01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation, an energy and utility holding company headquartered in Allentown, Pennsylvania, reported 2009 net income attributable to PPL of $407 milliona, or $1.08 per diluted share, down from $930 million ($2.47) in 2008.
Operating revenues were $7.556 billionb versus $8.007 billion in 2008, and operating income fell to $961 million from $1.793 billion. The filing attributes much of the decline to special items, including a $476 million after-tax swing in energy-related economic activity tied to hedge-effectiveness failures, and to lower domestic gross energy margins. Income from continuing operations attributable to PPL was $447 million, compared with $907 million a year earlier.
The company's three segments are Supply, International Delivery (WPD in the U.K.) and Pennsylvania Delivery (PPL Electric). Supply net income attributable to PPL fell to $40 millionc from $479 million, while International Delivery earned $243 million and Pennsylvania Delivery earned $124 million. PPL Electric's transition period and its supply contracts with PPL EnergyPlus expired at the end of 2009; beginning January 1, 2010, its generation rates are no longer capped and are set through competitive solicitation, with the filing stating the average residential customer will pay approximately 30% more.
The filing also notes that PPL Electric expected to file a distribution rate request with the PUC in late March 2010, and that Ofgem allowed WPD an average annual revenue increase of 6.9% for April 2010 through March 2015. Financially, PPL reported cash and cash equivalents of $801 milliond at year-end 2009, net cash from operating activities of $1.852 billion, and total capital expenditures of $1.265 billion. Ratings outlooks were negative at Moody's and S&P for PPL and PPL Electric, and the company planned to issue up to $300 million and £400 million of long-term debt in 2010 while paying a $1.38 annualized common dividend.
02—Key points
Key Highlights
- Net income attributable to PPL fell to $407 million ($1.08 diluted EPS) in 2009 from $930 million ($2.47) in 2008.
- Operating revenues declined to $7.556 billion from $8.007 billion, and operating income fell to $961 million from $1.793 billion.
- Supply segment net income dropped to $40 million from $479 million, largely due to special items including a $476 million after-tax swing in energy-related economic activity.
- PPL Electric's generation rate caps expired on December 31, 2009; from January 1, 2010, generation supply is procured competitively, with the filing stating average residential rates will be about 30% higher.
- International Delivery (WPD) earned $243 million, and Ofgem set a five-year (April 2010 to March 2015) average annual revenue increase of 6.9% for WPD.
- Year-end 2009 cash and equivalents were $801 million; operating cash flow was $1.852 billion and capital expenditures totaled $1.265 billion, with $5.8 billion of projected 2010-2012 capital spending.
- Credit ratings outlooks were negative at Moody's and S&P for PPL, and the company's 2010 dividend rate is $1.38 per share annualized.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $7.45B$7.86B | −5.2% |
| Operating Income | $896.00M$1.70B | −47.4% |
| Interest Expense | $387.00M$447.00M | −13.4% |
| Net Income | $407.00M$930.00M | −56.2% |
| EPS (Basic) | $1.08$2.48 | −56.5% |
| EPS (Diluted) | $1.08$2.47 | −56.3% |
| Shares Outstanding (Basic) | 376.08M373.63M | +0.7% |
| Shares Outstanding (Diluted) | 376.41M374.90M | +0.4% |
05—Questions
Frequently Asked Questions
Why did PPL's 2009 earnings decline so sharply from 2008?
Net income attributable to PPL fell to $407 million from $930 million. The filing attributes much of the drop to special items, primarily a $476 million after-tax change in energy-related economic activity caused by power and gas cash flow hedges failing effectiveness testing in 2008 and early 2009. Lower domestic gross energy margins, which fell to $1.731 billion from $1.564 billion in the non-trading and trading mix described, and higher operation and maintenance costs also contributed.
What changes did PPL Electric face at the start of 2010?
PPL Electric's transition period ended December 31, 2009, and its long-term power purchase agreements with PPL EnergyPlus expired. Effective January 1, 2010, its generation rates for default supply are no longer capped and are based on a competitive solicitation process. The filing states that an average residential customer will pay approximately 30% higher rates than under the previously capped rates, and that PPL Electric expected to file a distribution rate increase request in late March 2010 for rates beginning January 2011.
How did the Supply and International Delivery segments perform?
Supply segment net income attributable to PPL was $40 million in 2009, versus $479 million in 2008, reflecting the hedge-related special items and lower net energy trading margins swings. International Delivery net income attributable to PPL was $243 million, versus $290 million, with foreign currency exchange rates a negative factor. The filing projects higher Supply earnings in 2010 excluding special items, driven by growth in energy margins, and lower International Delivery earnings due to higher taxes and operating costs.
What are PPL's financing plans and liquidity position?
At year-end 2009, PPL had $801 million of cash and cash equivalents and expected to maintain adequate liquidity through operating cash flows and credit facilities. The company planned to access debt markets in 2010, issuing up to $300 million and £400 million of long-term debt subject to market conditions, and did not plan to use commercial paper or issue equity beyond about $75 million under employee and dividend reinvestment plans. Its common dividend was increased to an annualized $1.38 per share in 2009.
What do the credit ratings and risk factors suggest for investors?
The filing lists negative outlooks from Moody's and S&P for PPL (Baa2/BBB), and a negative outlook from Moody's for PPL Electric, with Moody's citing expected deterioration in PPL Electric's financial metrics beyond 2009. The filing warns that a ratings downgrade could increase borrowing costs and that contracts may require additional collateral if ratings fall below investment grade; at December 31, 2009, a below-investment-grade downgrade would have required an additional $298 million of collateral. Other risks cited include commodity price volatility, legislative action on Pennsylvania rate caps, and pending litigation such as the Montana hydroelectric matter.
06—Continue