01—Abstract
Summary
Summary of the 10-K filed March 1, 2005. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation, an energy and utility holding company headquartered in Allentown, PA, reported 2004 net income of $698 milliona, or $3.77 per diluted share, compared with $734 million in 2003.
Operating revenues rose to $5.812 billionb from $5.596 billion. Income from continuing operations was $700 million. Results were affected by unusual items, including a $22 million tax benefit tied to a reduction in stranded-cost securitization tax reserves and a $63 million after-tax ARO accounting gain in 2003.
The company operates through three segments: Supply (generation and marketing, with 12,274 MW of capacity), Delivery (PPL Electric, which serves about 1.4 million customers in Pennsylvania), and International (WPD in the U.K. and distribution companies in Chile, El Salvador and Bolivia). Key risks and developments disclosed include a PUC-approved distribution rate increase of about $194 millionc effective January 1, 2005, rising pension costs (about $22 million after tax expected in 2005), and the expiration of PPL Electric's rate cap at the end of 2004. PPL Electric's provider-of-last-resort supply obligation is capped through 2009.
PPL also faces numerous legal and regulatory matters, including Montana litigation, California refund proceedings, and PJM-related claims. In January 2005, Fitch downgraded the WPD companies by one notch, citing high pension-adjusted leverage. The Board adopted a dividend policy in December 2004 to grow the dividend faster than earnings per share from ongoing operations, until the payout ratio reaches 50%d.
The February 2005 dividend increase to $1.84 per share annualized was also announced. The filing is a combined report covering PPL Corporation, PPL Energy Supply, LLC and PPL Electric Utilities Corporation. Its figures show the company's continued capital investment, with projected 2005-2009 capital expenditures of about $5.0 billion, and continued reliance on long-term contracts to cover about 83% of expected generation output.
02—Key points
Key Highlights
- Net income of $698 million ($3.77 diluted EPS) in 2004, down from $734 million ($4.24 diluted EPS) in 2003
- Operating revenues of $5.812 billion in 2004, up from $5.596 billion in 2003
- PPL Electric distribution rate increase of approximately $194 million, including $57 million in transmission charges, effective January 1, 2005
- Projected capital expenditures of about $5.0 billion for 2005-2009, with about 83% of expected 2005-2009 generation output committed under contracts
- Fitch downgraded WPD companies by one notch in January 2005, citing high pension-adjusted leverage; S&P revised WPD outlooks to stable
- December 2004 dividend policy targets growing dividends faster than EPS from ongoing operations until the payout ratio reaches 50%
- Sundance plant sale to Arizona Public Service pending FERC approval, with a potential 2005 after-tax loss or impairment of about $47 million
03—Questions
Frequently Asked Questions
How did PPL's earnings change in 2004?
Net income fell to $698 million from $734 million, and diluted EPS fell to $3.77 from $4.24. Income from continuing operations was $700 million, versus $719 million in 2003. Unusual items affected results, and 2003 included a $63 million after-tax cumulative effect gain from adopting SFAS 143.
What regulatory changes affect PPL Electric's earnings in 2005?
The PUC approved a distribution rate increase of about $137 million, plus $57 million in pass-through transmission charges, for a total increase of about $194 million effective January 1, 2005. The rate cap that had applied to transmission and distribution rates expired on December 31, 2004. PPL Electric's provider-of-last-resort supply is priced at capped rates through 2009.
What are the main risks flagged for PPL's future earnings?
The filing cites fluctuations in wholesale electricity and fuel prices, pension costs (expected to add about $22 million after tax in 2005 from WPD), possible impairments of gas-fired generation assets, operational risk from plant outages, and the Section 29 synthetic fuel tax credits, which PPL estimates contribute about $0.21 to annual EPS through 2007. Numerous legal and regulatory proceedings also carry uncertain outcomes.
What is PPL's dividend policy?
In December 2004, the Board adopted a policy to grow the common dividend faster than the projected rate of growth in EPS from ongoing operations, until the payout ratio reaches 50%. In February 2005, PPL increased the quarterly dividend to 46 cents per share, equivalent to $1.84 annually, payable April 1, 2005.
How is PPL's balance sheet and liquidity position?
At December 31, 2004, PPL had $616 million in cash and cash equivalents and $42 million in short-term debt. Long-term debt was $6.79 billion in current-classified non-current debt, with $2.3 billion in available credit facilities expected at the end of 2005. PPL's senior unsecured debt was rated Baa3 by Moody's, BBB- by S&P and BBB by Fitch.
04—Continue