How did FPL Group perform in 1999, and what drove the results?

Net income rose 5.0% to $697 million ($4.07 per share), helped by nonrecurring gains of $16 million net. Excluding those items, earnings grew 2.6% to $681 million ($3.98 per share). Growth came mainly from FPL Energy's expanding independent power business, while FPL's utility earnings were roughly flat excluding a $42 million after-tax settlement charge with FMPA.

How does the 1999 rate agreement affect FPL's earnings outlook?

The FPSC-approved agreement reduces annual retail base revenues by $350 million, partly offset by special depreciation of up to $100 million per year. The authorized ROE range narrowed to 10%-12%, with revenue sharing above specified thresholds. The agreement also prevents FPL from seeking base rate increases during its three-year term, which provides some earnings predictability through 2002.

What are the main risks facing investors?

Key risks include the potential for Florida to move toward retail competition, which could require writing off regulatory assets under FAS 71; FERC's RTO requirements, with filings due October 2000; the impairment risk on FPL Energy's merchant-exposed New England assets; and the outcome of litigation, including the Palm Beach partnerships' claim of roughly $2 billion and the Cedar Bay lender suit. The company states that these matters are not expected to have a material adverse effect, but an unfavorable outcome in the Palm Beach litigation could be material.

What growth opportunities is the company pursuing?

FPL Energy is building a 1,000 MW combined-cycle plant in Texas, expected to be operational in 2000, and has announced plans for roughly 2,100 MW of additional capacity by 2003. FPL plans to add more than 4,000 MW of net generating capability through repowering and new units. FPL FiberNet, formed in January 2000, will sell wholesale capacity on the utility's roughly 1,600-mile fiber network and plans to invest about $225 million over three years to expand it.

How strong is the balance sheet and how is the company funding growth?

Total assets were $13.4 billion at year-end 1999, and long-term debt rose to $3.5 billion from $2.3 billion, mainly to finance FPL Energy's growth. Operating cash flow was $1.56 billion. The company has $2.4 billion in bank credit lines ($880 million at FPL), and management expects 2000 capital needs to be met with internal funds and debt issuance.

NEE 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 2, 2000. Cited figures are marked; the original filing is the authoritative source.

FPL Group, Inc. (NYSE: NEE, the parent of Florida Power & Light Company) reported 1999 net income of $697 million^a, or $4.07 per share, up 5.0% from $664 million ($3.85) in 1998.

Excluding nonrecurring items (a $176 million^b pre-tax impairment on the acquired Maine fossil assets, a $42 million after-tax FMPA litigation settlement charge, and gains on the sale of Adelphia stock and a cable partnership interest), net income was $681 million and EPS was $3.98, growth of 2.6% and 3.4%. Results were driven by FPL Energy's expanding independent power portfolio, which grew generating capacity by 60% in 1999, while the regulated utility, FPL, was roughly flat excluding the FMPA charge. FPL's base revenues declined in 1999 because of a three-year rate agreement approved by the FPSC in April 1999 that cut annual retail base revenues by $350 million and lowered the authorized ROE range to 10%-12%.

Offsetting this, a new special depreciation program lowered depreciation expense, and FPL reported an achieved ROE of 12.1%^c. The agreement includes a revenue-sharing mechanism and a 55.83% equity ratio cap, and it bars additional base rate changes during its term, which gives earnings some visibility through 2002.

Looking ahead, FPL plans capital expenditures of about $3.1 billion^d over 2000-2002, FPL Energy is building a 1,000 MW Texas gas plant and has announced about 2,100 MW of further projects, and FPL FiberNet was formed in January 2000 to sell wholesale fiber capacity. Key risks include Florida's unresolved path toward retail competition, FERC RTO requirements, and several litigation matters, including a roughly $2 billion counterclaim by the Palm Beach qualifying-facility partnerships (which management views as meritorious defenses) and the Cedar Bay dispute.

02—Key points

Key Highlights

1999 net income of $697M ($4.07/share), up 5.0%; excluding nonrecurring items, $681M ($3.98/share), up 2.6%
$176M pre-tax ($104M after-tax) impairment on the acquired Maine fossil plants, offset in part by a $149M pre-tax gain on the Adelphia stock sale and a $108M gain on a cable partnership redemption
FPL's three-year rate agreement cut base revenues by $350M annually, but the revenue-sharing mechanism and new special depreciation program limit the impact; FPL's achieved ROE was 12.1%
FPL Energy's capacity grew 60% in 1999 to 3,004 MW; capital expenditures and investments reached about $1.5B, with a 1,000 MW Texas gas plant under construction
Capital plan of about $3.1B for FPL over 2000-2002 (about $1.3B in 2000), funded mainly by internal cash flow and debt issuance
Dividend raised to $0.52 quarterly ($2.08 annualized, up from $2.00); 2.2M shares repurchased in 1999 with 6.2M remaining under the authorization
Material litigation exposure includes the Palm Beach qualifying-facility partnerships' counterclaim of about $2B, the Cedar Bay dispute, and an EPA Clean Air Act suit tied to the Scherer Unit No. 4 interest; management believes it has meritorious defenses

03—Questions

Frequently Asked Questions

How did FPL Group perform in 1999, and what drove the results?
Net income rose 5.0% to $697 million ($4.07 per share), helped by nonrecurring gains of $16 million net. Excluding those items, earnings grew 2.6% to $681 million ($3.98 per share). Growth came mainly from FPL Energy's expanding independent power business, while FPL's utility earnings were roughly flat excluding a $42 million after-tax settlement charge with FMPA.
How does the 1999 rate agreement affect FPL's earnings outlook?
The FPSC-approved agreement reduces annual retail base revenues by $350 million, partly offset by special depreciation of up to $100 million per year. The authorized ROE range narrowed to 10%-12%, with revenue sharing above specified thresholds. The agreement also prevents FPL from seeking base rate increases during its three-year term, which provides some earnings predictability through 2002.
What are the main risks facing investors?
Key risks include the potential for Florida to move toward retail competition, which could require writing off regulatory assets under FAS 71; FERC's RTO requirements, with filings due October 2000; the impairment risk on FPL Energy's merchant-exposed New England assets; and the outcome of litigation, including the Palm Beach partnerships' claim of roughly $2 billion and the Cedar Bay lender suit. The company states that these matters are not expected to have a material adverse effect, but an unfavorable outcome in the Palm Beach litigation could be material.
What growth opportunities is the company pursuing?
FPL Energy is building a 1,000 MW combined-cycle plant in Texas, expected to be operational in 2000, and has announced plans for roughly 2,100 MW of additional capacity by 2003. FPL plans to add more than 4,000 MW of net generating capability through repowering and new units. FPL FiberNet, formed in January 2000, will sell wholesale capacity on the utility's roughly 1,600-mile fiber network and plans to invest about $225 million over three years to expand it.
How strong is the balance sheet and how is the company funding growth?
Total assets were $13.4 billion at year-end 1999, and long-term debt rose to $3.5 billion from $2.3 billion, mainly to finance FPL Energy's growth. Operating cash flow was $1.56 billion. The company has $2.4 billion in bank credit lines ($880 million at FPL), and management expects 2000 capital needs to be met with internal funds and debt issuance.

04—Continue

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