ALLENTOWN, Pa., July 23, 2002 — Due to two unusual charges, PPL Corp. recently reported a loss per share of $0.18 for the second quarter of 2002.
The charges, primarily non-cash in nature, relate to CEMAR, PPL’s Brazilian distribution company ($94 million or $0.64 per share), and to expenses incurred with regard to the seven percent reduction in the company’s workforce announced last month ($74 million or $0.29 per share).
PPL reported second-quarter earnings from its core business operations of $0.75 per share, exceeding Thomson Financial’s First Call consensus earnings estimate of $0.60 per share from core operations. PPL reported record second- quarter earnings of $0.80 per share from core operations a year ago.
This performance keeps PPL on track to achieve its 2002 earnings forecast of between $3.30 and $3.50 per share from core operations. In addition, PPL reaffirmed its projection, announced earlier this year, for mid-single-digit growth in earnings per share from core operations for 2003.
Second-quarter earnings per share from core operations were $0.05 lower than last year, primarily due to lower margins on energy sales in the western United States. The positive drivers for second-quarter core earnings were increased margins on energy transactions in the eastern United States and success in continuing to reduce operating costs.
“The continued relatively strong performance of PPL’s earnings from core operations has demonstrated the value of our hedging strategy,” said William F. Hecht, PPL’s chairman, president and chief executive officer. “There continue to be many unanswered questions regarding the structure of our industry, and this has reinforced our belief in the value of multi-year sales contracts to reduce unpredictability in earnings, to reduce risk and to improve returns.”
PPL’s integrated corporate strategy encompasses generating and selling energy in key U.S. markets through an optimum balance of energy supply and customer load under multi-year contracts and operating high-quality energy delivery businesses in select regions. “Our solid performance in core operations in the second quarter and our reaffirmation of PPL’s growth rate validate our strategy,” Hecht said. “Our plans also call for maintaining a strong liquidity and credit-quality position to give us the flexibility to respond to changing business conditions, while serving as a platform to pursue disciplined growth opportunities,” said Hecht.
About 82 percent of PPL’s earnings from core operations in 2002 are expected to come from electricity generation that is dedicated to supplying energy under long-term contracts, from its regulated energy delivery business in Pennsylvania and from short-term energy sales in the first half of 2002.
By the end of this month, the company expects to place more than 1,000 megawatts of electricity generating capacity into commercial operation in new generating facilities in Illinois, Arizona and New York. Hecht said, “The new plants are uniquely positioned to serve the growing demands of the Chicago, Phoenix and Long Island metropolitan areas, where power imports are restricted because of transmission congestion.”
PPL reported a loss of $0.20 per share for the first half of 2002, due primarily to several unusual charges. The company recorded a first-quarter charge of $1.02 per share related to changes in accounting rules for goodwill that affect its Latin American investments. Also affecting PPL’s earnings for the first half of 2002 were the second-quarter charges associated with its Brazilian investment and its workforce reduction program.
Earnings from PPL’s core operations in the first half of 2002 were $1.77 per share compared to $2.31 per share for the first half of 2001. While reflecting the lower margins on energy sales in the western United States from a year ago, this year-to-date performance keeps PPL on track to achieve its forecast for core earnings per share for 2002. The positive drivers of PPL’s core earnings for the first half of 2002 were: increased margins on energy transactions in the eastern United States, improved earnings contributions from energy-related businesses such as PPL’s synthetic fuel operations, and success in continuing to reduce operating costs.
For the 12 months ended June 30, 2002, PPL reported a loss of $1.29 per share due to impairment charges on PPL’s Latin American and United Kingdom electricity delivery businesses, changes in accounting rules for goodwill that affect its Latin American investments, the decision to cancel several domestic power plant projects, staffing cuts associated with its workforce reduction program, and charges associated with the bankruptcy of Enron. These charges were partially offset by a credit to earnings relating to a change in pension accounting. PPL’s 12-month earnings from core operations were $3.68 per share compared to $4.00 per share for the same period of 2001.
In late January 2002, PPL announced that it had taken an impairment charge of $217 million, for December 2001, with respect to CEMAR and also said it would provide no additional funding for CEMAR. That impairment charge represented the net asset value of CEMAR at the end of 2001.
In the first quarter of 2002, PPL recorded a $6 million pre-tax charge for an early-January investment made prior to its decision to invest no additional funds in CEMAR. In the second quarter of 2002, PPL recorded a charge for the balance of its exposure to CEMAR of about $94 million, an amount that was previously reported and that is primarily related to the cumulative translation adjustment (CTA). The CTA is the amount of currency devaluation of PPL’s original investment in CEMAR since the date of purchase. That balance could not be written off previously because of applicable accounting rules.
On Monday, July 22, PPL announced a proposal to sell CEMAR to Franklin Park Energy LLC of McLean, Va. To expedite the transaction, CEMAR has requested that the Brazilian regulator act by mid-August on the sale proposal. If the transaction is approved, Franklin Park would purchase CEMAR for a nominal price and would assume the responsibility to operate CEMAR.
The proposed sale of CEMAR to Franklin Park does not affect PPL’s earnings forecast. PPL has reiterated that any operating losses for CEMAR in 2002 would be offset accordingly upon exiting the investment in CEMAR.
PPL Corporation, headquartered in Allentown, Pa., controls or owns more than 10,000 megawatts of generating capacity in the United States, sells energy in key U.S. markets, and delivers electricity to nearly 6 million customers in Pennsylvania, the United Kingdom and Latin America.