PPL Corporation Reports Second-Quarter Earnings

ALLENTOWN, Pa., Aug. 5 /PRNewswire-FirstCall/ -- PPL Corporation (NYSE: PPL) on Thursday (8/5) reported increases in both second-quarter and first-half earnings for 2010, compared with the same periods of 2009.

PPL's reported earnings for the second quarter, which include special item charges, were $0.22 per share, compared with a loss of $0.02 per share a year ago. For the first six months of 2010, PPL's reported earnings were $0.88 per share, compared with $0.62 per share a year ago.  

Second-quarter earnings from ongoing operations increased to $0.62 per share, compared with $0.32 per share a year ago. For the first six months of 2010, earnings from ongoing operations were $1.56 per share, compared with $0.91 per share a year ago.

"As expected, supply segment earnings drove the improvement in our financial performance for the current quarter and six-month period," said James H. Miller, PPL's chairman, president and chief executive officer. "We remain on target to achieve significantly improved earnings in 2010 as compared with 2009.

"During the quarter, we took significant steps toward closing the acquisition of E.ON U.S. We successfully completed the equity portion of the financing of the acquisition, and we are on schedule for all required regulatory filings, positioning us to close the transaction later this year," Miller said.

In late June, PPL raised approximately $3.5 billion in net proceeds through the sale of common stock and equity units to finance a major portion of the acquisition.

"We remain confident this acquisition will increase shareowner value in the long term as we grow the size of our regulated businesses, while retaining the upside opportunities from our generation and marketing businesses as energy market fundamentals improve," Miller said.

The company is adjusting its 2010 earnings forecast solely to reflect dilution associated with its late June offering of common stock and equity units. PPL's prior 2010 forecast of $3.10 to $3.50 per share in earnings from ongoing operations is being adjusted to $2.70 to $3.05 per share. At the $3.30 per share mid-point of the prior 2010 forecast of earnings from ongoing operations, dilution would be $0.43 per share. The 2010 forecast of reported earnings per share, $2.42 to $2.82, reflecting special items recorded through June 30, 2010, is being adjusted to $2.10 to $2.45 per share.

Second-Quarter 2010 Earnings Details

PPL's reported earnings in the second quarter of 2010 included total special item charges of $0.40 per share. The special item charges include: a charge of $0.20 per share related to the sale of certain full-requirement sales contracts, generating approximately $156 million in additional cash to finance the E.ON U.S. acquisition; a charge of $0.14 per share for energy-related economic activity; a charge of $0.05 per share related to financing and other costs associated with the pending E.ON U.S. acquisition; and a charge of $0.01 per share related to the impairment of emission allowances. The second quarter of 2009 reflected total special item charges of $0.34 per share.

Reported earnings are calculated in accordance with generally accepted accounting principles (GAAP). Earnings from ongoing operations is a non-GAAP financial measure that is adjusted for special items. Special items include the impact of energy-related economic activity (principally changes in fair value of economic hedges and the ineffective portion of qualifying cash flow hedges), as well as other impacts fully detailed at the end of this news release.  

First-Half and Second-Quarter 2010 Earnings by Business Segment

The following chart shows PPL's earnings by business segment for the second quarter and first half of 2010, compared with the same periods of 2009.

Key Factors Impacting Business Segment Earnings from Ongoing Operations

Supply Segment

PPL's supply business segment primarily consists of the domestic energy generation and marketing and trading operations of PPL Energy Supply.

Earnings from ongoing operations for PPL's supply business segment increased in the second quarter of 2010 by $0.34 per share compared with a year ago. This increase resulted primarily from significantly higher Eastern baseload generation pricing compared with prices realized in 2009. Partially offsetting these positive earnings factors were higher operation and maintenance expense and higher depreciation.  

Earnings from ongoing operations for PPL's supply business segment during the first six months of 2010 increased by $0.77 per share compared with a year ago. This increase resulted primarily from the same factors that drove the second-quarter 2010 results, reduced by the effects of a gain recorded in 2009 on a debt repurchase.

Pennsylvania Delivery Segment

PPL's Pennsylvania delivery business segment includes the regulated electric delivery operations of PPL Electric Utilities.

Earnings from ongoing operations for PPL's Pennsylvania delivery business segment declined in the second quarter of 2010 by $0.01 per share compared with a year ago. This decline was the result of higher operation and maintenance expense and a redemption premium on PPL Electric Utilities' preferred stock, partially offset by higher transmission revenue.

Earnings from ongoing operations for PPL's Pennsylvania delivery business segment declined during the first six months of 2010 by $0.05 per share compared with a year ago. This decline was the result of lower distribution margins compared with a year ago and higher operation and maintenance expenses, partially offset by higher transmission revenue.

International Delivery Segment

PPL's international delivery business segment primarily includes the U.K. regulated electric delivery operations of Western Power Distribution.

Earnings from ongoing operations for PPL's international delivery business segment declined in the second quarter of 2010 by $0.03 per share compared with a year ago. This decline was the result of higher financing costs, higher U.K. income taxes, and higher operation and maintenance expenses, partially offset by higher electric delivery revenues and more favorable foreign currency effects, which include the effects of currency exchange rates and foreign currency hedging instruments.

Earnings from ongoing operations for PPL's international delivery business segment declined during the first six months of 2010 by $0.07 per share compared with a year ago. This decrease resulted primarily from the same factors that drove the second-quarter 2010 results.

Supply Segment

PPL projects higher earnings from its supply business segment in 2010 compared with 2009, due to strong growth in energy margins. The forecast for strong growth in energy margins is based on hedged power and fuel prices, as well as established capacity prices in the PJM Interconnection. These positive factors are expected to be partially offset by higher depreciation, higher financing costs, and higher operation and maintenance expenses.    

Pennsylvania Delivery Segment

PPL projects lower earnings from its Pennsylvania delivery business segment in 2010 compared with 2009, primarily driven by higher operation and maintenance expenses, partially offset by lower financing costs.

International Delivery Segment

PPL projects lower earnings from its international delivery business segment in 2010 compared with 2009 as a result of higher income taxes, higher operation and maintenance expenses, and higher financing costs. These negative factors are expected to be partially offset by higher electric delivery revenues and more favorable foreign currency effects, which include the effects of currency exchange rates and foreign currency hedging instruments.  

PPL Corporation, headquartered in Allentown, Pa., controls or owns nearly 12,000 megawatts of generating capacity in the United States, sells energy in key U.S. markets and delivers electricity to about 4 million customers in Pennsylvania and the United Kingdom. More information is available at www.pplweb.com.

(Note: All references to earnings per share in the text and tables of this news release are stated in terms of diluted earnings per share.)

Conference Call and Webcast

PPL invites interested parties to listen to the live webcast of management's teleconference with financial analysts about second-quarter 2010 financial results at 9 a.m. EDT Thursday, Aug. 5. The meeting is available online live, in audio format, along with slides of the presentation, on PPL's web site: www.pplweb.com. The webcast will be available for replay on the PPL web site for 30 days. Interested individuals also can access the live conference call via telephone at 702-696-4769 (ID# 90130195).

"Earnings from ongoing operations" should not be considered as an alternative to reported earnings, or net income attributable to PPL, which is an indicator of operating performance determined in accordance with generally accepted accounting principles (GAAP). PPL believes that "earnings from ongoing operations," although a non-GAAP financial measure, is also useful and meaningful to investors because it provides them with management's view of PPL's fundamental earnings performance as another criterion in making their investment decisions. PPL's management also uses "earnings from ongoing operations" in measuring certain corporate performance goals. Other companies may use different measures to present financial performance.

"Earnings from ongoing operations" is adjusted for the impact of special items. Special items include:

• Energy-related economic activity (as discussed below).
• Foreign currency-related economic hedges.
• Gains and losses on sales of assets not in the ordinary course of business.
• Impairment charges (including impairments of securities in the company's nuclear decommissioning trust funds).
• Workforce reduction and other restructuring impacts.
• Costs related to the pending E.ON U.S. acquisition, including gains or losses associated with the sale of certain full-requirement sales contracts in support of raising cash for the acquisition.
• Other charges or credits that are, in management's view, not reflective of the company's ongoing operations.

Energy-related economic activity includes the changes in fair value of positions used to economically hedge a portion of the economic value of PPL's generation assets, load-following and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power). Also included in this special item are the ineffective portion of qualifying cash flow hedges and the premium amortization associated with options classified as economic activity. These items are included in ongoing earnings over the delivery period of the item that was hedged or upon realization. Management believes that adjusting for such amounts provides a better matching of earnings from ongoing operations to the actual amounts settled for PPL's underlying hedged assets. Please refer to the Notes to the Consolidated Financial Statements and MD&A in PPL Corporation's periodic filings with the Securities and Exchange Commission for additional information on energy-related economic activity.  

Statements contained in this press release, including statements with respect to future events and their timing, including statements concerning the acquisition by PPL Corporation of E.ON U.S. LLC and its subsidiaries Louisville Gas and Electric Company and Kentucky Utilities Company (collectively, the "E.ON Entities"), the expected results of operations of any of the E.ON Entities or PPL Corporation both before or following PPL Corporation's acquisition of the E.ON Entities, as well as statements as to future earnings, energy prices, margins and sales, growth, revenues, expenses, cash flow, credit profile, ratings, financing, asset disposition, marketing performance, hedging, regulation, corporate strategy and generating capacity and performance, are "forward-looking statements" within the meaning of the federal securities laws. Although PPL Corporation believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, these expectations, assumptions and statements are subject to a number of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: capital market conditions and decisions regarding capital structure; the market prices of equity securities and the impact on pension income and resultant cash funding requirements for defined benefit pension plans; the securities and credit ratings of PPL Corporation and its subsidiaries; stock price performance; receipt of necessary government permits, approvals, rate relief and regulatory cost recovery; market demand and prices for energy, capacity and fuel; weather conditions affecting customer energy usage and operating costs; competition in power markets; the effect of any business or industry restructuring; the profitability and liquidity of PPL Corporation, the E.ON Entities and either of their subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of plants and other facilities; environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and emission allowance and other expenses; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; asset acquisitions and dispositions; any impact of hurricanes or other severe weather on our business, including any impact on fuel prices; the impact of state, federal or foreign investigations applicable to PPL Corporation, the E.ON Entities and either of their subsidiaries; the outcome of litigation against PPL Corporation, the E.ON Entities and either of their subsidiaries; political, regulatory or economic conditions in states, regions or countries where PPL Corporation, the E.ON Entities and either of their subsidiaries conduct business, including any potential effects of threatened or actual terrorism or war or other hostilities; foreign exchange rates; new state, federal or foreign legislation, including new tax or environmental legislation or regulation; and the commitments and liabilities of PPL Corporation, the E.ON Entities and each of their subsidiaries. Any such forward-looking statements should be considered in light of such important factors and in conjunction with PPL Corporation's Form 10-K and other reports on file with the Securities and Exchange Commission.

SOURCE PPL Corporation