<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________
Commission File Registrant; State of Incorporation; IRS Employer
Number Address; and Telephone No. Identification No.
------ -------------------------- ------------------
1-11459 PP&L RESOURCES, INC. 23-2758192
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
1-905 PP&L, INC. 23-0959590
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
PP&L Resources, Inc. Yes X No___________
-----------
PP&L, Inc. Yes X No___________
-----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
PP&L Resources, Inc. Common stock, $.01 par value,
157,694,305 shares outstanding at
April 30, 1999, excluding 16,995,957
shares held as treasury stock
PP&L, Inc. Common stock, no par value,
157,300,382 shares outstanding and
all held by PP&L Resources, Inc. at
April 30, 1999
<PAGE>
PP&L RESOURCES, INC.
AND
PP&L, INC.
----------
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
-----
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
PP&L RESOURCES, INC.
Consolidated Statement of Income 2
Consolidated Statement of Cash Flows 3
Consolidated Balance Sheet 4
PP&L, INC.
Consolidated Statement of Income 6
Consolidated Statement of Cash Flows 7
Consolidated Balance Sheet 8
Notes to Consolidated Financial Statements
PP&L Resources, Inc. and PP&L, Inc. 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PP&L Resources, Inc. and PP&L, Inc. 21
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 37
Item 6. Exhibits and Reports on Form 8-K 37
GLOSSARY OF TERMS AND ABBREVIATIONS 38
SIGNATURES 40
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 41
<PAGE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
- --------------------------------------
Part 1. FINANCIAL INFORMATION
- -----------------------------
Item 1. FINANCIAL STATEMENTS
- ----------------------------
In the opinion of PP&L Resources, the unaudited financial statements
included herein reflect all adjustments necessary to present fairly the
Consolidated Balance Sheet as of March 31, 1999 and December 31, 1998, and the
Consolidated Statement of Income and Consolidated Statement of Cash Flows for
the periods ended March 31, 1999 and 1998. PP&L Resources is the parent holding
company of PP&L, PP&L Global, PP&L Spectrum, PP&L Capital Funding, Penn Fuel
Gas, McClure, McCarl's and H.T. Lyons. The financial condition and results of
operations of PP&L and PP&L Global are currently the principal factors affecting
PP&L Resources' financial condition and results of operations.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING REVENUES
Electric operations................................................................. $ 667 $ 616
Gas and propane operations.......................................................... 45
Wholesale energy and trading activities............................................. 297 245
Energy related businesses........................................................... 58 19
-------------- --------------
Total Operating Revenues............................................................ 1,067 880
-------------- --------------
OPERATING EXPENSES
Operation
Cost of electric fuel............................................................. 123 115
Cost of natural gas and propane................................................... 23
Energy purchases.................................................................. 255 214
Other operating................................................................... 166 112
Amortization of recoverable transition costs...................................... 45
Maintenance......................................................................... 39 38
Depreciation and amortization....................................................... 60 97
Taxes, other than income............................................................ 53 54
Energy related businesses........................................................... 41 14
-------------- --------------
Total Operating Expenses............................................................ 805 644
-------------- --------------
OPERATING INCOME...................................................................... 262 236
-------------- --------------
Other Income.......................................................................... 7
-------------- --------------
INCOME BEFORE INTEREST AND INCOME TAXES............................................... 262 243
Interest Expense...................................................................... 62 52
Income Taxes.......................................................................... 74 84
-------------- --------------
INCOME BEFORE DIVIDENDS ON PREFERRED STOCK............................................ 126 107
Preferred Stock Dividend Requirements................................................. 6 6
-------------- --------------
NET INCOME............................................................................ $ 120 $ 101
============== ==============
Earnings Per Share of Common Stock
Basic and Diluted (a)............................................................... $ 0.76 $ 0.60
Dividends Declared Per Share of Common Stock.......................................... $ 0.2500 $ 0.4175
(a) Based on average number of shares outstanding (thousands) 157,621 166,734
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
2
<PAGE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1999 1998
---------- ----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $122 $174
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment expenditures....................... (66) (79)
Proceeds from sale of nuclear fuel to trust...................... 11 1
Purchases of available-for-sale securities....................... (4)
Sales and maturities of available-for-sale securities............ 4
Investment in unconsolidated affiliates.......................... (98)
Other investing activities - net................................. (15) (7)
---------- ----------
Net cash used in investing activities.......................... (70) (183)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt....................................... 60
Issuance of common stock......................................... 8 16
Retirement or reacquisition of long-term debt.................... (25)
Payments on capital lease obligations............................ (14) (17)
Common and preferred dividends paid.............................. (46) (76)
Net increase(decrease)in short-term debt......................... (30) 124
---------- ----------
Net cash provided by (used in) financing activities............ (107) 107
---------- ----------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS............... (55) 98
Cash and Cash Equivalents at Beginning of Period.................. 195 50
---------- ----------
Cash and Cash Equivalents at End of Period........................ $140 $148
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amount capitalized)............................ $ 52 $ 50
Income taxes.................................................... $ 9 $ 16
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of the financial statements.
3
<PAGE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Electric utility plant in service - net
Transmission and distribution............................. $2,179 $2,179
Generation................................................ 1,616 1,601
General and intangible.................................... 219 223
----------- ---------
4,014 4,003
Construction work in progress - at cost..................... 106 117
Nuclear fuel owned and leased - net ........................ 154 162
----------- ---------
Electric utility plant - net.............................. 4,274 4,282
Gas and oil utility plant - net............................. 175 175
Other property - net........................................ 27 23
----------- ---------
4,476 4,480
----------- ---------
INVESTMENTS
Investment in unconsolidated affiliates - at equity......... 696 688
Nuclear plant decommissioning trust fund.................... 215 206
Other....................................................... 13 12
----------- ---------
924 906
----------- ---------
CURRENT ASSETS
Cash and cash equivalents................................... 140 195
Accounts receivable (less reserve: 1999, $18; 1998, $14)
Utility customers ...................................... 225 173
Other................................................... 116 125
Unbilled revenues
Utility customers....................................... 123 106
Other................................................... 73 64
Fuel, materials and supplies - at average cost.............. 200 207
Prepayments ................................................ 93 15
Unrealized mark-to-market energy trading gains.............. 53 2
Other....................................................... 61 61
----------- ---------
1,084 948
----------- ---------
REGULATORY ASSETS AND OTHER NONCURRENT ASSETS
Recoverable transition costs................................ 2,774 2,819
Other....................................................... 471 454
----------- ---------
3,245 3,273
----------- ---------
$9,729 $9,607
=========== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of the financial statements.
4
<PAGE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
LIABILITIES
CAPITALIZATION
Common equity
Common stock...................................................... $ 2 $ 2
Capital in excess of par value.................................... 1,874 1,866
Treasury stock.................................................... (419) (419)
Earnings reinvested............................................... 453 372
Capital stock expense and other................................... (38) (31)
------------ ------------
1,872 1,790
------------ ------------
Preferred stock
With sinking fund requirements.................................... 47 47
Without sinking fund requirements................................. 50 50
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
company debentures................................................ 250 250
Long-term debt...................................................... 2,962 2,983
------------ ------------
5,181 5,120
------------ ------------
CURRENT LIABILITIES
Short-term debt..................................................... 606 636
Long-term debt due within one year.................................. 1 1
Capital lease obligations due within one year....................... 61 59
Above market NUG purchases due within one year...................... 103 105
Accounts payable.................................................... 258 197
Taxes and interest accrued.......................................... 118 95
Dividends payable................................................... 46 46
Unrealized mark-to-market energy trading losses..................... 43 9
Other............................................................... 128 128
------------ ------------
1,364 1,276
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Deferred income taxes and investment tax credits.................... 1,572 1,574
Above market NUG purchases.......................................... 750 775
Capital lease obligations........................................... 104 109
Other............................................................... 758 753
------------ ------------
3,184 3,211
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES................................
------------ ------------
$ 9,729 $ 9,607
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
5
<PAGE>
PP&L, INC. AND SUBSIDIARIES
- ---------------------------
In the opinion of PP&L, the unaudited financial statements included herein
reflect all adjustments necessary to present fairly the Consolidated Balance
Sheet as of March 31, 1999 and December 31, 1998, and the Consolidated Statement
of Income and Consolidated Statement of Cash Flows for the periods ended March
31, 1999 and 1998. All nonutility operating transactions are included in "Other
Income" in PP&L's Consolidated Statement of Income.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING REVENUES
Electric operations..................................... $667 $616
Wholesale energy and trading activities................. 297 245
Energy related businesses .............................. 4
----------- -----------
Total Operating Revenues................................ 968 861
----------- -----------
OPERATING EXPENSES
Operation
Cost of electric fuel................................. 123 115
Energy purchases...................................... 255 214
Other operating....................................... 158 112
Amortization of recoverable transition costs.......... 45
Maintenance............................................. 38 38
Depreciation and amortization .......................... 58 97
Taxes, other than income................................ 50 54
Energy related businesses .............................. 4
----------- -----------
Total Operating Expenses................................ 731 630
----------- -----------
OPERATING INCOME.......................................... 237 231
----------- -----------
Other Income.............................................. 7 12
----------- -----------
INCOME BEFORE INTEREST AND INCOME TAXES................... 244 243
Interest Expense.......................................... 48 49
Income Taxes ............................................. 76 85
----------- -----------
NET INCOME BEFORE DIVIDENDS ON PREFERRED STOCK............ 120 109
Dividends on Preferred Stock.............................. 12 12
----------- -----------
EARNINGS AVAILABLE TO PP&L RESOURCES, INC................. $108 $ 97
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
6
<PAGE>
PP&L, INC. AND SUBSIDIARIES
- ---------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------
1999 1998
------- -------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES............... $147 $186
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment expenditures............ (63) (79)
Proceeds from sales of nuclear fuel to trust.......... 11 1
Purchases of available-for-sale securities ........... (4)
Sales and maturities of available-for-sale securities 4
Other investing activities - net...................... 4 4
------- -------
Net cash used in investing activities........... (48) (74)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations................. (14) (17)
Common and preferred dividends paid................... (89) (81)
Net increase in short-term debt....................... 10 94
------- -------
Net cash used in financing activities........... (93) (4)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6 108
Cash and Cash Equivalents at Beginning of Period........ 31 15
------- -------
Cash and Cash Equivalents at End of Period.............. $ 37 $123
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest (net of amount capitalized)................ $ 46 $ 48
Income taxes........................................ $ 12 $ 16
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of the financial statements.
7
<PAGE>
PP&L, INC. AND SUBSIDIARIES
- ---------------------------
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Electric utility plant in service
Transmission and distribution................................................... $2,179 $2,179
Generation...................................................................... 1,616 1,601
General and intangible.......................................................... 219 223
----------- ------------
4,014 4,003
Construction work in progress - at cost........................................... 106 117
Nuclear fuel owned and leased - net............................................... 154 162
----------- ------------
Electric utility plant - net.................................................... 4,274 4,282
Gas and oil utility plant - net................................................... 27 28
Other property - net.............................................................. 21 21
----------- ------------
4,322 4,331
----------- ------------
INVESTMENTS
Loan to parent.................................................................... 429 429
Nuclear plant decommissioning trust fund.......................................... 215 206
Investment in unconsolidated affiliate at equity.................................. 17 17
Other............................................................................. 13 13
----------- ------------
674 665
----------- ------------
CURRENT ASSETS
Cash and cash equivalents......................................................... 37 31
Accounts receivable (less reserve: 1999, $17; 1998, $14)
Utility customers............................................................... 207 163
Other........................................................................... 63 67
Unbilled revenues
Utility customers............................................................... 121 104
Other........................................................................... 69 59
Fuel, material and supplies - at average cost..................................... 194 196
Prepayments....................................................................... 91 14
Unrealized mark-to-market energy trading gains.................................... 53 2
Other............................................................................. 55 58
----------- ------------
890 694
----------- ------------
REGULATORY ASSETS AND OTHER NONCURRENT ASSETS
Recoverable transition costs...................................................... 2,774 2,819
Other............................................................................. 337 329
----------- ------------
3,111 3,148
----------- ------------
$8,997 $8,838
=========== ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
8
<PAGE>
PP&L, INC. AND SUBSIDIARIES
- ---------------------------
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
LIABILITIES
CAPITALIZATION
Common equity
Common stock....................................................................... $1,476 $1,476
Additional paid-in capital......................................................... 70 70
Earnings reinvested................................................................ 241 210
Capital stock expense and other.................................................... (26) (26)
----------- -----------
1,761 1,730
----------- -----------
Preferred stock
With sinking fund requirements..................................................... 295 295
Without sinking fund requirements.................................................. 171 171
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
company debentures................................................................. 250 250
Long-term debt....................................................................... 2,569 2,569
----------- -----------
5,046 5,015
----------- -----------
CURRENT LIABILITIES
Short-term debt...................................................................... 91 80
Long-term debt due within one year
Capital lease obligations due within one year........................................ 61 59
Above market NUG purchases due within one year....................................... 103 105
Accounts payable..................................................................... 278 189
Taxes and interest accrued........................................................... 116 86
Dividends payable.................................................................... 12 12
Unrealized mark-to-market energy trading losses...................................... 43 9
Other................................................................................ 102 114
----------- -----------
806 654
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Deferred income taxes and investment tax credits..................................... 1,558 1,561
Above market NUG purchases........................................................... 750 775
Capital lease obligations............................................................ 104 109
Other................................................................................ 733 724
----------- -----------
3,145 3,169
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES.................................................
----------- -----------
$8,997 $8,838
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
9
<PAGE>
PP&L RESOURCES, INC. AND PP&L, INC.
Notes to Consolidated Financial Statements
------------------------------------------
Terms and abbreviations appearing in Notes to Consolidated Financial
Statements are explained in the glossary.
1. Interim Financial Statements
Certain information in footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
has been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the SEC. These financial statements should be read in
conjunction with the financial statements and notes included in PP&L Resources'
and PP&L's Annual Reports to the SEC on Form 10-K for the year ended December
31, 1998.
Certain amounts in the March 31, 1998 and December 31, 1998 financial
statements have been reclassified to conform to the presentation in the March
31, 1999 financial statements.
2. Summary of Significant Accounting Policies
Reference is made to the "Summary of Significant Accounting Policies" in
PP&L Resources' and PP&L's Form 10-K for the year ended December 31, 1998.
Following are updates to the accounting policies described therein.
Amortization of Recoverable Transition Costs
Pursuant to the PUC Final Order, PP&L began amortizing the recoverable
transition (or stranded) costs over an eleven-year transition period beginning
on January 1, 1999. This amortization is shown as a component of Operation
Expense on the Consolidated Statement of Income of PP&L Resources and PP&L.
Reference is made to Note 3 to the Financial Statements in PP&L Resources' and
PP&L's Form 10-K for the year ended December 31, 1998 for the "Annual Stranded
Cost Amortization and Return Schedule." This schedule is subject to revision
for actual CTC collections.
Amortization of Liability for Above Market NUG Purchases
As of June 30, 1998, PP&L recorded an $854 million estimated liability for
above-market purchases under existing NUG contracts. This liability was
recorded as part of the PUC restructuring adjustments. For more information,
refer to Note 4 to the Financial Statements in PP&L Resources' and PP&L's Form
10-K for the year ended December 31, 1998. Effective January 1, 1999, PP&L
began amortizing this liability as an offset to "Energy Purchases" on the
Consolidated Statement of Income. The amortization is based on the estimated
timing of the purchases from the NUGs, and projected market prices for this
generation. This amortization
10
<PAGE>
will continue through 2014, when the existing NUG contracts expire. This
liability, and the corresponding amortization, are subject to future revision if
the underlying estimates change.
Accounting For Price Risk Management
PP&L Resources has entered into forward starting swaps to hedge the
interest rate risk associated with anticipated debt financing later in 1999.
These interest rate swaps are accounted for under the accrual method.
Accordingly, the gains or losses on these swaps will be recognized over the life
of the debt.
3. Securitization
As part of its approval of the settlement of PP&L's restructuring
proceeding in August 1998, the PUC issued a Qualified Rate Order permitting PP&L
to issue transition bonds to securitize up to $2.85 billion of its stranded
costs. PP&L is planning to pursue such securitization later in 1999. In March
1999, a registration statement for the issuance of transition bonds was filed
with the SEC, and in April 1999, PP&L requested the PUC to issue a supplemental
Qualified Rate Order to approve various procedures related to securitization.
The proceeds of securitization are expected to be used by PP&L to retire
outstanding debt and to repurchase equity from PP&L Resources. PP&L Resources
currently plans to use this cash from securitization to repurchase its own stock
in the open market, retire its own debt and possibly invest in new projects.
4. PUC Restructuring Decision
In August 1998, the PUC entered its Final Order approving the settlement of
PP&L's restructuring proceeding under Pennsylvania's Customer Choice Act. Among
other things, that Order:
o permitted PP&L to recover $2.97 billion (on a net present value basis)
in stranded costs over 11 years - i.e., from January 1, 1999 through
December 31, 2009. PP&L's stranded costs are those which would have
been recoverable under traditional rate regulation, but may not be
recoverable in the competitive marketplace. PP&L is permitted a return
of 10.86% on the unamortized balance of these stranded costs.
o authorized PP&L to issue transition bonds to securitize up to $2.85
billion of its stranded costs.
o required PP&L to reduce rates to all retail customers by four percent
effective January 1, 1999, through December 31, 1999.
o required PP&L to unbundle its retail electric rates beginning on
January 1, 1999, to reflect separate prices for the transmission and
distribution charges, the CTC (and if applicable, the ITC),
11
<PAGE>
and the generation charge. The CTC is a charge to be paid by all
customers who receive delivery service from PP&L, to recover PP&L's
stranded costs. The ITC, which would offset the CTC on customer bills,
is a charge paid by delivery customers to reflect the securitization of
stranded costs.
o required PP&L to transfer its retail marketing function to a new
subsidiary, PP&L EnergyPlus. PP&L EnergyPlus has a PUC license to act
as a Pennsylvania EGS. This license permits PP&L EnergyPlus to offer
retail electric supply to participating customers in PP&L's service
territory and in the service territories of other Pennsylvania
utilities. In 1999, PP&L EnergyPlus is offering such supply to
industrial and commercial customers throughout the state. At this time,
PP&L EnergyPlus has determined not to pursue residential customers in
the competitive marketplace based on economic considerations.
o permits, but does not require, PP&L to transfer ownership and operation
of its generating facilities to a separate corporate entity at book
value.
5. Segment and Related Information
PP&L Resources' principal business segment is PP&L, which provides
electricity delivery service in eastern and central Pennsylvania, sells retail
electricity throughout Pennsylvania, and markets wholesale electricity in 28
states and Canada. PP&L Resources' other reported business segment, PP&L
Global, invests in and develops worldwide power projects with the majority of
its investments located in the U.K., Chile, and El Salvador. PP&L Global's
revenue represents equity earnings in investments. Other operating revenues
represent gas distribution, mechanical contracting and engineering, and
unregulated energy services. Financial data for PP&L Resources' business
segments are as follows (millions of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
- ---------------------------------
OTHER
PP&L AND ELIMIN- PP&L
PP&L GLOBAL ATIONS RESOURCES
---- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Income statement data:
Operating revenues $968 $21 $78 $1,067
Interest expense 48 8 6 62
Depreciation and amortization 58 2 60
Income taxes 76 (2) 74
Net income 108 9 3 120
CASH FLOW DATA:
Property, plant and equipment
expenditures 63 3 66
Investments in unconsolidated
affiliates
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
- ---------------------------------
OTHER
PP&L AND ELIMIN- PP&L
PP&L GLOBAL ATIONS RESOURCES
------ ------ ---------- ---------
<S> <C> <C> <C> <C>
Income statement data:
Operating revenues $ 861 $ 8 $ 11 $ 880
Interest expense 49 3 52
Depreciation and amortization 97 97
Income taxes 85 1 (2) 84
Net income 97 2 2 101
CASH FLOW DATA:
Property, plant and equipment
expenditures 79 79
Investments in unconsolidated
affiliates 98 98
OTHER
PP&L AND ELIMIN- PP&L
PP&L GLOBAL ATIONS RESOURCES
------ ------ ----------- ---------
MARCH 31, 1999
- --------------
Balance sheet data:
Cumulative net investment in
unconsolidated affiliates $ 17 $679 $ 696
Total assets 8,997 778 $(46) 9,729
DECEMBER 31, 1998
- -----------------
Balance sheet data:
Cumulative net investment in
unconsolidated affiliates $ 17 $671 $ 688
Total assets 8,838 757 $ 12 9,607
</TABLE>
6. Sales to Other Electric Utilities
Under an existing power purchase contract, PP&L will provide JCP&L with
189,000 kilowatts of capacity and related energy from all of its generating
units during 1999. The agreement with JCP&L will terminate on December 31,
1999. PP&L expects to be able to resell the returning capacity and energy
through its Energy Marketing Center.
Under a separate agreement, PP&L is providing additional capacity and
energy to JCP&L. This capacity and energy sale increased from 150,000 kilowatts
to 200,000 kilowatts in June 1998, and will increase to 300,000 kilowatts in
June 1999 through the end of the agreement in May 2004. Prices for this capacity
and energy are market-based.
In February 1999, PP&L and UGI executed new interconnection and power
supply agreements, which will be submitted for review and acceptance by the
FERC. Under the new power supply agreement beginning in 1999, UGI
13
<PAGE>
will purchase capacity from PP&L equal to UGI's PJM capacity obligation less the
capacity reserve value of UGI's owned generation and an existing power purchase
agreement. In 2000, UGI will purchase a firm block of energy in addition to the
capacity. The power supply agreement ends in February 2001. The new
interconnection agreement reflects UGI's independent, full membership in the PJM
Interconnection.
7. Financial Instruments
During March 1999, PP&L Resources entered into forward starting interest
rate swaps with various counterparties to hedge these interest rate risk
associated with anticipated debt issuances. These interest rate swap agreements
involve the exchange of floating rate interest rate payments for fixed rate
interest payments over the life of the agreements. PP&L Resources agreed to pay
fixed rates between 5.815% and 5.8725% on notional amounts of $180 million with
maturity dates of July 30, 2004 and 2005. PP&L Resources also agreed to pay
fixed rates between 6.04% and 6.08% on notional amounts of $120 million with a
maturity date of September 15, 2009. PP&L Resources will receive a variable
interest payment based on the 6-month LIBOR rate through the maturity dates of
the agreements. The estimated fair value of the forward interest rate swaps,
which represents the estimated amount PP&L Resources would receive if it
terminated these agreements on March 31, 1999, was $700,000.
Subsequent to March 31, 1999, PP&L Resources entered into additional
forward starting interest rate swap agreements. PP&L Resources agreed to pay
fixed rates between 5.665% and 5.815% on notional amounts of $520 million with
maturity dates of August 2, 2004, and September 15, 2004. PP&L Resources also
agreed to pay fixed rates between 5.92% and 6.00% on notional amounts of $140
million with a maturity date of September 15, 2009. PP&L Resources will receive
a variable interest payment based on 3 or 6-month LIBOR rates through the
maturity dates of these agreements.
8. Credit Arrangements and Financing Activities
PP&L issues commercial paper and, from time to time, borrows from banks to
provide short-term funds for PP&L's general corporate purposes. Bank borrowings
generally bear interest at rates negotiated at the time of the borrowing. At
March 31, 1999, PP&L had $91 million of commercial paper outstanding.
PP&L Capital Funding, whose purpose is to provide debt funding for PP&L
Resources and its subsidiaries other than PP&L, also issues commercial paper.
As with all PP&L Capital Funding debt, this commercial paper is guaranteed by
PP&L Resources. As of March 31, 1999, PP&L Capital Funding had $515 million of
commercial paper outstanding. Proceeds from the commercial paper program were
primarily used to fund PP&L Resources' 1998 common stock tender offer and to
provide interim financing for PP&L Global's investment activities.
14
<PAGE>
In order to enhance liquidity, PP&L and PP&L Capital Funding share a joint
credit facility with a group of banks. This joint credit facility is comprised
of a 364-day revolving credit agreement and a five-year revolving credit
agreement. PP&L Capital Funding also maintains five separate $80 million, 364-
day credit facilities with five banks. PP&L Resources guarantees all
obligations of PP&L Capital Funding under these credit facilities. As of March
31, 1999, no borrowings were outstanding under any revolving credit agreements.
PP&L Capital Funding registered $400 million of debt securities with the
SEC in early January 1999. It is expected that these debt securities will be
issued from time to time as medium-term notes to provide long-term debt
financing for PP&L Resources and its subsidiaries other than PP&L.
Under the PUC restructuring order of August 27, 1998, PP&L is permitted to
issue transition bonds to securitize up to $2.85 billion of its stranded costs.
PP&L is planning to pursue such securitization later in 1999. The proceeds are
expected to be used by PP&L to retire outstanding debt and to repurchase equity
from PP&L Resources. PP&L Resources currently plans to use this cash from
securitization to repurchase its own stock in the open market, to retire its own
debt and possibly to invest in new projects.
Effective March 1, 1999, the DRIP was changed from a new issue to an open
market purchase program. In January and February 1999, PP&L Resources issued $8
million of new common stock through the DRIP.
In September 1998, PP&L Resources obtained authorization from the Board
of Directors to purchase up to three million shares of its common stock on the
open market. In connection with this program, PP&L Resources has entered into a
forward purchase agreement with a third party. The agreement will be settled
from time to time at PP&L Resources' election, on either a physical, net share
or net cash basis. The amount at which this agreement can be settled is
dependent primarily upon the market price of PP&L Resources' common stock at the
settlement date as compared to the average forward purchase price per share and
the number of shares to be settled. If the forward purchase agreement had been
settled on a net share basis on March 31, 1999, PP&L Resources would have had to
issue approximately 80,000 shares of its common stock. The issuance of these
shares would not have impacted the earnings per share calculation for PP&L
Resources. The third party has completed this three million share purchase. PP&L
Resources and the third party will settle this forward purchase agreement by no
later than September 1, 1999.
In April 1999, PP&L Resources' Board of Directors authorized the purchase
of an additional four million shares of common stock on the open market from
time to time.
15
<PAGE>
9. Commitments and Contingent Liabilities
There have been no material changes related to PP&L Resources' or PP&L's
commitments and contingent liabilities since the companies filed their joint
1998 Form 10-K, except for loan guarantees described below.
For discussion pertaining to PP&L Resources' and PP&L's credit arrangements
and financing activities, see Note 8.
Nuclear Insurance
PP&L is a member of certain insurance programs which provide coverage for
property damage to members' nuclear generating stations. Facilities at the
Susquehanna station are insured against property damage losses up to $2.75
billion under these programs. PP&L is also a member of an insurance program
which provides insurance coverage for the cost of replacement power during
prolonged outages of nuclear units caused by certain specified conditions.
Under the property and replacement power insurance programs, PP&L could be
assessed retroactive premiums in the event of the insurers' adverse loss
experience. At March 31, 1999, the maximum amount PP&L could be assessed under
these programs was about $25 million.
PP&L's public liability for claims resulting from a nuclear incident at the
Susquehanna station is limited to about $9.7 billion under provisions of The
Price Anderson Amendments Act of 1988. PP&L is protected against this liability
by a combination of commercial insurance and an industry assessment program. In
the event of a nuclear incident at any of the reactors covered by The Price
Anderson Amendments Act of 1988, PP&L could be assessed up to $168 million per
incident, payable at a rate of $20 million per year, plus an additional 5%
surcharge, if applicable.
Environmental Matters
Air
The Clean Air Act deals, in part, with acid rain, attainment of federal
ambient ozone standards and toxic air emissions. PP&L has complied with the
1995 Phase I acid rain provisions by installing continuous emission monitors on
all units, burning lower sulfur coal and installing low NOx burners on most
units. To comply with the year 2000 Phase II acid rain provisions, PP&L plans
to purchase lower sulfur coal and use banked or purchased emission allowances
instead of installing FGD on its wholly owned units.
PP&L has met the 1995 ambient ozone requirements of the Clean Air Act by
reducing NOx emissions by nearly 50% through the use of low NOx burners.
Further seasonal (i.e., 5 month) NOx reductions to 55% and 75% of 1990 levels
for 1999 and 2003, respectively, are specified under the Northeast Ozone
Transport Region's Memorandum of Understanding. The DEP has
16
<PAGE>
finalized regulations which require PP&L to reduce its ozone seasonal NOx by 57%
beginning in 1999. PP&L plans to comply with this reduction with operational
initiatives that rely, to a large extent, on the existing low NOx burners.
The EPA has finalized new national standards for ambient levels of ground-
level ozone and fine particulates. Based in part on the new ozone standard, the
EPA has finalized NOx emission limits for 22 states, including Pennsylvania,
which in effect require approximately an 80% reduction from the 1990 level in
Pennsylvania by May 2003; the state is required by September 1999 to develop
plans for implementing this reduction. Pursuant to Section 126 of the Clean Air
Act, several Northeast states have petitioned the EPA to find that major sources
of NOx emissions, including PP&L's power plants, are significantly contributing
to non-attainment in those states. The EPA has proposed to find such
contribution and require emissions reductions at those sources if the states in
which those sources are located fail to develop plans by September 1999 to
implement the proposed 2003 limits. PP&L estimates that compliance with these
emissions reduction requirements could require installation of NOx emissions
removal systems on PP&L's three largest coal-fired units, at a capital cost of
approximately $35 million per unit. The new particulates standard may require
further reductions in SO2 and may expand the planned seasonal NOx reductions to
year round in the 2010-2012 timeframe.
Under the Clean Air Act, the EPA has been studying the health effects of
hazardous air emissions from power plants and other sources, in order to
determine whether those emissions should be regulated. The EPA released a
technical report of its findings to date and concluded that mercury is the power
plant air toxic of greatest concern, but that more evaluation is needed before
it can determine whether regulation of air toxics from fossil fuel plants is
necessary. The EPA is now seeking mercury and chlorine sampling and other data
from electric generating units including PP&L's. In addition, the EPA has
announced a new enforcement initiative against older coal-fired plants. Several
of PP&L's coal-fired plants could fall into this category. These EPA
initiatives could result in compliance costs for PP&L in amounts which are not
now determinable but which could be material.
Expenditures to meet the 2000 acid rain and 1999 NOx reduction requirements
are included in the table of projected construction expenditures in the section
entitled "Financial Condition - Capital Expenditure Requirements" in the Review
of the Financial Condition and Results of Operations in the 1998 Form 10-K.
PP&L currently estimates that additional capital expenditures and operating
costs for environmental compliance under the Clean Air Act will be incurred
beyond 2002 in amounts which are not now determinable but which could be
material.
17
<PAGE>
Water and Residual Waste
------------------------
PP&L has installed dry fly ash handling systems at most of its power
stations, which reduces waste water discharge. In other cases, PP&L has
modified the existing facilities to allow continued operation of the ash basins
under a DEP residual waste permit. Any groundwater contamination caused by the
basins must also be addressed under DEP's residual waste regulations.
Groundwater degradation related to fuel oil leakage from underground
facilities and seepage from coal refuse disposal areas and coal storage piles
has been identified at several PP&L generating stations. Remedial work related
to oil leakage is substantially completed at two generating stations. At this
time, the only other remedial work being planned is to abate a localized
groundwater degradation problem associated with a waste disposal impoundment at
the Montour plant.
The final NPDES permit for the Montour plant contains stringent limits for
iron and chlorine discharges. Depending on the results of a toxic reduction
study, additional water treatment facilities or operational changes may be
needed at this plant.
Capital expenditures through the year 2003 to correct groundwater
degradation at fossil-fueled generating stations and to address waste water
control at PP&L facilities are included in the table of construction
expenditures in the section entitled "Financial Condition - Capital Expenditure
Requirements" in the Review of the Financial Condition and Results of Operations
in the 1998 Form 10-K. In this regard, PP&L currently estimates that $5.5
million of additional capital expenditures may be required in the next four
years to close some of the ash basins and address other ash basin issues at
various generating plants. Additional capital expenditures could be required
beyond the year 2003 in amounts which are not now determinable but which could
be material. Actions taken to correct groundwater degradation, to comply with
the DEP's regulations and to address waste water control are also expected to
result in increased operating costs in amounts which are not now determinable
but which could be material.
Remediation Under Multi-Site Consent Orders
-------------------------------------------
In 1995, PP&L entered into a consent order with the DEP to address a number
of sites where PP&L may be liable for remediation of contamination. This may
include potential PCB contamination at certain PP&L substations and pole sites;
potential contamination at a number of coal gas manufacturing facilities
formerly owned and operated by PP&L; and oil or other contamination which may
exist at some of PP&L's former generating facilities. As of March 31, 1999,
PP&L has completed work on slightly more than half of the sites included in the
consent order.
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<PAGE>
In 1996, Penn Fuel Gas entered into a similar consent order with the DEP to
address a number of its sites where Penn Fuel Gas may be liable for remediation
of contamination. The sites primarily include former coal gas manufacturing
facilities. Prior to PP&L Resources acquiring Penn Fuel Gas on August 21, 1998,
Penn Fuel Gas had obtained a "no further action" determination from the DEP for
two of the 20 sites covered by the order.
At March 31, 1999, PP&L had accrued approximately $6 million and Penn Fuel
Gas had accrued $15 million, representing the respective amounts PP&L and Penn
Fuel Gas can reasonably estimate they will have to spend to remediate sites
involving the removal of hazardous or toxic substances, including those covered
by each company's consent orders mentioned above. Future cleanup or remediation
work at sites currently under review, or at sites not currently identified, may
result in material additional operating costs for PP&L or Penn Fuel Gas, which
neither company can estimate at this time. In addition, certain federal and
state statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup
Act, empower certain governmental agencies, such as the EPA and the DEP, to seek
compensation from the responsible parties for the lost value of damaged natural
resources. The EPA and the DEP may file such compensation claims against the
parties, including PP&L or Penn Fuel Gas, held responsible for cleanup of such
sites. Such natural resource damage claims against PP&L or Penn Fuel Gas could
result in material additional liabilities.
General
-------
Due to the environmental issues discussed above or other environmental
matters, PP&L may be required to modify, replace or cease operating certain
facilities to comply with statutes, regulations and actions by regulatory bodies
or courts. In this regard, PP&L also may incur capital expenditures, operating
expenses and other costs in amounts which are not now determinable but which
could be material.
LOAN GUARANTEES OF AFFILIATED COMPANIES
PP&L Resources provides certain guarantees for its subsidiaries.
Specifically, PP&L Resources guarantees all of the debt of PP&L Capital Funding.
As of March 31, 1999, PP&L Resources had guaranteed (as shown on its
Consolidated Balance Sheet) consisting of $397 million of medium-term notes and
$515 million of commercial paper issued by PP&L Capital Funding and $19 million
of notes of North Penn Gas Co., a subsidiary of Penn Fuel Gas. In addition, PP&L
Resources provided $13 million of loan guarantees to a PP&L Global subsidiary.
PP&L Resources also has guaranteed certain obligations of PP&L EnergyPlus
for up to $157 million under certain power purchase and sales agreements.
At March 31, 1999, PP&L provided a guarantee in the amount of $12 million
in support of one of its subsidiaries.
19
<PAGE>
10. Acquisitions
In February 1999, PP&L Resources acquired McCarl's; and in April 1999, PP&L
Spectrum acquired Burns Mechanical. These mechanical contractor and engineering
firms were purchased for amounts that were not material.
In September 1998, PP&L Global announced an agreement to acquire most of
Bangor Hydro-Electric Company's generating assets (100% of its hydroelectric
assets) and certain transmission rights, as well as its interest in an oil-fired
generation facility, for $89 million. All necessary regulatory approvals have
been obtained and a May 1999 closing is anticipated.
PP&L Global also has signed definitive agreements with Montana Power
Company, Portland General Electric Company and Puget Sound Energy, Inc. to
acquire 13 Montana power plants, with 2,614 MW of generating capacity, for a
purchase price of $1.586 billion. The acquisition is subject to several
conditions, including the receipt of required state and federal regulatory
approvals and third-party consents. In this regard, PP&L Global will own 100% of
Colstrip units 1 and 2 and 75% of Colstrip units 3 and 4 as both PacifiCorp and
Avista Corporation will maintain their existing ownership percentages. PP&L
Global expects to complete this acquisition by the end of 1999. About 65% of the
acquisition cost is expected to be financed on a project credit basis, non-
recourse to PP&L Global and PP&L Resources. The balance of the acquisition cost
is expected to be financed through a combination of debt and equity issued by
PP&L Resources. The agreements also provide for PP&L Global's acquisition of
related transmission assets for an additional $182 million, subject to certain
conditions, including federal regulatory approval.
20
<PAGE>
PP&L Resources, Inc. and PP&L, Inc.
-----------------------------------
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The financial condition and results of operations of PP&L and PP&L Global
are currently the principal factors affecting the financial condition and
results of operations of PP&L Resources. Unless specifically noted,
fluctuations are primarily due to activities of PP&L. This discussion should be
read in conjunction with the section entitled "Review of the Financial Condition
and Results of Operations of PP&L Resources, Inc. and PP&L, Inc." in PP&L
Resources' and PP&L's Annual Report to the SEC on Form 10-K for the year ended
December 31, 1998.
Terms and abbreviations appearing in Management's Discussion and Analysis
of Financial Condition and Results of Operations are explained in the glossary.
Forward-looking Information
---------------------------
Certain statements contained in this Form 10-Q concerning expectations,
beliefs, plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than statements of
historical facts, including, but not limited to, statements with respect to
future earnings growth, are "forward-looking statements" within the meaning of
the federal securities laws. Although PP&L Resources and PP&L believe that the
expectations and assumptions reflected in these statements are reasonable, there
can be no assurance that these expectations will prove to have been correct.
These forward-looking statements involve a number of risks and uncertainties,
and actual results may differ materially from the results discussed in the
forward-looking statements. The following are among the important factors that
could cause actual results to differ materially from the forward-looking
statements: state and federal regulatory developments; new state or federal
legislation; national or regional economic conditions; market demand and prices
for energy, capacity and fuel; weather variations affecting customer energy
usage; competition in retail and wholesale power markets; the need for and
effect of any business or industry restructuring; PP&L Resources' and PP&L's
profitability and liquidity; new accounting requirements or new interpretations
or applications of existing requirements; operating performance of plants and
other facilities; environmental conditions and requirements; system conditions
(including actual results in achieving Year 2000 compliance by PP&L Resources,
its subsidiaries and others) and operating costs; performance of new ventures;
political, regulatory or economic conditions in foreign countries where PP&L
Global makes investments; foreign exchange rates; and PP&L Resources' and PP&L's
commitments and liabilities. Any such forward-looking statements should be
considered in light of such important factors and in conjunction with PP&L
Resources' and PP&L's other documents on file with the SEC.
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<PAGE>
New factors that could cause actual results to differ materially from those
described in forward-looking statements emerge from time to time, and it is not
possible for PP&L Resources or PP&L to predict all of such factors, or the
extent to which any such factor or combination of factors may cause actual
results to differ from those contained in any forward-looking statement. Any
forward-looking statement speaks only as of the date on which such statement is
made, and neither PP&L Resources nor PP&L undertakes any obligation to update
the information contained in such statement to reflect subsequent developments
or information.
Results of Operations
---------------------
The following discussion explains material changes in principal items on
the Consolidated Statement of Income comparing the three months ended March 31,
1999, to the comparable period ended March 31, 1998.
The Consolidated Statement of Income reflects the results of past
operations and is not intended as any indication of the results of future
operations. Future results of operations will necessarily be affected by
various and diverse factors and developments. Furthermore, because results for
interim periods can be disproportionately influenced by various factors and
developments and by seasonal variations, the results of operations for interim
periods are not necessarily indicative of results or trends for the year.
<TABLE>
<CAPTION>
EARNINGS
Three Months Ended March 31,
-----------------------------
1999 1998
------ ------
<S> <C> <C>
Earnings per share - excluding
weather variances $ 0.79 $ 0.71
Weather variances on billing-adjusted sales (0.03) (0.11)
------ ------
Earnings per share - reported $ 0.76 $ 0.60
====== ======
</TABLE>
Excluding the impact of weather, earnings per share were eight cents higher
for the three months ended March 31, 1999, when compared with the same period in
1998.
The earnings improvement reflects higher margins on wholesale energy
marketing and trading activities, higher first quarter earnings of PP&L Global,
and the contribution of Penn Fuel Gas, which was acquired by PP&L Resources in
August 1998. Depreciation and income tax expense were lower in the first three
months of 1999 compared with 1998, a direct result of the restructuring
adjustments recorded by PP&L in June 1998. PP&L Resources' September 1998 common
stock purchase program also had a favorable impact on earnings per share.
These earnings gains were partially offset by a four percent rate reduction
for electricity delivery customers effective January 1, 1999 through December
31, 1999. PP&L revenues were further impacted by the loss of commercial and
industrial customers who chose alternate suppliers for their generation
22
<PAGE>
supply. In addition, PP&L incurred higher operating expenses associated with the
move to a competitive market, and lost the benefit of certain regulatory
treatment that improved earnings during the first three months of 1998. In
1998, PP&L was able to defer the loss of revenue experienced during the customer
choice pilot program. Moreover, PP&L was permitted to recoup a portion of its
undercollected energy costs as part of its restructuring filing.
PP&L Resources has forecasted earnings per share of $2.15 for 1999, $2.40
for 2000 and $2.60 for 2001. Adjusted earnings per share for 1998 were
$2.07.
PP&L Resources has made certain assumptions in this forecast. Major
assumptions include the following:
o The market clearing price of generation will be about 12% and 7% higher
for 1999 and 2000, respectively, than previous forecasts (which were
2.85 and 3.10 cents per kWh in 1999 and 2000, respectively).
o Annual growth in electricity delivered by PP&L will be 1.5% in each of
2000 and 2001.
o Commencing January 1999, certain PP&L customers were able to choose
their electricity supplier. It is assumed that the percentage of total
customer load that will "shop" for electricity will be 29% in 1999 and
32% in each of 2000 and 2001. It is also assumed that PP&L will retain
55% of such shopping load each year.
o The average number of common stock shares outstanding in 1999, 2000 and
2001 will be 159, 170 and 171 million, respectively.
The foregoing forecast and assumptions do not reflect the effects of any
securitization of transition costs by PP&L under the Customer Choice Act. PP&L
expects to securitize up to $2.85 billion of its stranded costs later in 1999,
subject to PUC approval of PP&L's petition for a supplementary Qualified Rate
Order. Assuming PUC approval of this petition as filed, PP&L Resources expects
the 2000 earnings forecast to improve by five cents per share to $2.45, and the
2001 forecast to improve by 10 cents per share to $2.70.
23
<PAGE>
Electric Energy Sales
Electricity sales for 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
------------- -------------
(Millions of kWh)
<S> <C> <C>
Electricity delivered to
retail customers by PP&L (a) 9,180 8,456
Less: Electricity supplied
under competition by others 1,394 491
----- -----
Electricity supplied to retail
customers by PP&L 7,786 7,965
Electricity supplied to retail
customers by PP&L EnergyPlus
under competition 1,240 231
----- -----
Total electricity supplied to
retail customers (a) 9,026 8,196
Wholesale Energy Sales 9,119 8,830
</TABLE>
(a) kWh for customers residing in PP&L's service territory who are receiving
energy from PP&L or EnergyPlus will be reflected in both of these categories.
Under Pennsylvania's Electric Choice program, customers were allowed to
choose the supplier of their electricity beginning on January 1, 1999.
Customers making this choice continue to have the utility that serves their
territory deliver electricity from the supplier of choice. "Electricity
delivered to retail customers by PP&L" is the amount of electricity delivered by
PP&L to customers in its service territory. "Electricity supplied to retail
customers by PP&L" represents the amount of electricity supplied to PP&L service
territory customers who are not participating in the Electric Choice program.
"Electricity supplied to retail customers by PP&L EnergyPlus under competition"
is electricity supplied to customers within and outside PP&L's service territory
who participate in the Electric Choice program and chose EnergyPlus as their
energy supplier.
Electricity delivered to retail customers increased in the three months
ended March 31, 1999, by 724 million kWh, or 8.6%, from the comparable period in
1998. If normal weather had been experienced in 1999 and 1998, deliveries would
have increased 3.1%.
Total electricity supplied to retail customers has increased by 830 million
kWh in the three months ended March 31, 1999, from the comparable period in
1998. This increase is due to the increased market share
24
<PAGE>
EnergyPlus has captured among customers participating in the Energy Choice
program, and the impact of mild weather on sales in the first quarter of 1998.
The increase in wholesale energy sales, which includes sales to other
utilities and energy marketers through contracts, spot market transactions or
power pool arrangements, was primarily the result of increased activity of the
Energy Marketing Center. See "Operating Revenues: Wholesale Energy Marketing
and Trading Activities" for more information.
Energy Marketing and Trading Activities
PP&L purchases and sells electric capacity and energy at the wholesale
level under its FERC market-based tariff. PP&L has entered into agreements to
sell firm capacity or energy under its market-based tariff to certain entities
located inside and outside of the PJM power pool. PP&L enters into these
agreements to market available energy and capacity from its generating assets
and to profit from market price fluctuations. PP&L is actively managing its
portfolio to attempt to capture the opportunities and limit its exposure to
volatile prices. PP&L purchases and sells energy futures contracts in
accordance with its risk management objectives and strategies.
PP&L has entered into an agreement to provide wholesale energy marketing,
trading and risk management services an energy cooperative organization that
provides energy-related services to public power entities. The market risk
associated with this type of activity is not material. PP&L expects to expand
its activities by entering into similar agreements with other counterparties.
Quantitative and Qualitative Disclosures About Market Risk
The effects of PP&L Resources' and PP&L's market risks associated with
commodity prices, foreign currency exchange rates, equity prices, and interest
rates for debt recorded on the Consolidated Balance Sheet have not changed
materially since December 31, 1998. However, during March 1999, PP&L Resources
entered into forward starting interest rate swaps with various counterparties to
hedge the interest rate risk associated with anticipated debt issuances. These
interest rate swap agreements involve the exchange of floating rate interest
rate payments for fixed rate interest payments over the life of the agreements.
PP&L Resources agreed to pay fixed rates between 5.815% and 5.8725% on notional
amounts of $180 million with maturity dates of July 30, 2004 and 2005. PP&L
Resources also agreed to pay fixed rates between 6.04% and 6.08% on notional
amounts of $120 million with a maturity date of September 15, 2009. PP&L
Resources will receive a variable interest payment based on the 6-month LIBOR
rate through the maturity dates of the agreements. The estimated fair value of
the forward interest rate swaps, which represents the estimated amount PP&L
Resources would receive if it terminated these agreements on March 31, 1999, was
$700,000.
PP&L Resources is exposed to changes in the fair value of the forward
starting interest rate swaps. At March 31, 1999, PP&L Resources, based on
25
<PAGE>
historical trends, estimated its potential maximum exposure to a change in the
fair value of its forward starting interest rate swaps through a downward
movement in interest rates over a one-day period, based on a confidence level of
97.5%, at $2.2 million.
Market events that are inconsistent with historical trends could cause
actual results to exceed estimated exposure levels.
Operating Revenues
Electric Operations
- -------------------
The increase (decrease) in revenues from electric operations was
attributable to the following:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
March 31, 1999 vs. March 31, 1998
----------------------------------
(Millions of Dollars)
<S> <C>
Retail Electric Revenue
PP&L:
Weather effect $ 23
Sales volume and sales mix (38)
Unbilled (17)
PP&L EnergyPlus:
Sales volume and sales mix 50
Unbilled 27
Other 6
----
$51
</TABLE>
Operating revenues for electric operations increased by $51 million, or
8.3%, for the three months ended March 31, 1999, when compared to the same
period in 1998. Excluding the effects of weather in both periods, revenue
increased by $28 million in 1999 over 1998. Although weather unfavorably
impacted revenues for the first quarter of 1999, the same period in 1998 saw the
largest unfavorable weather impact on earnings in the 27 years PP&L has tracked
such weather effects.
Weather-normalized retail sales by PP&L were $55 million lower in the first
quarter of 1999 when compared to the same period in 1998. In connection with
the PUC's Final Order in PP&L's restructuring proceeding, retail rates were
reduced by four percent effective January 1, 1999 through December 31, 1999.
Additionally, PP&L revenues were impacted by the loss of commercial and
industrial customers who chose alternate suppliers for their generation supply.
A portion of the revenue collected from customers is applied to amortize the
recoverable transition costs established as part of the restructuring filing.
This amortization is reflected as a separate line on the income statement under
"Operating Expenses".
26
<PAGE>
PP&L EnergyPlus, an unregulated subsidiary of PP&L marketing retail energy
in Pennsylvania, provided $77 million of billed and unbilled revenues in the
first quarter of 1999. These revenues were partially offset by increased power
purchases to meet these sales.
Gas and Propane Operations
- --------------------------
PP&L Resources acquired Penn Fuel Gas in August, 1998. The results of Penn
Fuel Gas, including revenues and the associated costs from gas and propane
operations, have been recorded subsequent to acquisition.
Wholesale Energy Marketing and Trading Activities
- -------------------------------------------------
The increase (decrease) in revenues from wholesale energy and trading
activities was attributable to the following:
Three Months Ended
------------------
March 31, 1999 vs. March 31, 1998
---------------------------------
(Millions of Dollars)
Bilaterial Sales $ 21
PJM 13
Cost-based contracts (14)
Oil & gas sales 32
---
$ 52
===
Revenues from wholesale energy and trading activities increased by $52
million for the three months ended March 31, 1999, when compared to the same
period in 1998. Revenues have continued to increase despite the phase-down of
the capacity and energy agreements with JCP&L and Atlantic. This increase
reflects PP&L's continued emphasis on competing in wholesale markets. Energy
purchases have also increased to meet these increased sales. Refer to "Energy
Purchases" for more information.
Energy-related Businesses
Energy-related businesses contributed $17 million and $5 million to the
operating income of PP&L Resources for the three months ended March 31, 1999 and
1998, respectively. These results reflect higher equity earnings from PP&L
Global's investment in SWEB, which were partially offset by higher interest
expense. Energy-related businesses including PP&L Global, PP&L Spectrum, H.T.
Lyons, McClure, and McCarl's are expected to provide an increasing share of PP&L
Resources' future earnings.
Energy Purchases
Energy purchases increased by $41 million for the three months ended March
31, 1999, over the comparable period in 1998. This increase was primarily due
to purchases of energy to support PP&L EnergyPlus sales, as well as purchases of
gas and capacity from other utilities to meet activities of the Energy Marketing
Center. These costs were slightly offset by the mark-to-market accounting
related to energy trading
27
<PAGE>
activities as well as the amortization of the above market NUG purchases. See
Financial Note 15 of PP&L Resources' 1998 Form 10-K for additional information.
Other Operation Expenses
Other operation expenses increased by $54 million for the three months
ended March 31, 1999, compared with the same period in 1998. About $15 million
of the increase was due to certain regulatory credits that were no longer
effective in 1999. In 1998, PP&L was able to defer the loss of revenue
experienced during the customer choice pilot program. In 1998, PP&L also was
permitted to defer undercollected energy costs. These regulatory credits were
recorded as offsets to Other Operating Expense in the first quarter of 1998.
The remaining increase was due to increased transmission charges and
selling expenses associated with supplying energy to customers throughout
Pennsylvania participating in the state's Electric Choice program, an increase
in wage and benefit costs, and the operating costs of Penn Fuel Gas, which was
acquired in August 1998.
Power Plant Operations
On April 29, 1999, PP&L's Holtwood coal-fired generating station was
closed. The adjacent hydroelectric plant will continue to operate. The closing,
which was announced in August 1998, is part of an effort to reduce operating
costs and position PP&L for the competitive marketplace. In addition, PP&L
currently is negotiating for the sale of its Sunbury coal-fired generating
station.
Depreciation and Amortization Expenses
Depreciation and amortization expenses decreased by $37 million for the
three months ended March 31, 1999, compared with the same period in 1998. This
decrease was mainly due to the write-down of generation-related assets in
connection with the restructuring adjustments recorded in June 1998. See
Financial Note 4 of PP&L Resources' and PP&L's 1998 Form 10-K for additional
information.
Income Taxes
For the three months ended March 31, 1999, income tax expense decreased by
$10 million, or 11.9%, from the comparable period in 1998. This decrease was
primarily due to tax changes relating to the second quarter 1998 restructuring
write-off.
28
<PAGE>
Financial Condition
-------------------
Financing Activities
The following financing activities have occurred to date in 1999:
o Effective March 1, 1999, the DRIP was changed from a new issue to an
open market purchase program. In January and February 1999, PP&L
Resources issued $8 million of new common stock through the DRIP.
o In September 1998, PP&L Resources obtained authorization from the Board
of Directors to purchase up to three million shares of its common stock
on the open market. PP&L Resources has entered into a forward purchase
agreement with a third party to acquire these shares. The third party
has completed this three million share repurchase.
o In April 1999, PP&L Resources' Board of Directors authorized the
purchase of an additional four million shares of common stock on the
open market from time to time.
Refer to Financial Note 8 for additional information on credit arrangements and
financing activities.
Financing and Liquidity
The change in cash and cash equivalents for PP&L Resources for the three
months ended March 31, 1999, decreased $153 million from the comparable period
in 1998. The reasons for this change were:
o A $52 million decrease in cash provided by operating activities,
primarily due to the decline in net income when adjusted for the
impact of certain non-cash items. Earnings in 1999 benefited from a
net unrealized mark-to-market gain on trading activities, amortization
of the liability for above-market NUG purchases and lower
depreciation. The decrease also reflects lower margins on retail
revenues and an increase in operating expenses as a result of the move
to a competitive market. The decline in cash provided by operating
activities is also attributable to higher interest expenses in the
first quarter of 1999 compared with the same period in 1998.
o A $113 million decrease in cash used in investing activities,
primarily due to a decrease in PP&L Global's investment in
unconsolidated affiliates.
o A $214 million decrease in cash from financing activities. This
decrease was due to issuance of $60 million of long-term debt in 1998
and a decrease in short-term debt of $30 million in the first quarter
of 1999, as compared with an increase of $124 million in the first
quarter of 1998.
29
<PAGE>
Financial Indicators
The results for the twelve months ended March 31, 1999 and 1998 were
impacted by extraordinary items (i.e. regulatory restructuring charges taken in
the second quarter of 1998), other one-time adjustments and weather. The
following financial indicators for PP&L Resources reflect the elimination of
these impacts from earnings, and provide a better measure of the underlying
earnings performance of PP&L Resources and its subsidiaries.
<TABLE>
<CAPTION>
12 Months Ended March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Earnings per share, as adjusted $ 2.14 $ 1.99
Return on average common equity 12.47% 11.53%
Ratio of pre-tax income to
interest charges 3.55 3.50
Dividends declared per share $1.1675 $ 1.67
Book value per share $ 17.67 $17.01
Ratio of market price per share
to book value per share 146% 138%
</TABLE>
Acquisitions
In February 1999, PP&L Resources acquired McCarl's; and in April 1999, PP&L
Spectrum acquired Burns Mechanical. These mechanical contractor and engineering
firms were purchased for amounts that were not material.
In September 1998, PP&L Global announced an agreement to acquire most of
Bangor Hydro-Electric Company's generating assets (100% of its hydroelectric
assets) and certain transmission rights, as well as its interest in an oil-fired
generation facility, for $89 million. All necessary regulatory approvals have
been obtained and a May 1999 closing is anticipated.
PP&L Global also has signed definitive agreements with Montana Power
Company, Portland General Electric Company and Puget Sound Energy, Inc. to
acquire 13 Montana power plants, with 2,614 MW of generating capacity, for a
purchase price of $1.586 billion. The acquisition is subject to several
conditions, including the receipt of required state and federal regulatory
approvals and third-party consents. In this regard, PP&L Global will own 100% of
Colstrip units 1 and 2 and 75% of Colstrip units 3 and 4 as both PacifiCorp and
Avista Corporation will maintain their existing ownership percentages. PP&L
Global expects to complete this acquisition by the end of 1999. About 65% of the
acquisition cost is expected to be financed on a project credit basis, non-
recourse to PP&L Global and PP&L Resources. The balance of the acquisition cost
is expected to be financed through a
30
<PAGE>
combination of debt and equity issued by PP&L Resources. The agreements also
provide for PP&L Global's acquisition of related transmission assets for an
additional $182 million, subject to certain conditions, including federal
regulatory approval.
PP&L Global continues to pursue opportunities to develop and acquire
electric generation, transmission and distribution facilities in the United
States and abroad.
As of March 31, 1999, PP&L Global had investments of $674 million in
distribution, transmission and generation facilities in the U.K., Bolivia, Peru,
Argentina, Brazil, Spain, Portugal, Chile and El Salvador. PP&L Global's major
investments to date are SWEB, Emel and DelSur.
Commitments and Contingent Liabilities
There have been no material changes related to PP&L Resources' or PP&L's
commitments and contingent liabilities since the companies filed their joint
1998 Form 10-K, except for loan guarantees discussed in Note 9 to the Financial
Statements.
Increasing Competition
Background
----------
The electric utility industry has experienced and will continue to
experience a significant increase in the level of competition in the energy
supply market. PP&L has publicly expressed its support for full customer choice
of electricity suppliers for all customer classes. PP&L is actively involved in
efforts at both the state and federal levels to encourage a smooth transition to
full competition.
Pennsylvania Activities
-----------------------
Reference is made to Note 3 to the Financial Statements in PP&L Resources'
and PP&L's Form 10-K for the year ended December 31, 1998 for a discussion of
PP&L's PUC restructuring proceeding under the Customer Choice Act.
Reference is also made to Note 3 to the Financial Statements in PP&L
Resources' and PP&L's Form 10-K for the year ended December 31, 1998 regarding
PP&L's transfer of its retail electric marketing function to a separate,
affiliated corporation. PP&L formed a new subsidiary, PP&L EnergyPlus, for this
purpose. PP&L EnergyPlus has a PUC license to act as a Pennsylvania EGS. This
license permits PP&L EnergyPlus to offer retail electric supply to participating
customers in PP&L's service territory and in the service territories of other
Pennsylvania utilities. In 1999, PP&L EnergyPlus is offering such supply to
industrial and commercial customers throughout the state. At this time, PP&L
EnergyPlus has determined not to pursue residential customers in the competitive
marketplace based on economic considerations.
31
<PAGE>
Federal Activities
------------------
In June 1997, all of the PJM companies except PECO (the PJM Supporting
Companies) filed proposals with the FERC to amend the PJM tariff and restructure
the PJM pool. PECO filed a separate request with the FERC to amend the PJM
tariff. Furthermore, PECO and certain electric marketers submitted
significantly different proposals to restructure the PJM pool.
In November 1997, the FERC approved, with certain modifications, the PJM
Supporting Companies' proposals for transforming the PJM into an ISO. In
summary, the FERC order: (i) approved the PJM's open access transmission rates
based on geographic zones, but required PJM to file a single PJM system-wide
rate proposal by 2002; (ii) accepted the PJM Supporting Companies' methodology
to price transmission when the system is congested and to charge these
congestion costs to system users in addition to the open access transmission
rates, but ordered PJM to file an additional proposal to address concerns raised
over price certainty for buyers and sellers during periods of congestion; (iii)
determined that the ISO is to operate both the transmission system and the power
exchange which provides for the purchase and sale of spot energy within the PJM
market; and (iv) accepted the PJM Supporting Companies' proposal regarding
mandatory installed capacity obligations for all entities serving firm retail
and wholesale load within PJM, but rejected their proposal for allocating the
capacity benefits which result from PJM's ability to import power from other
regional power pools.
The PJM Supporting Companies and numerous other parties have filed requests
for amendment and/or rehearing of virtually every portion of the FERC's PJM ISO
order. PP&L also has filed its own request for amendment and/or rehearing. The
FERC has not yet taken action on these filings. PP&L's primary issue with the
FERC's order relates to a requirement that existing wholesale contracts for
sales service and transmission service be modified to have the new PJM
transmission tariff applied to service under these existing contracts and the
requirement that PP&L modify these contracts to ensure that customers are not
assessed multiple transmission charges.
In March 1999, the FERC approved the request of the PJM Supporting
Companies to permit generators to use market-based bids instead of cost-based
bids when selling into the PJM Interchange Market. The existing $1000 per MWH
cap on bids was retained. Accordingly, beginning on April 1, 1999, the hourly
price of energy purchased on the PJM Interchange Market will be a market-based
rate not exceeding $1000 per MWH.
In September 1998, PP&L filed its EGS Coordination Tariff with the FERC.
The EGS Coordination Tariff applies to entities licensed to serve retail
electricity customers under the Commonwealth of Pennsylvania's retail access
program. The purpose of the EGS Coordination Tariff is to permit PP&L to
provide EGSs' with certain FERC-jurisdictional services which will facilitate
the ability of EGS' to meet their obligations under the PJM Open Access
Transmission Tariff and related agreements of the PJM.
32
<PAGE>
The FERC accepted the EGS Coordination Tariff for filing in October 1998 but in
a later order stated that it would issue a decision holding that the EGS
Coordination Tariff did not need to be filed with the FERC. That decision has
not yet been issued.
Reference is made to "Pennsylvania Activities" above for a discussion of
PP&L's retail electric marketing subsidiary, PP&L EnergyPlus. PP&L EnergyPlus
has authority from the FERC to sell electric energy and capacity at market-based
rates and to sell, assign or transfer transmission rights and associated
ancillary services. PP&L has a FERC-filed code of conduct governing its
relationship with such affiliates that engage in the sale and/or transmission of
electric energy.
Year 2000
PP&L Resources and its subsidiaries utilize computer-based systems
throughout their businesses. In the year 2000, these systems will face a
potentially serious problem with recognizing calendar dates. Without corrective
action, the most reasonable worst case scenario regarding Year 2000 issues could
result in computer shutdown or erroneous calculations causing operational
problems at the generating stations; diminished ability to monitor, control and
coordinate generation with the transmission and distribution systems; and
adverse impacts on the operation of various monitoring and metering equipment
utilized throughout PP&L's system. A Company-wide Year 2000 coordination
committee was formed to raise the awareness of the Year 2000 issue, share
information and review the progress towards compliance. A seven-step approach
was developed to achieve Year 2000 compliance by assessing and remediating the
problem in application software, hardware, plant control systems and devices
containing embedded microprocessors. The seven steps in the plan include
awareness, inventory, assessment, remediation, testing, implementation, and
contingency planning. PP&L Resources has identified and communicated with
critical suppliers, such as fuel suppliers, in order to obtain assurances that
they are in compliance with Year 2000 issues. The majority of the responses
from these parties are favorable, with some responses still being evaluated and
followed-up as appropriate.
Delivery of electricity is dependent on the overall reliability of the
electric grid. PP&L is cooperating and coordinating with the North American
Electric Reliability Council and the PJM Interconnection regarding Year 2000
remediation efforts.
As of March 31, 1999, PP&L Resources estimates that approximately 83% of
mainframe applications that will remain in production have been determined as
being Year 2000 compliant. It is anticipated that all mission-critical systems
(i.e. mainframe, embedded technologies, and client server applications) will be
Year 2000 ready by July 1, 1999 and all systems ready by November 30, 1999.
Year 2000 compliant means computer systems or equipment with date-sensitive
chips will accurately process date and time data. Year 2000 ready means that
the computer systems or equipment with date-sensitive chips can be used on
January 1, 2000, and beyond, but are not fully year 2000 compliant.
33
<PAGE>
PP&L has basic contingency plans in place to address issues such as
blackouts on the electrical grid, cold starts of generating facilities and
disaster recovery procedures for the computing environment. PP&L recognizes
that additional contingency plans are necessary and, as part of the seven-step
remediation process, continues to develop additional contingency plans that may
be needed.
The additional plans that have been developed address loss of
telecommunications, loss of off-site power to various generating stations,
degradation of emergency planning capabilities, running out of consumables,
electrical system disturbance or failure, power plant control system failures,
fuel delivery problems, problems with various relays or programming logic
control, and staffing concerns.
In May 1998, the NRC issued a notification requirement under which nuclear
utilities are required to inform the NRC, in writing, that they are working to
solve the Year 2000 computer problem. In addition, nuclear utilities have until
July 1, 1999, to inform the NRC that their computers are Year 2000
compliant/ready or to submit a status report summarizing the on-going work.
PP&L filed its written response with the NRC in August 1998, detailing its Year
2000 compliance activities. PP&L plans a further NRC filing by July 1, 1999,
concerning the year 2000 readiness of the nuclear power plant.
In February 1999, an independent assessment of the Nuclear Department's
Year 2000 Program Readiness Plan was performed with no significant adverse
findings identified. The results of that assessment are being incorporated into
the overall Year 2000 Program Readiness Plan for the Nuclear Department. In May
1999, the NRC will be conducting an audit of PP&L's nuclear-related Year 2000
compliance activities. This audit will be observed by the PUC.
In July 1998, the PUC initiated a non-adversarial investigation to be
conducted by the Office of Administrative Law Judge "to accurately assess any
and all steps taken and proposed to be taken to resolve the Year 2000 compliance
issue by all jurisdictional fixed utilities and mission-critical service
providers such as the PJM." The PUC required all jurisdictional utilities to
file a written response to a list of questions concerning Year 2000 compliance;
and that, if mission-critical systems cannot be made Year 2000 compliant on or
before March 31, 1999, to file a detailed contingency plan by that date. PP&L
filed its written response to the PUC questions in August 1998 and in November
1998 submitted testimony to the PUC that PP&L would have its mission-critical
systems Year 2000 ready by July 1, 1999, and all systems ready by November 30,
1999. On March 31, 1999, PP&L filed its contingency plans with the PUC and will
continue to update these plans on an ongoing basis.
In early March 1999, the PUC conducted an audit of PP&L's Year 2000
compliance activities. In conjunction with this audit, PP&L submitted to the
PUC an update to its November 1998 testimony. On March 26, 1999, the Company
filed its Year 2000 testing schedule with the PUC; meanwhile
34
<PAGE>
the PUC staff has been on-site observing some of the testing being performed.
PP&L, along with utilities throughout the country, participated in an emergency
exercise that simulated the loss of normal communications on the power grid as
the result of Year 2000 computer problems. The results of the exercise
demonstrated that all backup communication systems operated properly.
An internal audit performed during the first quarter of 1999 evaluated the
approaches used by each business entity within PP&L to address Year 2000 issues.
This review indicated some improvements are required by certain business
entities to improve their Year 2000 efforts to ensure that all mission-critical
systems are either Year 2000 compliant or Year 2000 ready by July 1, 1999. The
audit recommendations are being incorporated into the respective business
entities' Year 2000 remediation efforts. PP&L also plans to follow-up on the
status of the remediation efforts of mission-critical systems in order to ensure
they will be Year 2000 compliant or Year 2000 ready by July 1, 1999.
At this time, PP&L has achieved the following completion percentages on the
seven steps referenced above for Year 2000 compliance: awareness, 94%;
inventory, 99%; assessment, 98%; remediation, 83%; testing, 84%; implementation,
66%; and additional contingency plans (beyond the basic plans referenced above),
35%.
Based upon present assessments, PP&L Resources estimates that it will incur
approximately $14 million in Year 2000 remediation costs. Through March 31,
1999, PP&L Resources spent approximately $10 million in remediation costs, which
included assistance from outside consultants. These costs are being funded
through internally generated funds and are being expensed as incurred.
35
<PAGE>
PP&L Resources, Inc. and PP&L, Inc.
-----------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Reference is made to "Quantitative and Qualitative Disclosures About Market
Risk."
36
<PAGE>
PP&L RESOURCES, INC. AND
------------------------
PP&L, INC. AND SUBSIDIARIES
---------------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Reference is made to "Increasing Competition" for information regarding
pending FERC proceedings.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
3(i) - Amended and Restated Articles of PP&L, Inc.
12 - Computation of Ratio of Earnings to Fixed Charges
27 - Financial Data Schedule
(b) Reports on Form 8-K
Report dated February 18, 1999
------------------------------
Item 5. Other Events
Information regarding PP&L Resources' projected earnings for 1999
through 2001.
Report dated March 10, 1999
---------------------------
Item 5. Other Events
Information regarding PP&L Capital Funding's registration of $400
million of debt securities.
37
<PAGE>
GLOSSARY OF TERMS AND ABBREVIATIONS
Atlantic - Atlantic City Electric Company
Bangor Hydro - Bangor Hydro-Electric Company
Burns Mechanical - Burns Mechanical, Inc., a PP&L Spectrum unregulated
subsidiary specializing in mechanical contracting and engineering.
Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation enacted
to address environmental issues including acid rain, ozone and toxic air
emissions.
CTC - competitive transition charge
Customer Choice Act - (Pennsylvania Electricity Generation Customer Choice and
Competition Act) - legislation enacted to restructure the state's electric
utility industry to create retail access to a competitive market for generation
of electricity
Delsur - Distributidora Electricidad del Sur S.A., an electric distribution
company in El Salvador
DEP - Pennsylvania Department of Environmental Protection
District Court - United States District Court for the Eastern District of
Pennsylvania.
DRIP (Dividend Reinvestment Plan) - program available to shareowners of PP&L
Resources' common stock and PP&L preferred stock to reinvest dividends in PP&L
Resources' common stock instead of receiving dividend checks.
EGS - electric generation supplier
Emel - Empresas Emel, S.A., a Chilean electric distribution holding company
Energy Marketing Center - organization within PP&L responsible for marketing and
trading wholesale energy
EPA - Environmental Protection Agency
FGD - flue gas desulfurization equipment installed at coal-fired power plants to
reduce sulfur dioxide emissions.
FERC (Federal Energy Regulatory Commission) - federal agency that regulates
interstate transmission and sale of electricity and related matters.
H.T. Lyons - H.T. Lyons, Inc., a PP&L Resources unregulated subsidiary
specializing in mechanical contracting and engineering.
ISO - Independent System Operator
ITC - intangible transition charge
JCP&L - Jersey Central Power & Light Company
LIBOR - London Interbank Offering Rate
McCarl's - McCarl's Inc., a PP&L Resources unregulated subsidiary specializing
in mechanical contracting and engineering.
McClure - McClure Company, a PP&L Resources unregulated subsidiary specializing
in mechanical contracting and engineering.
NO/x/ - nitrogen oxide
NPDES - National Pollutant Discharge Elimination System
NRC (Nuclear Regulatory Commission) - federal agency that regulates operation of
nuclear power facilities
NUG (Non-Utility Generator) - generating plants not owned by regulated
utilities. If the NUG meets certain criteria, its electrical output must be
purchased by public utilities as required by PURPA.
PCB (Polychlorinated Biphenyl) - additive to oil used in certain electrical
equipment up to the late-1970s. Now classified as a hazardous chemical.
38
<PAGE>
PECO - PECO Energy Company
Penn Fuel Gas - Penn Fuel Gas, Inc., a PP&L Resources regulated subsidiary
specializing in natural gas distribution, transmission and storage services, and
the sale of propane.
PJM (PJM Interconnection, LLC) - operates the electric transmission network and
electric energy market in the mid-Atlantic region of the U.S.
PP&L - PP&L, Inc.
PP&L Capital Funding - PP&L Capital Funding, Inc., PP&L Resources' financing
subsidiary.
PP&L EnergyPlus - Refers to PP&L, Inc. d/b/a PP&L EnergyPlus, and PP&L
EnergyPlus Co., a PP&L, Inc. unregulated subsidiary which is involved in retail
electric generating supply. During 1998, PP&L, Inc. d/b/a PP&L EnergyPlus
provided retail electric generating supply in the Pennsylvania retail pilot
program. As a result of the PUC restructuring settlement, PP&L EnergyPlus
became a separate subsidiary of PP&L, Inc. in September 1998. As of January
1999, PP&L EnergyPlus Co. is providing retail electric generating supply to
customers throughout Pennsylvania.
PP&L Global - PP&L Global, Inc., a PP&L Resources unregulated subsidiary which
invests in and develops world-wide power projects.
PP&L Resources - PP&L Resources, Inc., the parent holding company of PP&L, PP&L
Global and other subsidiaries.
PP&L Spectrum - PP&L Spectrum, Inc., a PP&L Resources unregulated subsidiary
which offers energy-related products and services.
PUC (Pennsylvania Public Utility Commission) - state agency that regulates
certain ratemaking, services, accounting, and operations of Pennsylvania
utilities.
PUC Final Order - Final order issued by the PUC on August 27, 1998, approving
the settlement of PP&L, Inc.'s restructuring proceeding.
SEC - Securities and Exchange Commission
SO/2/ - Sulfur dioxide
SUPERFUND - federal and state legislation that addresses remediation of
contaminated sites.
SWEB - South Western Electricity plc, a British regional electric utility
company.
U.K. - United Kingdom
YEAR 2000 - a set of date-related problems that may be experienced by software
systems or applications.
39
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature for each undersigned
company shall be deemed to relate only to matters having reference to such
company or its subsidiary.
PP&L RESOURCES, INC.
--------------------
(Registrant)
PP&L, INC.
--------------------
(Registrant)
Date: May 13, 1999 /s/ John R. Biggar
--------------------------------------
John R. Biggar
Senior Vice President and
Chief Financial Officer
(PP&L Resources, Inc. and PP&L, Inc.)
/s/ Joseph J. McCabe
--------------------------------------
Joseph J. McCabe
Vice President & Controller
(PP&L Resources, Inc. and PP&L, Inc.)
40
<PAGE>
EXHIBIT 12
PP&L RESOURCES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
<TABLE>
<CAPTION>
12 Months
Ended 12 Months Ended
March 31, December 31,
------------------------------------------------
1999(a) 1998(a) 1997 1996 1995 1994
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest on long-term debt......................... $ 207 $ 203 $ 196 $ 207 $ 213 $ 214
Interest on short-term debt
and other interest.............................. 37 33 26 17 18 18
Amortization of debt discount, expense
and premium - net................................ 2 2 2 2 2 2
Interest on capital lease obligations
Charged to expense............................. 8 8 9 13 15 12
Capitalized.................................... 2 2 2 2 2 1
Estimated interest component of
operating rentals................................ 18 18 15 8 8 6
Proportionate share of fixed charges
of 50-percent-or-less-owned
persons.......................................... 1 1 1 1 1 1
------ ------ ------ ------ ------ ------
Total fixed charges........................ $ 275 $ 267 $ 251 $ 250 $ 259 $ 254
------ ------ ------ ------ ------ ------
Earnings, as defined:
Net income......................................... $ 398 $ 379 $ 296 $ 329 $ 323 $ 216
Preferred and Preference Stock
Dividend Requirements............................ 26 25 24 28 28 28
Less undistributed income of less
than 50-percent-owned persons.................... - - - - - -
------ ------ ------ ------ ------ ------
424 404 320 357 351 244
Add (Deduct):
Income taxes....................................... 249 259 238 253 286 180
Amortization of capitalized interest................
on capital leases.................................. 2 2 2 4 5 9
Total fixed charges as above
(excluding capitalized interest
on capital lease obligations).................... 273 265 248 248 257 253
------ ------ ------ ------ ------ ------
Total earnings............................. $ 948 $ 930 $ 808 $ 862 $ 899 $ 686
====== ====== ====== ====== ====== ======
Ratio of earnings to fixed
charges............................................ 3.45 3.48 3.22 3.45 3.47 2.70
====== ====== ====== ====== ====== ======
</TABLE>
(a) Excluding extraordinary items.
41
<PAGE>
EXHIBIT 3(i)
PP&L, INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE I. The name of the Corporation is
PP&L, INC.
ARTICLE II. The location and post office address of the registered office of
the Corporation in this Commonwealth is
Two North Ninth Street
Allentown, Pennsylvania 18101
ARTICLE III. The purpose or purposes for which the Corporation is incorporated
under the Business Corporation Law of the Commonwealth of Pennsylvania are to
engage in, and do any lawful act concerning, any or all lawful business for
which a corporation may be incorporated under said Business Corporation Law,
including but not limited to:
1. The supply of light, heat or power to the public by means of electricity
or by any other means.
2. The production, generation, manufacture, transmission, storage,
distribution or furnishing of artificial or natural gas, electricity or steam
or air conditioning or refrigerating services, or any combination thereof to
or for the public.
3. The diverting, pumping or impounding of water for the development or
furnishing of hydroelectric power to or for the public.
4. The transportation of artificial or natural gas, electricity, petroleum
or petroleum products or water or any combination of such substances for the
public.
5. The diverting, developing, pumping, impounding, distributing or
furnishing of water from either surface or subsurface sources to or for the
public.
6. Manufacturing, processing, owning, using and dealing in personal property
of every class and description, engaging in research and development, the
furnishing of services, and acquiring, owning, using and disposing of real
property of every nature whatsoever.
ARTICLE IV. The term for which the Corporation is to exist is perpetual.
ARTICLE V. The aggregate number of shares which the Corporation shall have
authority to issue is 185,629,936 shares, divided into 629,936 shares of 4-1/2%
Preferred Stock, par value $100 per share; 10,000,000 shares of Series Preferred
Stock, par value $100 per share; 5,000,000 shares of Preference Stock, without
nominal or par value; and 170,000,000 shares of Common Stock, without nominal or
par value.
ARTICLE VI. The designations, preferences, qualifications, limitations,
restrictions, and the special or relative rights in respect of the shares of
each class shall be as follows:
-1-
<PAGE>
DIVISION A -- 4-1/2% PREFERRED STOCK
Section 1. Dividend Rate. The 4-1/2% Preferred Stock shall be entitled to
dividends, as provided in Division C, at the rate of four and one-half percent
(4-1/2%) per annum, such dividends to be cumulative from the date of issuance
thereof.
Section 2. Restrictions on Certain Corporate Action. (A) Upon the vote of
a majority of all the Directors of the Corporation and of a majority of the
total number of shares of stock then issued and outstanding and entitled to
vote, the Corporation may from time to time create or authorize one or more
other classes of stock with such designations, rights, privileges, limitations,
preferences, voting powers, prohibitions, restrictions or qualifications of the
voting and other rights and powers and terms as to redemption as may be
determined by said vote, which may be the same or different from the
designations, rights, privileges, limitations, preferences, voting powers,
prohibitions, restrictions or qualifications of the classes of stock of the
Corporation then authorized; provided, however, that no new class of stock shall
hereafter be created or authorized which is entitled to dividends or shares in
distribution of assets on a parity with or in priority to the 4-1/2% Preferred
Stock, nor shall there be created or authorized any securities convertible into
shares of any such stock, unless the holders of record of not less than two-
thirds of the number of shares of 4-1/2% Preferred Stock then outstanding shall
consent thereto in writing or by voting therefor in person or by proxy at the
meeting of shareholders at which the creation or authorization of such new class
of stock or such convertible securities is considered. Any such vote may
authorize any shares of any class then authorized but unissued to be issued as
shares of such new class or classes.
(B) The expressed rights, privileges, terms and conditions of the 4-1/2%
Preferred Stock then outstanding shall not be amended, altered, changed or
repealed in a manner substantially prejudicial to the holders thereof unless the
holders of record of not less than two-thirds of the number of shares of the 4-
1/2% Preferred Stock then outstanding shall consent thereto in writing or by
voting therefor in person or by proxy at the meeting of shareholders at which
such amendment, alteration, change or repeal is considered.
DIVISION B -- SERIES PREFERRED STOCK
Section 1. Division into Series. (A) All shares of Series Preferred Stock
shall be identical except that the dividend rate, the amount to which such
shares shall be entitled upon redemption and upon liquidation, the sinking fund,
if any, as well as the provisions, if any, with respect to convertibility may
vary between different series. The Series Preferred Stock may be divided into,
and issued from time to time, in one or more series, each of such series to have
such distinctive designation, terms, relative rights, privileges, limitations,
preferences and voting powers and such prohibitions, restrictions, and
qualifications of the voting and other rights and powers as are fixed and
determined in this Article VI or in a resolution or resolutions providing for
the issue of such series adopted by the Board of Directors as provided in this
Division B.
(B) Authority is hereby expressly granted to the Board of Directors to
establish one or more series of Series Preferred Stock and with respect to each
series to fix and determine by resolution or resolutions providing for the issue
of such series:
(1) the number of shares to constitute such series and the distinctive
designation thereof to distinguish the shares thereof from the shares of all
other series and classes;
(2) the dividend rate on the shares of such series, and the date or dates
from which dividends shall be cumulative;
(3) the amount to which shares of such series shall be entitled upon
redemption;
(4) the amount to which shares of such series shall be entitled upon
liquidation;
(5) the amount of the sinking fund, if any, for the purchase or redemption
of shares of such series; and
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(6) the terms and conditions, if any, upon which the shares of such series
may be converted into other securities of the Corporation.
Section 2. Restrictions on Certain Corporate Action. (A) Upon the vote of
a majority of all of the Directors of the Corporation and of a majority of the
total number of shares of stock then issued and outstanding and entitled to
vote, the Corporation may from time to time create or authorize one or more
classes of stock in addition to the Series Preferred Stock, the 4-1/2% Preferred
Stock, the Preference Stock and the Common Stock, with such designations,
rights, privileges, limitations, preferences, voting powers, prohibitions,
restrictions or qualifications of the voting and other rights and powers and
terms as to redemption as may be determined by said vote, which may be the same
or different from the designations, rights, privileges, limitations,
preferences, voting powers, prohibitions, restrictions or qualifications of the
classes of stock of the Corporation then authorized; provided, however, that no
new class of stock shall hereafter be created or authorized which is entitled to
dividends or shares in distribution of assets on a parity with or in priority to
the Series Preferred Stock, nor shall there be created or authorized any
securities convertible into shares of any such stock, unless the holders of
record of not less than two-thirds of the number of shares of the Series
Preferred Stock and the 4-1/2% Preferred Stock then outstanding (consenting or
voting as a single class separate from the holders of the Preference Stock and
the Common Stock) shall consent thereto in writing or by voting therefor in
person or by proxy at the meeting of shareholders at which the creation or
authorization of such new class of stock or such convertible securities is
considered. Any such vote may authorize any shares of any class then authorized
but unissued to be issued as shares of such new class or classes.
(C) The provisions of this Section 2 of this Division B requiring the approval
of a specified percentage of the holders of the Series Preferred Stock and the
4-1/2% Preferred Stock voting or consenting as a class shall be construed as in
addition to and not in substitution for, any provisions of Division A of this
Article VI requiring the approval of the holders of a specified percentage of
the 4-1/2% Preferred Stock.
(D) The expressed rights, privileges, terms and conditions of the Series
Preferred Stock then outstanding, insofar as they are set forth in the foregoing
subsections of this Section 2 shall not be amended, altered, changed or repealed
in a manner substantially prejudicial to the holders thereof unless (1) the
holders of record of not less than two-thirds of the number of shares of the
Series Preferred Stock and the 4-1/2% Preferred Stock then outstanding
(consenting or voting as a single class separate from the holders of the
Preference Stock and the Common Stock) shall consent thereto in writing or by
voting therefor in person or by proxy at the meeting of shareholders at which
such amendment, alteration, change or repeal is considered, and (2) the
expressed rights, privileges, terms and conditions of the 4-1/2% Preferred
Stock, are, at the same time, similarly amended, altered, changed or repealed.
The expressed rights, privileges, terms and conditions of the Series Preferred
Stock then outstanding, other than those set forth in the foregoing subsections
of this Section 2, shall not be amended, altered, changed or repealed in a
manner substantially prejudicial to the holders thereof unless the holders of
record of not less than two-thirds of the number of shares of the Series
Preferred Stock then outstanding shall consent thereto in writing or by voting
therefor in person or by proxy at the meeting of shareholders at which such
amendment, alteration, change or repeal is considered.
Section 3. Variations Among Series of Series Preferred Stock. (A) 4.60%
Series Preferred Stock. The terms of the "4.60% Series Preferred Stock," in the
respects in which the shares of such series may vary from shares of other series
of the Series Preferred Stock shall be as follows: the dividend rate shall be
4.60% per annum, and dividends on each share of such series shall be cumulative
from the date or dates of initial issue of shares of such series; the redemption
price shall be $103 per share at any time; $103 per share shall be payable upon
any voluntary liquidation, dissolution or winding up of the Corporation and $100
per share shall be payable upon any involuntary liquidation, dissolution or
winding up of the Corporation. The number of shares of this series authorized is
63,000 shares.
(B) 4.40% Series Preferred Stock. The terms of the "4.40% Series Preferred
Stock" in the respects in which the shares of such series may vary from shares
of other series of the Series Preferred Stock shall be as follows: the dividend
rate shall be 4.40% per annum, and dividends on each share of such series shall
be cumulative from the date or dates of the initial issue of shares of such
series; the redemption price shall be $102 per share at any time; $102 per share
shall be payable upon any voluntary liquidation, dissolution or winding up of
the Corporation and
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$100 per share shall be payable upon any involuntary liquidation, dissolution or
winding up of the Corporation. The number of shares of this series authorized is
229,214 shares.
(C) 3.35% Series Preferred Stock. The terms of the "3.35% Series Preferred
Stock" in the respects in which the shares of such series may vary from shares
of other series of the Series Preferred Stock shall be as follows: the dividend
rate shall be 3.35% per annum and dividends on each share of such Series shall
be cumulative from the date or dates of the initial issue of shares of such
series; the redemption price shall be $103.50 per share at any time; $103.50 per
share shall be payable upon any voluntary liquidation, dissolution or winding up
of the Corporation and $100 per share shall be payable upon any involuntary
liquidation, dissolution or winding up of the Corporation. The number of shares
of this series authorized is 53,248 shares.
(D) 6.75% Series Preferred Stock. The terms of the "6.75% Series Preferred
Stock" in the respects in which the shares of such series may vary from shares
of other series of the Series Preferred Stock shall be as follows:
(1) The dividend rate shall be 6.75% per annum and dividends on each share
of such Series shall be cumulative from the date or dates of the initial issue
of shares of such series;
(2) Shares of this Series are not redeemable prior to October 1, 2003. On or
after October 1, 2003, the Corporation may, by resolution of the Board of
Directors or the Executive Committee of the Board of Directors, redeem all, or
from time to time, any part of the outstanding shares of this Series, at the
following redemption prices per share:
<TABLE>
<CAPTION>
IF REDEEMED DURING TWELVE MONTH REDEMPTION
------------------------------- ----------
PERIOD ENDING SEPTEMBER 30 PRICES
------------------------------- ------
<S> <C>
2004.............................................. 103.38%
2005.............................................. 103.04
2006.............................................. 102.70
2007.............................................. 102.36
2008.............................................. 102.03
2009.............................................. 101.69
2010.............................................. 101.35
2011.............................................. 101.01
2012.............................................. 100.68
2013.............................................. 100.34
</TABLE>
and thereafter at $100.00 per share. Any shares of this Series which are
redeemed, repurchased or otherwise reacquired by the Corporation shall,
until further action by the Board of Directors or the Executive
Committee of the Board of Directors, have the status of authorized and
unissued shares of Series Preferred Stock, without designation as to
series.
(3) $100.00 per share shall be payable upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation. The shares of this
Series shall not be convertible into shares of any other class or classes or
into any other securities of the Corporation. The number of shares of this
series authorized is 850,000 shares.
(E) 6.125% Series Preferred Stock. The terms of the "6.125% Preferred Stock"
in the respects in which the shares of such series may vary from shares of other
series of the Series Preferred Stock shall be as follows:
(1) The dividend rate shall be 6.125% per share per annum and dividends on
each share of such Series shall be cumulative from the date or dates of the
initial issue of shares of such Series;
(2) So long as any shares of this Series remain outstanding, the
Corporation, after full dividends on all outstanding shares of the 4-1/2%
Preferred Stock and the Series Preferred Stock, including this Series, for all
past dividend periods shall have been paid or set aside, shall redeem as and
for a sinking fund for the retirement of this Series (the "6.125% Sinking
Fund"), out of funds legally available therefor, (i) annually on October 1 in
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each of the years 2003 through 2007, 57,500 shares of this Series, and (ii) on
October 1, 2008, the remaining shares of this Series. The Corporation's
obligation to make redemptions for the 6.125% Sinking Fund on any such October
1 as provided in this subparagraph (2) (such obligations on each such date
being herein called the "6.125% Sinking Fund Obligation") shall be
cumulative so that if on any such October 1 the funds of the Corporation
legally available for the 6.125% Sinking Fund shall be insufficient to permit
the Corporation to discharge its 6.125% Sinking Fund Obligation on such date,
or if for any other reason such 6.125% Sinking Fund Obligation shall not have
been discharged in full on such date, then such 6.125% Sinking Fund
Obligation, to the extent not discharged, shall become an additional 6.125%
Sinking Fund Obligation for each succeeding October 1 until fully discharged.
The price at which shares of this Series shall be called for redemption
through the 6.125% Sinking Fund shall be $100 per share, plus an amount equal
to accumulated and unpaid dividends to the date of such redemption computed as
provided in Section 5 of Division C of Article VI of these Amended and
Restated Articles of Incorporation. The Corporation's 6.125% Sinking Fund
Obligation may be discharged, in whole or part, by the application of any
shares of this Series purchased or otherwise acquired by the Corporation on or
before such date. If the Corporation shall for any reason fail to discharge in
full its 6.125% Sinking Fund Obligation on any such October 1, the Corporation
shall not thereafter, unless and until such 6.125% Sinking Fund Obligation and
its 6.125% Sinking Fund Obligation for each and every prior October 1 shall
have been discharged in full, declare or pay any dividend on, or make any
other distribution of property with respect to, or purchase or otherwise
acquire, any of its Common Stock.
(3) Shares of this Series are not redeemable prior to October 1, 2003. On
and after October 1, 2003, the Corporation may, by resolution of the Board of
Directors or the Executive Committee of the Board of Directors, redeem all, or
from time to time, any part of the outstanding shares of this Series at $100
per share. Any shares of this Series which are redeemed, repurchased or
otherwise reacquired by the Corporation shall, until further action by the
Board of Directors or the Executive Committee of the Board of Directors, have
the status of authorized and unissued shares of Series Preferred Stock,
without designation as to series.
(4) $100.00 per share shall be payable upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation. The shares of this
Series shall not be convertible into shares of any other class or classes or
into any other securities of the Corporation. The number of shares of this
series authorized is 1,150,000 shares.
(F) 6.33% Series Preferred Stock. The terms of the "6.33% Preferred Stock"
in the respects in which the shares of such series may vary from shares of other
series of the Series Preferred Stock shall be as follows:
(1) The dividend rate shall be 6.33% per share per annum and dividends on
each share of such Series shall be cumulative from the date or dates of the
initial issue of shares of such Series;
(2) So long as any shares of this Series remain outstanding, the
Corporation, after full dividends on all outstanding shares of the 4-1/2%
Preferred Stock and the Series Preferred Stock, including this Series, for all
past dividend periods shall have been paid or set aside, shall redeem as and
for a sinking fund for the retirement of this Series (the "6.33% Sinking
Fund"), out of funds legally available therefor, (i) annually on July 1 in
each of the years 2003 through 2007, 50,000 shares of this Series, and (ii) on
July 1, 2008, the remaining shares of this Series. The Corporation's
obligation to make redemptions for the 6.33% Sinking Fund on any such July 1
as provided in this subparagraph (2) (such obligations on each such date being
herein called the "6.33% Sinking Fund Obligation") shall be cumulative so
that if on any such July 1 the funds of the Corporation legally available for
the 6.33% Sinking Fund shall be insufficient to permit the Corporation to
discharge its 6.33% Sinking Fund obligation on such date, or if for any other
reason such 6.33% Sinking Fund Obligation shall not have been discharged in
full on such date, then such 6.33% Sinking Fund Obligation, to the extent not
discharged, shall become an additional 6.33% Sinking Fund Obligation for each
succeeding July 1 until fully discharged. The price at which shares of this
Series shall be called for redemption through the 6.33% Sinking Fund shall be
$100 per share, plus an amount equal to accumulated and unpaid dividends to
the date of such redemption computed as provided in Section 5 of Division C of
Article VI of these Amended and Restated Articles of Incorporation. The
Corporation's 6.33% Sinking Fund Obligation may be discharged, in whole or
part, by the application of any shares of this Series purchased or otherwise
acquired by the Corporation on or
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<PAGE>
before such date. If the Corporation shall for any reason fail to discharge in
full its 6.33% Sinking Fund Obligation on any such July 1, the Corporation
shall not thereafter, unless and until such 6.33% Sinking Fund Obligation and
its 6.33% Sinking Fund Obligation for each and every prior July 1 shall have
been discharged in full, declare or pay any dividend on, or make any other
distribution of property with respect to, or purchase or otherwise acquire,
any of its Common Stock.
(3) Shares of this Series are not redeemable prior to October 1, 2003. On
and after October 1, 2003, the Corporation may, by resolution of the Board of
Directors or the Executive Committee of the Board of Directors, redeem all, or
from time to time, any part of the outstanding shares of this Series at $100
per share. Any shares of this Series which are redeemed, repurchased or
otherwise reacquired by the Corporation shall, until further action by the
Board of Directors or the Executive Committee of the Board of Directors, have
the status of authorized and unissued shares of Series Preferred Stock,
without designation as to series.
(4) $100.00 per share shall be payable upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation. The shares of this
Series shall not be convertible into shares of any other class or classes or
into any other securities of the Corporation. The number of shares of this
series authorized is 1,000,000 shares.
(G) 5.95% Series Preferred Stock. The terms of the "5.95% Preferred Stock"
in the respects in which the shares of such series may vary from shares of other
series of the Series Preferred Stock shall be as follows:
(1) The dividend rate shall be 5.95% per share per annum and dividends on
each share of such Series shall be cumulative from the date or dates of the
initial issue of shares of such Series;
(2) The Corporation, after full dividends on all outstanding shares of the
4-1/2% Preferred Stock and the Series Preferred Stock including this Series,
for all past dividend periods shall have been paid or set aside, shall redeem
as and for a sinking fund for the retirement of this Series (the "5.95%
Sinking Fund"), out of funds legally available therefor, on April 1, 2001,
all of the outstanding shares of this Series. If on April 1, 2001, the
required number of shares shall not be redeemed because of the lack of legally
available funds, or for any other reason, the amount required to be redeemed
shall be carried forward until such obligation is fully discharged. The price
at which shares of this Series shall be called for redemption through the
5.95% Sinking Fund shall be $100 per share, plus an amount equal to
accumulated and unpaid dividends to the date of such redemption computed as
provided in Section 5 of Division C of Article VI of these Amended and
Restated Articles of Incorporation. If the Corporation shall for any reason
fail to discharge in full its 5.95% Sinking Fund obligation on April 1, 2001,
the Corporation shall not thereafter, unless and until such 5.95% Sinking Fund
obligation shall have been discharged in full, declare or pay any dividend on,
or make any other distribution of property with respect to, or purchase or
otherwise acquire, any of its Common Stock. Any shares of this Series which
are redeemed, repurchased or otherwise reacquired by the Corporation shall,
until further action by the Board of Directors or the Executive Committee of
the Board of Directors, have the status of authorized and unissued shares of
Series Preferred Stock, without designation as to series.
(3) The amount per share for this Series payable to the holders thereof upon
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation shall be $100. The shares of this Series shall not be convertible
into shares of any other class or classes or into any other securities of the
Corporation. The number of shares of this Series authorized is 300,000 shares.
(H) 6.05% Series Preferred Stock. The terms of the "6.05% Preferred Stock"
in the respects in which the shares of such series may vary from shares of other
series of the Series Preferred Stock shall be as follows:
(1) The dividend rate shall be 6.05% per share per annum and dividends on
each share of such Series shall be cumulative from the date or dates of the
initial issue of shares of such Series;
(2) The Corporation, after full dividends on all outstanding shares of the
4-1/2% Preferred Stock and the Series Preferred Stock, including this Series,
for all past dividend periods shall have been paid or set aside,
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<PAGE>
shall redeem as and for a Sinking Fund for the retirement of this Series (the
"6.05% Sinking Fund"), out of funds legally available therefor, on April 1,
2002, all of the outstanding shares of this Series. If on April 1, 2002, the
required number of shares shall not be redeemed because of the lack of legally
available funds, or for any other reason, the amount required to be redeemed
shall be carried forward until such obligation is fully discharged. The price
at which shares of this Series shall be called for redemption through the
6.05% Sinking Fund shall be $100 per share, plus an amount equal to
accumulated and unpaid dividends to the date of such redemption computed as
provided in Section 5 of Division C of Article VI of these Amended and
Restated Articles of Incorporation. If the Corporation shall for any reason
fail to discharge in full its 6.05% Sinking Fund obligation on April 1, 2002,
the Corporation shall not thereafter, unless and until such 6.05% Sinking Fund
obligation shall have been discharged in full, declare or pay any dividend on,
or make any other distribution of property with respect to, or purchase or
otherwise acquire, any of its Common Stock. Any shares of this Series which
are redeemed, repurchased or otherwise reacquired by the Corporation shall,
until further action by the Board of Directors or the Executive Committee of
the Board of Directors, have the status of authorized and unissued shares of
Series Preferred Stock, without designation as to series.
(3) The amount per share for this Series payable to the holders thereof upon
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation shall be $100. The shares of this Series shall not be convertible
into shares of any other class or classes or into any other securities of the
Corporation. The number of shares of this Series authorized is 250,000 shares.
(I) 6.15% Series Preferred Stock. The terms of the "6.15% Preferred Stock"
in the respects in which the shares of such series may vary from shares of other
series of the Series Preferred Stock shall be as follows:
(1) The dividend rate shall be 6.15% per share per annum and dividends on
each share of such Series shall be cumulative from the date or dates of the
initial issue of shares of such Series;
(2) The Corporation, after full dividends on all outstanding shares of the
4-1/2% Preferred Stock and the Series Preferred Stock, including this Series,
for all past dividend periods shall have been paid or set aside, shall redeem
as and for a sinking fund for the retirement of this Series (the "6.15%
Sinking Fund"), out of funds legally available therefor, on April 1, 2003,
all of the outstanding shares of this Series. If on April 1, 2003, the
required number of shares shall not be redeemed because of the lack of legally
available funds, or for any other reason, the amount required to be redeemed
shall be carried forward until such obligation is fully discharged. The price
at which shares of this Series shall be called for redemption through the
6.15% Sinking Fund shall be $100 per share, plus an amount equal to
accumulated and unpaid dividends to the date of such redemption computed as
provided in Section 5 of Division C of Article VI of these Amended and
Restated Articles of Incorporation. If the Corporation shall for any reason
fail to discharge in full its 6.15% Sinking Fund obligation on April 1, 2003,
the Corporation shall not thereafter, unless and until such 6.15% Sinking Fund
obligation shall have been discharged in full, declare or pay any dividend on,
or make any other distribution of property with respect to, or purchase or
otherwise acquire, any of its Common Stock. Any shares of this Series which
are redeemed, repurchased or otherwise reacquired by the Corporation shall,
until further action by the Board of Directors or the Executive Committee of
the Board of Directors, have the status of authorized and unissued shares of
Series Preferred Stock, without designation as to series.
(3) The amount per share for this Series payable to the holders thereof upon
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation shall be $100. The shares of this Series shall not be convertible
into shares of any other class or classes or into any other securities of the
Corporation. The number of shares of this Series authorized is 250,000 shares.
(J) For the purposes of the foregoing paragraphs (A) through (I), the terms
"involuntary liquidation, dissolution or winding up" shall include, without
being limited to, a liquidation, dissolution or winding up of the Corporation
resulting in the distribution of all of the net proceeds of a sale, lease or
conveyance of all or substantially all of the property or business of the
Corporation to any governmental body including, without limitation, any
municipal corporation or political subdivision or authority.
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<PAGE>
DIVISION C -- PROVISIONS APPLICABLE TO BOTH THE 4-1/2%
PREFERRED STOCK AND THE SERIES PREFERRED STOCK
Section 1. General. The term "Preferred Stock" whenever used in this
Article VI, shall be deemed to include the 4-1/2% Preferred Stock, the Series
Preferred Stock and any other class of stock entitled to dividends on a parity
with the 4-1/2% Preferred Stock and Series Preferred Stock.
Section 2. Dividends. (A) The shares of Preferred Stock shall be entitled
to the payment of dividends on a parity with each other at the rate or rates
established by or pursuant to the provisions of this Article VI and in
preference to the Preference Stock and the Common Stock, but only when and as
declared by the Board of Directors, out of funds legally available for the
payment of dividends.
(B) Said dividends shall be payable quarterly on January 1, April 1, July 1
and October 1 of each year or otherwise as the Board of Directors may determine,
to shareholders of record as of a date not exceeding forty (40) days and not
less than ten (10) days preceding such dividend payment dates, to be fixed by
the Board of Directors. The holders of the Preferred Stock shall not be entitled
to receive any dividends thereon out of net profits or surplus earnings other
than dividends established by or pursuant to this Article VI.
Section 3. Preferences In Distribution. The shares of the 4-1/2% Preferred
Stock and the Series Preferred Stock shall be entitled to share on a parity with
each other, and shall have a preference over the Preference Stock and the Common
Stock, upon any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, or upon any distribution of assets, other than net profits
or surplus earnings until there shall have been paid in respect of the shares
of:
(a) 4-1/2% Preferred Stock -- the full par value thereof, or
(b) Series Preferred Stock -- the liquidation price fixed as provided in
Division B;
plus, in either case, an amount, if any, by which an amount equivalent to the
annual dividend upon such shares from the date after which dividends thereon
became cumulative to the date of liquidation exceeds the dividends actually paid
thereon or declared and set apart for payment thereon from such date to the date
of liquidation. The 4-1/2% Preferred Stock and the Series Preferred Stock shall
not receive any share in any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation or in any distribution of assets in excess of
the aggregate amount specified in this section.
Section 4. Voting Rights. (A) Except as otherwise provided in these Amended
and Restated Articles of Incorporation, each share of the 4-1/2% Preferred
Stock, the Series Preferred Stock, the Common Stock and (if, and to the extent,
stated in the resolution or resolutions providing for the issue of a series of
Preference Stock) the Preference Stock shall be equal in voting power and shall
entitle the holder thereof to one vote upon any question presented to any
shareholders meeting, it being hereby agreed and declared that a majority in
number of shares regardless of the class to which such shares may belong is a
majority in value or in interest within the meaning of any statute or law
requiring the consent of stockholders holding a majority in interest or a
greater amount in value of stock of the Corporation.
(B) If and when dividends payable on any shares of Preferred Stock shall be in
default in an amount equivalent to the annual dividend, or more, per share, and
thereafter until all dividends on the Preferred Stock (of all classes and
series) in default shall have been paid, the holders of the Preferred Stock
voting as a single class, separate from the holders of the Preference Stock and
the Common Stock, shall be entitled to elect the smallest number of directors
necessary to constitute a majority of the full Board of Directors, and the
holders of the Common Stock and the Preference Stock (if, and to the extent,
stated in the resolution or resolutions providing for the issue of a series of
Preference Stock), voting separately as a class, shall have the right to elect
the remaining directors of the Corporation. The terms of office, as directors,
of all persons who may be directors of the Corporation at the time shall
terminate upon the election of a majority of the Board of Directors by the
holders of the Preferred Stock, except that, if the holders of the Preference
Stock and/or the Common Stock shall not have exercised their right to
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elect directors of the Corporation (either by voting together as a single class
or by voting separately as two distinct classes, as the case may be) because of
the lack of a quorum consisting of a majority of the required class, then such
remaining directors shall be elected by the directors whose term of office is
thus terminated and who have not been elected by the holders of the Preferred
Stock as a class; and in that event, such elected directors shall hold office
for the interim period, pending such time s a quorum of the requisite class
shall be present at a meeting held for the election of directors.
(C) If and when all dividends then in default on the Preferred Stock, then
outstanding, shall be paid (and such dividends shall be declared and paid out of
any funds legally available therefor as soon as reasonably practicable), the
holders of the Preferred Stock shall be divested of any special right with
respect to the election of directors and the voting power of the holders of the
Preferred Stock and the holders of the Common Stock and the Preference Stock (to
the extent stated in the resolution or resolutions providing for the issue of a
series of Preference Stock) shall revert to the status existing before the first
dividend payment date on which dividends on any shares of the Preferred Stock
were not paid in full; but always subject to the same provisions for vesting
such special rights in the holders of the Preferred Stock in case of further
like default or defaults on dividends thereon. Upon the termination of any such
special voting right, the terms of office of all persons who may have been
elected directors of the Corporation by vote of the holders of the Preferred
Stock, as a class, pursuant to such special voting right shall forthwith
terminate, and the resulting vacancies shall be filled by the vote of a majority
of the remaining directors.
(D) In case of any vacancy in the office of a director occurring among the
directors elected by the holders of the Preferred Stock, voting as a single
class separate from the holders of the Common Stock and the holders of any
series of Preference Stock with voting rights, the remaining directors elected
by the holders of the Preferred Stock, by affirmative vote of a majority
thereof, or the remaining director so elected if there be but one, may elect a
successor or successors to hold office for the unexpired terms of the director
or directors whose place or places shall be vacant.
(E) In case of any vacancy in the office of a director occurring among the
directors not elected by the holders of the Preferred Stock, the remaining
directors not elected by the holders of the Preferred Stock, by affirmative vote
of a majority thereof, or the remaining such director if there be but one, may
elect a successor or successors to hold office for the unexpired term of the
director or directors whose place or places shall be vacant.
(F) Whenever the right shall have accrued to the holders of the Preferred
Stock to elect directors, voting as a single class separate from the holders of
the Common Stock and the holders of any series of Preference Stock with voting
rights, then upon request in writing signed by any holder of the Preferred Stock
entitled to vote, delivered by registered mail or in person to the president, a
vice president or secretary of the Corporation, it shall be the duty of such
officer forthwith to cause notice to be given to the shareholders entitled to
vote of a meeting to be held at such time as such officer may fix, not less than
ten (10) nor more than sixty (60) days after the receipt of such request, for
the purpose of electing directors. At all meetings of shareholders held for the
purpose of electing directors during such time as the holders of a class or
classes of stock shall have the special right, voting as a single class,
separate from the holders of the other class or classes of stock (not entitled
to such special right), to elect directors, the presence in person or by proxy
of the holders of a majority of such other class or classes of stock (counted
either separately as single classes or together as a single class, as the case
may be) shall be required to constitute a quorum of such class or classes for
the election of directors, and the presence in person or by proxy of the holders
of a majority of the outstanding shares of the class or classes of stock
entitled to such special right shall be required to constitute a quorum of such
class or classes for the election of directors; provided, however, that the
absence of a quorum of the holders of any such class or classes of stock shall
not prevent the election at any such meeting or any adjournment thereof of
directors by any other class or classes if the necessary quorum of the holders
of stock of such other class or classes is present in person or by proxy at such
meeting or adjournment thereof; and provided further that in the event a quorum
of the holders of the Preferred Stock is not present, then the election of the
directors elected by the holders of any other class or classes of stock shall
not become effective and the directors so elected by such other class or classes
of stock shall not assume their offices and duties until the holders of the
Preferred Stock shall have elected the directors they shall be entitled to
elect; and provided further, however, that in the absence of a quorum of the
holders of stock of any class, a majority of the holders of the stock of such
class who are present in person or by proxy shall have the power to adjourn the
election of the directors to be elected by such class from day
-9-
<PAGE>
to day or for such longer periods, not exceeding 15 days, each, as such majority
shall direct without notice other than announcement at the meeting until the
requisite number of holders of such class shall be present in person or by
proxy.
Section 5. Redemption. (A) By a majority vote of the Board of Directors of
the Corporation:
(1) the 4-1/2% Preferred Stock may be redeemed in whole or in part at any
time at One Hundred Ten Dollars ($110.00) per share, or
(2) any series of Series Preferred Stock may be redeemed in whole or in part
at any time at the redemption price fixed and determined as specified in
Division B;
plus, in either case, an amount, if any, by which an amount equivalent to the
annual dividend upon such shares from the date after which dividends thereon
became cumulative to the date of redemption exceeds the dividends actually paid
thereon or declared and set apart for payment thereon from such date to the date
of redemption. If, pursuant to such vote, less than all of the shares of any
class or series thereof of the Preferred Stock are to be redeemed, the shares to
be redeemed shall be selected by lot, in such manner as the Board of Directors
of the Corporation shall determine, by a bank or trust company chosen for that
purpose by the Board of Directors of the Corporation.
(B) Nothing herein contained shall limit any right of the Corporation to
purchase or otherwise acquire any shares of the Preferred Stock.
(C) Notice of the intention of the Corporation to redeem shares of the
Preferred Stock or any thereof shall be mailed thirty (30) days before the date
of redemption to each holder of record of the shares to be redeemed, at his last
known post office address as shown by the records of the Corporation. At any
time after such notice has been mailed as aforesaid, the Corporation may deposit
the aggregate redemption price (or the portion thereof not already paid in the
redemption of shares so to be redeemed) with any bank or trust company in the
City of Philadelphia, Pennsylvania; City of Allentown, Pennsylvania; or in the
City of New York, New York, named in such notice, payable in amounts aforesaid
to the respective orders of the record holders of the shares so to be redeemed,
on endorsement and surrender of their certificates, and thereupon said holders
shall cease to be shareholders with respect to said shares and from and after
the making of such deposit, said holders shall have no interest in or claim
against the Corporation with respect to said shares, but shall be entitled only
to receive said moneys from said bank or trust company with interest, if any,
allowed by such bank or trust company on such moneys deposited as provided in
this subsection (C), on endorsement and surrender of their certificates as
aforesaid.
(D) Any moneys so deposited, plus interest thereon, if any, and remaining
unclaimed at the end of six years from the date fixed for redemption, if
thereafter requested by resolution of the Board of Directors of the Corporation,
shall be repaid to the Corporation and in the event of such repayment to the
Corporation, such holders of record of the shares so redeemed as shall not have
made claim against such moneys prior to such repayment to the Corporation shall
be deemed to be unsecured creditors of the Corporation for an amount without
interest equivalent to the amount deposited, plus interest thereon, if any,
allowed by such bank or trust company, as above stated, for the redemption of
such shares and so paid to the Corporation.
DIVISION D -- PREFERENCE STOCK
Section 1. General. To the extent permitted by these Amended and Restated
Articles of Incorporation, the Board of Directors, by majority vote of a quorum,
shall have the authority to issue shares of Preference Stock from time to time
in one or more series, and to fix by resolution, at the time of issuance of each
of such series, the distinctive designations, terms, relative rights,
privileges, qualifications, limitations, options, conversion rights,
preferences, and voting powers, and such prohibitions, restrictions and
qualifications of voting or other rights and powers thereof except as they are
fixed and determined in this Article VI. The dividend rate or rates, dividend
payment dates or other terms of a series of Preference Stock may vary from time
to time dependent upon facts ascertainable outside of these Amended and Restated
Articles of Incorporation if the manner in which the facts will operate to fix
or change such terms is set forth in the express terms of the series or upon
terms incorporated by
-10-
<PAGE>
reference to an existing agreement between the Corporation and one or more other
parties or to another document of independent significance or otherwise to the
extent permitted by the Business Corporation Law of 1988.
Section 2. Dividends. Subject to the provisions of Section 2(A) of Division
C, the holders of shares of each series of Preference Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of any funds
legally available for the purpose under 15 Pa.C.S. (S) 1551 (relating to
distributions to shareholders) or any superseding provision of law subject to
any additional limitations in the express terms of the series, cash dividends at
the rate or rates and on the terms which shall have been fixed by or pursuant to
the authority of the Board of Directors with respect to such series and no more,
payable at such time or times as may be fixed by or pursuant to the authority of
the Board of Directors. If and to the extent provided by the express terms of
any series of Preference Stock, the holders of the series shall be entitled to
receive such other dividends as may be declared by the Board of Directors.
Section 3. Liquidation of the Corporation. Subject to the provisions of
Section 3 of Division C, in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Preference Stock shall be entitled to receive from the assets of the Corporation
(whether capital or surplus), prior to any payment to the holders of shares of
Common Stock or of any other class of stock of the Corporation ranking as to
assets subordinate to the Preference Stock, the amount per share (which, in the
case of an involuntary liquidation, dissolution or winding up, shall not be in
excess of the original offering price per share (not including accrued
dividends, if any) or $100 per share, whichever is less) which shall have been
fixed and determined by the Board of Directors with respect thereto, plus the
accrued and unpaid dividends thereon computed to the date on which payment
thereof is made available, whether or not earned or declared. For the purposes
of this section, the terms "involuntary liquidation, dissolution or winding
up" shall include, without being limited to, a liquidation, dissolution or
winding up of the Corporation resulting in the distribution of all of the net
proceeds of a sale, lease or conveyance of all or substantially all of the
property or business of the Corporation to any governmental body including,
without limitation, any municipal corporation or political subdivision or
authority.
Section 4. Conversion Privileges. In the event any series of the Preference
Stock is issued with the privilege of conversion, such stock may be converted,
at the option of the record holder thereof, at any time or from time to time, as
determined by the Board of Directors, in the manner and upon the terms and
conditions stated in the resolution establishing and designating the series and
fixing and determining the relative rights and preferences thereof.
Section 5. Redemption. The Corporation, at its option to be exercised by its
Board of Directors, may redeem the whole or any part of the Preference Stock or
of any series thereof at such time or times as may be fixed by the Board, at the
applicable price for each share, and upon the terms and conditions which shall
have been fixed and determined by the Board with respect thereto.
Section 6. Voting Rights. Each holder of record of shares of a series of
Preference Stock shall have full voting rights of one vote per share or such
other limited, multiple, fractional or conditional or no voting rights as shall
be stated in the resolution or resolutions of the Board of Directors providing
for the issue of the shares of such series. Unless provided in such resolution
or resolutions, no holder of shares of Preference Stock shall have cumulative
voting rights.
DIVISION E -- COMMON STOCK
Section 1. Dividends And Shares In Distribution On Common Stock. (A) Subject
to the rights of the holders of the Senior Stock, and the Preference Stock and
subordinate thereto, the Common Stock alone shall receive all further dividends
and shares upon liquidation, dissolution, winding up or distribution.
(B) A consolidation or merger of the Corporation with or into any other
corporation or corporations shall not be deemed a distribution of assets of the
Corporation within the meaning of any provision of this Article VI.
-11-
<PAGE>
Section 2. Voting Rights. Except as otherwise provided in these Amended and
Restated Articles of Incorporation, each share of the 4-1/2% Preferred Stock,
the Series Preferred Stock and the Common Stock shall be equal in voting power
and shall entitle the holder thereof to one vote upon any question presented to
any shareholders' meeting, it being hereby agreed and declared that a majority
in number of shares (including, if and to the extent provided pursuant to
Division D, shares of Preference Stock) regardless of the class to which such
shares may belong is a majority in value or in interest within the meaning of
any statute or law requiring the consent of stockholders holding a majority in
interest or a greater amount in value of stock of the Corporation.
DIVISION F -- GENERAL
PRE-EMPTIVE RIGHTS. The Corporation may issue or sell shares, option rights,
or securities having conversion or option rights for money or otherwise without
first offering them to shareholders of any class or classes.
REDEMPTION. Any shares of the 4-1/2% Preferred Stock, the Series Preferred
Stock, the Preference Stock and the Common Stock which are redeemed, repurchased
or otherwise reacquired by the Corporation shall, until further action by the
Board of Directors or the Executive Committee of the Board of Directors, have
the status of authorized and unissued shares, without, in the case of the Series
Preferred Stock, designation as to series.
CONVERTIBILITY. Unless otherwise provided in the terms of a series of Series
Preferred Stock or Preference Stock or otherwise in these Amended and Restated
Articles of Incorporation, the shares of each of the 4-1/2% Preferred Stock, the
Series Preferred Stock, the Preference Stock and the Common Stock, respectively,
shall not be convertible into shares of any other class or classes or into any
other securities of the Corporation.
ARTICLE VII. A majority of the directors may amend, alter or repeal the
Bylaws, subject to the power of the shareholders to change such action;
provided, however, that any amendment, alteration or repeal of, or the adoption
of any provision inconsistent with, Sections 3.01, 3.01.1, 3.04, 3.05, or 3.13
of the Bylaws, if by action of the shareholders, shall be only upon the
affirmative vote of the shareholders entitled to cast at least two-thirds of the
votes which all shareholders are entitled to cast, and if by action of the
directors, shall be only upon the approval of two-thirds of the directors.
ARTICLE VIII. These Amended and Restated Articles of Incorporation may be
amended in the manner from time to time prescribed by statute and all rights
conferred upon shareholders herein are granted subject to this reservation;
provided, however, that, notwithstanding the foregoing (and in addition to any
vote that may be required by law, these Amended and Restated Articles of
Incorporation or the Bylaws), the affirmative vote of the shareholders entitled
to cast at least two-thirds of the votes which all shareholders are entitled to
cast shall be required to amend, alter or repeal, or to adopt any provision
inconsistent with, Articles VII or VIII of these Amended and Restated Articles
of Incorporation.
ARTICLE IX. The following provisions of the Business Corporation Law of 1988
shall not be applicable to the Corporation: 15 Pa.C.S. (S) 2538 (relating to
approval of transactions with interested shareholders) and 15 Pa.C.S. Subchapter
E (relating to control transactions).
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME, CONSOLIDATED BALANCE SHEET, AND CONSOLIDATED
STATEMENT OF CASH FLOWS FOR THE FORM 10-Q DATED MARCH 31, 1999, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000922224
<NAME> PP&L RESOURCES, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,449
<OTHER-PROPERTY-AND-INVEST> 951
<TOTAL-CURRENT-ASSETS> 1,084
<TOTAL-DEFERRED-CHARGES> 3,245
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 9,729
<COMMON> 2
<CAPITAL-SURPLUS-PAID-IN> 1,417<F1>
<RETAINED-EARNINGS> 453
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,872
47
50
<LONG-TERM-DEBT-NET> 3,212
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 606
<LONG-TERM-DEBT-CURRENT-PORT> 1
0
<CAPITAL-LEASE-OBLIGATIONS> 104
<LEASES-CURRENT> 61
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,776
<TOT-CAPITALIZATION-AND-LIAB> 9,729
<GROSS-OPERATING-REVENUE> 1,067
<INCOME-TAX-EXPENSE> 74
<OTHER-OPERATING-EXPENSES> 805
<TOTAL-OPERATING-EXPENSES> 879
<OPERATING-INCOME-LOSS> 188
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 188
<TOTAL-INTEREST-EXPENSE> 62
<NET-INCOME> 126
6
<EARNINGS-AVAILABLE-FOR-COMM> 120
<COMMON-STOCK-DIVIDENDS> 39
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 122
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
<FN>
<F1>NET OF $419 MILLION OF TREASURY STOCK
</FN>
</TABLE>
