Juno Beach, FL-based FPL Group Inc. said late last week that it is restructuring its wholesale energy and telecommunications businesses in response to current challenging market conditions. In connection with the announcement, FPL said it expects to take one-time, non-cash restructuring and other charges in the range of $140 million to $175 million after tax in the third quarter. Despite the charges, the company reaffirmed that it expects 2002 earnings of $4.70-4.75 per share, excluding nonrecurring items.

The company noted it has recently received a $229 million tax refund out of an estimated $300 million it expects to receive as a result of a recent IRS ruling. Even after the company reaffirmed its guidance, it allowed that third quarter earnings are expected to be down slightly from the prior-year quarter at $1.74-1.78 per share, excluding nonrecurring items. The restructuring and other charges will negatively impact reported earnings in the third quarter by $0.82 to $0.99 per share. However, earnings in the fourth quarter are expected to be above last year’s quarter at $0.69 to $0.71 per share.

“We remain optimistic about the outlook for FPL Group,” said Lew Hay, CEO. “We expect increased earnings in 2003 — anywhere from slightly above 2002 levels to over $5.00 per share.”

Calling its restructuring an adjustment of strategy, Hay said, “The wholesale energy sector has been facing difficult market conditions including reduced profit margins, decreased market liquidity and continued low price volatility. As a result, we have undertaken a thorough review of business development plans, organizational structure and expenses, and have taken steps to modify our business strategy and align our organization to better ensure success in the future.”

FPL’s restructuring plan includes:

On top of those charges, FPL Energy said it expects to take a charge ranging from $5 million to $15 million after tax associated with regulatory issues involving FPL Energy’s partner in two wind facilities built in the early 1990s.

“We are very pleased to have restructured our turbine contract — greatly reducing our financial obligation for gas turbines to a level consistent with our current needs, while at the same time securing wind turbines for our planned portfolio growth,” Hay said. “This, plus the other actions, will better position FPL Energy in the competitive energy market. Our strategy going forward will be to focus on improved operating performance and profitable growth through added wind power facilities and highly selective asset acquisitions.”

FPL Group said it is taking a charge related to troubles at its FPL FiberNet subsidiary. The unit has reduced its expectations for future revenue growth due to continued deterioration of the market. As a result, the subsidiary said it expects to record charges of approximately $50 million to $65 million after tax. FPL Group said it also expects to take an after-tax charge of approximately $30 million associated with interests in certain leveraged leases of fiber optic cable of which MCI has been the lessee since 1988 and is now in default.

Looking forward, Hay said, “Despite significant turmoil in the energy and telecommunications sectors, FPL Group remains a solid performer, especially relative to our industry peers. Florida Power & Light Co., our utility subsidiary, provides more than 85% of our earnings and benefits from a vibrant economy in Florida as evidenced by continued growth in new customer accounts and usage per customer. It also operates under an incentive-based rate agreement that will remain in effect through 2005.”

The CEO said FPL Energy is currently on track to realize 10 to 15% earnings growth in 2002, excluding nonrecurring items, and he remains confident about its future growth prospects. “It expects to nearly double its wind energy portfolio by the end of 2003, maintaining its leadership in this fast-growing clean-energy segment,” Hay said. “In addition, its fossil-fueled portfolio includes highly efficient plants, geographically diversified and strategically positioned throughout the United States.

“Although we are experiencing tough market conditions, we are committed to meeting our earnings expectations in 2002,” said Hay, “and we remain confident that we will see increased earnings in 2003.”

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