receivables, net of allowances of $6 and $8, respectively ............... 462 559 Materials, supplies and fossil fuel inventory - at average cost .................. 275 282 Other ............................................................................ 143 238 Total current assets ........................................................... 1,428 1,266 OTHER ASSETS: Special use funds of FPL ......................................................... 1,276 1,206 Other investments ................................................................ 490 391 Other ............................................................................ 428 611 Total other assets ............................................................. 2,194 2,208 TOTAL ASSETS ....................................................................... $12,296 $12,029 CAPITALIZATION: Common stock ..................................................................... $ 2 $ 2 Additional paid-in capital........................................................ 2,967 3,000 Retained earnings................................................................. 2,243 2,123 Accumulated other comprehensive income............................................ - 1 Total common shareholders' equity............................................... 5,212 5,126 Preferred stock of FPL without sinking fund requirements ......................... 226 226 Long-term debt ................................................................... 2,207 2,347 Total capitalization ........................................................... 7,645 7,699 CURRENT LIABILITIES: Debt and preferred stock due within one year ..................................... 616 469 Accounts payable ................................................................. 322 338 Accrued interest, taxes and other ................................................ 995 834 Total current liabilities ...................................................... 1,933 1,641 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes ................................................ 1,261 1,255 Unamortized regulatory and investment tax credits ................................ 342 353 Other ............................................................................ 1,115 1,081 Total other liabilities and deferred credits ................................... 2,718 2,689 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES ............................................... $12,296 $12,029 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL Group and FPL. FPL GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1999 1998 ------ ------ <S> <C> <C> NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................. $ 680 $ 454 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures of FPL ......................................................... (180) (159) Independent power investments ....................................................... (316) (350) Distributions and loan repayments from partnerships and joint ventures .............. 57 221 Other - net ......................................................................... 95 (23) Net cash used in investing activities ........................................... (344) (311) CASH FLOWS FROM FINANCING ACTIVITIES: Retirement of long-term debt and preferred stock .................................... (130) (180) Increase in commercial paper ........................................................ 276 158 Repurchase of common stock .......................................................... (32) (17) Dividends on common stock ........................................................... (89) (86) Net cash provided by (used in) financing activities ............................. 25 (125) Net increase in cash and cash equivalents ............................................. 361 18 Cash and cash equivalents at beginning of period ...................................... 187 54 Cash and cash equivalents at end of period ............................................ $ 548 $ 72 Supplemental disclosures of cash flow information: Cash paid for interest .............................................................. $ 45 $ 51 Cash paid for income taxes .......................................................... $ - $ - Supplemental schedule of noncash investing and financing activities: Additions to capital lease obligations .............................................. $ 26 $ 1 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL Group and FPL. FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1999 1998 ------- ------ <S> <C> <C> OPERATING REVENUES ..................................................................... $1,359 $1,295 OPERATING EXPENSES: Fuel, purchased power and interchange ................................................ 485 430 Other operations and maintenance ..................................................... 250 268 Depreciation and amortization ........................................................ 275 244 Income taxes ......................................................................... 56 57 Taxes other than income taxes ........................................................ 143 137 Total operating expenses ........................................................... 1,209 1,136 OPERATING INCOME ....................................................................... 150 159 OTHER INCOME (DEDUCTIONS): Interest charges ..................................................................... (43) (50) Other - net .......................................................................... 1 (2) Total other deductions - net ....................................................... (42) (52) NET INCOME ............................................................................. 108 107 PREFERRED STOCK DIVIDENDS .............................................................. 4 4 NET INCOME AVAILABLE TO FPL GROUP ...................................................... $ 104 $ 103 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL Group and FPL. FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Millions of Dollars) (Unaudited) <TABLE> <CAPTION> March 31, December 31, 1999 1998 --------- ------------ <S> <C> <C> ELECTRIC UTILITY PLANT: Plant in service, including nuclear fuel and construction work in progress ....... $17,626 $17,464 Less accumulated depreciation and amortization ................................... (9,588) (9,317) Electric utility plant - net ................................................... 8,038 8,147 CURRENT ASSETS: Cash and cash equivalents ........................................................ 486 152 Customer receivables, net of allowances of $6 and $8, respectively ............... 423 521 Materials, supplies and fossil fuel inventory - at average cost .................. 241 239 Other ............................................................................ 109 204 Total current assets ........................................................... 1,259 1,116 OTHER ASSETS: Special use funds ................................................................ 1,276 1,206 Other ............................................................................ 304 279 Total other assets ............................................................. 1,580 1,485 TOTAL ASSETS ....................................................................... $10,877 $10,748 CAPITALIZATION: Common shareholder's equity ...................................................... $ 4,810 $ 4,803 Preferred stock without sinking fund requirements ................................ 226 226 Long-term debt ................................................................... 2,192 2,191 Total capitalization ........................................................... 7,228 7,220 CURRENT LIABILITIES: Debt and preferred stock due within one year ..................................... 230 230 Accounts payable ................................................................. 309 321 Accrued interest, taxes and other ................................................ 884 800 Total current liabilities ...................................................... 1,423 1,351 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes ................................................ 914 887 Unamortized regulatory and investment tax credits ................................ 342 353 Other ............................................................................ 970 937 Total other liabilities and deferred credits ................................... 2,226 2,177 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES ............................................... $10,877 $10,748 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL Group and FPL. FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, ------------------ 1999 1998 ------ ------ <S> <C> <C> NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................. $ 667 $ 453 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ................................................................ (180) (159) Other - net ......................................................................... (51) (21) Net cash used in investing activities ........................................... (231) (180) CASH FLOWS FROM FINANCING ACTIVITIES: Retirement of long-term debt and preferred stock .................................... - (180) Increase in commercial paper ........................................................ - 14 Dividends ........................................................................... (102) (98) Net cash used in financing activities ............................................. (102) (264) Net increase in cash and cash equivalents ............................................. 334 9 Cash and cash equivalents at beginning of period ...................................... 152 3 Cash and cash equivalents at end of period ............................................ $ 486 $ 12 Supplemental disclosures of cash flow information: Cash paid for interest .............................................................. $ 39 $ 48 Cash paid for income taxes .......................................................... $ 1 $ - Supplemental schedule of noncash investing and financing activities: Additions to capital lease obligations .............................................. $ 26 $ 1 </TABLE> This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements on pages 9 through 12 herein and the Notes to Consolidated Financial Statements appearing in the 1998 Form 10-K for FPL Group and FPL. FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The accompanying condensed consolidated financial statements should be read in conjunction with the combined 1998 Form 10-K for FPL Group and FPL. In the opinion of FPL Group and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period may not give a true indication of results for the year. 1. Summary of Significant Accounting and Reporting Policies Regulation - In March 1999, the FPSC approved an agreement between FPL, the State of Florida's Office of Public Counsel (Public Counsel), The Florida Industrial Power Users Group (FIPUG) and The Coalition for Equitable Rates (Coalition) regarding FPL's retail base rates, authorized regulatory ROE, capital structure and other matters. As a result of the approval of this agreement, all matters raised in Public Counsel's petition to the FPSC to conduct a full rate proceeding are resolved. The three-year agreement became effective April 15, 1999. The agreement provides for a $350 million reduction in annual revenue from retail base operations allocated to all customers on a cents-per-kilowatt-hour basis. Additionally, the agreement sets forth a revenue sharing mechanism for each of the three years covered by the agreement, whereby revenue from retail base operations in excess of a stated threshold will be shared with customers on the basis of two-thirds refunded to customers and one-third retained by FPL. Revenue from retail base operations in excess of a second threshold will be refunded 100% to customers. The thresholds for the three years are as follows: First Second Third Twelve Twelve Twelve Months Months Months (Millions of Dollars) Threshold to refund 66 2/3% to customers ..... $3,400 $3,450 $3,500 Threshold to refund 100% to customers ........ $3,556 $3,606 $3,656 In addition to the revenue reductions, the agreement lowers FPL's authorized regulatory ROE range to 10% to 12% (down from the previous 11% to 13%). During the term of the agreement, the achieved ROE may, from time to time, be outside the authorized range and the sharing mechanism described above is intended to be the appropriate and exclusive mechanism to address that circumstance. The agreement establishes a cap on FPL's adjusted equity ratio of 55.83%. The adjusted equity ratio reflects a discounted amount for off- balance sheet obligations under certain long-term purchase power contracts. The agreement also includes an allowance for special depreciation of up to $100 million at FPL's discretion, in each year of the three-year agreement period to be applied to nuclear and fossil generating assets. The special amortization program terminated when the new agreement became effective. Approximately $61 million and $30 million of special amortization was recorded under this program during the three months ended March 31, 1999 and 1998, respectively, and approximately $378 million was recorded in 1998. Finally, included in the agreement are provisions which limit depreciation rates and accruals for nuclear decommissioning and fossil dismantlement costs to currently approved levels and limit amounts recoverable under the environmental cost recovery clause during the three-year term of the agreement. The agreement states that Public Counsel, FIPUG and Coalition will neither seek nor support any additional base rate reductions during the three-year term of the agreement unless such reduction is initiated by FPL. Further, FPL agreed to not petition for any base rate increases that would take effect during the three-year term of the agreement. Electric Plant, Depreciation and Amortization - In April 1999, the FPSC granted final approval on FPL's most recent depreciation studies. 2. Capitalization FPL Group Common Stock - During the three months ended March 31, 1999, FPL Group repurchased 547,400 shares of common stock, under its share repurchase program. A total of approximately 2.2 million shares have been repurchased under the share repurchase program that began in April 1997. Long-Term Debt - In January 1999, FPL Group Capital Inc (FPL Group Capital) redeemed $125 million principal amount of 7.625% debentures, maturing in 2013. This redemption resulted in a loss on reacquired debt of approximately $8 million, which is included in other-net in FPL Group's condensed consolidated statements of income. In April 1999, FPL sold $225 million principal amount of first mortgage bonds maturing in 2009, with an interest rate of 5.875%. The proceeds will be used in May 1999 to redeem approximately $216 million principal amount of first mortgage bonds, maturing in 2013, bearing interest at 7.875%. Long-Term Incentive Plan - Performance shares granted to date under FPL Group's long-term incentive plan resulted in assumed incremental shares of common stock outstanding for purposes of computing both basic and diluted earnings per share for the three months ended March 31, 1999 and 1998. These incremental shares were not material in the periods presented and did not cause diluted earnings per share to differ from basic earnings per share. Other - Comprehensive income of FPL Group totaling $209 million and $109 million for the three months ended March 31, 1999 and 1998, respectively, includes net income and changes in unrealized gains (losses) on securities and foreign currency translation adjustments. Accumulated other comprehensive income is separately displayed in the condensed consolidated balance sheets of FPL Group. 3. Commitments and Contingencies Commitments - FPL has made commitments in connection with a portion of its projected capital expenditures. Capital expenditures for the construction or acquisition of additional facilities and equipment to meet customer demand are estimated to be approximately $2.9 billion for 1999 through 2001. Included in this three-year forecast are capital expenditures for 1999 of approximately $900 million, of which $180 million had been spent through March 31, 1999. As of March 31, 1999, FPL Energy has made commitments for the acquisition and development of independent power projects, including the non-nuclear generating assets of Central Maine Power Company (CMP), totaling $1.2 billion. FPL Group and its subsidiaries, other than FPL, have guaranteed approximately $260 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 the majority of its transmission and distribution (T&D) property due to the high cost and limited coverage available from third-party insurers. As approved by the FPSC, FPL maintains a funded storm and property insurance reserve, which totaled approximately $266 million at March 31, 1999, for T&D property storm damage or assessments under the nuclear insurance program. Recovery from customers of any losses in excess of the storm and property insurance reserve will require the approval of the FPSC. FPL's available lines of credit include $300 million to provide additional liquidity in the event of a T&D property loss. Contracts - FPL has entered into long-term purchased power and fuel contracts. Take-or-pay purchased power contracts with the Jacksonville Electric Authority (JEA) and with subsidiaries of The Southern Company (Southern Companies) provide approximately 1,300 megawatts (mw) of power through mid- 2010 and 383 mw thereafter through 2021. FPL also has various firm pay-for- performance contracts to purchase approximately 1,000 mw from certain cogenerators and small power producers (qualifying facilities) with expiration dates ranging from 2002 through 2026. The purchased power contracts provide for capacity and energy payments. Energy payments are based on the actual power taken under these contracts. Capacity payments for the pay-for- performance contracts are subject to the qualifying facilities meeting certain contract conditions. Fuel contracts provide for the transportation and supply of natural gas and coal. FPL Energy has long-term contracts for the transportation and storage of natural gas 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: 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- (Millions of Dollars) FPL: Capacity payments: JEA and Southern Companies ............. $210 $210 $210 $210 $200 Qualifying facilities (a) .............. $360 $370 $390 $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. Charges under these contracts were as follows: <TABLE><CAPTION> Three Months Ended March 31, 1999 Charges 1998 Charges ------------------- ------------------- Energy/ Energy/ Capacity Fuel Capacity Fuel -------- ------- -------- ------- (Millions of Dollars) <S> <C> <C> <C> <C> FPL: JEA and Southern Companies ................................... $50(b) $23(a) $49(b) $31(a) Qualifying facilities ........................................ $75(c) $21(a) $74(c) $25(a) Natural gas, including transportation......................... $ - $75(a) $ - $54(a) Coal ......................................................... $ - $12(a) $ - $13(a) FPL Energy: Natural gas transportation and storage........................ $ - $ 4 $ - $ 5 _______________ (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. Accounting for Derivative Instruments and Hedging Activities - In June 1998, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards No. (FAS) 133, "Accounting for Derivative Instruments and Hedging Activities." The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. FPL Group and FPL are currently assessing the effect, if any, on their financial statements of implementing FAS 133. FPL Group and FPL will be required to adopt the standard in 2000. 4. Segment Information FPL Group anticipates the independent power segment will become reportable during the second quarter of 1999. FPL Group's segment information for March 31, 1999 is as follows: <TABLE><CAPTION> Three Months Ended March 31, 1999 1998 ------------------------------------------ --------------------------------------------- Regulated Independent Corporate Regulated Independent Corporate Utility Power & Other Total Utility Power & Other Total --------- ----------- --------- ------- --------- ----------- --------- -------- (Millions of Dollars) <S> <C> <C> <C> <C> <C> <C> <C> <C> Operating revenues ..... $ 1,359 $ 41 $ 12 $ 1,412 $ 1,295 $ 23 $ 20 $ 1,338 Net income ............. $ 104 $ 13 $ 92 $ 209 $ 103 $ 3 $ 2 $ 108 March 31, 1999 December 31, 1998 ------------------------------------------ ------------------------------------------- Regulated Independent Corporate Regulated Independent Corporate Utility Power & Other Total Utility Power & Other Total --------- ----------- --------- ------- --------- ----------- --------- -------- (Millions of Dollars) <S> <C> <C> <C> <C> <C> <C> <C> <C> Total assets ........... $10,877 $1,120 $299 $12,296 $10,748 $1,031 $250 $12,029 </TABLE> 5. Summarized Financial Information of FPL Group Capital FPL Group Capital's debentures, when outstanding, are guaranteed by FPL Group and included in FPL Group's condensed consolidated balance sheets. Operating revenues of FPL Group Capital for the three months ended March 31, 1999 and 1998 were $54 million and $44 million, respectively. For the same periods, operating expenses were approximately $51 million and $41 million, respectively, and net income was approximately $112 million and $11 million, respectively. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. At March 31, 1999, FPL Group Capital had approximately $341 million of current assets, $1.6 billion of noncurrent assets, $511 million of current liabilities and $542 million of noncurrent liabilities. At December 31, 1998, FPL Group Capital had current assets of approximately $317 million, noncurrent assets of $1.4 billion, current liabilities of $310 million and noncurrent liabilities of $703 million. Management has not presented separate financial statements and other disclosures concerning FPL Group Capital because management has determined that such information is not material to holders of the FPL Group Capital debentures. 6. Subsequent Event On April 7, 1999, FPL Energy completed the purchase of CMP's non-nuclear generating assets, which was financed primarily with the issuance of commercial paper. The transaction was closed following the U.S. District Court for the Southern District of New York's rejection in March 1999 of FPL Energy's request for a declaratory judgment that CMP could not meet essential terms of the purchase agreement between the two companies. The request for declaratory judgment was filed because FPL Energy believed that recent FERC rulings regarding transmission constituted a material adverse effect under the purchase agreement and that FPL Energy should not be bound to complete the transaction. The rulings by the FERC, as well as the announcement of new entrants into the market and changes in fuel prices, resulted in an impairment in the value of certain assets purchased from CMP. FPL Group will record an impairment loss in the range of $160 million to $180 million ($95 million to $107 million after taxes) in the second quarter of 1999, which will reduce 1999 earnings per share between $0.56 and $0.63. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with the Notes to Condensed Consolidated Financial Statements contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the 1998 Form 10-K for FPL Group and FPL. The results of operations for an interim period may not give a true indication of results for the year. In the following discussion, all comparisons are with the corresponding items in the prior year. RESULTS OF OPERATIONS FPL Group's first quarter earnings benefited from improved results at FPL and FPL Energy, partly offset by a premium paid to redeem high cost debt at FPL Group Capital and start-up costs for retail marketing activities. FPL Group's first quarter earnings also include an after-tax gain of approximately $96 million on the sale of an investment in Adelphia Communications Corporation (Adelphia) common stock, which was obtained in the mid-1990s when FPL Group exited the cable business. FPL's net income available to FPL Group increased due to higher customer usage and growth in customer accounts, reduced O&M expenses and lower interest expense, partially offset by higher depreciation. FPL's revenues from retail base operations for the three months ended March 31, 1999 increased to $762 million from $750 million for the same period in 1998. The increase in base revenues resulted from increases in energy usage per retail customer of 1.2%, primarily due to milder weather conditions in 1998, and a 1.9% increase in customer accounts. Cost recovery clause revenues and franchise fees comprise substantially all of the remaining portion of operating revenues. Such revenues represent a pass-through of costs and do not significantly affect net income. Fluctuations in these revenues are primarily driven by changes in energy sales, fuel prices and capacity charges. O&M expenses decreased for the three months ended March 31, 1998 due to cost control, despite additional spending associated with the continued improvement of service reliability. Lower interest expense during the first quarter of 1999 is the result of lower debt balances and the full amortization in 1998 of deferred costs associated with reacquired debt as part of the FPSC's approved special amortization program. Depreciation and amortization expense increased for the three months ended March 31, 1999 as a result of the sales-related amortization recorded under the special amortization program, which is a function of retail base revenues. In March 1999, the FPSC approved an agreement between FPL, Public Counsel and certain other interested parties regarding FPL's revenue from retail base operations, authorized regulatory ROE, capital structure and other matters. As a result of the approval of this agreement, all matters raised in Public Counsel's petition to the FPSC to conduct a full rate proceeding are resolved. The three-year agreement began April 15, 1999. The agreement provides for a $350 million reduction in annual revenue from retail base operations allocated to all customers on a cents-per-kilowatt-hour basis. Additionally, the agreement sets forth a revenue sharing mechanism for each of the three years covered by the agreement, whereby revenue from retail base operations in excess of a stated threshold will be shared with customers on the basis of two-thirds refunded to customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold will be refunded 100% to customers. In addition to the revenue reductions, the agreement lowered FPL's authorized ROE range to 10% to 12%. During the term of the agreement, the achieved ROE may, from time to time, be outside the authorized range and the sharing mechanism described above is intended to be the appropriate and exclusive mechanism to address that circumstance. The agreement also includes an allowance for special depreciation of up to $100 million at FPL's discretion, in each year of the three-year agreement period to be applied to nuclear and fossil generating assets. The special amortization program terminated when the new agreement became effective. Approximately $61 million and $30 million of special amortization was recorded under this program during the three months ended March 31, 1999 and 1998, respectively, and approximately $378 million was recorded in 1998. Finally, included in the agreement are provisions which limit depreciation rates and accruals for nuclear decommissioning and fossil dismantlement costs to currently approved levels and limit amounts recoverable under the environmental cost recovery clause during the three-year term of the agreement. The agreement states that Public Counsel, and other interested parties will neither seek nor support any additional base rate reductions during the three- year term of the agreement unless such reduction is initiated by FPL. Further, FPL agreed to not petition for any base rate increases that would take effect during the three-year term of the agreement. For information concerning regulation see Note 1 - Regulation. FPL Energy's net income improved for the three months ended March 31, 1999. The improvements related to better results from the Doswell project and an additional period of operation from FPL Energy's gas-fired plants in Massachusetts and New Jersey, which were acquired mid-January 1998. Additionally, as of January 1999, FPL Energy assumed the management of the two plants in Massachusetts and New Jersey. Also contributing to the improvement was the addition of five new wind projects in California and Oregon, as well as the repowering of existing wind projects for increased operational efficiencies. On April 7, 1999, FPL Energy completed the purchase of CMP's non-nuclear generating assets, which was financed primarily with the issuance of commercial paper. The transaction was closed following the U.S. District Court for the Southern District of New York's rejection in March 1999 of FPL Energy's request for a declaratory judgment that CMP could not meet essential terms of the purchase agreement between the two companies. The request for declaratory judgment was filed because FPL Energy believed that recent FERC rulings regarding transmission constituted a material adverse effect under the purchase agreement and that FPL Energy should not be bound to complete the transaction. The rulings by the FERC, as well as the announcement of new entrants into the market and changes in fuel prices, resulted in an impairment in the value of certain assets purchased from CMP. FPL Group will record an impairment loss in the range of $160 million to $180 million ($95 million to $107 million after taxes) in the second quarter of 1999, which will reduce 1999 earnings per share between $0.56 and $0.63. FPL Group is continuing to work to resolve the impact of the year 2000 on the processing of information by its computer systems. As of March 31, 1999 the inventory and assessment of the information technology infrastructure, computer applications and computerized processes embedded in operating equipment have been completed and approximately 90% of the necessary modifications have been tested and implemented. FPL Group continues to be 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 and remediation at two projects in which FPL Energy has an ownership interest, all of which will be completed during scheduled outages in October 1999. The estimated cost of addressing year 2000 issues is not expected to exceed $50 million, of which approximately 45% had been spent through March 31, 1999. Approximately 80% of the total estimate is for the multi-phase plan. The remainder is an estimate for project and inventory contingencies. FPL Group's year 2000 contingency planning is currently underway. Contingency plans are expected to be completed by mid-1999. LIQUIDITY AND CAPITAL RESOURCES Using available cash flows from operations, FPL Group Capital redeemed $125 million principal amount of debentures that were scheduled to mature in 2013. This redemption resulted in a loss on reacquired debt of approximately $8 million, which is included in other-net in FPL Group's condensed consolidated statements of income. In April 1999, FPL Group borrowed approximately $982 million of commercial paper primarily to finance the purchase of CMP. Additionally, available lines of credit, which support the commercial paper program, aggregated approximately $2.4 billion ($900 million for FPL) and $1.9 billion ($900 million for FPL) at March 31, 1999 and December 31, 1998, respectively. For additional information see Note 6. Additionally, during the three months ended March 31, 1999, FPL Group repurchased 547,400 shares of common stock. In April 1999, FPL sold $225 million principal amount of first mortgage bonds maturing in 2009. The proceeds will be used in May 1999 to redeem approximately $216 million principal amount of first mortgage bonds, maturing in 2013. These actions are consistent with management's intent to reduce debt and preferred stock balances and the number of outstanding shares of common stock. For information concerning capital commitments see Note 3 - Commitments. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (b) Exhibit FPL Number Description Group FPL ------- ----------------------------------------- ----- --- 4 Ninety-ninth Supplemental Indenture dated x x as of April 1, 1999 between FPL and Bankers Trust Company, Trustee 10 Employment Agreement between FPL Group and Roger Young dated as of February 22,1999 x 12(a) Computation of Ratio of Earnings to Fixed x Charges 12(b) Computation of Ratios x 27 Financial Data Schedule x x (b) Reports on Form 8-K A Current Report on Form 8-K filed with the Securities and Exchange Commission on March 17, 1999 by FPL Group and FPL reporting one event under Item 5. Other Events. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. FPL GROUP, INC. FLORIDA POWER & LIGHT COMPANY (Registrants) Date: April 30,1999 K. MICHAEL DAVIS --------------------------------- K. Michael Davis Controller and Chief Accounting Officer of FPL Group, Inc. Vice President, Accounting, Controller and Chief Accounting Officer of Florida Power & Light Company (Principal Financial Officer of the Registrants)