-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HWZSaUjmGugeDLashJkMlbOdNC0IzLz9uVb88XLoeWOLrtua0fIaW4ne/erDa2af 81Oof4pC59qoiqmKefbkgg== 0000753308-00-000004.txt : 20000307 0000753308-00-000004.hdr.sgml : 20000307 ACCESSION NUMBER: 0000753308-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FPL GROUP INC CENTRAL INDEX KEY: 0000753308 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 592449419 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08841 FILM NUMBER: 560230 BUSINESS ADDRESS: STREET 1: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408 BUSINESS PHONE: 5616944000 MAIL ADDRESS: STREET 1: P O BOX 14000 CITY: JUNO BEACH STATE: FL ZIP: 33408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLORIDA POWER & LIGHT CO CENTRAL INDEX KEY: 0000037634 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590247775 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-27612 FILM NUMBER: 560231 BUSINESS ADDRESS: STREET 1: 700 UNIVERSE BLVD CITY: JUNO BEACH STATE: FL ZIP: 33408 BUSINESS PHONE: 5616944000 MAIL ADDRESS: STREET 1: P O BOX 14000 CITY: JUNO BEACH STATE: FL ZIP: 33408 10-K 1 FPL GROUP/FPL FORM 10-K YEAR ENDED 12/31/99 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission Exact name of Registrants as specified in their charters, address of IRS Employer File Number principal executive offices and Registrants' telephone number Identification Number - ------------------------------------------------------------------------------------------------------------- 1-8841 FPL GROUP, INC. 59-2449419 1-3545 FLORIDA POWER & LIGHT COMPANY 59-0247775 700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000
State or other jurisdiction of incorporation or organization: Florida Name of exchange on which registered Securities registered pursuant to Section 12(b) of the Act: FPL Group, Inc.: Common Stock, $0.01 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 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, 2000 (based on the closing market price on the Composite Tape on January 31, 2000) was $7,495,697,770 (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, 2000. The number of shares outstanding of each class of FPL Group, Inc. common stock, as of the latest practicable date: Common Stock, $0.01 Par Value, outstanding at January 31, 2000: 178,246,835 shares As of January 31, 2000, 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 2000 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:
Term Meaning capacity clause Capacity cost recovery clause CMP Central Maine Power Company charter Restated Articles of Incorporation, as amended, of FPL Group or FPL, as the case may be Coalition The Coalition for Equitable Rates 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 FIPUG The Florida Industrial Power Users Group FGT Florida Gas Transmission Company FMPA Florida Municipal Power Agency FPL Florida Power & Light Company FPL Energy FPL Energy, LLC (and its predecessor FPL Energy, Inc.) FPL FiberNet FPL FiberNet, LLC 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 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) 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 RTOs Regional Transmission Organizations SJRPP St. Johns River Power Park
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. 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 changes in laws or regulations, changing governmental policies and regulatory actions, including those of the FERC, the FPSC, the PURPA, the Holding Company Act 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, availability, pricing and transportation of fuel and other energy commodities, market demand for energy from plants or facilities, changes in tax rates or policies or in rates of inflation or in accounting standards, unanticipated delays or changes in costs for capital projects, unanticipated changes in operating expenses and capital expenditures, capital market conditions, competition for new energy development opportunities and legal and administrative proceedings (whether civil, such as environmental, or criminal) and settlements. 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. FPL Group Capital, a wholly-owned subsidiary of FPL Group, holds the capital stock and provides funding for the operating subsidiaries other than FPL. The business activities of these operating subsidiaries primarily consist of FPL Energy's independent power projects. For financial information regarding segments, see Note 14. In 2000, FPL Group Capital formed a new subsidiary to sell wholesale fiber-optic network capacity. At December 31, 1999, FPL Group and its subsidiaries employed 10,717 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 seven million. During 1999, FPL served approximately 3.8 million customer accounts. Operating revenues were as follows:
Years Ended December 31, 1999 1998 1997 (millions) Residential ........................................... $3,357 $3,580 $3,394 Commercial ............................................ 2,226 2,239 2,222 Industrial ............................................ 190 197 206 Other, including the net change in unbilled revenues .. 284 350 310 $6,057 $6,366 $6,132
Regulation. The retail operations of FPL provided approximately 99% of FPL's operating revenues for 1999. 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. See Item 3. Legal Proceedings. Capital expenditures required to comply with environmental laws and regulations for 2000-02 are included in FPL's projected capital expenditures set forth in Item 1. Business - FPL Operations - Capital Expenditures and are not material. FPL currently holds 190 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 the opportunity 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. 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 1999, the FPSC approved a three-year agreement among FPL, Public Counsel, FIPUG and Coalition regarding FPL's retail base rates, authorized regulatory ROE, capital structure and other matters. The agreement, which became effective April 15, 1999, provides for a $350 million reduction in annual revenues 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 twelve-month periods covered by the agreement, whereby revenues from retail base operations in excess of a stated threshold will be shared on the basis of two-thirds refunded to retail customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold will be refunded 100% to retail customers. The thresholds are as follows: Twelve Months Ended April 14, 2000 2001 2002 (millions) Threshold to refund 66 2/3% to customers ..... $3,400 $3,450 $3,500 Threshold to refund 100% to customers ........ $3,556 $3,606 $3,656 Offsetting the annual revenue reduction will be lower special depreciation. The agreement allows for special depreciation of up to $100 million, at FPL's discretion, in each year of the three-year agreement period to be applied to nuclear and/or fossil generating assets. Under this new depreciation program, FPL recorded approximately $70 million of special depreciation in 1999. The new depreciation program replaced a revenue-based special amortization program whereby special amortization in the amount of $63 million, $378 million and $199 million was recorded in 1999, 1998 and 1997, respectively. In addition, the agreement lowered FPL's authorized regulatory ROE range to 10% - 12% from 11% - 13%. During the term of the agreement, the achieved ROE may from time to time be outside the authorized range, and the revenue sharing mechanism described above is specified to be the appropriate and exclusive mechanism to address that circumstance. For purposes of calculating ROE, 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 purchased power contracts. Finally, included in the agreement are provisions which limit depreciation rates, and accruals for nuclear decommissioning and fossil dismantlement costs, to currently approved levels and limit amounts recoverable under the environmental clause during the 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 term of the agreement. Fuel costs totaled $1.7 billion in 1999 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 1999, $440 million was recovered through the capacity clause. Costs associated with implementing energy conservation programs totaled $83 million in 1999 and are recovered through the conservation clause. Costs of complying with federal, state and local environmental regulations enacted after April 1993 totaled $16 million in 1999 and are recovered through the environmental clause to the extent not included in base rates. The new rate agreement limits recovery under this clause to $12.8 million in 2000 and $6.4 million in 2001, with no further amounts recoverable during the remaining term of the agreement. 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 1999, operating revenues from wholesale and industrial customers combined represented approximately 4% of FPL's total operating revenues. A number of potential merchant plants have been announced to date in Florida. However, only two submissions to seek a determination of need totaling approximately 1,000 mw have been presented to the FPSC. In March 1999, the FPSC approved one of the petitions for a power plant to be constructed within FPL's service territory. FPL, along with other Florida utilities, has appealed the decision to the Florida Supreme Court. Almost half of the states, other than Florida, have enacted legislation or have state commissions that issued orders 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. Since there is no deregulation proposal currently under consideration in Florida, FPL is unable to predict the impact of a change to a more competitive environment or when such a change might occur. 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 role, 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. In December 1999, the FERC issued its final order on regional transmission organizations or RTOs. RTOs, under a variety of structures, provide for the independent operation of transmission systems for a given geographic area. The final order establishes guidelines for public utilities to use in considering and/or developing plans to initiate operations of RTOs. The order requires all public utilities to file with the FERC by October 15, 2000, a proposal for an RTO with certain minimum characteristics and functions to be operational by December 15, 2001, or alternatively, a description of efforts to participate in an RTO, any existing obstacles to RTO participation and any plans to work toward RTO participation. FPL is evaluating various alternatives for compliance with the order. System Capability and Load. FPL's resources for serving summer load as of December 31, 1999 consisted of 18,649 mw, of which 16,444 mw are from FPL- owned facilities (see Item 2. Properties - Generating Facilities) and 2,205 mw are obtained through purchased power contracts. See Note 12 - Contracts. The compounded annual growth rate of retail kwh sales and number of retail customers was 2.9% and 1.9%, respectively, for the three years ended December 31, 1999. It is anticipated that retail kwh sales will grow at a compounded annual rate of approximately 3.7% for the next three years. Occasionally, unusually cold temperatures during the winter months result in significant increases in electricity usage for a short period of time. However, 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. In 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. In 1999, the FPSC scheduled hearings to consider appropriate reserve margin targets for peninsular Florida. The FPSC approved a proposal by FPL and two other Florida utilities to voluntarily adopt a 20% reserve margin target to be achieved by 2004. FPL's reserve margin target is currently 15%. FPL intends to repower its two Fort Myers units and two of its three Sanford units by the end of 2002; these projects will be phased in beginning in 2001. FPL will also add two new gas-fired combustion turbines at its Martin site in 2001, and add new combustion turbines and/or gas- fired combined cycle units from 2003-09. These actions, plus other changes to FPL's existing units and purchased power contracts, are expected to increase FPL's net generating capability by over 4,000 mw. Capital Expenditures. FPL's capital expenditures totaled approximately $924 million in 1999, $617 million in 1998 and $551 million in 1997. Capital expenditures for the 2000-02 period are expected to be $3.1 billion, including $1.3 billion in 2000. 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 Turkey Point and two at St. Lucie. The operating licenses for Turkey Point Units Nos. 3 and 4 expire in 2012 and 2013, respectively. The operating licenses for St. Lucie Units Nos. 1 and 2 expire in 2016 and 2023, respectively. 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. Current plans call for St. Lucie Unit No. 1 to be mothballed beginning in 2016 with decommissioning activities to be 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. FPL has informed the NRC of its intent to apply for a 20-year license renewal for each of its four nuclear units. FPL expects to file the application with the NRC in 2000 for the Turkey Point units and 2002 for the St. Lucie units. Fuel. FPL's generating plants use a variety of fuels. See Item 2. Properties - Generating Facilities and Note 12 - Contracts. The diverse fuel options, along with purchased power, enable FPL to shift between sources of generation to achieve an economical fuel mix. FPL has three contracts in place with FGT that satisfy substantially all of the anticipated needs for natural gas transportation. Additional agreements were executed to extend and provide incremental volumes to the Ft. Myers and Sanford plants, subject to approval by the FERC. The three existing contracts expire in 2010, 2015 and 2022 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 long-term natural gas supply contract at market rates to provide a portion of FPL's anticipated needs for natural gas. The remainder of FPL's gas requirements are 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's oil requirements are obtained under short- and long-term contracts and 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 December 1999, FPL has paid approximately $401 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. 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, oil and electric power. The division procures natural gas and oil for FPL's and FPL Energy's use in power generation and sells excess electric power. Substantially all of the results of FPL activities are passed through to customers in the fuel or capacity clauses. FPL Energy's results of these activities are recognized in income by FPL Energy. The level of activity is expected to grow as FPL and FPL Energy seek to manage the risk associated with fluctuating commodity prices and increase the value of their power generation assets. 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 National Institute of Environmental Health Sciences 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 9,783 employees at December 31, 1999. Approximately 35% of the employees are represented by the IBEW under a collective bargaining agreement with FPL expiring on October 31, 2000. FPL ENERGY OPERATIONS FPL Energy. FPL Energy, a wholly-owned subsidiary of FPL Group Capital, was formed in 1998 to aggregate FPL Group's existing unregulated energy- related operations. Effective September 30, 1999, FPL Energy, Inc. was converted from a corporation to a limited liability company, and the name was changed to FPL Energy, LLC. 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. In 1999, FPL Energy established regional offices in Pennsylvania and Texas and plans to open several more regional offices in 2000. FPL Energy is actively involved in managing more than 80% of its projects, which represents approximately 95% of the net generating capacity in which FPL Energy has an ownership interest. This active role is expected to continue as opportunities in the unregulated generation market are pursued. As of December 31, 1999, FPL Energy had ownership interests in operating independent power projects with a net generating capacity of 3,004 mw. These projects' fuel sources are 40% gas, 24% oil, 15% wind, 12% hydro and 9% other. Diversity in project locations reduces seasonal volatility on a portfolio basis. The projects are located in the following regions: Region % of Capacity Northeast ..................... 48% Mid-Atlantic .................. 27% West .......................... 18% Central ....................... 4% Colombia, South America ....... 3% Currently, approximately 30% of FPL Energy's net generating capacity has qualifying facility status under PURPA. Qualifying facility electricity may be generated from hydropower, wind, solar, geothermal, fossil fuels, biomass or waste-product combustion. Utilities pay for qualifying facility electricity on the basis of each utility's avoided cost of power. Qualifying facility status exempts the projects from the application of the Holding Company Act, many provisions of the Federal Power Act, and state laws and regulations respecting rates and financial or organizational regulation of electric utilities. FPL Energy also has ownership interest in operating independent power projects that have received exempt wholesale generator status as defined in the Holding Company Act. These projects represent approximately 70% of FPL Energy's net generating capacity. Exempt wholesale generators own or operate a facility exclusively to sell electric energy at wholesale. They are barred from selling electricity directly to retail customers. While projects with qualifying facility and exempt wholesale generator status are exempt from various restrictions, each project must still comply with other federal, state and local laws, including those regarding siting, construction, operation, licensing and pollution abatement. In 1999, FPL Energy completed the purchase of CMP's non-nuclear generating assets, primarily fossil and hydro power plants, for $866 million. The purchase price was based on an agreement, subject to regulatory approvals, reached with CMP in January 1998. In October 1998, the FERC struck down transmission rules that had been in effect in New England since the 1970s. The FERC rulings regarding transmission, as well as the announcement of new entrants into the market and changes in fuel prices since January 1998, resulted in FPL Energy recording a $176 million pre-tax impairment loss related to the fossil assets. The acquisition was accounted for under the purchase method of accounting and the results of operating the Maine assets have been included in FPL Group's consolidated financial statements since the acquisition date. See Note 9. FPL Energy's capital expenditures and investments totaled approximately $1.5 billion, $521 million and $291 million in 1999, 1998 and 1997, respectively. FPL Energy is currently constructing a 1,000 mw combined-cycle natural gas- fired plant in Texas, of which FPL Energy owns 99%. This plant is expected to become operational in 2000 and has 70% of the capacity under one- to five- year contracts. As of December 31, 1999, FPL Energy had remaining commitments of $71 million for the development of this plant. In addition, FPL Energy has announced plans to build five plants that would add approximately 2,100 mw to its generating capacity by 2003. See Management's Discussion - Liquidity and Capital Resources. Deregulation of the electric 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 power in competitive markets. Substantially all of the energy produced in 1999 by FPL Energy's independent power projects was sold through power sales agreements with utilities that expire in 2000-24. As competitive wholesale markets become more accessible to other generators, obtaining power sales agreements will become a progressively more competitive process. FPL Energy expects that as its existing power sales agreements expire, more of the energy produced will be sold through shorter-term contracts and into competitive wholesale markets. Competitive wholesale markets in the United States continue to evolve and vary by geographic region. Revenues from electricity sales in these markets will vary based on the prices obtainable for energy, capacity and other ancillary services. Some of the factors affecting success in these markets include the ability to operate generating assets efficiently, the price and supply of fuel, transmission constraints, competition from new sources of generation, demand growth and exposure to legal and regulatory changes. FPL Energy had 825 employees at December 31, 1999. Approximately 18% of the employees are represented by the IBEW under a collective bargaining agreement with FPL Energy expiring on February 28, 2003. OTHER FPL GROUP OPERATIONS FPL FiberNet. FPL FiberNet was formed in January 2000 to enhance the value of FPL Group's fiber-optic network assets that were originally built to support FPL operations. Accordingly, FPL's existing 1,600 mile fiber-optic lines were transferred to FPL FiberNet in January 2000. FPL FiberNet will sell wholesale fiber-optic network capacity to FPL and other new and existing customers, primarily telephone, cable television, internet and other telecommunications companies. The existing network interconnects cities in Florida from Miami to Jacksonville on the east coast, Lake City in the north, and Tampa to Naples on the west coast. FPL FiberNet plans to invest approximately $225 million over the next three years to expand the existing network within major cities throughout Florida. See Note 13. EXECUTIVE OFFICERS OF THE REGISTRANTS (a)(b)
Name Age Position Effective Date James L. Broadhead 64 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 61 General Counsel and Secretary of FPL Group ........................ June 1, 1991 General Counsel and Secretary of FPL .............................. July 1, 1991 K. Michael Davis 53 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 58 President of FPL .................................................. January 9, 1995 Lewis Hay, III 44 Vice President, Finance and Chief Financial Officer of FPL Group .. August 2, 1999 Senior Vice President, Finance and Chief Financial Officer of FPL . August 2, 1999 Lawrence J. Kelleher 52 Vice President, Human Resources of FPL Group ...................... May 13, 1991 Senior Vice President, Human Resources of FPL ..................... July 1, 1991 Robert L. McGrath 46 Treasurer of FPL Group ............................................ January 11, 2000 Treasurer of FPL .................................................. January 11, 2000 Armando J. Olivera 50 Senior Vice President, Power Systems of FPL ....................... July 1, 1999 Thomas F. Plunkett 60 President, Nuclear Division of FPL ................................ March 1, 1996 Antonio Rodriguez 57 Senior Vice President, Power Generation of FPL .................... July 1, 1999 Michael W. Yackira 48 President of FPL Energy, LLC ...................................... January 15, 1998 ____________________ (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 present position for five years or more and his employment history is continuous. (b) The business experience of the executive officers is as follows: Mr. Hay was senior vice president and chief financial officer of US Foodservice, a food service distributor, from 1991 to 1997. From 1997 to 1999 he was executive vice president and chief financial officer of US Foodservice. Mr. McGrath was assistant treasurer of FPL Group and FPL from February 1998 to January 2000. Prior to that, Mr. McGrath was vice president and chief financial officer of ESI Energy, Inc. Mr. Olivera was vice president, distribution of FPL from February 1997 to July 1999. Prior to that, Mr. Olivera was vice president, power delivery of FPL. Mr. Plunkett was site vice president at Turkey Point. Mr. Rodriguez was vice president, power delivery of FPL from February 1997 to July 1999. Prior to that, Mr. Rodriguez was vice president, operations of FPL's power generation division. 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.
Item 2. Properties FPL Group and its subsidiaries maintain properties which are adequate for their operations. At December 31, 1999, the electric generating, transmission, distribution and general facilities of FPL represent 45%, 13%, 35% and 7%, respectively, of FPL's gross investment in electric utility plant in service. Generating Facilities. As of December 31, 1999, FPL Group had the following generating facilities:
No. of Net Facility Location Units Fuel Capability (mw)(a) FPL: STEAM TURBINES Cape Canaveral ...................... Cocoa, FL 2 Oil/Gas 804 Cutler .............................. Miami, FL 2 Gas 215 Fort Myers .......................... Fort Myers, FL 2 Oil 543 Manatee ............................. Parrish, FL 2 Oil 1,625 Martin .............................. Indiantown, FL 2 Oil/Gas 1,631 Port Everglades ..................... Port Everglades, FL 4 Oil/Gas 1,242 Riviera ............................. Riviera Beach, FL 2 Oil/Gas 573 St. Johns River Power Park .......... Jacksonville, FL 2 Coal/Petroleum Coke 254(b) St. Lucie ........................... Hutchinson Island, FL 2 Nuclear 1,553(c) Sanford ............................. Lake Monroe, FL 3 Oil/Gas 934 Scherer ............................. Monroe County, GA 1 Coal 658(d) 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 950 Putnam .............................. Palatka, FL 2 Gas/Oil 498 COMBUSTION TURBINES Fort Myers .......................... Fort Myers, FL 12 Oil 636 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 ................................. 16,444 FPL Energy: Cerro Gordo ......................... Clearlake, IA 54 Wind 42 Doswell ............................. Ashland, VA 4 Gas 665 Maine ............................... Various - ME 7 Oil 713 Maine ............................... Various - ME 92 Hydro 373 Maine ............................... Ft. Fairfield, ME 1 Wastewood 31 Marcus Hook 50 ...................... Marcus Hook, PA 1 Gas 50 Southwest Mesa ...................... McCamey, TX 107 Wind 75 Vansycle ............................ Helix, OR 38 Wind 25 Investments in Joint Ventures ....... Various N/M Various 1,030 TOTAL ................................. 3,004 ____________________ (a) Represents FPL's net warm weather peaking capability and FPL Energy's net ownership interest in plant capacity. (b) Represents FPL's 20% ownership interest in each of SJRPP Units Nos. 1 and 2, which are jointly owned with the JEA. (c) Excludes Orlando Utilities Commission's and the FMPA's combined share of approximately 15% of St. Lucie Unit No. 2. (d) Represents FPL's approximately 76% ownership of Scherer Unit No. 4, which is jointly owned with the JEA.
N/M - Not meaningful Transmission and Distribution. As of December 31, 1999, FPL owned and operated 487 substations and the following electric transmission and distribution lines:
Overhead Lines Trench and Submarine Nominal Voltage Pole Miles Cable Miles 500 kv ............................................................ 1,107(a) - 230 kv ............................................................ 2,246 31 138 kv ............................................................ 1,433 49 115 kv ............................................................ 670 - 69 kv ............................................................ 166 14 Less than 69 kv ................................................... 39,858 21,353 Total ............................................................. 45,480 21,447 ____________________ (a) Includes approximately 75 miles owned jointly with the JEA.
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. 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 by FPL, FPL Group and FPL Group Capital, plus attorneys' fees. In October 1998, the trial court dismissed all of the partnerships' antitrust claims against FPL, FPL Group and FPL Group Capital. The partnerships appealed the trial court's dismissal to the Fourth District Court of Appeal which affirmed the trial court's decision as to FPL Group and FPL Group Capital and dismissed as premature the partnerships' appeal of the trial court's decision as to FPL. In June 1999, the partnerships' motion for summary judgment was denied; they have appealed. In July 1990, FPL entered into an amended and restated agreement (the contract) with a qualifying facility (as defined by PURPA) located in Duval County, Florida. Construction of the facility, which is owned by Cedar Bay Generating Company, L.P. (Cedar Bay), was financed in part by loans from institutional investors, including Paribas. The contract provides FPL with the right to dispatch the Cedar Bay facility "in any manner it deems appropriate." Despite this contractual right, Cedar Bay initiated an action in 1997 in the Circuit Court for Duval County, Florida, challenging, among other things, the manner in which the facility had been dispatched by FPL. Although the court granted summary judgment to FPL with regard to Cedar Bay's claim that FPL's dispatch decisions violated the express terms of the contract, it permitted a jury to hear Cedar Bay's claim that such dispatch decisions violated an implied duty of good faith and fair dealing. The jury awarded Cedar Bay approximately $13 million on this claim. Thereafter, the court entered a declaration that FPL was, in the future, to dispatch the Cedar Bay facility in accordance with certain specified parameters. FPL expects to recover the amount of this judgment through the capacity clause. FPL has appealed both the jury award and the court's declaration. In October 1999, after FPL filed its notice of appeal in the Cedar Bay action, Paribas, on behalf of itself and a group of other Cedar Bay lenders, filed an action against FPL in the Circuit Court of Duval County. The suit alleges breach of contract, breach of an implied duty of good faith and fair dealing, fraud, tortious interference with contract and several other claims regarding the manner in which FPL has dispatched the Cedar Bay facility. It seeks unspecified damages and other relief. FPL has moved to dismiss all counts of Paribas' complaint. If the jury award and court declaration in the Cedar Bay case is upheld fully on appeal, Paribas apparently believes that, they and the other lenders have no claims against FPL (or at least would have no damages arising therefrom), and has therefore moved to stay its own action pending resolution of the appeal in the Cedar Bay action. In November 1999, the Attorney General of the United States, on behalf of the U.S. Environmental Protection Agency (EPA) brought an action in the U.S. District Court for the Northern District of Georgia against Georgia Power Company and other subsidiaries of The Southern Company for injunctive relief and the assessment of civil penalties for violations of the Prevention of Significant Deterioration (PSD) provisions and the New Source Performance Standards (NSPS) of the Clean Air Act. Among other things, the EPA alleges Georgia Power Company constructed and is continuing to operate Scherer Unit No. 4, in which FPL owns a 76% interest, without obtaining a PSD permit, without complying with NSPS requirements, and without applying best available control technology for nitrogen oxides, sulfur dioxides and particulate matter as required by the Clean Air Act. The suit seeks injunctive relief requiring the installation of such technology and civil penalties of up to $25,000 per day for each violation from August 7, 1977 through January 30, 1997, and $27,000 per day for each violation thereafter. Georgia Power has filed an answer to the complaint asserting that it has complied with all requirements of the Clean Air Act, denying the plaintiff's allegations of liability, denying that the plaintiff is entitled to any of the relief that it seeks and raising various other defenses. In the event that FPL Group and 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 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. 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:
1999 1998 Quarter High Low High Low First ....................................................... $61 15/16 $50 1/8 $65 3/16 $56 1/16 Second ...................................................... $60 1/2 $52 7/8 $65 5/8 $58 11/16 Third ....................................................... $56 11/16 $49 1/8 $70 $59 11/16 Fourth ...................................................... $52 1/2 $41 1/8 $72 9/16 $60 1/2
Approximate Number of Stockholders. As of the close of business on January 31, 2000, there were 49,694 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:
Quarter 1999 1998 First ......................................................................................... $0.52 $0.50 Second ........................................................................................ $0.52 $0.50 Third ......................................................................................... $0.52 $0.50 Fourth ........................................................................................ $0.52 $0.50
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
Years Ended December 31, 1999 1998 1997 1996 1995 SELECTED DATA OF FPL GROUP (millions, except per share amounts): Operating revenues ...................................... $ 6,438 $ 6,661 $ 6,369 $ 6,037 $ 5,592 Net income .............................................. $ 697 $ 664 $ 618 $ 579 $ 553 Earnings per share of common stock(a) ................... $ 4.07 $ 3.85 $ 3.57 $ 3.33 $ 3.16 Dividends paid per share of common stock ................ $ 2.08 $ 2.00 $ 1.92 $ 1.84 $ 1.76 Total assets ............................................ $13,441 $12,029 $12,449 $12,219 $12,459 Long-term debt, excluding current maturities ............ $ 3,478 $ 2,347 $ 2,949 $ 3,144 $ 3,377 Obligations of FPL under capital lease, excluding current maturities .................................... $ 157 $ 146 $ 186 $ 182 $ 179 Preferred stock of FPL with sinking fund requirements, excluding current maturities .......................... $ - $ - $ - $ 42 $ 50 Energy sales (kwh) ...................................... 92,483 91,041 84,642 80,889 79,756 SELECTED DATA OF FPL (millions): Operating revenues ...................................... $ 6,057 $ 6,366 $ 6,132 $ 5,986 $ 5,530 Net income available to FPL Group........................ $ 576 $ 616 $ 608 $ 591 $ 568 Total assets ............................................ $10,608 $10,748 $11,172 $11,531 $11,751 Long-term debt, excluding current maturities ............ $ 2,079 $ 2,191 $ 2,420 $ 2,981 $ 3,094 Energy sales (kwh) ...................................... 88,067 89,362 82,734 80,889 79,756 Energy sales: Residential ........................................... 50.2% 50.9% 50.6% 51.1% 50.8% Commercial ............................................ 40.3 38.8 39.8 38.6 38.5 Industrial ............................................ 4.5 4.4 4.7 4.7 4.9 Interchange power sales ............................... 3.0 3.2 2.1 2.6 1.6 Other(b) .............................................. 2.0 2.7 2.8 3.0 4.2 Total ................................................... 100.0% 100.0% 100.0% 100.0% 100.0% Approximate 60-minute net peak served (mw)(c): Summer season ......................................... 17,615 17,897 16,613 16,064 15,813 Winter season ......................................... 17,057 16,802 13,047 16,490 18,096 Average number of customer accounts (thousands): Residential ........................................... 3,332 3,266 3,209 3,153 3,097 Commercial ............................................ 405 397 389 381 374 Industrial ............................................ 16 15 15 15 15 Other ................................................. 3 2 3 2 3 Total ................................................... 3,756 3,680 3,616 3,551 3,489 Average price per kwh (cents)(d) ........................ 6.87 7.13 7.37 7.39 6.97 ____________________ (a) Basic and assuming dilution. (b) Includes the net change in unbilled sales. (c) Winter season includes November - December of the current year and January - March of the following year. (d) Excludes interchange power sales, net change in unbilled revenues and cost recovery clause revenues, and the provision for refund.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The operations of FPL continue to be the predominant contributor to FPL Group's earnings. Earnings growth, however, over the past two years has mostly come from improved results at FPL Energy. FPL Group's 1999 net income and earnings per share grew 5.0% and 5.7%, respectively. The 1999 amounts include the net effect of several nonrecurring transactions that resulted in additional net income of $16 million, or $0.09 per share for the year. Excluding the nonrecurring items, FPL Group's net income was $681 million and earnings per share were $3.98, resulting in growth of 2.6% and 3.4%, respectively. The comparable growth rates for 1998 were 7.4% and 7.8%, respectively. The nonrecurring transactions are discussed in more detail below within the segment to which they relate. FPL - FPL's results for 1999 include the settlement of litigation between FPL and FMPA, which resulted in a fourth quarter after-tax charge of $42 million. The charge, included in O&M expenses, reflects a settlement agreement pursuant to which FPL agreed to pay FMPA a cash settlement; FPL agreed to reduce the demand charge on an existing power purchase agreement; and FPL and FMPA agreed to enter into a new power purchase agreement giving FMPA the right to purchase limited amounts of power in the future at a specified price. This agreement settled a dispute with FMPA that had been pending for nearly ten years. FPL's net income for 1999, excluding the FMPA charge, was up slightly from 1998. Lower depreciation, customer growth and lower O&M expenses offset the effect of the rate reduction, implemented in April 1999, and a decline in electricity used by retail customers. FPL's net income growth in 1998 compared to 1997 was primarily associated with an increase in total kwh sales and lower interest charges, partly offset by higher depreciation and O&M expenses. FPL's operating revenues consist primarily of revenues from retail base operations, cost recovery clauses and franchise fees. Revenues from retail base operations were $3.2 billion, $3.6 billion and $3.4 billion in 1999, 1998 and 1997, respectively. 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. In 1999, the FPSC approved a three-year agreement among FPL, Public Counsel, FIPUG and Coalition regarding FPL's retail base rates, authorized regulatory ROE, capital structure and other matters. The agreement, which became effective April 15, 1999, provides for a $350 million reduction in annual revenues 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 twelve-month periods covered by the agreement, whereby revenues from retail base operations in excess of a stated threshold will be shared on the basis of two-thirds refunded to retail customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold will be refunded 100% to retail customers. The thresholds are as follows: Twelve Months Ended April 14, 2000 2001 2002 (millions) Threshold to refund 66 2/3% to customers ..... $3,400 $3,450 $3,500 Threshold to refund 100% to customers ........ $3,556 $3,606 $3,656 Offsetting the annual revenue reduction will be lower special depreciation. The agreement allows for special depreciation of up to $100 million, at FPL's discretion, in each year of the three-year agreement period to be applied to nuclear and/or fossil generating assets. Under this new depreciation program, FPL recorded approximately $70 million of special depreciation in 1999. The new depreciation program replaced a revenue-based special amortization program whereby special amortization in the amount of $63 million, $378 million and $199 million was recorded in 1999, 1998 and 1997, respectively. In addition, the agreement lowered FPL's authorized regulatory ROE range to 10% - 12%. During the term of the agreement, the achieved ROE may from time to time be outside the authorized range, and the revenue sharing mechanism described above is specified to be the appropriate and exclusive mechanism to address that circumstance. FPL reported an ROE of 12.1%, 12.6% and 12.3% in 1999, 1998 and 1997, respectively. See Note 1 - Revenues and Rates. The decline in revenues from retail base operations during 1999 was to a large extent due to the negative impact of the agreement that reduced retail base revenues by approximately $300 million. A 2.8% decline in usage per retail customer mainly due to milder weather conditions than the prior year was almost entirely offset by an increase in the number of customer accounts. The number of customer accounts grew 2% to approximately 3.8 million in 1999. The increase in retail base revenues in 1998 from 1997 reflects a 4.8% increase in usage per retail customer from warmer weather combined with a 1.8% increase in the number of customer accounts. FPL's O&M expenses in 1999 benefited from continued cost control efforts. This was partially offset by higher overhaul costs at fossil plants. O&M expenses increased in 1998 as a result of additional costs associated with improving the service reliability of FPL's distribution system, partially offset by lower nuclear maintenance costs and conservation clause expenses. Conservation clause expenses are essentially a pass-through and do not affect net income. Lower interest charges in 1999 and 1998 reflect lower average debt balances and the full amortization in 1998 of deferred costs associated with reacquired debt. 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 1999, operating revenues from wholesale and industrial customers combined represented approximately 4% of FPL's total operating revenues. A number of potential merchant plants have been announced to date in Florida. However, only two submissions to seek a determination of need totaling approximately 1,000 mw have been presented to the FPSC. In March 1999, the FPSC approved one of the petitions for a power plant to be constructed within FPL's service territory. FPL, along with other Florida utilities, has appealed the decision to the Florida Supreme Court. Since there is no deregulation proposal currently under consideration in Florida, FPL is unable to predict the impact of a change to a more competitive environment or when such a change might occur. See Note 1 - Regulation. FPL Energy - FPL Energy's 1999 and 1998 operating results benefited from a 60% and 51% increase, respectively, in the generating capacity of FPL Energy's power plant portfolio. Operating results also benefited from improved results of a gas-fired power plant in the Mid-Atlantic region, mainly due to the financial restructuring of the project, renegotiation of fuel and power sales contracts, lower non-fuel O&M expenses and improved plant availability. The improvement in FPL Energy's 1999 operating results were partly offset by higher administrative expenses to accommodate future growth. The generating capacity growth since 1997 is primarily the result of the acquisition of the Maine assets (1,117 mw), natural gas projects (300 mw) in the Northeast region and several wind projects (291 mw) in the Central and West regions. In 1999, FPL Energy's operating results include the effect of a $176 million ($104 million after-tax) impairment loss. See Note 9. FPL Energy's 1998 operating results reflect the cost of terminating an interest rate swap agreement, partly offset by the receipt of a settlement relating to a contract dispute. Deregulation of the electric 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 power in competitive markets. Substantially all of the energy produced in 1999 by FPL Energy's independent power projects was sold through power sales agreements with utilities that expire in 2000-24. As competitive wholesale markets become more accessible to other generators, obtaining power sales agreements will become a progressively more competitive process. FPL Energy expects that as its existing power sales agreements expire, more of the energy produced will be sold through shorter-term contracts and into competitive wholesale markets. Competitive wholesale markets in the United States continue to evolve and vary by geographic region. Revenues from electricity sales in these markets will vary based on the prices obtainable for energy, capacity and other ancillary services. Some of the factors affecting success in these markets include the ability to operate generating assets efficiently, the price and supply of fuel, transmission constraints, competition from new sources of generation, demand growth and exposure to legal and regulatory changes. Corporate and Other - In 1999, net income for the corporate and other segment reflects a $149 million ($96 million after-tax) gain on the sale of an investment in Adelphia Communications Corporation common stock, a $108 million ($66 million after-tax) gain recorded by FPL Group Capital on the redemption of its one-third equity interest in a cable limited partnership, costs associated with closing a retail marketing business and the favorable resolution of a prior year state tax matter. In 1998, net income for the corporate and other segment reflects a loss from the sale of Turner Foods Corporation's assets, the cost of terminating an agreement designed to fix interest rates and adjustments relating to prior years' tax matters, including the resolution of an audit issue with the Internal Revenue Service. Year 2000 - FPL Group did not experience any significant year 2000-related problems. The total cost of addressing year 2000 issues was approximately $37 million. Liquidity and Capital Resources FPL Group's capital requirements consist of expenditures to meet increased electricity usage and customer growth of FPL and investment opportunities at FPL Energy. In 1999, FPL Group's capital expenditures reflect FPL Energy's investment in generating assets in Maine and the cost of constructing a natural gas power plant in Texas, as well as FPL's power plant expansion activities. As of December 31, 1999, FPL Energy has made commitments totaling approximately $72 million, primarily in connection with the development of an independent power project. Capital expenditures of FPL for the 2000-02 period are expected to be approximately $3.1 billion, including $1.3 billion in 2000. FPL Group Capital and its subsidiaries have guaranteed approximately $680 million of purchased power agreement obligations, debt service payments and other payments subject to certain contingencies. See Note 12 - Commitments. Debt maturities of FPL Group's subsidiaries will require cash outflows of approximately $595 million ($420 million for FPL) through 2004, including $125 million for FPL in 2000. It is anticipated that cash requirements for capital expenditures, energy-related investments and debt maturities in 2000 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 repurchase common stock, or for investment. Any temporary cash needs will be met by short-term bank borrowings. In 1999 FPL Group Capital redeemed $125 million in debentures, which resulted in a loss on reacquired debt of approximately $8 million and issued $1.4 billion in debentures, primarily to finance FPL Energy's generating capacity growth. In 1999, FPL had $230 million in first mortgage bonds mature and issued $225 million in first mortgage bonds, primarily to redeem $216 million first mortgage bonds with a 2% higher interest rate. Bank lines of credit currently available to FPL Group and its subsidiaries aggregate $2.4 billion ($880 million for FPL). During 1999, FPL Group repurchased 2.2 million shares of common stock under the 10 million share repurchase program. As of December 31, 1999, FPL Group is authorized to repurchase an additional 6.2 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, 1999 and 1998 was $216 million and $259 million, respectively. During 1999, storm fund reserves were reduced to recover the costs associated with three storms. Bank lines of credit of $300 million, included in the $880 million 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. 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. New Accounting Rule In June 1998, the Financial Accounting Standards Board 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 FAS 133 beginning in 2001. 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 $847 million and $650 million at December 31, 1999 and 1998, 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. At December 31, 1999 and 1998, other investments of FPL Group include $291 million and $72 million, respectively, of investments that are carried at estimated fair value or cost, which approximates fair value. The following are estimates of the fair value of FPL's and FPL Group's long-term debt:
1999 1998 Carrying Fair Carrying Fair Value Value Value Value (millions) Long-term debt of FPL (a) .................. $2,204 $2,123(b) $2,421 $2,505(b) Long-term debt of FPL Group (a) ............ $3,603 $3,518(b) $2,706 $2,797(b) ____________________ (a) Includes current maturities. (b) Based on quoted market prices for these or similar issues.
Market risk associated with all of these securities is estimated as the potential gain in fair value of net liabilities resulting from a hypothetical 10% increase in interest rates and amounts to $97 million and $68 million for FPL Group and $39 million and $60 million for FPL at December 31, 1999 and 1998, respectively. Equity price risk - Included in the special use funds of FPL are marketable equity securities carried at their market value of approximately $573 million and $556 million at December 31, 1999 and 1998, respectively. A hypothetical 10% decrease in the prices quoted by stock exchanges would result in a $56 million reduction in fair value and corresponding adjustment to the related liability accounts based on current regulatory treatment at both December 31, 1999 and 1998. Other risks - Under current cost-based regulation, FPL's cost of fuel is recovered through the fuel clause, with no effect on earnings. FPL's Energy Marketing & Trading Division buys and sells wholesale energy commodities, such as natural gas, oil and electric power. The division procures natural gas and oil for FPL's and FPL Energy's use in power generation and sells excess electric power. Substantially all of the result of the FPL activities are passed through to customers in the fuel or capacity clauses. FPL Energy's results of these activities are recognized in income by FPL Energy. The level of activity is expected to grow as FPL and FPL Energy seek to manage the risk associated with fluctuating commodity prices and increase the value of their power generation assets. At December 31, 1999, 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, 1999. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Certified Public Accountants Miami, Florida February 11, 2000 FPL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (millions, except per share amounts)
Years Ended December 31, 1999 1998 1997 OPERATING REVENUES ................................................................. $6,438 $6,661 $6,369 OPERATING EXPENSES: Fuel, purchased power and interchange ............................................ 2,365 2,244 2,255 Other operations and maintenance ................................................. 1,322 1,284 1,231 Depreciation and amortization .................................................... 1,040 1,284 1,061 Impairment loss on Maine assets .................................................. 176 - - Taxes other than income taxes .................................................... 615 597 594 Total operating expenses ....................................................... 5,518 5,409 5,141 OPERATING INCOME ................................................................... 920 1,252 1,228 OTHER INCOME (DEDUCTIONS): Interest charges ................................................................. (222) (322) (291) Preferred stock dividends - FPL .................................................. (15) (15) (19) Divestiture of cable investments ................................................. 257 - - Other - net ...................................................................... 80 28 4 Total other income (deductions) - net .......................................... 100 (309) (306) INCOME BEFORE INCOME TAXES ......................................................... 1,020 943 922 INCOME TAXES ....................................................................... 323 279 304 NET INCOME ......................................................................... $ 697 $ 664 $ 618 Earnings per share of common stock (basic and assuming dilution) ................... $4.07 $3.85 $3.57 Dividends per share of common stock ................................................ $2.08 $2.00 $1.92 Average number of common shares outstanding ........................................ 171 173 173
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. FPL GROUP, INC. CONSOLIDATED BALANCE SHEETS (millions)
December 31, 1999 1998 PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and other property ....................................... $18,474 $17,592 Nuclear fuel under capital lease - net...................................................... 157 146 Construction work in progress .............................................................. 923 214 Less accumulated depreciation and amortization ............................................. (10,290) (9,397) Total property, plant and equipment - net ................................................ 9,264 8,555 CURRENT ASSETS: Cash and cash equivalents .................................................................. 361 187 Customer receivables, net of allowances of $7 and $8 ...................................... 482 559 Materials, supplies and fossil fuel inventory - at average cost ............................ 343 282 Deferred clause expenses ................................................................... 54 82 Other ...................................................................................... 133 156 Total current assets ..................................................................... 1,373 1,266 OTHER ASSETS: Special use funds of FPL ................................................................... 1,352 1,206 Other investments .......................................................................... 611 391 Other ...................................................................................... 841 611 Total other assets ....................................................................... 2,804 2,208 TOTAL ASSETS ................................................................................. $13,441 $12,029 CAPITALIZATION: Common shareholders' equity ................................................................ $ 5,370 $ 5,126 Preferred stock of FPL without sinking fund requirements ................................... 226 226 Long-term debt ............................................................................. 3,478 2,347 Total capitalization ..................................................................... 9,074 7,699 CURRENT LIABILITIES: Short-term debt ............................................................................ 339 110 Current maturities of long-term debt ....................................................... 125 359 Accounts payable ........................................................................... 407 338 Customers' deposits ........................................................................ 284 282 Accrued interest and taxes ................................................................. 182 191 Deferred clause revenues ................................................................... 116 89 Other ...................................................................................... 417 272 Total current liabilities ................................................................ 1,870 1,641 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes .......................................................... 1,079 1,255 Deferred regulatory credit - income taxes .................................................. 126 148 Unamortized investment tax credits ......................................................... 184 205 Storm and property insurance reserve ....................................................... 216 259 Other ...................................................................................... 892 822 Total other liabilities and deferred credits ............................................. 2,497 2,689 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES ......................................................... $13,441 $12,029
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. FPL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (millions)
Years Ended December 31, 1999 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income ....................................................................... $ 697 $ 664 $ 618 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................................ 1,040 1,284 1,061 Decrease in deferred income taxes and related regulatory credit .............. (198) (237) (30) Other - net .................................................................. 24 32 (52) Net cash provided by operating activities ...................................... 1,563 1,743 1,597 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures of FPL ...................................................... (861) (617) (551) Independent power investments .................................................... (1,540) (521) (291) Distributions and loan repayments from partnerships and joint ventures ........... 132 304 53 Proceeds from the sale of assets ................................................. 198 135 43 Other - net....................................................................... (101) (96) (51) Net cash used in investing activities .......................................... (2,172) (795) (797) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt ....................................................... 1,609 343 42 Retirement of long-term debt ..................................................... (584) (727) (717) Increase (decrease) in short-term debt ........................................... 229 (24) 113 Repurchase of common stock ....................................................... (116) (62) (48) Dividends on common stock ........................................................ (355) (345) (332) Net cash provided by (used in) financing activities ............................ 783 (815) (942) Net increase (decrease) in cash and cash equivalents ............................... 174 133 (142) Cash and cash equivalents at beginning of year ..................................... 187 54 196 Cash and cash equivalents at end of year ........................................... $ 361 $ 187 $ 54 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest ........................................................... $ 221 $ 308 $ 287 Cash paid for income taxes ....................................................... $ 573 $ 463 $ 434 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Additions to capital lease obligations ........................................... $ 86 $ 34 $ 81 Debt assumed for property additions .............................................. $ - $ - $ 420
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. FPL GROUP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (millions)
Accumulated Common Stock (a) Additional Other Common Aggregate Paid-In Unearned Comprehensive Retained Shareholders' Shares Par Value Capital Compensation Income (Loss) Earnings Equity Balances, December 31, 1996 .... 183 $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 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 Net income ................... - - - - - 697 Repurchase of common stock ... (2) - (116) - - - Dividends on common stock .... - - - - - (355) Earned compensation under ESOP - - 12 14 - - Other comprehensive loss ..... - - - - (2) - Other ........................ - - - (6) - - Balances, December 31, 1999 .... 179(b) $2 $3,148 $(244) $(1) $2,465 $5,370 ____________________ (a) $0.01 par value, authorized - 300,000,000 shares; outstanding 178,554,735 and 180,712,435 at December 31, 1999 and 1998, respectively. (b) Outstanding and unallocated shares held by the Employee Stock Ownership Plan Trust totaled 8 million, 9 million and 9 million at December 31, 1999, 1998 and 1997, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. FLORIDA POWER & LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME (millions)
Years Ended December 31, 1999 1998 1997 OPERATING REVENUES ................................................................ $6,057 $6,366 $6,132 OPERATING EXPENSES: Fuel, purchased power and interchange ........................................... 2,232 2,175 2,196 Other operations and maintenance ................................................ 1,158 1,163 1,132 Depreciation and amortization ................................................... 989 1,249 1,034 Income taxes .................................................................... 327 356 329 Taxes other than income taxes ................................................... 605 596 592 Total operating expenses ...................................................... 5,311 5,539 5,283 OPERATING INCOME .................................................................. 746 827 849 OTHER INCOME (DEDUCTIONS): Interest charges ................................................................ (163) (196) (227) Other - net ..................................................................... 8 - 5 Total other deductions - net .................................................. (155) (196) (222) NET INCOME ........................................................................ 591 631 627 PREFERRED STOCK DIVIDENDS ......................................................... 15 15 19 NET INCOME AVAILABLE TO FPL GROUP, INC. ........................................... $ 576 $ 616 $ 608
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. FLORIDA POWER & LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (millions)
December 31, 1999 1998 ELECTRIC UTILITY PLANT: Plant in service ......................................................................... $17,556 $17,159 Less accumulated depreciation ............................................................ (10,184) (9,317) Net .................................................................................... 7,372 7,842 Nuclear fuel under capital lease - net.................................................... 157 146 Construction work in progress ............................................................ 449 159 Electric utility plant - net ......................................................... 7,978 8,147 CURRENT ASSETS: Cash and cash equivalents ................................................................ - 152 Customer receivables, net of allowances of $7 and $8 ..................................... 433 521 Materials, supplies and fossil fuel inventory - at average cost .......................... 299 239 Deferred clause expenses ................................................................. 54 82 Other .................................................................................... 107 122 Total current assets ................................................................. 893 1,116 OTHER ASSETS: Special use funds ........................................................................ 1,352 1,206 Other .................................................................................... 385 279 Total other assets ................................................................... 1,737 1,485 TOTAL ASSETS ............................................................................... $10,608 $10,748 CAPITALIZATION: Common shareholder's equity .............................................................. $ 4,793 $ 4,803 Preferred stock without sinking fund requirements ........................................ 226 226 Long-term debt ........................................................................... 2,079 2,191 Total capitalization ................................................................. 7,098 7,220 CURRENT LIABILITIES: Commercial paper ......................................................................... 94 - Current maturities of long-term debt ..................................................... 125 230 Accounts payable ......................................................................... 379 321 Customers' deposits ...................................................................... 284 282 Accrued interest and taxes ............................................................... 137 198 Deferred clause revenues ................................................................. 116 89 Other .................................................................................... 298 231 Total current liabilities ............................................................ 1,433 1,351 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes ........................................................ 802 887 Deferred regulatory credit - income taxes ................................................ 126 148 Unamortized investment tax credits ....................................................... 184 205 Storm and property insurance reserve ..................................................... 216 259 Other .................................................................................... 749 678 Total other liabilities and deferred credits ......................................... 2,077 2,177 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES ....................................................... $10,608 $10,748
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. FLORIDA POWER & LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (millions)
Years Ended December 31, 1999 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................................... $ 591 $ 631 $ 627 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................................ 989 1,249 1,034 Decrease in deferred income taxes and related regulatory credit........... (105) (202) (98) Other - net .............................................................. 24 40 (60) Net cash provided by operating activities .................................. 1,499 1,718 1,503 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ......................................................... (861) (617) (551) Other - net .................................................................. (52) (80) (83) Net cash used in investing activities ...................................... (913) (697) (634) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt ................................................... 224 197 - Retirement of long-term debt ................................................. (455) (389) (505) Increase (decrease) in commercial paper ...................................... 94 (40) 40 Capital contributions from FPL Group, Inc. ................................... - - 140 Dividends .................................................................... (601) (640) (619) Net cash used in financing activities ...................................... (738) (872) (944) Net increase (decrease) in cash and cash equivalents ........................... (152) 149 (75) Cash and cash equivalents at beginning of year ................................. 152 3 78 Cash and cash equivalents at end of year ....................................... $ - $ 152 $ 3 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest ....................................................... $ 171 $ 181 $ 216 Cash paid for income taxes ................................................... $ 503 $ 510 $ 575 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Additions to capital lease obligations ....................................... $ 86 $ 34 $ 81
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. FLORIDA POWER & LIGHT COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (millions)
Common Common Additional Retained Shareholder's Stock (a) Paid-In Capital Earnings Equity Balances, December 31, 1996 ......................... $1,373 $2,424 $871 Contributions from FPL Group, Inc. ................ - 140 - Net income available to FPL Group, Inc. ........... - - 608 Dividends to FPL Group, Inc. ...................... - - (601) Other ............................................. - 2 (3) Balances, December 31, 1997 ......................... 1,373 2,566 875 Net income available to FPL Group, Inc. ........... - - 616 Dividends to FPL Group, Inc. ...................... - - (626) Other ............................................. - - (1) Balances, December 31, 1998 ......................... 1,373 2,566 864 $4,803 Net income available to FPL Group, Inc. ........... - - 576 Dividends to FPL Group, Inc. ...................... - - (586) Balances, December 31, 1999 ......................... $1,373 $2,566 $ 854 $4,793 ____________________ (a) Common stock, no par value, 1,000 shares authorized, issued and outstanding.
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, 1999, 1998 and 1997 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) and FPL Energy, LLC (FPL Energy), formerly FPL Energy, Inc. FPL, a rate-regulated public utility, supplies electric service to approximately 3.8 million customers throughout most of the east and lower west coasts of Florida. FPL Energy invests in independent power projects through both controlled and consolidated entities and non-controlling ownership interests in joint ventures accounted for under the equity method. 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 unregulated 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. 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:
December 31, 1999 1998 (millions) Assets (included in other assets): Unamortized debt reacquisition costs ...................................................... $ 12 $ - Deferred Department of Energy assessment .................................................. $ 39 $ 44 Liabilities: Deferred regulatory credit - income taxes ................................................. $126 $148 Unamortized investment tax credits ....................................................... $184 $205 Storm and property insurance reserve (see Note 12 - Insurance)............................. $216 $259
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 the impact of a change to a more competitive environment or when such a change might occur. Almost half of the states, other than Florida, have enacted legislation or have state commissions that issued orders 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 December 1999, the FERC issued its final order on regional transmission organizations or RTOs. RTOs, under a variety of structures, provide for the independent operation of transmission systems for a given geographic area. The final order establishes guidelines for public utilities to use in considering and/or developing plans to initiate operations of RTOs. The order requires all public utilities to file with the FERC by October 15, 2000, a proposal for an RTO with certain minimum characteristics and functions to be operational by December 15, 2001, or alternatively, a description of efforts to participate in an RTO, any existing obstacles to RTO participation and any plans to work toward RTO participation. FPL is evaluating various alternatives for compliance with the order. 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 $130 million and $152 million at December 31, 1999 and 1998, 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. In 1999, the FPSC approved a three-year agreement among FPL, the State of Florida 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 return on common equity (ROE), capital structure and other matters. The agreement, which became effective April 15, 1999, provides for a $350 million reduction in annual revenues 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 twelve-month periods covered by the agreement, whereby revenues from retail base operations in excess of a stated threshold will be shared on the basis of two-thirds refunded to retail customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold will be refunded 100% to retail customers. The thresholds are as follows: Twelve Months Ended April 14, 2000 2001 2002 (millions) 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, the agreement lowered FPL's authorized regulatory ROE range to 10% - 12%. During the term of the agreement, the achieved ROE may from time to time be outside the authorized range, and the revenue sharing mechanism described above is specified to be the appropriate and exclusive mechanism to address that circumstance. For purposes of calculating ROE, 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 purchased power contracts. Finally, the agreement established a new special depreciation program (see Electric Plant, Depreciation and Amortization) and includes 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 compliance cost recovery clause during the 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 term of the agreement. 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 and FPL Energy is added to electric utility plant. In accordance with regulatory accounting, the cost of FPL's 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, 1999, the generating, transmission, distribution and general facilities of FPL represented approximately 45%, 13%, 35% 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. In April 1999, the FPSC granted final approval of FPL's most recent depreciation studies, which were effective January 1, 1998. Fossil fuel plant dismantlement studies were filed in September 1998 and were effective January 1, 1999. The weighted annual composite depreciation rate for FPL's electric plant in service was approximately 4.3% for 1999, 4.4% for 1998 and 4.3% for 1997, excluding the effects of decommissioning and dismantlement. Further, these rates exclude the special and plant- related deferred cost amortization discussed below. The agreement that reduced FPL's base rates (see Revenues and Rates) also allows for special depreciation of up to $100 million, at FPL's discretion, in each year of the three-year agreement period to be applied to nuclear and/or fossil generating assets. Under this new depreciation program, FPL recorded approximately $70 million of special depreciation in 1999. The new depreciation program replaced a revenue-based special amortization program whereby FPL recorded as depreciation and amortization expense a fixed amount of $9 million in 1999 and $30 million in 1998 and 1997 for nuclear assets. FPL also recorded under this program variable amortization based on the actual level of retail base revenues compared to a fixed amount. The variable amounts recorded in 1999, 1998 and 1997 were $54 million, $348 million and $169 million, respectively. The 1998 and 1997 variable amounts include, as depreciation and amortization expense, $161 million and $169 million, respectively, for amortization of regulatory assets. The remaining variable amounts were applied against nuclear and fossil production assets. Additionally, FPL completed amortization of certain plant-related deferred costs by recording $24 million and $22 million, in 1998 and 1997, respectively. These costs are considered recoverable costs and are monitored through the monthly reporting process with the FPSC. Nuclear Fuel - FPL leases nuclear fuel for all four of its nuclear units. Nuclear fuel lease expense was $83 million, $83 million and $85 million in 1999, 1998 and 1997, respectively. Included in this expense was an interest component of $8 million, $9 million and $9 million in 1999, 1998 and 1997, 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 $157 million at December 31, 1999. 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. 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. Current plans call for St Lucie Unit No. 1 to be mothballed beginning in 2016 with decommissioning activities to be 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, which are pending FPSC approval, 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. Decommissioning expense accruals included in depreciation and amortization expense, were $85 million in each of the years 1999, 1998 and 1997. FPL's portion of the ultimate cost of decommissioning its four units, expressed in 1999 dollars, is currently estimated to aggregate $1.7 billion. At December 31, 1999 and 1998, the accumulated provision for nuclear decommissioning totaled approximately $1.4 billion and $1.2 billion, respectively, and is included in accumulated depreciation. See Electric Plant, Depreciation and Amortization. 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 1999, 1998 and 1997, and is included in depreciation and amortization expense. FPL's portion of the ultimate cost to dismantle its fossil units is $482 million. At December 31, 1999 and 1998, the accumulated provision for fossil dismantlement totaled $232 million and $185 million, respectively, and is included in accumulated depreciation. The dismantlement studies filed in 1998 indicated an estimated reserve deficiency of $38 million, which was recovered through the special amortization program. See Electric Plant, Depreciation and Amortization. Restricted trust funds for the payment of future expenditures to decommission FPL's nuclear units are included in special use funds of FPL. 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. Accrual for Major Maintenance Costs - Consistent with regulatory treatment, FPL's 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. The accrual for nuclear maintenance costs at December 31, 1999 and 1998 totaled $42 million and $31 million, respectively. Any difference between the estimated and actual costs are included in O&M expenses when known. FPL Energy's estimated major maintenance costs for each 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. The accrual for FPL Energy's major maintenance costs at December 31, 1999 and 1998 totaled $33 million and $2 million, respectively. 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 unregulated 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. 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 12 - 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, 1999 and 1998. Additionally, other investments include notes receivable and non-controlling non-majority owned interests in partnerships and joint ventures, essentially all of which are accounted for under the equity method. See Note 3. Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. 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. Retirements of debt, after the special amortization program terminated on April 14, 1999, resulted in additional reacquisition costs. 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 in 1997. Accounting for Derivative Instruments and Hedging Activities - In June 1998, the Financial Accounting Standards Board issued FAS 133, "Accounting for Derivative Instruments and Hedging Activities." The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. FPL Group 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 FAS 133 beginning in 2001. 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, 1999 and a statement of the funded status of both years:
Pension Benefits Other Benefits 1999 1998 1999 1998 (millions) Change in benefit obligation: Obligation at October 1 of prior year ...................... $1,173 $1,146 $ 345 $ 324 Service cost ............................................... 46 45 6 5 Interest cost .............................................. 71 75 21 21 Participant contributions .................................. - - 2 1 Plan amendments ............................................ - 8 - - Actuarial (gains) losses - net ............................. (38) 34 (24) 10 Acquisitions ............................................... 4 - 2 - Benefit payments ........................................... (78) (135) (17) (16) Obligation at September 30 ................................... 1,178 1,173 335 345 Change in plan assets: Fair value of plan assets at October 1 of prior year ....... 2,329 2,287 115 125 Actual return on plan assets ............................... 310 184 12 7 Participant contributions .................................. - - 2 1 Benefit payments and expenses .............................. (84) (142) (18) (18) Fair value of plan assets at September 30 .................... 2,555 2,329 111 115 Funded Status: Funded status at September 30 .............................. 1,377 1,156 (224) (230) Unrecognized prior service cost ............................ (89) (100) - - Unrecognized transition (asset) obligation ................. (117) (140) 45 49 Unrecognized (gain) loss ................................... (900) (736) 7 34 Prepaid (accrued) benefit cost at FPL Group ................ $ 271 $ 180 $(172) $ (147) Prepaid (accrued) benefit cost at FPL ...................... $ 263 $ 173 $(168) $ (145)
The following table provides the components of net periodic benefit cost for the plans for the years ended December 31, 1999, 1998 and 1997:
Pension Benefits Other Benefits 1999 1998 1997 1999 1998 1997 (millions) Service cost ................................. $ 46 $ 45 $ 38 $ 6 $ 6 $ 6 Interest cost ................................ 71 75 76 21 21 21 Expected return on plan assets ............... (156) (149) (135) (7) (8) (7) Amortization of transition (asset) obligation. (23) (23) (23) 3 3 3 Amortization of prior service cost ........... (8) (8) 1 - - - Amortization of losses (gains) ............... (22) (21) (26) 1 1 - Net periodic (benefit) cost .................. (92) (81) (69) 24 23 23 Effect of Maine acquisition .................. - - - 2 - - Effect of special retirement program ......... - - 18 - - - Net periodic (benefit) cost at FPL Group ..... $ (92) $ (81) $ (51) $ 26 $ 23 $ 23 Net periodic (benefit) cost at FPL ........... $ (89) $ (80) $ (50) $ 23 $ 23 $ 23
The weighted-average discount rate used in determining the benefit obligations was 6.5% and 6.0% for 1999 and 1998, 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 2000 trend assumptions used to measure the expected cost of benefits covered by the plans are 6.2% and 5.6%, for persons prior to age 65 and over age 65, respectively. The rate is assumed to decrease over the next 3 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 or decrease in assumed health care cost trend rates would have a corresponding effect on the service and interest cost components and the accumulated obligation of other benefits of approximately $1 million and $13 million, respectively. 3. Financial Instruments The carrying amounts of cash equivalents and short-term debt approximate their fair values. At December 31, 1999 and 1998, other investments of FPL Group include $291 million and $72 million, respectively, of investments that are carried at estimated fair value or cost, which approximates fair value. 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.
December 31, 1999 1998 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (millions) Long-term debt of FPL (a) .................................... $2,204 $2,123(b) $2,421 $2,505(b) Long-term debt of FPL Group (a) .............................. $3,603 $3,518(b) $2,706 $2,797(b) ____________________ (a) Includes current maturities. (b) Based on quoted market prices for these or similar issues.
Special Use Funds - The special use funds consist of storm fund assets totaling $131 million and $160 million, and decommissioning fund assets totaling $1.220 billion and $1.046 billion at December 31, 1999 and 1998, respectively. Securities held in the special use funds are carried at estimated fair value. The nuclear decommissioning fund consists of approximately 40% equity securities and 60% municipal, government, corporate and mortgage- and other asset-backed debt securities with a weighted-average maturity of approximately ten years. The storm fund primarily consists of municipal debt securities with a weighted-average maturity of approximately four years. The cost of securities sold is determined on the specific identification method. The funds had approximate realized gains of $32 million and approximate realized losses of $22 million in 1999, $24 million and $4 million in 1998 and $3 million and $2 million in 1997, respectively. The funds had unrealized gains of approximately $286 million and $210 million at December 31, 1999 and 1998, respectively; the unrealized losses at those dates were approximately $17 million and $2 million. The proceeds from the sale of securities in 1999, 1998 and 1997 were approximately $2.7 billion, $1.2 billion and $800 million, 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 1999, 1998 and 1997, 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 $21 million in 1999 and $19 million in each of the years 1998 and 1997 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, 1999 was approximately $233 million, representing 8 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, 1999 was approximately $344 million. Long-Term Incentive Plan - As of December 31, 1999, 9 million shares of common stock are reserved and available for awards to officers and employees of FPL Group and its subsidiaries under FPL Group's long-term incentive plan. Restricted stock is issued at market value at the date of grant, typically vests within four years and is subject to, among other things, restrictions on transferability. Performance share awards are typically payable at the end of a three- or four-year performance period and are subject to risk of forfeiture if the specified performance criteria is not met within the restriction period. The changes in share awards under the incentive plan are as follows:
Restricted Performance Stock Shares (a) Options (a) Balances, December 31, 1996 .......... 166,300 311,527 - Granted ............................ 71,000(b) 212,011(c) - Paid/released ...................... - (70,008) - Forfeited .......................... (17,750) (10,942) - Balances, December 31, 1997 .......... 219,550 442,588 - Granted ............................ 19,500(b) 178,518(c) - Paid/released ...................... - (80,920) - Forfeited .......................... (22,250) (29,566) - Balances, December 31, 1998 .......... 216,800 510,620 - Granted ............................ 210,100(b) 294,662(c) 1,300,000(d) Paid/released ...................... - (78,640) - Forfeited .......................... (13,500) (80,027) (200,000) Balances, December 31, 1999 .......... 413,400 646,615 1,100,000(e) ____________________ (a) Performance shares and options resulted in approximately 253,000, 128,000 and 132,000 assumed incremental shares of common stock outstanding for purposes of computing diluted earnings per share in 1999, 1998 and 1997, respectively. These incremental shares did not change basic earnings per share. (b) The weighted-average grant date fair value of restricted stock granted in 1999, 1998 and 1997 was $53.21, $61.89 and $55.25, respectively. (c) The weighted-average grant date fair value of performance shares granted in 1999, 1998 and 1997 was $61.19, $59.19 and $45.63, respectively. (d) The weighted-average grant date fair value of options granted in 1999 was $51.59. The exercise price of each option granted in 1999 equaled the market price of FPL Group stock on the date of grant. (e) Exercise prices for options outstanding as of December 31, 1999, ranged from $51.16 to $54.38 with a weighted- average exercise price of $51.59 and a weighted-average remaining contractual life of 8.6 years. As of December 31, 1999, there were no exercisable options. Of the options outstanding as of December 31, 1999, 225,000 vest in 2000, 475,000 in 2001, 200,000 in 2002 and 200,000 in 2003.
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. Stock-based compensation expense was approximately $13 million, $10 million and $8 million in 1999, 1998 and 1997, respectively. Compensation expense for restricted stock and performance shares is the same under the fair value and the intrinsic value based methods. Had compensation expense for the options been determined as prescribed by the fair value based method, FPL Group's net income and earnings per share would have been $696 million and $4.06, respectively. The fair value of the options granted in 1999 were estimated on the date of the grant using the Black-Scholes option-pricing model with a 3.81% weighted-average expected dividend yield, 17.88% weighted-average expected volatility, 5.46% weighted-average risk-free interest rate and a weighted- average expected term of 9.3 years. 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, $0.01 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)
December 31, 1999 Shares Redemption December 31, Outstanding Price 1999 1998 (millions) Cumulative, $100 Par Value, without sinking fund requirements, authorized 15,822,500 shares: 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 .................................. 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 or redemptions of preferred stock in 1999, 1998 and 1997. (b) Not callable prior to 2003.
6. Debt Long-term debt consists of the following:
December 31, 1999 1998 (millions) FPL: First mortgage bonds: Maturing through 2004 - 5 3/8% to 6 7/8% ................................................. $ 350 $ 580 Maturing 2008 through 2016 - 5 7/8% to 7 7/8% ............................................ 650 641 Maturing 2023 through 2026 - 7% to 7 3/4% ................................................ 516 516 Medium-term notes - 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 2020 through 2029 - variable, 3.4% and 3.6% average annual interest rate, respectively ..................................................... 483 483 Unamortized discount - net ................................................................. (15) (19) Total long-term debt of FPL .............................................................. 2,204 2,421 Less current maturities ................................................................ 125 230 Long-term debt of FPL, excluding current maturities .................................... 2,079 2,191 FPL Group Capital: Debentures: Maturing through 2004 - 6 7/8% ........................................................... 175 - Maturing 2006 through 2013 - 7 3/8% to 7 5/8% (a)......................................... 1,225 125 Other long-term debt - 3.4% to 7.645% due various dates to 2018 ............................ 5 162 Unamortized discount ....................................................................... (6) (2) Total long-term debt of FPL Group Capital ................................................ 1,399 285 Less current maturities ................................................................ - 129 Long-term debt of FPL Group Capital, excluding current maturities ...................... 1,399 156 Total long-term debt ......................................................................... $3,478 $2,347 ____________________ (a) In December 1999, FPL Group Capital issued $400 million principal amount of 7 3/8% debentures, maturing in 2009.
Minimum annual maturities of long-term debt for FPL Group are approximately $125 million, $170 million and $300 million for 2000, 2003 and 2004, respectively. The amounts for FPL for the same periods are $125 million, $170 million and $125 million, respectively. FPL Group and FPL have no amounts due in 2001 and 2002. Short-term debt at December 31, 1999 consists of commercial paper borrowings with a year end weighted-average interest rate of 5.60% for FPL Group (5.87% for FPL). Available lines of credit aggregated approximately $2.4 billion ($880 million for FPL) at December 31, 1999, all of which were based on firm commitments. 7. Income Taxes The components of income taxes are as follows:
FPL Group FPL Years Ended December 31, Years Ended December 31, 1999 1998 1997 1999 1998 1997 (millions) Federal: Current ............................................. $511 $467 $308 $383 $492 $377 Deferred ............................................ (196) (215) (34) (88) (169) (83) ITC and other - net ................................. (29) (27) (22) (21) (24) (22) Total federal ................................... 286 225 252 274 299 272 State: Current ............................................. 55 72 52 62 78 60 Deferred ............................................ (18) (18) - (9) (21) (3) Total state ..................................... 37 54 52 53 57 57 Income taxes charged to operations - FPL............... 327 356 329 Credited to other income (deductions) - FPL ........... (3) (7) (8) Total income taxes .................................... $323 $279 $304 $324 $349 $321
A reconciliation between the effective income tax rates and the applicable statutory rates is as follows:
FPL Group FPL Years Ended December 31, Years Ended December 31, 1999 1998 1997 1999 1998 1997 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.. 2.4 3.7 3.7 3.8 3.7 3.9 Amortization of ITC .................................... (2.1) (2.5) (2.4) (2.3) (2.4) (2.3) Amortization of deferred regulatory credit - income taxes ......................................... (1.3) (1.8) (1.8) (1.5) (1.7) (1.8) Adjustments of prior years' tax matters ................ (2.7) (6.3)(a) (2.7) (0.1) 0.1 (1.7) Preferred stock dividends - FPL ........................ 0.5 0.5 0.7 - - - Other - net ............................................ (0.2) 1.0 0.5 0.5 0.9 0.8 Effective income tax rate ................................ 31.6% 29.6% 33.0% 35.4% 35.6% 33.9% ____________________ (a) Includes the resolution of an audit issue with the Internal Revenue Service (IRS).
The income tax effects of temporary differences giving rise to consolidated deferred income tax liabilities and assets are as follows:
FPL Group FPL December 31, December 31, 1999 1998 1999 1998 (millions) Deferred tax liabilities: Property-related ................................................... $1,377 $1,493 $1,377 $1,493 Investment-related ................................................. 373 460 - - Other .............................................................. 312 255 168 140 Total deferred tax liabilities ................................... 2,062 2,208 1,545 1,633 Deferred tax assets and valuation allowance: Asset writedowns and capital loss carryforward ..................... 170 102 - - Unamortized ITC and deferred regulatory credit - income taxes ...... 119 136 119 136 Storm and decommissioning reserves ................................. 245 258 245 258 Other .............................................................. 472 473 379 352 Valuation allowance ................................................ (23) (16) - - Net deferred tax assets .......................................... 983 953 743 746 Accumulated deferred income taxes .................................... $1,079 $1,255 $ 802 $ 887
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, 1999, FPL's gross investment in these units was $1.174 billion, $328 million and $571 million, respectively; accumulated depreciation was $710 million, $155 million and $266 million, respectively. FPL is responsible for its share of the operating costs, as well as providing its own financing. At December 31, 1999, there was no significant balance of construction work in progress on these facilities. See Note 12 - Litigation. 9. Acquisition of Maine Assets During the second quarter of 1999, FPL Energy completed the purchase of Central Maine Power Company's (CMP) non-nuclear generating assets, primarily fossil and hydro power plants, for $866 million. The purchase price was based on an agreement, subject to regulatory approvals, reached with CMP in January 1998. In October 1998, the FERC struck down transmission rules that had been in effect in New England since the 1970s. FPL Energy filed a lawsuit in November 1998 requesting a declaratory judgment that CMP could not meet the essential terms of the purchase agreement and, as a result, FPL Energy should not be required to complete the transaction. FPL Energy believed these FERC rulings regarding transmission constituted a material adverse effect under the purchase agreement because of the significant decline in the value of the assets caused by the rulings. The request for declaratory judgment was denied in March 1999 and the acquisition was completed on April 7, 1999. The acquisition was accounted for under the purchase method of accounting and the results of operating the Maine plants have been included in the consolidated financial statements since the acquisition date. The FERC rulings regarding transmission, as well as the announcement of new entrants into the market and changes in fuel prices since January 1998, resulted in FPL Energy recording a $176 million pre-tax impairment loss to write-down the fossil assets to their fair value, which was determined based on a discounted cash flow analysis. The impairment loss reduced FPL Group's 1999 results of operations and earnings per share by $104 million and $0.61 per share, respectively. Most of the remainder of the purchase price was allocated to the hydro operations. The hydro plants and related goodwill are being amortized on a straight-line basis over the 40-year term of the hydro plant operating licenses. 10. Divestiture of Cable Investments In January 1999, an FPL Group Capital subsidiary sold 3.5 million common shares of Adelphia Communications Corporation (Adelphia) stock and in October 1999 had its one-third ownership interest in a cable limited partnership redeemed, resulting in after-tax gains of approximately $96 million and $66 million, respectively. Both investments had been accounted for on the equity method. 11. Settlement of Litigation In October 1999, FPL and the Florida Municipal Power Agency (FMPA) entered into a settlement agreement pursuant to which FPL agreed to pay FMPA a cash settlement; FPL agreed to reduce the demand charge on an existing power purchase agreement; and FPL and FMPA agreed to enter into a new power purchase agreement giving FMPA the right to purchase limited amounts of power in the future at a specified price. FMPA agreed to dismiss the lawsuit with prejudice, and both parties agreed to exchange mutual releases. The settlement reduced FPL's 1999 net income by $42 million. 12. Commitments and Contingencies Commitments - FPL has made commitments in connection with a portion of its projected capital expenditures. Capital expenditures for the construction or acquisition of additional facilities and equipment to meet customer demand are estimated to be approximately $3.1 billion for 2000 through 2002. Included in this three-year forecast are capital expenditures for 2000 of approximately $1.3 billion. As of December 31, 1999, FPL Energy has made commitments totaling approximately $72 million, primarily in connection with the development of an independent power project. FPL Group and its subsidiaries, other than FPL, have guaranteed approximately $680 million of purchased power agreement obligations, debt service payments and other payments subject to certain contingencies. Insurance - Liability for accidents at nuclear power plants is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of the insurance available from private sources and under an industry retrospective payment plan. In accordance with this Act, FPL maintains $200 million of private liability insurance, which is the maximum obtainable, and participates in a secondary financial protection system under which it is subject to retrospective assessments of up to $363 million per incident at any nuclear utility reactor in the United States, payable at a rate not to exceed $43 million per incident per year. FPL participates in nuclear insurance mutual companies that provide $2.75 billion of limited insurance coverage for property damage, decontamination and premature decommissioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair. FPL also participates in an insurance program that provides limited coverage for replacement power costs if a nuclear plant is out of service because of an accident. In the event of an accident at one of FPL's or another participating insured's nuclear plants, FPL could be assessed up to $50 million in retrospective premiums. In the event of a catastrophic loss at one of FPL's nuclear plants, the amount of insurance available may not be adequate to cover property damage and other expenses incurred. Uninsured losses, to the extent not recovered through rates, would be borne by FPL and could have a material adverse effect on FPL Group's and FPL's financial condition. FPL self-insures the majority of its transmission and distribution (T&D) property due to the high cost and limited coverage available from third- party insurers. As approved by the FPSC, FPL maintains a funded storm and property insurance reserve, which totaled approximately $216 million at December 31, 1999, for T&D property storm damage or assessments under the nuclear insurance program. During 1999, storm fund reserves were reduced to recover the costs associated with three storms. 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 900 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. FPL has long-term contracts for the transportation and supply of natural gas, coal and oil with various expiration dates through 2021. FPL Energy has long-term contracts for the transportation and storage of natural gas with expiration dates ranging from 2005 through 2017, and a 24-month contract commencing in mid-2000 for the supply of natural gas. The required capacity and minimum payments through 2004 under these contracts are estimated to be as follows:
2000 2001 2002 2003 2004 (millions) FPL: Capacity payments: JEA and Southern Companies ............................................ $210 $210 $210 $200 $200 Qualifying facilities (a) ............................................. $370 $380 $400 $410 $425 Minimum payments, at projected prices: Natural gas, including transportation ................................. $205 $235 $255 $255 $260 Coal .................................................................. $ 50 $ 45 $ 45 $ 20 $ 10 Oil ................................................................... $165 $165 $ 10 $ - $ - FPL Energy: Natural gas, including transportation and storage ..................... $ 20 $ 20 $ 20 $ 15 $ 15 _______________ (a) Includes approximately $42 million, $44 million, $47 million, $49 million and $50 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:
1999 Charges 1998 Charges 1997 Charges Energy/ Energy/ Energy/ Capacity Fuel Capacity Fuel Capacity Fuel (millions) FPL: JEA and Southern Companies .................. $186(a) $132(b) $192(a) $138(b) $201(a) $153(b) Qualifying facilities........................ $319(c) $121(b) $299(c) $108(b) $296(c) $128(b) Natural gas, including transportation ....... $ - $373(b) $ - $280(b) $ - $413(b) Coal ........................................ $ - $ 43(b) $ - $ 50(b) $ - $ 52(b) Oil ......................................... $ - $115(b) $ - $ - $ - $ - FPL Energy: Natural gas transportation and storage ...... $ - $ 16 $ - $ 18 $ - $ 16 _______________ (a) Recovered through base rates and the capacity cost recovery clause (capacity clause). (b) Recovered through the fuel and purchased power cost recovery clause. (c) Recovered through the capacity clause.
Litigation - In 1997, FPL filed a complaint against the owners of two qualifying facilities (plant owners) seeking an order declaring that FPL's obligations under the power purchase agreements with the qualifying facilities were rendered of no force and effect because the power plants failed to accomplish commercial operation before January 1, 1997, as required by the agreements. In 1997, the plant owners filed for bankruptcy under Chapter XI of the U.S. Bankruptcy Code 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 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 by FPL, FPL Group and FPL Group Capital, plus attorneys' fees. The trial court dismissed all of the partnerships' antitrust claims. In 1999, the partnerships' motion for summary judgment was denied; they have appealed. A contract with Cedar Bay Generating Company, L.P. (Cedar Bay), a qualifying facility, provides FPL with the right to dispatch the Cedar Bay facility "in any manner it deems appropriate." Despite this contractual right, Cedar Bay initiated an action in 1997 in the circuit court challenging, among other things, the manner in which the facility had been dispatched by FPL. Although the court granted summary judgment to FPL with regard to Cedar Bay's claim that FPL's dispatch decisions violated the express terms of the contract, it permitted a jury to hear Cedar Bay's claim that such dispatch decisions violated an implied duty of good faith and fair dealing. The jury awarded Cedar Bay approximately $13 million on this claim. Thereafter, the court entered a declaration that FPL was, in the future, to dispatch the Cedar Bay facility in accordance with certain specified parameters. FPL expects to recover the amount of this judgment through the capacity clause. FPL has appealed both the jury award and the court's declaration. In 1999, after FPL filed its notice of appeal in the Cedar Bay action, a lender, on behalf of itself and a group of other Cedar Bay lenders, filed an action against FPL in the circuit court alleging breach of contract, breach of an implied duty of good faith and fair dealing, fraud, tortious interference with contract and several other claims regarding the manner in which FPL has dispatched the Cedar Bay facility. It seeks unspecified damages and other relief. FPL has moved to dismiss all counts of this complaint. In 1999, the Attorney General of the United States, on behalf of the U.S. Environmental Protection Agency (EPA) brought an action against Georgia Power Company and other subsidiaries of The Southern Company for injunctive relief and the assessment of civil penalties for certain violations of the Clean Air Act. Among other things, the EPA alleges Georgia Power Company constructed and is continuing to operate Scherer Unit No. 4, in which FPL owns a 76% interest, without obtaining proper permitting, and without complying with performance and technology standards as required by the Clean Air Act. The suit seeks injunctive relief requiring the installation of such technology and civil penalties of up to $25,000 per day for each violation from August 7, 1977 through January 30, 1997, and $27,000 per day for each violation thereafter. Georgia Power has filed an answer to the complaint asserting that it has complied with all requirements of the Clean Air Act, denying the plaintiff's allegations of liability, denying that the plaintiff is entitled to any of the relief that it seeks and raising various other defenses. FPL Group and FPL believe that they have meritorious defenses to the litigation 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. 13. Subsequent Event FPL FiberNet, LLC (FPL FiberNet) was formed in January 2000 to enhance the value of FPL Group's fiber-optic network assets that were originally built to support FPL operations. FPL's existing fiber-optic net assets with a net book value of approximately $100 million were transferred to FPL FiberNet in January 2000. FPL FiberNet will sell wholesale fiber-optic network capacity to FPL and other new and existing customers, primarily telephone, cable television, internet and other telecommunications companies. 14. Segment Information FPL Group's reportable segments include FPL, a regulated utility, and FPL Energy, an unregulated energy generating subsidiary. Corporate and other represents other business activities, other segments that are not separately reportable and eliminating entries. For all years presented approximately 98% of FPL Group's operating revenues were derived from the sale of electricity in the United States. As of December 31, 1999 and 1998, less than 1% of long-lived assets were located in foreign countries. FPL Group's segment information is as follows:
1999 1998 1997 (a) Corp. (a) Corp. (a) Corp. FPL and FPL and FPL and FPL Energy Other Total FPL Energy Other Total FPL Energy Other Total (millions) Operating revenues $ 6,057 $ 323 $ 58 $ 6,438 $ 6,366 $ 234 $ 61 $ 6,661 $ 6,132 $189 $ 48 $ 6,369 Interest expense .. $ 164 $ 44 $ 14 $ 222 $ 196 $ 84 $ 42 $ 322 $ 227 $ 49 $ 15 $ 291 Depreciation and amortization .... $ 989 $ 34 $ 17 $ 1,040 $ 1,249 $ 31 $ 4 $ 1,284 $ 1,034 $ 22 $ 5 $ 1,061 Equity in earnings of equity method investees ....... $ - $ 50 $ - $ 50 $ - $ 39 $ - $ 39 $ - $ 12 $ 2 $ 14 Income tax expense (benefit)(b) $ 324 $ (42) $ 41 $ 323 $ 349 $ 24 $(94) $ 279 $ 321 $ 5 $(22) $ 304 Net income (loss)(c) $ 576 $ (46) $167 $ 697 $ 616 $ 32 $ 16 $ 664 $ 608 $ 9 $ 1 $ 618 Significant noncash items ........... $ 86 $ - $ - $ 86 $ 34 $ - $ - $ 34 $ 81 $420 $ - $ 501 Capital expenditures and investments $ 924 $1,540 $ 15 $ 2,479 $ 617 $ 313 $ 16 $ 946 $ 551 $291 $ - $ 842 Total assets ...... $11,231 $2,212 $ (2) $13,441 $10,748 $1,092 $189 $12,029 $11,172 $912 $365 $12,449 Investment in equity method investees $ - $ 166 $ - $ 166 $ - $ 165 $ - $ 165 $ - $ 74 $ 2 $ 76 ____________________ (a) In 1999 and 1998, FPL Energy's interest expense was based on an assumed capital structure of 50% debt for operating projects and 100% debt for projects under construction. FPL Energy's 1998 interest expense also includes the cost of terminating an interest rate swap agreement. FPL Energy's 1997 interest expense was related to its outstanding debt, which exceeded the assumed capital structure. (b) FPL Group allocates income taxes to FPL Energy on a "separate return method" as if it were a tax paying entity. (c) The following nonrecurring items affected 1999 net income: FPL settled litigation (see Note 11); FPL Energy recorded an impairment loss (see Note 9); and Corporate and Other divested its cable investments (see Note 10).
15. 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 consolidated balance sheets. Summarized financial information of FPL Group Capital is as follows:
1999 1998 1997 1999 1998 (millions) (millions) Operating revenues ........................ $380 $295 $237 Current assets ......... $ 640 $ 317 Operating expenses ........................ $533 $225 $186 Noncurrent assets ...... $2,627 $1,445 Gain on divestiture of cable investments .. $257 $ - $ - Current liabilities ..... $ 414 $ 310 Net income ................................ $138 $ 68 $ 27 Noncurrent liabilities .. $1,840 $ 703
16. Quarterly Data (Unaudited) Condensed consolidated quarterly financial information for 1999 and 1998 is as follows:
March 31 (a) June 30 (a) September 30 (a) December 31 (a) (millions, except per share amounts) FPL Group: 1999 Operating revenues ................ $ 1,412 $ 1,614 $ 1,892 $ 1,520 Operating income .................. $ 208 $ 135(b) $ 470 $ 107(c) Net income ........................ $ 209(d) $ 77(b) $ 291 $ 120(c)(e) Earnings per share(f) ............. $ 1.22(d) $ 0.45(b) $ 1.70 $ 0.71(c)(e) Dividends per share ............... $ 0.52 $ 0.52 $ 0.52 $ 0.52 High-low common stock sales prices. $61 15/16-50 1/8 $ 60 1/2-52 7/8 $56 11/16-49 1/8 $ 52 1/2-41 1/8 1998 Operating revenues ................ $ 1,338 $ 1,692 $ 1,999 $ 1,632 Operating income .................. $ 218 $ 317 $ 528 $ 189 Net income ........................ $ 108 $ 176 $ 287 $ 93(g) Earnings per share(f) ............. $ 0.63 $ 1.02 $ 1.66 $ 0.54(g) 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 FPL: 1999 Operating revenues ................ $ 1,359 $ 1,511 $ 1,769 $ 1,418 Operating income .................. $ 150 $ 207 $ 303 $ 86(c) Net income ........................ $ 108 $ 167 $ 268 $ 48(c) Net income available to FPL Group.. $ 104 $ 163 $ 264 $ 45(c) 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 ____________________ (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 impairment loss on Maine assets. (c) Includes the settlement of litigation between FPL and FMPA. (d) Includes gain on the sale of an investment in Adelphia common stock. (e) Includes gain on the redemption of a one-third ownership interest in a cable limited partnership. (f) Basic and assuming dilution. The sum of the quarterly amounts may not equal the total for the year due to rounding. (g) 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.
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 2000 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, 64, 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, 61, 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, 58, is the president of FPL. He is a director of Lynch Interactive Corporation. Mr. Evanson has been a director of FPL since 1992 and a director of FPL Group since 1995. Lewis Hay, III. Mr. Hay, 44, is senior vice president, finance and chief financial officer of FPL and vice president, finance and chief financial officer of FPL Group. Mr. Hay has been a director of FPL since 1999. Lawrence J. Kelleher. Mr. Kelleher, 52, 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. Armando J. Olivera. Mr. Olivera, 50, is senior vice president, power systems of FPL. Mr. Olivera has been a director of FPL since 1999. Thomas F. Plunkett. Mr. Plunkett, 60, is president of FPL's nuclear division. Mr. Plunkett has been a director of FPL since 1996. Antonio Rodriguez. Mr. Rodriguez, 57, is senior vice president, power generation of FPL. Mr. Rodriguez has been a director of FPL since 1999. ____________________ (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, 1999. SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation Compensation Other Number of Long-Term All Annual Restricted Securities Incentive Other Compen- Stock Underlying Plan Compen- Name and Principal Position Year Salary Bonus sation Awards(a) Options Payouts(b) sation(c) . James L. Broadhead 1999 $943,000 $895,850 $18,809 $2,412,005 250,000 $1,083,272 $12,658 Chairman of the Board and 1998 847,875 937,125 9,809 - - 1,788,731 12,009 Chief Executive Officer 1997 846,000 824,850 9,813 - - 1,402,140 11,286 of FPL and FPL Group Paul J. Evanson 1999 628,500 616,900 8,656 1,278,900 150,000 458,985 13,539 President of FPL 1998 592,500 546,900 2,785 - - 704,304 13,746 1997 564,300 423,200 2,646 - - 306,741 15,233 Dennis P. Coyle 1999 399,832 259,891 7,964 964,802 100,000 236,783 10,259 General Counsel and 1998 357,000 257,040 595 - - 368,079 9,737 Secretary of FPL 1997 353,628 198,904 3,600 - - 310,021 10,653 and FPL Group Thomas F. Plunkett 1999 340,000 219,100 10,088 255,780 100,000 179,564 10,146 President, Nuclear 1998 302,500 177,900 3,482 - - 103,481 10,344 Division of FPL 1997 275,000 123,200 3,482 - - 82,128 11,899 Lawrence J. Kelleher 1999 306,475 220,662 10,213 964,802 100,000 177,346 10,661 Senior Vice President, 1998 267,750 194,119 3,108 - - 267,694 9,724 Human Resources of FPL 1997 258,500 147,768 3,273 538,150 - 222,173 11,655 and Vice President, Human Resources of FPL Group ____________________ (a) At December 31, 1999, Mr. Broadhead held 146,800 shares of restricted common stock with a value of $6,284,875. Of these, 96,800 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. The remaining 50,000 shares vest in 2001. At December 31, 1999, Mr. Evanson held 25,000 shares of restricted common stock with a value of $1,070,313 that vest as to 6,250 shares in each of the years 2000, 2001, 2002 and 2003; Mr. Coyle held 20,000 shares of restricted common stock with a value of $856,250 that vest as to 5,000 shares in each of the years 2000, 2001, 2002 and 2003; Mr. Plunkett held 20,000 shares of restricted common stock with a value of $856,250, 5,000 shares of which were granted in 1999 and vest as to 1,250 shares in each of the years 2000, 2001, 2002 and 2003; and Mr. Kelleher held 30,000 shares of restricted common stock with a value of $1,284,375, 20,000 shares of which were granted in 1999 and vest as to 5,000 shares in each of the years 2000, 2001, 2002 and 2003. 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. Messrs. Evanson and Plunkett deferred their payouts under FPL Group's Deferred Compensation Plan. (c) For 1999, represents employer matching contributions to employee thrift plans and employer contributions for life insurance as follows:
Thrift Match Life Insurance Mr. Broadhead ....................... $7,167 $5,491 Mr. Evanson ......................... 7,600 5,939 Mr. Coyle ........................... 7,167 3,092 Mr. Plunkett ........................ 7,600 2,546 Mr. Kelleher ........................ 7,167 3,494 Long-Term Incentive Plan Awards - In 1999, performance awards, shareholder value awards and stock option 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 AWARD
Estimated Future Payouts Number of Performance Period Under Non-Stock Price-Based Plans Name Shares Until Payout Target(#) Maximum(#) James L. Broadhead ................ 19,687 1/1/99 - 12/31/02 19,687 31,499 Paul J. Evanson ................... 7,874 1/1/99 - 12/31/02 7,874 12,598 Dennis P. Coyle ................... 4,553 1/1/99 - 12/31/02 4,553 7,285 Thomas F. Plunkett ................ 3,651 1/1/99 - 12/31/02 3,651 5,842 Lawrence J. Kelleher .............. 3,291 1/1/99 - 12/31/02 3,291 5,266
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 1999 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 return on equity; non-utility net income and return on equity; corporate and other net income; employee safety; number of significant environmental violations; and the development of a plan to meet five-year growth objectives. The qualitative factors included measures to position the Corporation for greater competition and initiating other actions that significantly strengthen the Corporation and enhance shareholder value.
Estimated Future Payouts Number of Performance Period Under Non-Stock Price-Based Plans Name Shares Until Payout Target(#) Maximum(#) James L. Broadhead ................ 13,423 1/1/99 - 12/31/01 13,423 21,477 Paul J. Evanson ................... 6,749 1/1/99 - 12/31/01 6,749 10,798 Dennis P. Coyle ................... 3,415 1/1/99 - 12/31/01 3,415 5,464 Thomas F. Plunkett ................ 2,738 1-1-99 - 12/31/01 2,738 4,381 Lawrence J. Kelleher .............. 2,468 1/1/99 - 12/31/01 2,468 3,948
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. Option Grants in Last Fiscal Year
Individual Grants Number of Percent of Securities Total Options Underlying Granted to Exercise or Options Employees in Base Price Expiration Grant Date Name Granted(a) Fiscal Year Per Share Date Present Value(b) James L. Broadhead ......... 250,000 19.2% $51.156 2/15/06 $2,247,027 Paul J. Evanson ............ 150,000 11.5% $51.156 2/15/09 $1,515,497 Dennis P. Coyle ............ 100,000 7.7% $51.156 2/15/09 $1,010,331 Thomas F. Plunkett ......... 100,000 7.7% $51.156 2/15/09 $1,010,331 Lawrence J. Kelleher ....... 100,000 7.7% $51.156 2/15/09 $1,010,331 ___________________ (a) Options granted are non-qualified stock options. Mr. Broadhead's options will be exercisable on November 28, 2001. All other stock options will become exercisable 25% per year and be fully exercisable after four years. All options were granted at an exercise price per share of 100% of the fair market value of FPL Group, Inc. common stock on the date of grant. (b) The values shown reflect standard application of the Black-Scholes pricing model. Volatility is equal to 18.08% and yield is equal to 3.81%. The interest rate is equal to the U.S. Treasury Strip Rate on the date of grant with a term equal to that of the option (5.19% for the 7-year options expiring 2/15/06 and 5.40% for the 10-year options expiring 2/15/09). The values do not take into account risk factors such as non-transferability or risk of forfeiture.
The preceding table sets forth information concerning individual grants of common stock options during fiscal year 1999 to the executive officers named in the Summary Compensation Table. Such awards are also listed in the Summary Compensation Table in the column entitled Number of Securities Underlying Options. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Options at Options at Fiscal Year-End Fiscal Year-End Shares Acquired on Value Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable James L. Broadhead 0 $0 0 250,000 $0 $0 Paul J. Evanson 0 $0 0 150,000 $0 $0 Dennis P. Coyle 0 $0 0 100,000 $0 $0 Thomas F. Plunkett 0 $0 0 100,000 $0 $0 Lawrence J. Kelleher 0 $0 0 100,000 $0 $0
The preceding table sets forth information, with respect to the named officers, concerning the exercise of stock options during the fiscal year, and unexercised options held at the end of the fiscal year. The named officers did not exercise any stock options during 1999, and held no exercisable options at the end of the year. All of the unexercisable options shown in the preceding table were granted in 1999. At December 31, 1999, the fair market value of the underlying securities (based on the closing share price of FPL Group, Inc. Common Stock reported on the NYSE of $42.8125 per share) did not exceed the exercise or base price of the options, therefore the options were not in-the-money at fiscal year-end. 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 1999 at age 65 after the indicated years of service. PENSION PLAN TABLE
Eligible Average Years of Service Annual Compensation 10 20 30 40 50 $ 300,000 ............................................. $ 58,809 $117,606 $ 146,414 $ 154,909 $ 157,297 400,000 ............................................. 78,809 157,606 196,414 207,409 209,797 500,000 ............................................. 98,809 197,606 246,414 259,909 262,297 600,000 ............................................. 118,809 237,606 296,414 312,409 314,797 700,000 ............................................. 138,809 277,606 346,414 364,909 367,297 800,000 ............................................. 158,809 317,606 396,414 417,409 419,797 900,000 ............................................. 178,809 357,606 446,414 469,909 472,297 1,000,000 ............................................. 198,809 397,606 496,414 522,409 524,797 1,100,000 ............................................. 218,809 437,606 546,414 574,909 577,297 1,200,000 ............................................. 238,809 477,606 596,414 627,409 629,797 1,300,000 ............................................. 258,809 517,606 646,414 679,909 682,297 1,400,000 ............................................. 278,809 557,606 696,414 732,409 734,797 1,500,000 ............................................. 298,809 597,606 746,414 784,909 787,297 1,600,000 ............................................. 318,809 637,606 796,414 837,409 839,797 1,700,000 ............................................. 338,809 677,606 846,414 889,909 892,297 1,800,000 ............................................. 358,809 717,606 896,414 942,409 944,797 1,900,000 ............................................. 378,809 757,606 946,414 994,909 997,297 2,000,000 ............................................. 398,809 797,606 996,414 1,047,409 1,049,797 2,100,000 ............................................. 418,809 837,606 1,046,414 1,099,909 1,102,297 2,200,000 ............................................. 438,809 877,606 1,096,414 1,152,409 1,154,797 2,300,000 ............................................. 458,809 917,606 1,146,414 1,204,909 1,207,297 2,400,000 ............................................. 478,809 957,606 1,196,414 1,257,409 1,259,797
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 those tables. The estimated credited years of service for the executive officers named in the Summary Compensation Table are: Mr. Broadhead, 11 years; Mr. Evanson, 7 years; Mr. Coyle, 10 years; Mr. Plunkett, 9 years and Mr. Kelleher, 32 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 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 (2000) 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. A supplemental retirement plan for Mr. Plunkett provides for benefits, upon retirement at age 62 or more, based on two times his credited years of service up to age 65 and one times his credited years of service thereafter. In 1998, the vesting schedule attached to 10,000 shares of restricted common stock held by C.O. Woody, then President of the Power Generation Division of FPL, was amended to coincide with Mr. Woody's planned retirement in June 1999. As a consequence of the amended vesting schedule, Mr. Woody was indebted to FPL for a period of less than two weeks in June 1999 for $147,133 in taxes owed upon vesting of the shares. FPL Group sponsors a split-dollar life insurance plan for certain of FPL's 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 life insurance coverage. Employment Agreements - FPL Group has an employment agreement with Mr. Broadhead that provides for automatic one-year extensions after 2000 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 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 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:
Name Number of Shares (a) James L. Broadhead ...................................................................... 243,640(b)(c) Dennis P. Coyle ......................................................................... 63,469(b)(c)(d) Paul J. Evanson ......................................................................... 96,170(b)(c)(d) Lewis Hay, III .......................................................................... 25,134(b)(c) Lawrence J. Kelleher .................................................................... 69,562(b)(c)(d) Armando J. Olivera ...................................................................... 42,676(b)(c)(d) Thomas F. Plunkett ...................................................................... 55,261(b)(c)(d) Antonio Rodriguez ....................................................................... 6,171(b) All directors and executive officers as a group ......................................... 708,939(b)(c)(d)(e) ____________________ (a) Information is as of January 31, 2000, except for executive officers' holdings under the thrift plans and the Supplemental Executive Retirement Plan, which are as of December 31, 1999. Unless otherwise indicated, each person has sole voting and sole investment power. (b) Includes 15,625, 3,876, 4,335, 84, 1,292, 195, 549 and 111 phantom shares for Messrs. Broadhead, Coyle, Evanson, Hay, Kelleher, Olivera, Plunkett and Rodriguez, respectively, and a total of 28,967 phantom shares for all directors and officers as a group, credited to a Supplemental Matching Contribution Account under the Supplemental Executive Retirement Plan. (c) Includes 146,800, 20,000, 25,000, 25,000, 30,000, 10,000 and 20,000 shares of restricted stock as to which Messrs. Broadhead, Coyle, Evanson, Hay, Kelleher, Olivera and Plunkett, respectively, and a total 311,800 shares of restricted stock for all directors and officers as a group, have voting but not investment power. (d) Includes options held by Messrs. Coyle, Evanson, Kelleher, Olivera and Plunkett to purchase 25,000, 37,500, 25,000, 12,500 and 25,000 shares, respectively, and options to purchase a total of 162,500 shares for all directors and officers as a group. (e) Less than 1% of FPL Group's common stock outstanding.
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 1999. 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 Statements of Shareholders' Equity 20 FPL: Consolidated Statements of Income 21 Consolidated Balance Sheets 22 Consolidated Statements of Cash Flows 23 Consolidated Statements of Shareholder's Equity 24 Notes to Consolidated Financial Statements 25-38 2. Financial Statement Schedules - Schedules are omitted as not applicable or not required. 3. Exhibits including those Incorporated by Reference
Exhibit FPL Number Description Group FPL *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) FPL Group FPL *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-nine 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; Exhibit 4 to Form 10-Q for the quarter ended June 30, 1998, File No. 1-3545; and Exhibit 4 to Form 10-Q for the quarter ended March 31, 1999, File No. 1-8841) *4(c) Indenture, dated as of June 1, 1999, between FPL Group Capital Inc and x The Bank of New York, as Trustee (filed as Exhibit 4(a) to Form 8-K Dated July 16, 1999, File No. 1-8841) *4(d) Guarantee Agreement between FPL Group, Inc. (as guarantor) and x The Bank of New York (as Guarantor Trustee) dated as of June 1, 1999 (filed as Exhibit 4(b) to Form 8-K dated July 16, 1999, File No. 1-8841) 10(a) FPL Group Supplemental Executive Retirement Plan, amended and restated x effective April 1, 1997 10(b) Amendments # 1 and 2 effective January 1, 1998 to FPL Group Supplemental x Executive Retirement Plan, amended and restated effective April 1, 1997 10(c) Amendment #3 effective January 1, 1999, to FPL Group Supplemental x Executive Retirement Plan, amended and restated effective April 1, 1997 *10(d) FPL Group Amended and Restated Supplemental Executive Retirement Plan for x James L. Broadhead effective January 1, 1990 (filed as Exhibit 99(d) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669) *10(e) 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(f) Supplement to the FPL Group Supplemental Executive Retirement Plan as x it applies to Thomas F. Plunkett (filed as Exhibit 10(e) to Form 10-K for the year ended December 31, 1997, File No. 1-8841) *10(g) 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(h) Long-Term Incentive Plan 1994 (filed as Exhibit 4(d) to Form S-8, File x No. 33-57673) 10(i) Annual Incentive Plan x *10(j) FPL Group, Inc. Deferred Compensation Plan, amended and restated effective x January 1, 1995 (filed as Exhibit 99 to Form S-8, File No. 1-8841) *10(k) 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) FPL Group FPL *10(l) Employment Agreement between FPL Group and James L. Broadhead, amended and x restated as of May 10, 1999 (filed as Exhibit 10(a) to Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841) *10(m) Employment Agreement between FPL Group and Dennis P. Coyle, amended and x restated as of May 10, 1999 (filed as Exhibit 10(b) to Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841) *10(n) Employment Agreement between FPL Group and Paul J. Evanson, amended and x restated as of May 10, 1999 (filed as Exhibit 10(c) to Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841) *10(o) Employment Agreement between FPL Group and Lewis Hay, III, dated x as of September 13, 1999 (filed as Exhibit 10(d) to Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841) *10(p) Employment Agreement between FPL Group and Lawrence J. Kelleher, amended x and restated as of May 10, 1999 (filed as Exhibit 10(e) to Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841) *10(q) Employment Agreement between FPL Group and Thomas F. Plunkett, amended and x restated as of May 10, 1999 (filed as Exhibit 10(f) to Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841) *10(r) Employment Agreement between FPL Group and Michael W. Yackira, amended and x restated as of May 10, 1999 (filed as Exhibit 10(g) to Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841) *10(s) 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(a) Computation of Ratio of Earnings to Fixed Charges x 12(b) 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
(b) Reports on Form 8-K - none 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 28, 2000 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
Signature and Title as of February 28, 2000: LEWIS HAY, III - -------------- Lewis Hay, III Vice President, Finance and Chief Financial Officer (Principal Financial Officer) K. MICHAEL DAVIS - ---------------- K. Michael Davis Controller and Chief Accounting Officer (Principal 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
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 28, 2000 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.
Signature and Title as of February 28, 2000: JAMES L. BROADHEAD - ------------------ James L. Broadhead Chairman of the Board (Principal Executive Officer and Director) LEWIS HAY, III - -------------- Lewis Hay, III Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer and Director) K. MICHAEL DAVIS - ---------------- K. Michael Davis Vice President, Accounting, Controller and Chief Accounting Officer (Principal Accounting Officer) Directors: DENNIS P. COYLE THOMAS F. PLUNKETT - --------------- ------------------ Dennis P. Coyle Thomas F. Plunkett LAWRENCE J. KELLEHER ANTONIO RODRIGUEZ - -------------------- ----------------- Lawrence J. Kelleher Antonio Rodriguez ARMANDO J. OLIVERA - ------------------ Armando J. Olivera
EX-12.A 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12(a) FPL GROUP, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years Ended December 31, 1999 1998 1997 1996 1995 (Millions of Dollars) Earnings, as defined: Net income ............................................ $ 697 $ 664 $ 618 $ 579 $ 553 Income taxes .......................................... 323 279 304 294 329 Fixed charges, included in the determination of net income, as below ................................ 234 335 304 283 308 Distributed income of independent power investments.... 75 68 47 38 39 Less: Equity in earnings of independent power investments ......................................... 50 39 14 5 6 Total earnings, as defined ........................ $1,279 $1,307 $1,259 $1,189 $1,223 Fixed charges, as defined: Interest charges ...................................... $ 222 $ 322 $ 291 $ 267 $ 291 Rental interest factor ................................ 4 4 4 5 6 Fixed charges included in nuclear fuel cost ........... 8 9 9 11 11 Fixed charges, included in the determination of net income .............................................. 234 335 304 283 308 Capitalized interest .................................. 9 2 4 - - Total fixed charges, as defined ................... $ 243 $ 337 $ 308 $ 283 $ 308 Ratio of earnings to fixed charges ...................... 5.26 3.88 4.09 4.20 3.97
EX-12 3 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12(b) FLORIDA POWER & LIGHT COMPANY COMPUTATION OF RATIOS
Years Ended December 31, 1999 1998 1997 1996 1995 (Millions of Dollars) RATIO OF EARNINGS TO FIXED CHARGES Earnings, as defined: Net income .................................................... $ 591 $ 631 $ 627 $ 615 $ 611 Income taxes .................................................. 324 349 321 322 342 Fixed charges, as below ....................................... 174 209 240 262 286 Total earnings, as defined .................................. $1,089 $1,189 $1,188 $1,199 $1,239 Fixed charges, as defined: Interest charges .............................................. $ 163 $ 196 $ 227 $ 246 $ 270 Rental interest factor ........................................ 3 4 4 5 5 Fixed charges included in nuclear fuel cost ................... 8 9 9 11 11 Total fixed charges, as defined ............................. $ 174 $ 209 $ 240 $ 262 $ 286 Ratio of earnings to fixed charges .............................. 6.26 5.69 4.95 4.58 4.33 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Earnings, as defined: Net income .................................................... $ 591 $ 631 $ 627 $ 615 $ 611 Income taxes .................................................. 324 349 321 322 342 Fixed charges, as below ....................................... 174 209 240 262 286 Total earnings, as defined .................................. $1,089 $1,189 $1,188 $1,199 $1,239 Fixed charges, as defined: Interest charges .............................................. $ 163 $ 196 $ 227 $ 246 $ 270 Rental interest factor ........................................ 3 4 4 5 5 Fixed charges included in nuclear fuel cost ................... 8 9 9 11 11 Total fixed charges, as defined ............................. 174 209 240 262 286 Non-tax deductible preferred stock dividends .................... 15 15 19 24 43 Ratio of income before income taxes to net income ............... 1.55 1.55 1.51 1.52 1.56 Preferred stock dividends before income taxes ................... 23 23 29 36 68 Combined fixed charges and preferred stock dividends ............ $ 197 $ 232 $ 269 $ 298 $ 354 Ratio of earnings to combined fixed charges and preferred stock dividends ................................. 5.53 5.13 4.42 4.02 3.50
EX-21 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF FPL GROUP, INC.
State or Jurisdiction Subsidiary of Incorporation 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
EX-23 5 CONSENTS OF EXPERTS AND COUNSEL 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 No. 333-30697 on Form S- 8; Registration Statement No. 333-87869 on Form S-8; Registration Statement No. 333-87941 on Form S-3; Registration Statement No. 333-88067 on Form S-8 and Post-Effective Amendment No. 1 to Registration Statement No. 333-79305 on Form S-8 of FPL Group, Inc., of our report dated February 11, 2000 appearing in this Annual Report on Form 10-K of FPL Group, Inc. for the year ended December 31, 1999. 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. 333-53053 on Form S-3 and Registration Statement No. 333-84005 of Florida Power & Light Company, of our report dated February 11, 2000 appearing in this Annual Report on Form 10-K of Florida Power & Light Company for the year ended December 31, 1999. We also consent to the incorporation by reference on Form S-3; Registration Statement No. 333-87941-01 on Form S-3 of FPL Group Capital Inc, of our report dated February 11, 2000 appearing in this Annual Report on Form 10-K of FPL Group, Inc., for the year ended December 31, 1999. DELOITTE & TOUCHE LLP Miami, Florida March 1, 2000 EX-27 6 FPL GROUP FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from FPL Group's and FPL's consolidated balance sheet as of December 31, 1999 and consolidated statements of income and cash flows for the year ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 0000753308 FPL Group, Inc. 1,000,000 DEC-31-1999 DEC-31-1999 12-MOS PER-BOOK $7,978 $3,249 $1,373 $0 $841 $13,441 $2 $2,903 $2,465 $5,370 $0 $226 $3,478 $339 $0 $0 $125 $0 $157 $0 $3,746 $13,441 $6,438 $323 $5,518 $5,518 $920 $80 $919 $222 $697 $15 $697 $355 $0 $1,563 $4.07 $4.07 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.
EX-27 7 FPL FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from FPL's consolidated balance sheet as of December 31, 1999 and consolidated statements of income and cash flows for the year ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 0000037634 Florida Power & Light Company 1,000,000 DEC-31-1999 DEC-31-1999 12-MOS PER-BOOK $7,978 $1,352 $893 $0 $385 $10,608 $1,373 $2,566 $854 $4,793 $0 $226 $2,079 $0 $0 $94 $125 $0 $157 $0 $3,134 $10,608 $6,057 $327 $4,984 $5,311 $746 $8 $754 $163 $591 $15 $576 $0 $0 $1,499 $0 $0
EX-10.A 8 RETIREMENT PLAN FPL GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Amended and Restated Effective April 1, 1997 FPL GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE OF CONTENTS Section Page ARTICLE I DEFINITIONS 1.01 Base Compensation 2 1.02 Beneficiary 2 1.03 Board 3 1.04 Bonus Compensation 3 1.05 Change of Control 3 1.06 Class A Executive 5 1.07 Code 5 1.08 Committee 5 1.09 Disability 5 1.10 EBPAC 5 1.11 Effective Date 5 1.12 Employee 5 1.13 Employer 5 1.14 ERISA 5 1.15 Group 5 1.16 Participant 5 1.17 Pension Plan 5 1.18 Plan 6 1.19 Prior Pension Plan 6 1.20 Restated Effective Date 6 1.21 Retirement Plan 6 1.22 Thrift Plan 6 ARTICLE II ELIGIBILITY 2.01 Eligibility for Participation 6 2.02 Terminated Employees 6 2.03 Termination of Participation 6 ARTICLE III BENEFITS 3.01 Benefits 7 3.02 Vesting of Benefits 8 3.03 Transfer of Employment 9 3.04 Payment of Benefits 10 3.05 Taxes 10 3.06 Offset for Obligations to Employer 11 ARTICLE IV ADMINISTRATION 4.01 Administration 11 4.02 Liability of Committee or EBPAC; Indemnification 11 4.03 Determination of Benefits 12 4.04 Payment Due an Incompetent 13 4.05 Expenses 13 ARTICLE V AMENDMENT AND TERMINATION 5.01 Amendment 13 5.02 Termination or Merger of the Plan 14 5.03 Supplements 14 5.04 Withdrawal by Employer 14 ARTICLE VI MISCELLANEOUS 6.01 No Trust Created 14 6.02 Funding 15 6.03 Top Hat Plan 15 6.04 Effect on Benefits under other Plans 15 6.05 Spendthrift Clause 15 6.06 Rights Against the Employer 15 6.07 No Contract of Employment 16 6.08 Indemnity Upon Change of Control 16 6.09 Successors 16 6.10 Severability 16 6.11 Governing Law 16 6.12 Construction 16 Execution Page 17 Appendix A 18 Appendix B 19 FPL GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN THIS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN is adopted by the Compensation Committee of the Board of Directors ("Compensation Committee") on this 16th day of June, 1997, effective as of April 1, 1997 (the "Restated Effective Date"). W I T N E S S E T H T H A T: WHEREAS, on December 12, 1988 FPL Group, Inc. ("Group") adopted the FPL Group, Inc. Supplemental Executive Retirement Plan (the "Plan") effective as of January 1, 1986 (the "Effective Date") for the exclusive benefit of a select group of management and highly compensated employees to provide retirement benefits in addition to those benefits available under the qualified pension and thrift plans established and maintained by Group; and WHEREAS, the Benefit Restoration Plan of FPL Group, Inc. and Affiliates was merged into the Plan effective as of January 1, 1994 pursuant to the amendment and restatement of the Plan; and WHEREAS, effective April 1, 1997, Group changed the benefit formula under its qualified defined benefit pension plan from a unit credit formula to a cash balance formula; and WHEREAS, Group has determined that the best method to modify the benefits under the Plan so as to take into account the new cash balance formula is to amend and restate the Plan; and WHEREAS, Group has been authorized by the Compensation Committee to amend and restate the Plan; NOW, THEREFORE, Group hereby amends and restates the FPL Group, Inc. Supplemental Executive Retirement Plan in its entirety on the following terms and conditions: ARTICLE I DEFINITIONS The following terms when used herein shall have the meaning indicated, unless the context indicates otherwise: 1.01 "Base Compensation" shall mean Base Compensation (as defined in the Pension Plan) and Monthly Base Pay (as defined in the Prior Pension Plan) with respect to the supplemental pension benefit described in Subsection 3.01(b), and Earnings (as defined in the Thrift Plan) with respect to the supplemental matching contributions described in Subsection 3.01(c)(1), plus, to the extent not otherwise included, (i) any salary deferred under the FPL Group, Inc. Deferred Compensation Plan, and (ii) any amounts contributed by the Employer pursuant to a salary reduction agreement which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), or 402(h). The term "Base Compensation" shall not include (a) amounts received as fringe benefits irrespective of the includibility of such amounts on the Participant's Form W-2 (other than salary reduction contributions described in clause (ii) above), (b) amounts received under the FPL Group, Inc. Long-Term Incentive Plan of 1985 or the FPL Group, Inc. Long Term Incentive Plan of 1994, and (c) bonuses awarded under the Annual Incentive Plan maintained by the Employer (whether or not such bonuses were deferred under the FPL Group, Inc. Deferred Compensation Plan). 1.02 "Beneficiary" shall mean the Beneficiary designated under the applicable Retirement Plan with respect to which benefits hereunder are paid, except that the Participant may designate a Beneficiary hereunder by delivering to the Employer a written designation of Beneficiary specifically made with respect to this Plan. 1.03 "Board" shall mean the Board of Directors of Group. 1.04 "Bonus Compensation" shall mean Base Compensation, plus any bonuses awarded under the Annual Incentive Plan maintained by the Employer (whether or not such bonuses were deferred under the FPL Group, Inc. Deferred Compensation Plan). 1.05 "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of Group (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of Group entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition by Group or any of its subsidiaries, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Group or any of its subsidiaries or (iii) any acquisition by any corporation with respect to which, following such acquisition, more than 75% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by Group's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened solicitation to which Rule 14a-11 of Regulation 14A promulgated under the Exchange Act applies or other actual or threatened solicitation of proxies or consents; or (c) Approval by the shareholders of Group of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or (d) Approval by the shareholders of Group of (i) a complete liquidation or dissolution of Group or (ii) the sale or other disposition of all or substantially all of the assets of Group, other than to a corporation, with respect to which following such sale or other disposition, more than 75% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be. The term "the sale or disposition by Group of all or substantially all of the assets of Group" shall mean a sale or other disposition transaction or series of related transactions involving assets of Group or of any direct or indirect subsidiary of Group (including the stock of any direct or indirect subsidiary of Group) in which the value of the assets or stock being sold or otherwise disposed of (as measured by the purchase price being paid therefor or by such other method as the Board determines is appropriate in a case where there is no readily ascertainable purchase price) constitutes more than two-thirds of the fair market value of Group (as hereinafter defined). The "fair market value of Group" shall be the aggregate market value of the then Outstanding Company Common Stock (on a fully diluted basis) plus the aggregate market value of Group's other outstanding equity securities. The aggregate market value of the shares of Outstanding Company Common Stock shall be determined by multiplying the number of shares of Outstanding Company Common Stock (on a fully diluted basis) outstanding on the date of the execution and delivery of a definitive agreement with respect to the transaction or series of related transactions (the "Transaction Date") by the average closing price of the shares of Outstanding Company Common Stock for the ten trading days immediately preceding the Transaction Date. The aggregate market value of any other equity securities of Group shall be determined in a manner similar to that prescribed in the immediately preceding sentence for determining the aggregate market value of the shares of Outstanding Company Common Stock or by such other method as the Board shall determine is appropriate. 1.06 "Class A Executive" shall mean an Employee who is designated for purposes of this Plan as such by the Committee. 1.07 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, and the rules and regulations promulgated thereunder. 1.08 "Committee" shall mean the Compensation Committee of the Board or any such other committee designated by the Board, which shall consist of at least three members of the Board each of whom are not employees of Group or any of its subsidiaries. 1.09 "Disability" shall have the meaning set forth in the Executive Long Term Disability Plan of FPL Group, Inc. and Affiliates. 1.10 "EBPAC" shall have the meaning set forth in the Pension Plan. 1.11 "Effective Date" shall mean January 1, 1986, the effective date of the Plan as originally adopted. 1.12 "Employee" shall mean the President, Chairman, Chief Financial Officer, General Counsel, Treasurer, any Senior Vice President, and any Vice President of Group, any officer of Florida Power & Light Company that is a Vice President or above, the President of the Nuclear Division of Florida Power & Light Company, and the Presidents of ESI Energy, Inc., FPL Group International, Inc., and Turner Foods Corporation. 1.13 "Employer" shall mean Group and any of its subsidiaries listed in Appendix A. 1.14 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, and the rules and regulations promulgated thereunder. 1.15 "Group" shall mean FPL Group, Inc. 1.16 "Participant" shall mean an Employee who satisfies the requirements for participation in the Plan in accordance with Section 2.01. 1.17 "Pension Plan" shall mean the FPL Group Employee Pension Plan, as it may be amended from time to time. 1.18 "Plan" shall mean the plan as set forth in this document as it may be amended from time to time. This plan shall be known as the FPL Group, Inc. Supplemental Executive Retirement Plan. 1.19 "Prior Pension Plan" shall mean the FPL Group Employee Pension Plan as in effect prior to its amendment and restatement on the Restated Effective Date. 1.20 "Restated Effective Date" shall mean April 1, 1997. 1.21 "Retirement Plan" shall mean the Pension Plan and the Thrift Plan. 1.22 "Thrift Plan" shall mean the FPL Group Employee Thrift Plan, as it may be amended from time to time. ARTICLE II ELIGIBILITY 2.01 Eligibility for Participation - An Employee shall become a Participant as follows: (a) An individual listed on Appendix B shall remain a Participant hereunder; and (b) Any other Employee who qualifies for a benefit under any of the Retirement Plans shall be a Participant in the Plan; provided such Employee is among a select group of management or highly compensated employees within the meaning of Section 201(2) of ERISA. 2.02 Terminated Employees - This Plan is applicable only to Participants who perform one or more hours of service for the Employer on or after the Restated Effective Date. The rights and benefits of any participant whose active employment terminated by retirement or otherwise prior to the Restated Effective Date and his Beneficiaries shall be determined under the Plan as in effect prior to the Restated Effective Date, unless a subsequent amendment of the Plan by its express terms applies to Participants who have previously terminated employment with the Employer and all of its affiliates. 2.03 Termination of Participation - An Employee who has become a Participant shall remain a Participant until the entire amount of his vested benefits, if any, under the Plan are distributed to him or his Beneficiary in the event of his death. ARTICLE III BENEFITS 3.01 Benefits - (a) In General - The benefits under this Plan to which a Participant shall be entitled shall be (i) the supplemental pension benefit described in Subsection 3.01(b), and (ii) the supplemental matching contribution account described in Subsection 3.01(c). (b) Supplemental Pension Benefit - With respect to any Participant who was a participant of the Plan on both the day immediately before the Restated Effective Date and on the Restated Effective Date, the "supplemental pension benefit" shall be the greater of (i) the supplement cash balance accrued benefit described in Subsection 3.01(b)(1), or (ii) the supplement unit credit accrued benefit "supplemental pension benefit" shall be the supplement cash balance accrued benefit described in Subsection 3.01(b)(1). (1) The "supplement cash balance accrued benefit" is the difference, if any, between (A) and (B) where: (A) is the benefit to which the Participant would be entitled under the Pension Plan, expressed in the normal form of benefit, if such benefit was computed (i) as if benefits under such plan were based upon the Participant's Base Compensation, (ii) without the annual compensation limitation imposed by Section 401(a)(17) of the Code, and (iii) without the restrictions or the limitations imposed by Sections 415(b) or 415(e) of the Code; and (B) is the benefit payable to the Participant under the Pension Plan, expressed in the normal form of benefit. (2) The "supplement unit credit accrued benefit" is the difference, if any, between (A) and (B) where: (A) is the benefit to which the Participant would be entitled under the Prior Pension Plan, expressed in the normal form of benefit, if such benefit was computed (i) as if benefits under such plan were based upon the Participant's Base Compensation, (ii) without the annual compensation limitation imposed by Section 401(a)(17) of the Code, and (iii) without the restrictions or the limitations imposed by Sections 415(b) or 415(e) of the Code; and (B) is the benefit payable to the Participant under the Pension Plan, expressed in the normal form of benefit. (c) Supplemental Matching Contribution Account - The "supplemental matching contribution account" shall be an account that is credited annually with (i) supplemental matching contributions described in Subsection 3.01(c)(1), and (ii) theoretical earnings described in Subsection 3.01(c)(2). (1) "Supplemental matching contributions" shall for each year of participation in this Plan be the difference, if any, between (A) and (B) where: (A) is the matching contribution allocation to which the Participant would be entitled under the Thrift Plan for such year of participation if such allocation were computed (i) as if the matching contribution allocation under such plan was based upon the Participant's Base Compensation, (ii) without the annual compensation limitation imposed by Section 401(a)(17) of the Code, (iii) without the restrictions or the limitations imposed by Sections 415(c) or 415(e) of the Code, and (iv) as if he made After Tax Member Basic Contributions (within the meaning of the Thrift Plan) and Tax Saver Member Basic Contributions (within the meaning of the Thrift Plan) at the same percentage of Base Compensation as he made such contributions to the Thrift Plan for such year of participation; and (B) is the matching contribution allocated to the Participant under the Thrift Plan for such year of participation. (2) "Theoretical earnings" shall be the income, gains and losses which would have been credited on a Participant's account balance if such account were invested in the Company Stock Fund (within the meaning of the Thrift Plan) offered as a part of the Thrift Plan. (d) Benefits for Class A Executives - In the case of a Participant who is a Class A Executive, Subsections 3.01(b) and 3.01(c) shall be applied by substituting the term, "Bonus Compensation" for the term, "Base Compensation". (e) Prior Benefit - With respect to a Participant described in Subsection 2.01(a), in no event shall such Participant's benefits under this Section 3.01 be less than his benefits accrued as of March 31, 1997 under the Plan as in effect on that date. 3.02 Vesting of Benefits - (a) In General - Except as otherwise provided in this Section 3.02, a Participant's right to the benefits accrued hereunder for such Participant shall vest in accordance with the vesting provisions set forth in the Pension Plan. (b) Accelerated Vesting Upon Death, Disability, or Change of Control - If the Participant's employment with the Employer and all of its affiliates is terminated as a result of death, Disability, or Change of Control (irrespective of whether such termination is initiated by the Participant or the Employer or its affiliates and without regard to the reason therefor), all benefits accrued hereunder for the Participant shall become fully vested and shall be paid in accordance with Subsection 3.04(b). (c) Termination for Cause. Except as provided in Subsection 3.02(b), if the termination of a Participant's employment with the Employer and all of its affiliates is as a result of or caused by the Participant's theft or embezzlement from the Employer or any of its affiliates, the disclosure by the Participant of confidential information of the Employer or its affiliates, or the Participant's stealing trade secrets or intellectual property owned by the Employer or its affiliates, then the benefits of such Participant hereunder, to the extent not yet received, shall become null and void effective as of the date of the occurrence of the event which results in the Participant ceasing to be an employee of the Employer and all of its affiliates and any purported claim for benefits by or on behalf of said Participant following such date shall be of no effect. (d) If an Employee terminates employment with the Employer and all of its affiliates, the benefits accrued hereunder (or the portion thereof) which are not vested in accordance with this Section 3.02 shall be forfeited as of the date of such termination. 3.03 Transfer of Employment - (a) Transfer to Nonparticipating Affiliate - The benefits of a Participant who transfers to an affiliate of the Employer (other than Group or any of its subsidiaries listed in Appendix A) shall be determined under Section 3.01 by taking into consideration only (i) the Participant's Base Compensation or Bonus Compensation for services performed for the Employer, and (ii) the Participant's years of service with the Employer for purposes of determining accrual of benefits. Such Participant shall continue as a Participant until the occurrence of his death, Disability, Change of Control, or other termination of employment with all affiliates of the Employer. (b) Transfer from Nonparticipating Affiliate - The benefits of a Participant who was previously employed by an affiliate of the Employer (other than Group or any of its subsidiaries listed in Appendix A) immediately before his employment with the Employer shall be determined under Section 3.01 as if the Participant's employment with the affiliate of the Employer was performed for the Employer, except that such Participant's Base Compensation and Bonus Compensation shall not include any bonuses paid by an affiliate. 3.04 Payment of Benefits - (a) Time and Method of Payment of Normal or Early Retirement Benefits - Except as otherwise provided in Subsections 3.04(b) and 3.04(c), the benefits to which a Participant or his Beneficiary are entitled under this Plan shall be paid at the same time and in the same manner as the Participant's benefits under each of the Retirement Plans to which his benefits under this Plan relate, except that benefits under this Plan shall not be distributable until the Participant's employment with the Employer and all of its affiliates is terminated. Notwithstanding the foregoing, benefits may be distributable in a lump sum or in such other form as may be agreed in writing by the Participant and EBPAC (or its delegatee). Any optional form of benefit payable under this Plan shall be the actuarial equivalent (within the meaning of the applicable Retirement Plan) of the benefit, expressed in the normal form of benefit, otherwise payable under this Plan. If there is no Retirement Plan (or its successor), the actuarial factors to be used will be those actuarial factors as are selected by the actuarial firm that last serviced the Retirement Plan prior to its termination or merger, as being then appropriate had the Retirement Plan remained in existence at its last level of benefits and with its last participant census. (b) Time and Method of Payment of Benefits Upon Death, Disability, or Change of Control - If the Participant's employment with the Employer and all of its affiliates is terminated as a result of death, Disability, or Change of Control (irrespective of whether such termination is initiated by the Participant or the Employer or its affiliates and without regard to the reason therefor), all benefits accrued hereunder for the Participant shall be paid to the Participant or his Beneficiary, as the case may be, at the option of the Participant or if the Participant is deceased, at the option of such Beneficiary, in a lump sum distribution to be made not later than three months after the occurrence of such event or in the same manner as the Participant's benefits under each of the Retirement Plans to which his benefits under this Plan relates. (c) No Company Stock Distributable - In no event shall a Participant or Beneficiary receive the benefits to which he is entitled to under this Plan in the form of Company Stock (as defined in the Thrift Plan). (d) No Spousal Rights - Nothing contained in this Plan is intended to give or shall give any spouse or former spouse of a Participant or any other person any right to benefits under the Plan by virtue of Code Sections 401(a)(11) or 417 or ERISA Section 205 (relating to qualified preretirement survivor annuities and qualified joint and survivor annuities) or Code Section 401(a)(13)(B) or 414(p) or ERISA Section 206(d)(3) (relating to qualified domestic relations orders). 3.05 Taxes - Notwithstanding the foregoing, benefits payable hereunder shall be subject to all applicable federal, state and local taxes which are required to be paid or withheld by the Employer. To the extent any amount accrued or credited hereunder is treated as "wages" for FICA or FUTA tax purposes, as determined by the Employer, the Employer shall require that the Participant either (i) timely pay such taxes in cash by separate check to his Employer, or (ii) make other arrangements satisfactory to such Employer (e.g., additional withholding from other wage payments) for the payment of such taxes. To the extent a Participant fails to pay or provide for such taxes as required, the Committee may suspend the Participant's participation in the Plan or reduce benefits accrued hereunder. 3.06 Offset for Obligations to Employer - Subject to Section 3.05, if, at such time as a Participant or his Beneficiary becomes entitled to benefit payments hereunder, the Participant has any debt, obligation, or other liability representing an amount owing to the Employer or its affiliates, the Employer may offset the amount owing it or its affiliates against the amount of benefits otherwise distributable hereunder notwithstanding any provision of this Plan to the contrary. ARTICLE IV ADMINISTRATION 4.01 Administration - The Committee (or its delegatee) and EBPAC (or its delegatee) shall administer and interpret this Plan in accordance with the provisions of the Plan and in their sole and absolute discretion. Any determination or decision by the Committee (or its delegatee) or EBPAC (or its delegatee) shall be conclusive and binding on all persons who at any time have, have had, or claim to have any interest whatsoever under this Plan. 4.02 Liability of Committee or EBPAC; Indemnification - To the extent permitted by law, no member of the Committee (or its delegatee) or EBPAC (or its delegatee) shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to his own gross negligence or willful misconduct. The Employer shall indemnify the members of the Committee (or its delegatee) and EBPAC (or its delegatee) against any and all claims, losses, damages, expenses, including any counsel fees and costs, incurred by them, and any liability, including any amounts paid in settlement with their approval, arising from their action or failure to act, except when the same is judicially determined to be attributable to their gross negligence or willful misconduct. Each affected member of the Committee shall promptly notify the Employer of any claim, action or proceeding for which he may seek indemnification. The indemnification of Committee members provided for in this Section shall survive the resignation or removal of the Committee member and the termination of the Plan. 4.03 Determination of Benefits - (a) Claim - A person who believes that he is being denied a benefit to which he is entitled under the Plan (hereinafter referred to as a "Claimant") may file a written request for such benefit with EBPAC (or its delegatee), setting forth his claim. The request must be addressed to EBPAC (or its delegatee) at its then principal place of business. (b) Claim Decision - Upon receipt of a claim, EBPAC (or its delegatee) shall advise the Claimant that a reply will be forthcoming within 90 days and shall, in fact, deliver such reply within such period. EBPAC (or its delegatee) may, however, extend the reply period for an additional 90 days for reasonable cause. If the claim is denied in whole or in part, EBPAC (or its delegatee) shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth (i) the specific reason or reasons for such denial, (ii) the specific references to pertinent provisions of the Plan on which such denial is based, (iii) a description of any additional material or information necessary for the Claimant to perfect his claim and an explanation why such material or such information is necessary, (iv) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review, and (v) the time limits for requesting a review as described in Subsection 4.03(c) and for review as described in Subsection 4.03(d). (c) Request for Review - Within 60 days after the receipt by the Claimant of the written opinion described in Subsection 4.03(b), the Claimant may request in writing that the Committee (or its delegatee) review the initial determination. Such request must be addressed to the Committee (or its delegatee), at its then principal place of business. The Claimant or his duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Committee (or its delegatee). If the Claimant does not request a review of EBPAC's (or its delegatee's) determination within such 60 day period, he shall be barred and estopped from challenging EBPAC's (or its delegatee's) determination. (d) Review of Decision - Within 60 days after the Committee's (or its delegatee's) receipt of a request for review, the Committee (or its delegatee) will review the initial determination. After considering all materials presented by the Claimant, the Committee (or its delegatee) will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of the Plan on which the decision is based. If special circumstances require that the 60 day time period be extended, the Committee (or its delegatee) will so notify the Claimant and the Committee (or its delegatee) will render the decision as soon as possible, but no later than 120 days after receipt of the request for review. 4.04 Payment Due an Incompetent - If EBPAC (or its delegatee) receives evidence that the Participant or Beneficiary entitled to receive any payment under the Plan is physically or mentally incompetent to receive such payment, EBPAC (or its delegatee) may, in its sole discretion, direct the payment to any other person or trust which has been legally appointed by the courts. Such payment shall completely discharge the Employer from all liability with respect to such benefit. 4.05 Liability for Payment; Expenses - Each Employer shall be liable for the payment of benefits which are payable hereunder to its Employees. The expenses of administering the Plan shall be paid by the Employers, as directed by Group. ARTICLE V AMENDMENT AND TERMINATION 5.01 Amendment - (a) In General - Except to the extent otherwise reserved to the Committee, the President or any Vice President of Group (the "Corporate Officers") shall have the right to amend this Plan at any time and from time to time, including a retroactive amendment. The Committee expressly reserves the right to amend Sections 1.01, 1.03, 1.04, 1.05, 1.06, 1.08, 1.12, 1.13, 1.16, 2.01, 3.01, 3.02, 3.04(b), 4.06, 5.01, 5.02, 5.03, and 6.02 hereof and shall have the right to amend any such section or sections at any time or from time to time, including a retroactive amendment. Any such amendment shall become effective upon the date stated therein, and shall be binding on the Participant and his Beneficiary, except as otherwise provided in such amendment or this Section 5.01. (b) Amendment Affecting Accrued Benefit - No amendment to the Plan (including a change in the actuarial basis for determining optional or early retirement benefits) shall be effective to the extent that it has the effect of decreasing a Participant's benefits accrued under the Plan as of the date of such amendment, and no amendment may suspend the crediting of theoretical earnings (described in Subsection 3.01(c)(2)) on the balance of a Participant's supplemental matching contribution account (as described in Subsection 3.01(c)), until the entire balance of such account has been distributed, in either case, without the prior written consent of the affected Participant. (c) Amendment of Vesting Schedule - If the vesting provisions of the Plan are amended in any way that directly or indirectly affects the computation of a Participant's vested benefits accrued under the Plan, each Participant may elect to have his vested benefits accrued under the Plan computed without regard to such amendment, except that no such election shall be required for any Participant whose vested percentage under the Plan, as amended, cannot at any time be less than such Participant's vested percentage determined without regard to such amendment. 5.02 Termination or Merger of the Plan - Group has established this Plan with the bona fide intention and expectation that from year-to- year it will deem it advisable to continue it in effect. However, the Committee, in its sole discretion, reserves the right to terminate the Plan in its entirety at any time. In the event this Plan is terminated, the rights of all affected Participants to benefits accrued under the Plan as of the date of such termination shall be immediately vested, subject to Subsection 3.02(c). No such termination may adversely affect any Participant's accrued benefits as of the date of such termination and no such termination may suspend the crediting of theoretical earning (as described in Subsection 3.01(c)(2)) on the balance of a Participant's supplemental matching contribution account (as described in Subsection 3.01(c)), until the entire balance of such account has been distributed. In the event of a merger or consolidation of this Plan with any other plan, each Participant's benefits under the Plan immediately after such merger or consolidation shall be equal to or greater than the accrued benefits the Participant would have received had the Plan terminated immediately before the merger or consolidation. 5.03 Supplements - In adopting the Plan or at any time thereafter, an Employer may adopt a Supplement which modifies or adds to the Plan. Any Supplement shall be effective only if approved by a Corporate Officer, and the Committee if, and to the extent, that such Supplement modifies a provision of a section enumerated in Section 5.01 which is amendable only by the Committee. Upon its effective date, such Supplement shall be deemed incorporated by reference into the Plan as adopted by such Employer. In the event of any discrepancy between a Supplement and the provisions of the Plan, the provisions of the Supplement shall govern. 5.04 Withdrawal by Employer - Any Employer (other than Group) which adopts this Plan may elect separately to withdraw from the Plan and such withdrawal shall constitute a termination of the Plan as to it. Upon such withdrawal, such terminating Employer shall continue to be an Employer for the purposes hereof as to Participants or Beneficiaries to whom it owes obligations hereunder, and such termination shall be subject to the limitations and other conditions described in Section 5.02. ARTICLE VI MISCELLANEOUS 6.01 No Trust Created - Nothing contained in this Plan, and no action taken pursuant to its provisions by the Employer or its affiliates shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Employer and the Participants or their beneficiaries. 6.02 Funding - The Employer is not required to and shall not fund (within the meaning of the Federal tax laws) this Plan. The benefits payable under this Plan to Participants or their Beneficiaries may be made from the general assets of the Employer or from such other assets earmarked, deposited, contributed to a trust, or otherwise set aside to fund benefits under this Plan. It is intended that the Employer's obligation under this Plan be an unfunded and unsecured promise to pay money in the future. Any funds earmarked, deposited, contributed to a trust, or otherwise set aside by the Employer to assist it in satisfying its obligations under this Plan shall be subject to the claims of general creditors of the Employer. The Participants' (or their Beneficiaries') rights to benefits under this Plan which are payable by the Employer shall be no greater than the right of any unsecured general creditor of the Employer, and the Participants (and their Beneficiaries) shall not have any security interest in any assets (including, but not limited to, assets earmarked, deposited, contributed to a trust, or otherwise set aside to fund benefits provided under the Plan) of the Employer. 6.03 Top Hat Plan - It is the Employer's intention that this Plan be construed as an unfunded, nonqualified deferred compensation plan maintained for a select group of management or highly compensated employees within the meaning of Section 201(2) of ERISA. With respect to amounts received under the Plan after December 31, 1995, the Plan shall be treated as two separate plans, one maintained solely for the purpose of providing retirement benefits for Employees in excess of the limitations imposed by Sections 401(a)(17), 401(m), or 415 of the Code or any other limitation on contributions or benefits in the Code on plans to which any of the sections described in 4 U.S.C. Sec. 114(b)(1)(I)(ii) apply (i.e., the source tax plan), and the other providing any other benefits provided by the Plan (i.e., the non-source tax plan). 6.04 Effect on Benefits under other Plans - Any benefits payable under this Plan shall not be considered salary or other compensation to the Participant for purposes of computing benefits to which he may be entitled under any other employee benefit plan established or maintained by the Employer or its affiliates, except to the extent provided in such other employee benefit plan. 6.05 Spendthrift Clause - Except as provided in Sections 3.05 and 3.06, no right, title or interest of any kind in the Plan shall be transferable or assignable by a Participant or Beneficiary or be subject to alienation, anticipation, encumbrance, garnishment, attachment, execution or levy of any kind, whether voluntary or involuntary nor subject to the debts, contracts, liabilities, engagements, or torts of a Participant or Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge, garnish, attach or otherwise subject to legal or equitable process or encumber or dispose of any interest in the Plan shall be void, except as provided by Sections 3.05 and 3.06. 6.06 Rights Against the Employer - The establishment of this Plan shall not be construed as giving to a Participant, Beneficiary, employee or any person whomsoever, any legal, equitable or other rights against Group or its affiliates, or their officers, directors, agents or shareholders, or as giving to the Participant, Beneficiary, employee or any person whomsoever any equity or other interest in the assets, business or shares of Group or its affiliates' stock. 6.07 No Contract of Employment - Nothing contained in this Plan shall be construed to be a contract of employment or as conferring upon a Participant the right to continue to be employed by the Employer in his present capacity or in any capacity. The Participant shall be subject to discharge to the same extent he would have been if this Plan had never been adopted. 6.08 Indemnity Upon Change of Control - If upon a Change of Control it becomes necessary for a Participant (or his Beneficiary) to institute a claim, by litigation or otherwise, to enforce his rights under this Plan, Group (and its successors and assigns) shall indemnify such Participant (or his Beneficiary) from and against all costs and expenses, including legal fees, incurred by him in instituting and maintaining such claim. 6.09 Successors - This Plan shall be binding upon Group and its successors and assigns, and Participants, their Beneficiaries, successors, heirs, executors, administrators and beneficiaries. 6.10 Severability - In the event that any provision of this Plan shall be declared illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan but shall be fully severable and this Plan shall be construed and enforced as if said illegal or invalid provision had never been inserted herein. 6.11 Governing Law - The validity and effect of this Plan and the rights and obligations of all persons affected hereby shall be construed and determined in accordance with the laws of the State of Florida unless superseded by federal law. 6.12 Construction - The article and section headings and numbers are included only for convenience of reference and are not to be taken as limiting or extending the meaning of any of the terms and provisions of this Plan. Whenever appropriate, words used in the singular shall include the plural or the plural may be read as the singular. When used herein, the masculine gender includes the feminine gender. IN WITNESS WHEREOF, the Compensation Committee of the Board of Directors has caused this Plan to be signed by its duly appointed officers and its corporate seal to be hereunto affixed as of the day and year first written above. FPL GROUP, INC. By: LARRY KELLEHER Title: Sr. Vice President, Human Resources (Seal) APPENDIX A List of Participating Employers 1. Florida Power & Light Company 2. ESI Energy, Inc. 3. FPL Group International, Inc. APPENDIX B List of Participants Participant Name Class A Executive Alfonso, A. Altmann, A.F. Broadhead, J.L. X Coyle, D.P. X Davis, K.M. Evanson, P.J. X Gelber, L. Hamilton, W.W. Hertz, J.E. Higgins, J.P. Hovey, R.J. Kelleher, L.J. X Kirk, T.F. X Klinger, D.M. Kundalkar, R.J. Laseter, L.J. Levin, S.H. Marshall, R.M. Milne, J.G. X Norris, J.C. Olivera, A.J. Petillo, J.T. Plunkett, T.F. Rodriguez, A. Sager, D.A. Samil, D.L. X Scalf, J.E. Stall, J.A. Stewart, R.E. Sullivan, G.E. Walker, W.G. Werneburg, K.R. X Wilson, M.M. Woody, C.O. Yackira, M.W. X EX-10.B 9 AMENDMENT TO RETIREMENT PLAN AMENDMENT #1 TO THE FPL GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN In accordance with Subsection 5.01(a) of the FPL Group, Inc. Supplemental Executive Retirement Plan, as amended and restated effective April 1, 1997 (the "Plan"), the Compensation Committee of the Board of Directors of FPL Group, Inc. (the "Committee") hereby amends the Plan as follows: First: Section 1.12 of the Plan is revised by adding to the end thereof the following new paragraph: In addition, the Vice President of Human Resources of Group ("VP-HR") may select any other management or highly compensated employee of an Employer as an "Employee". The VP-HR may in his discretion determine that a management or highly compensated employee previously selected by him shall no longer be eligible to actively participate in the Plan until such time as such individual is again selected to participate by the VP-HR or otherwise becomes an "Employee" as a result of satisfying the eligibility condition described in the preceding paragraph. In this event, the Participant's supplemental pension benefit (as described in Subsection 3.01(b)) shall be frozen, and no additional supplemental matching contributions (as described in Subsection 3.01(c)(1)) will be credited to his supplemental matching contribution account (as described in Subsection 3.01(c)), however, such account shall continue to be credited with theoretical earnings (as described in Subsection 3.01(c)(2)) until such account is distributed. Second: The changes set forth in this Amendment #1 shall be effective as of January 1, 1998. Third: In all other respects, the Plan shall remain unchanged by this Amendment #1. IN WITNESS WHEREOF, the Compensation Committee of the Board of Directors has caused this amendment to be signed by its duly authorized officer and its corporate seal to be hereunto affixed as of this 14th day of September, 1998. FPL GROUP, INC. By: LARRY KELLEHER Title: V.P. FPL GROUP AMENDMENT #2 TO THE FPL GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN In accordance with Subsection 5.01(a) of the FPL Group, Inc. Supplemental Executive Retirement Plan, as amended and restated effective April 1, 1997, and as subsequently amended by Amendment #1 (the "Plan"), the President or any Vice President of FPL Group, Inc. (a "Corporate Officer") hereby further amends the Plan as follows: First: Subsection 3.04(d) of the Plan is revised to read as follows: (d) Spousal Rights - Except as described in Section 3.07, nothing contained in this Plan is intended to give or shall give any spouse or former spouse of a Participant or any other person any right to benefits under the Plan by virtue of Code Sections 401(a)(11) or 417 or ERISA Section 205 (relating to qualified preretirement survivor annuities and qualified joint and survivor annuities) or Code Section 401(a)(13)(B) or 414(p) or ERISA Section 206(d)(3) (relating to qualified domestic relations orders). Second: A new Section 3.07 is added to read as follows: 3.07 Distributions under Domestic Relations Orders - Nothing contained in this Plan prevents the Employer, in accordance with the direction of EBPAC (or its delegatee), from complying with the provisions of a judgment, decree, or order (including approval of a property settlement agreement ) resulting from a divorce, legal separation, annulment or change in legal custody that assigns to a spouse, former spouse, child or other dependent of a Participant (an "Alternate Payee") the right to receive all or a portion of the vested benefits of a Participant under the Plan in a form of payment permitted under the terms of the Plan. (a "Domestic Relations Order"). The Employer shall make any payments required under this Section 3.07 by separate checks to each Alternate Payee, unless otherwise explicitly provided in the Domestic Relations Order. Distribution to an Alternate Payee under a Domestic Relations Order is permitted at any time, irrespective of whether the Participant is currently entitled to a distribution of his vested benefits under the Plan. A distribution to an Alternate Payee prior to the time the Participant is entitled to a distribution of his vested benefits under the Plan is available only if the Domestic Relations Order explicitly requires distribution at that time. Notwithstanding the foregoing, nothing in this Section 3.07 provides a Participant the right to receive a distribution of his vested benefits at a time not otherwise permitted under the terms of the Plan nor does it permit the Alternate Payee to receive a form of payment not otherwise permitted under the Plan. Within a reasonable period of time after receiving the Domestic Relations Order, EBPAC (or its delegatee) will determine whether such order complies with the terms of the Plan and will notify the Participant and each Alternate Payee of its determination. If any portion of the Participant's vested benefit is payable during the period EBPAC (or its delegatee) is making such determination, EBPAC shall make a separate accounting of the amounts payable. Third: Section 6.05 of the Plan is revised to read as follows: 6.05 Spendthrift Clause - Except as provided in Sections 3.05, 3.06 or 3.07, no right, title or interest of any kind in the Plan shall be transferable or assignable by a Participant or Beneficiary or be subject to alienation, anticipation, encumbrance, garnishment, attachment, execution or levy of any kind, whether voluntary or involuntary nor subject to the debts, contracts, liabilities, engagements, or torts of a Participant or Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge, garnish, attach or otherwise subject to legal or equitable process or encumber or dispose of any interest in the Plan shall be void, except as provided by Sections 3.05, 3.06 or 3.07. Fourth: The changes set forth in this Amendment #2 shall be effective as of January 1, 1998. Fifth: In all other respects, the Plan shall remain unchanged by this Amendment #2. IN WITNESS WHEREOF, the undersigned Corporate Officer has adopted this Amendment this 17th day of September 1998. FPL GROUP, INC. By: LARRY KELLEHER Title: SR. V.P. EX-10.C 10 AMENDMENT TO RETIREMENT PLAN AMENDMENT #3 TO THE FPL GROUP, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN In accordance with Subsection 5.01(a) of the FPL Group, Inc. Supplemental Executive Retirement Plan, as amended and restated effective April 1, 1997, and as subsequently amended by Amendments #1 and #2 (the "Plan"), the Compensation Committee of the Board of Directors of FPL Group, Inc. (the "Committee") hereby further amends the Plan as follows: First: Section 1.13 of the Plan is revised to read as follows: 1.13 "Employer" shall mean Group and any of its subsidiaries or affiliates listed in Appendix A. To be eligible to listed in Appendix A, a subsidiary or affiliate must be a member of the controlled group of corporations (within the meaning of Section 414(b) of the Code) or a member of a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) that includes Group and must be determined to be eligible to participate in the Plan by a Corporate Officer (as defined in Subsection 5.01(a)). Any subsidiary or affiliate that is or becomes eligible to adopt the Plan and become an Employer listed in Appendix A may, with the approval of a Corporate Officer, adopt this Plan and become an Employer listed in Appendix A. The date on which such eligible subsidiary or affiliate may become an Employer in the Plan shall be determined by a Corporate Officer. Each Employer, other than Group, shall furnish to Group the information with respect to each of its Participants necessary to enable Group to maintain records sufficient to determine the benefits (and the compensation sources of such benefits) which may become payable to or with respect to such Participants and to give those Participants any reports which may be required under the terms of the Plan or by law. Group shall establish and maintain separate accounts for each Employer listed on Appendix A and their respective Participants. Such separate accounting is intended to comply with Section 404(a)(5) of the Code and Section 1.404(a)-12 of the Treasury Regulations (which provide that an Employer can deduct the amounts contributed to a nonqualified plan in the taxable year in which an amount attributable to the contribution is includable in the gross income of employees participating in the Plan, but, in the case of a Plan in which more than one employee participates only if separate accounts are maintained for each employee). See Section 4.05 for the responsibility of each Employer to pay benefits provided under the Plan to their respective employees and their allocable share of administrative expenses and Section 5.04 for the ability of each Employer to separately withdraw from participation in the Plan. Second: The changes set forth in this Amendment #3 shall be effective as of January 1, 1999. Third: In all other respects, the Plan shall remain unchanged by this Amendment #3. IN WITNESS WHEREOF, the Compensation Committee of the Board of Directors has caused this amendment to be signed by its duly authorized officer and its corporate seal to be hereunto affixed as of this 10th day of May, 1999. FPL GROUP, INC. By: LARRY KELLEHER Title: Sr. V.P. APPENDIX A List of Participating Employers 1. Florida Power and Light Company 2. FPL Energy, Inc. EX-10.I 11 ANNUAL INCENTIVE PLAN Annual Incentive Plan FPL Group, Inc. and Florida Power & Light Company Objectives: 1. Recognize outstanding performers who have contributed significantly to the Corporation's success and to their respective business unit. 2. Align the corporate vision, goals and strategy to compensation strategy. 3. Provide a compensation environment which will attract, retain, and motivate talented employees. Eligible Participants: All exempt employees of FPL Group, Inc. and Florida Power & Light Company. Executives and Grades 1 - 14: Nomination based on significant contribution to the successful accomplishment of corporate and business unit indicators. Corporate Goals: The amount of annual incentive compensation earned shall be determined based on the degree of achievement of the corporate net income goals specified by the Compensation Committee. Amounts earned on the basis of achievement of the net income goals are subject to reduction based on the degree of achievement of the performance indicators specified by the Compensation Committee and at the discretion of the Compensation Committee. The maximum annual targeted award is set at 200%. Both the goals and the targeted awards shall be set forth in writing (which may be the minutes of a meeting) by the Compensation Committee. Levels of Performance: Performance will be measured at three levels: 1. Corporate Net Income Payouts cannot exceed the maximum targeted award. Amounts earned in accordance with this performance measure are subject to reduction based on performance at the next two levels. 2. Corporate Performance (CP) Financial indicators General operating indicators Major milestone indicators 3. Business Unit Performance (BUP) General operating indicators Major milestone indicators Cross functional indicators The "Allocation Formula" for the CP and BUP performance measures shall be determined by the Compensation Committee. Target Award By Organizational Level: Position Target Award(1) Allocation %(2) Executives Chairman & CEO 75% 100/0/0 President 60% - 65% 100/0/0 Vice President 25% - 50% 50/50/0 Exempt Employees(3) Award Range(3) Allocation %(2) Grades 12 - 14 0-24% 50/50/0 Grade 10-11 0-19% 50/50/0 Grades 8 - 9 0-11% 50/50/0 Grades 6-7 0-7% 0/100/0 Grades 1-5 0-5% 0/100/0 (1) Calculated as a percentage of base salary. (2) Corporate percent/Business Unit percent/individual percent. (3) For exempt levels 1 through 14 the annual incentive plan is also referred to as the "Performance Excellence Rewards Plan". For these exempt employees, at the sole discretion of the CEO, a pool of dollars may be established annually based on corporate and business unit performance for each business unit to then allocate on an individual basis as specified by the Award Ranges listed above. Awards may exceed these guidelines for extraordinary performance. Note: All calculations of CP and BUP will be multiplied by the CEO/BU factor (0% - 120%). Conditions: Participant must be employed on or before September 1 and at the time the awards are paid unless otherwise provided by the corporation. Awards for participants employed between January and September will be prorated. Retirement, disability or death may result in a prorated award. Early retirement may result in a prorated award with Compensation Committee approval. Payments awarded under this Plan will be the responsibility of the Compensation Committee. For non-executive levels, payments will be subject to the discretion of FPL management. -----END PRIVACY-ENHANCED MESSAGE-----