01—Abstract
Summary
Summary of the 10-K filed February 22, 2018. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation (PPL) filed this combined Form 10-K on February 22, 2018, covering PPL and its subsidiaries PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company, and Kentucky Utilities Company.
PPL reported 2017 net income of $1,128 milliona, or $1.64 per diluted share, down from $1,902 million ($2.79 per diluted share) in 2016. Earnings from Ongoing Operations were $1,553 million, compared with $1,674 million in 2016. The decline was driven mainly by the U.K.
Regulated segment, where net income fell to $652 millionb from $1,246 million, largely due to foreign currency exchange rates, unrealized losses on foreign currency economic hedges, and the impact of U.S. tax reform. Operating revenues were $7,447 million, and the company reported $41,479 million in total assets. The filing highlights the Tax Cuts and Jobs Act, which PPL says had a significant impact on 2017 results: the company recorded $321 million of income tax expense from the enactment, and regulatory liabilities at PPL rose by $2,185 million as a result.
PPL expects cash flows at its domestic utilities to decline as the lower federal rate is passed to customers, and it plans to issue about $1 billionc of equity in 2018 to help maintain its credit rating. On February 22, 2018, PPL announced an increase in its quarterly common stock dividend to 41.0 cents per share from 39.5 cents. PPL projects higher 2018 net income versus 2017, with the increase primarily in the U.K.
Regulated and Pennsylvania Regulated segments. PPL's business is organized into three segments: U.K. Regulated (WPD's electricity distribution, with $2,091 milliond of 2017 revenues), Kentucky Regulated (LG&E and KU, $3,156 million), and Pennsylvania Regulated (PPL Electric, $2,195 million).
The company forecasts $15,420 million of capital expenditures for 2018 through 2022. Key risks include U.K. withdrawal from the European Union, the Ofgem mid-period review of WPD's RIIO-ED1 price control, and the outcome of Kentucky and Pennsylvania rate proceedings related to the TCJA.
02—Key points
Key Highlights
- Net income attributable to PPL shareowners fell to $1,128 million ($1.64 per diluted share) in 2017 from $1,902 million ($2.79 per diluted share) in 2016.
- Earnings from Ongoing Operations totaled $1,553 million in 2017, versus $1,674 million in 2016.
- U.K. Regulated segment net income declined to $652 million from $1,246 million, reflecting lower GBP-to-U.S. dollar exchange rates and $233 million of after-tax special items.
- Tax Cuts and Jobs Act resulted in $321 million of income tax expense at PPL in 2017, and PPL's net regulatory liabilities increased by $2,185 million.
- PPL plans to issue about $1 billion of equity in 2018 to maintain its credit rating, compared with $482 million of equity issued in 2017.
- Quarterly common stock dividend was raised to 41.0 cents per share from 39.5 cents, announced February 22, 2018.
- Projected capital expenditures total $15,420 million for 2018 through 2022, including $9,244 million for distribution facilities and $3,771 million for transmission facilities.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 22, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $7.45B$7.52B | −0.9% |
| Operating Income | $2.90B$2.94B | −1.2% |
| Interest Expense | $901.00M$888.00M | +1.5% |
| Net Income | $1.13B$1.90B | −40.7% |
| EPS (Basic) | $1.64$2.80 | −41.4% |
| EPS (Diluted) | $1.64$2.79 | −41.2% |
| Shares Outstanding (Basic) | 685.24M677.59M | +1.1% |
| Shares Outstanding (Diluted) | 687.33M680.45M | +1.0% |
05—Questions
Frequently Asked Questions
What drove the decline in PPL's 2017 earnings?
Net income fell to $1,128 million from $1,902 million. The filing attributes much of the decline to the U.K. Regulated segment, where net income dropped by $594 million, including unfavorable foreign currency exchange effects and $233 million of after-tax special items such as unrealized losses on foreign currency hedges and U.S. tax reform. Earnings from Ongoing Operations declined to $1,553 million from $1,674 million.
How does the Tax Cuts and Jobs Act affect PPL?
PPL recorded $321 million of income tax expense for the enactment of the TCJA in 2017, including a $220 million deferred tax expense from the lower federal corporate rate and a $101 million net deferred tax expense from the deemed repatriation. PPL expects cash flows at its domestic utilities to decline as the benefit of the lower rate is passed to customers, and it is not a current federal taxpayer, so there is no immediate cash benefit.
What is PPL's outlook for 2018?
PPL projects higher net income in 2018 compared with 2017, excluding the 2017 unfavorable effects of U.S. tax reform and unrealized losses on foreign currency economic hedges. The increase is expected mainly in the U.K. Regulated and Pennsylvania Regulated segments, while the Kentucky Regulated segment is projected to have lower earnings excluding the 2017 tax item.
What are the main regulatory and political risks to PPL's U.K. business?
The U.K. notified the European Union in March 2017 of its intent to withdraw, creating significant uncertainty about exchange rates and the U.K. economy. Ofgem is consulting on a potential RIIO-ED1 mid-period review, with a decision expected in spring 2018, and the filing states that a review is not expected to have a significant impact on PPL's financial condition or results. PPL has hedged 100% of budgeted U.K. earnings for the remainder of 2018 at an average rate of $1.34 per GBP.
How much will PPL spend on capital projects and how will it fund them?
PPL projects total capital expenditures of $15,420 million for 2018 through 2022, including $3,571 million in 2018. The company plans to fund these expenditures with cash from operations and proceeds from common stock, long-term debt, equity contributions from parents and members of its subsidiaries, and short-term debt. PPL is authorized to incur up to $3.2 billion of long-term indebtedness in 2018 and to issue up to $3.5 billion of equity over three years.
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