01—Abstract
Summary
Summary of the 10-K filed March 3, 2006. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation, headquartered in Allentown, PA, is an energy and utility holding company whose 2005 Form 10-K was filed March 3, 2006 jointly with PPL Energy Supply, LLC and PPL Electric Utilities Corporation.
PPL reported 2005 net income of $678 milliona (diluted EPS $1.77), down from $698 million ($1.89) in 2004, on operating revenues of $6,219 million. The decline was driven by unusual items including the $47 million after-tax loss on the sale of the Sundance plant, a $31 million after-tax charge for the Martins Creek ash basin leak, and a $27 million after-tax PJM billing dispute charge at PPL Electric. Segment results show Supply net income falling to $311 million from $421 million, while International Delivery rose to $215 million and Pennsylvania Delivery rose to $152 million from $80 million.
PPL's capital expenditure plan totals about $5.8 billionb for 2006-2010, with environmental spending (largely sulfur dioxide scrubbers) of $1.5 billion through 2010 cited in the filing. Cash from operations was $1,388 million in 2005, and the company expects to issue about $1.1 billion of long-term debt and $250 million of preferred securities in 2006.
Dividends declared rose to $0.96c per share in 2005, and management announced a further increase to $1.10 per annum in February 2006, with plans to repurchase common stock beginning in 2009. Investors should note the significant exposure in the Supply segment to wholesale power prices, the PLR contracts that cap rates for PPL Electric's customers through 2009 (with PPL EnergyPlus' collateral position about $4.2 billion in favor of PPL Electric), the phase-out risk for synthetic fuel tax credits tied to crude oil prices, and multiple pending legal and regulatory matters including the Montana Power shareholder litigation and FERC review of PPL Montana's market-based rate authority.
02—Key points
Key Highlights
- Net income of $678 million in 2005 (diluted EPS $1.77), versus $698 million (EPS $1.89) in 2004; income from continuing operations was $737 million.
- Operating revenues rose to $6,219 million in 2005 from $5,794 million in 2004, while operating income declined to $1,346 million from $1,400 million.
- Segment mix shifted: Supply net income fell to $311 million from $421 million, while International Delivery ($215 million) and Pennsylvania Delivery ($152 million, up from $80 million) improved.
- Unusual 2005 charges included a $47 million after-tax loss on the Sundance plant sale, a $31 million after-tax Martins Creek ash basin leak charge, and a $27 million after-tax PJM billing dispute accrual at PPL Electric.
- Total construction and environmental capital expenditure projections were about $5.8 billion for 2006-2010, with environmental spending of $1,219 million? no: total capital expenditures of $1,300 million are projected for 2006 alone.
- Dividends declared were $0.96 per share in 2005; a February 2006 increase raised the quarterly dividend to 27.5 cents, and PPL expects to repurchase common stock beginning in 2009.
- PPL Electric's PLR supply contracts with PPL EnergyPlus cover predetermined capped rates through 2009, and PPL Energy Supply posted $300 million of collateral related to them.
03—Questions
Frequently Asked Questions
What drove the decline in PPL's 2005 net income?
Net income fell to $678 million from $698 million, largely due to Supply segment earnings declining to $311 million from $421 million. Management cited unusual items including the $47 million after-tax Sundance plant sale loss, the $31 million after-tax Martins Creek ash basin leak charge, and higher Eastern U.S. fuel costs that reduced non-trading margins.
How much is PPL planning to spend on capital projects?
PPL's capital expenditure projections total approximately $5.8 billion for 2006 through 2010, with projected total capital expenditures of $1,300 million in 2006 and $1,477 million in 2007. Environmental expenditures, mainly sulfur dioxide scrubbers, are a large component, with the filing citing about $1.5 billion for pollution control equipment from 2005 through 2010.
What are the main risks to PPL's Supply business?
The filing highlights exposure to wholesale electricity and fuel price volatility, the expiration of long-term power sales contracts, and intense competition. Eighty-four percent of expected 2006-2009 generation output is committed under contracts, and the PLR contracts that cap rates through 2009 leave PPL exposed to demand swings and rising market prices. A further risk is the potential phase-out of synthetic fuel tax credits if crude oil prices remain high.
What is PPL's dividend and share repurchase outlook?
PPL declared $0.96 per share in 2005 and announced a quarterly dividend increase to 27.5 cents per share, equivalent to $1.10 annually, effective April 1, 2006. The company expects dividend growth to keep exceeding earnings per share growth, pushing the payout ratio above 50 percent after 2006, and expects to begin repurchasing common stock in 2009.
What significant legal and regulatory matters remain unresolved?
Key open matters include the Montana Power shareholder litigation seeking to void the 1999 generation asset sale, FERC review of PPL Montana's market-based rate authority in the Northwestern Energy Control Area, the proposed FERC settlement of the PJM billing dispute that has not yet been acted upon, and the Pennsylvania DEP enforcement action and natural resource damage assessment related to the Martins Creek ash basin leak. PPL states it cannot predict the outcomes of these matters.
04—Continue