<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
PPL Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
________________________________________________________________________________
4) Date Filed:
________________________________________________________________________________
Notes:
SEC 1913 (3-99)
<PAGE>
[Logo of PP&L]
PPL Corporation
Notice of Annual Meeting
April 28, 2000
and
Proxy Statement
(including appended 1999 Financial Statements)
<PAGE>
Notice of Annual Meeting of Shareowners
The Annual Meeting of Shareowners of PPL Corporation ("PPL" or "the
Company") will be held at Lehigh University's Stabler Arena, at the Goodman
Campus Complex located in Lower Saucon Township, outside Bethlehem,
Pennsylvania, on Friday, April 28, 2000, at 1:30 p.m., following the Annual
Meeting of Shareowners of PPL Electric Utilities Corporation ("PPL Electric
Utilities"). The Annual Meeting will be held for the purposes stated below and
more fully described in the accompanying Proxy Statement, and to transact such
other business as may properly come before the Meeting or any adjournments
thereof:
1. The election of three directors for a term of three years and one
director for a term of one year.
2. The ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the year ending December 31, 2000.
The Board of Directors is not aware of any other matters to be presented for
action at the Annual Meeting. If any other business should properly come
before the Meeting, it is the intention of the Board of Directors that the
persons named as proxies will vote in accordance with their best judgment.
After reading the Proxy Statement, please mark, sign, date and return your
Proxy as soon as possible, to assure your representation at the meeting. Only
Shareowners of record at the close of business on Tuesday, February 29, 2000,
will be entitled to vote at the Annual Meeting or any adjournments thereof. If
the Annual Meeting is interrupted or delayed for any reason, the Shareowners
attending the adjourned Meeting shall constitute a quorum and may act upon
such business as may properly come before the Meeting.
By Order of the Board of
Directors.
/s/ Robert J. Grey
Robert J. Grey
Secretary
March 13, 2000
<PAGE>
Proxy Statement
The Company's principal executive offices are located at Two North Ninth
Street, Allentown, Pennsylvania 18101, telephone number (610) 774-5151. This
Proxy Statement and the accompanying Proxy, solicited on behalf of the Board
of Directors, were first released to Shareowners on or about March 13, 2000.
OUTSTANDING STOCK AND VOTING RIGHTS
The Board of Directors has established Tuesday, February 29, 2000, as the
record date for Shareowners entitled to vote at the Annual Meeting (the
"Record Date"). The transfer books of the Company will not be closed. The
Articles of PPL divide the Company's voting stock into two classes: Common and
Preferred. There were no shares of Preferred Stock outstanding on the Record
Date. A total of 143,696,625 shares of Common Stock was outstanding on the
Record Date. Each outstanding share of Common Stock entitles the holder to one
vote upon any business properly presented to the Annual Meeting.
As of February 15, 2000, there are no entities known by the Company to own
more than five percent of any class of stock entitled to vote at the Annual
Meeting.
Execution of the Proxy will not affect a Shareowner's right to attend the
Annual Meeting and vote in person. Any Shareowner giving a Proxy has the right
to revoke it at any time before it is voted by giving notice in writing to the
Secretary. Shares represented by Proxy will be voted in accordance with the
instructions given. In the absence of instructions to the contrary, the Proxy
solicited hereby will be voted FOR the election of directors and FOR the
Ratification of the Appointment of Independent Accountants. Abstentions and
broker non-votes are not counted as either "yes" or "no" votes.
Full and fractional shares held by the Company for each participant in the
Dividend Reinvestment Plan will be voted by PPL Electric Utilities, as the
registered owner of such shares, in the same manner as shares held of record
by that participant are voted. If a participant owns no shares of record, full
and fractional shares credited to that participant's account will be voted in
accordance with the participant's instructions on the Proxy. Shares held in
the Dividend Reinvestment Plan will not be voted if Proxies are not returned.
To preserve voter confidentiality, the Company voluntarily limits access to
Shareowner voting records to certain designated employees of PPL Electric
Utilities. These employees sign a confidentiality agreement which prohibits
them from disclosing the manner in which a Shareowner has voted to any
employee of PPL or its subsidiaries or to any other person (except to the
Judges of Election or the person in whose name the shares are registered),
unless otherwise required by law.
Regarding Proposal 1 (the election of directors), the nominees receiving the
highest number of votes, up to the number of directors to be elected, will be
elected. Authority to vote for any individual nominee can be withheld by
striking a line through that person's name in the list of nominees on the
accompanying Proxy. In order to be approved, Proposal 2 (the Ratification of
the Appointment of Independent Accountants) must receive a majority of the
votes cast, in person or by proxy, by the Shareowners voting as a single
class.
PROPOSAL 1: ELECTION OF DIRECTORS
PPL has a classified Board of Directors, currently consisting of nine
directors divided into three classes. These classes consist of three directors
whose terms will expire at the 2000 Annual Meeting, three directors whose
terms will expire at the 2001 Annual Meeting, and three directors whose terms
will expire at the 2002 Annual Meeting. Since the directors of the Company
also serve as the directors of PPL Electric Utilities, terms and length of
service for the Company include PPL Electric Utilities tenure.
1
<PAGE>
The nominees this year are John W. Conway, E. Allen Deaver, Elmer D. Gates
and W. Keith Smith. Messrs. Deaver and Gates are currently serving as
directors, while Messrs. Conway and Smith would be elected as new directors.
Messrs. Deaver and Gates were elected by the Shareowners at the 1997 Annual
Meeting. If elected by the Shareowners, Messrs. Conway, Deaver and Gates would
serve until the 2003 Annual Meeting and until their successors shall be
elected and qualified. If elected by the Shareowners, Mr. Smith would serve
until the 2001 Annual Meeting and until his successor shall be elected and
qualified. Following the election of these four nominees and the retirement of
two directors as discussed below, there would be nine members of the Board of
Directors, consisting of three classes: three directors whose terms would
expire at the 2001 Annual Meeting, three directors whose terms would expire at
the 2002 Annual Meeting, and three directors whose terms would expire at the
2003 Annual Meeting.
The Board of Directors has no reason to believe that any of the nominees
will become unavailable for election, but, if any nominee should become
unavailable prior to the meeting, the accompanying Proxy will be voted for the
election of such other person as the Board of Directors may recommend in place
of that nominee.
The Board of Directors
recommends that Shareowners vote FOR Proposal 1
NOMINEES FOR DIRECTORS:
JOHN W. CONWAY, 54, is President and Chief Operating Officer of
Crown, Cork & Seal Company, Inc., Philadelphia, Pa., a position
he has held since 1998. Crown, Cork & Seal is a leading
international manufacturer of packaging products for consumer
goods. Mr. Conway joined Crown, Cork & Seal in 1991 as a result
of its acquisition of Continental Can International
Corporation. Prior to 1991, he served as President of
Continental Can and in various other management positions. Mr.
Conway is the past-President of the Can Manufacturers Institute
and is a director of Crown, Cork & Seal, the National Food
Processors Association, West Pharmaceutical Services and
Chestnut Hill College. He received his B.S. in Economics from
the University of Virginia and his law degree from the Columbia
University Law School.
[Photo of Conway]
E. ALLEN DEAVER, 64, retired in January 1999 as Executive Vice
President and a director of Armstrong World Industries, Inc.,
Lancaster, Pa., a manufacturer of interior furnishings and
specialty products. He graduated from the University of
Tennessee with a B.S. in Mechanical Engineering and joined
Armstrong in 1960. He is a director of the Internacional de
Ceramica S.A. (Mexico), Penn State Geisinger Health System and
Donsco, Inc. Mr. Deaver, chair of the Compensation and
Corporate Governance Committees of PPL and PPL Electric
Utilities and a member of the Executive and Finance Committees
of PPL and PPL Electric Utilities, has been a director since
1991.
[Photo of Deaver]
ELMER D. GATES, 70, retired in December 1999 as Vice Chairman
of Fuller Company, Bethlehem, Pa., a company involved in the
design and manufacture of plants, machinery and equipment used
in the cement, paper, power and processing industries. He has a
B.S. in Mechanical Engineering from Clarkson College. Mr. Gates
is a former director of Ambassador Bank, Chairman of the Board
of SI Handling Systems, Inc., a director of the Lehigh Valley
Economic Development Corporation and president of the Lehigh
Valley Partnership. Mr. Gates, chair of the Finance Committees
of PPL and PPL Electric Utilities and a member of the
Compensation and Corporate Governance and Executive Committees
of PPL and PPL Electric Utilities, has been a director since
1989.
[Photo of Gates]
2
<PAGE>
W. KEITH SMITH, 65, served as Vice Chairman of Mellon Financial
Corp. and Senior Vice Chairman of Mellon Bank N.A., Pittsburgh,
Pa., as well as a director of both organizations, until his
retirement in 1998. Mr. Smith also is a director of Dentsply
International, Inc. He currently serves on the board of
Allegheny General Hospital and several other not-for-profit
boards. Mr. Smith received a Bachelor of Commerce degree from
the University of Saskatchewan and his M.B.A. from the
University of Western Ontario, Graduate School of Business
Administration.
[Photo of Smith]
DIRECTORS CONTINUING IN OFFICE:
FREDERICK M. BERNTHAL, 57, is President of Universities
Research Association (URA), Washington, D.C., a position he has
held since 1994. URA is a consortium of 87 major research
universities, and is management and operations contractor on
behalf of the U.S. Department of Energy for the Fermi National
Accelerator Laboratory. Dr. Bernthal served from 1990 to 1994
as Deputy Director of the National Science Foundation, from
1988 to 1990 as Assistant Secretary of State for Oceans,
Environment and Science, and from 1983 to 1988 as a member of
the U.S. Nuclear Regulatory Commission. He received a B.S. in
chemistry from Valparaiso University, and a Ph.D. in nuclear
chemistry from the University of California at Berkeley. Dr.
Bernthal is Chair of the Nuclear Oversight Committee of PPL
Electric Utilities, and a member of the Audit Committee of PPL.
He has been a director since 1997; his term ends in 2002.
[Photo of Bernthal]
WILLIAM J. FLOOD, 64, is Secretary-Treasurer of Highway
Equipment & Supply Co. (HESCO), Harrisburg, Pa., supplier of
heavy equipment for highway construction, industry and general
contractors. Mr. Flood received a B.A. from Dartmouth College
and joined HESCO in 1960. He is a director of HESCO, Penn State
Geisinger Health System, Hescorp, Inc., PNC Bank (Northeast PA)
and First Florida Bank. A member of the Audit Committee of PPL
and the Nuclear Oversight Committee of PPL Electric Utilities,
Mr. Flood has been a director since 1990; his term ends in
2002.
[Photo of Flood]
FRANK A. LONG, 59, is Executive Vice President of PPL and
Executive Vice President and Chief Operating Officer of PPL
Electric Utilities. Mr. Long received a B.S. in Electrical
Engineering from Northeastern University, and joined PPL
Electric Utilities in 1963. Senior Vice President-System Power
& Engineering from 1990 until 1993, he was named to his present
PPL Electric Utilities position in 1993 and to his PPL position
in February 1995. Mr. Long is a member of the Pennsylvania
Electric Association Executive Committee, and a director of the
Smart Discovery Center. Mr. Long has been a director since
1993; his term ends in 2002.
[Photo of Long]
3
<PAGE>
WILLIAM F. HECHT, 56, is Chairman, President and Chief
Executive Officer of both PPL and PPL Electric Utilities. Mr.
Hecht received a B.S. and M.S. in Electrical Engineering from
Lehigh University, and joined PPL Electric Utilities in 1964.
He was elected President and Chief Operating Officer in 1991
and was named to his present PPL Electric Utilities position in
1993, and to his PPL position in February 1995. Mr. Hecht is a
director of a number of civic and charitable organizations. He
is chair of the Executive Committees of PPL and PPL Electric
Utilities and chair of the Corporate Leadership Council, an
internal committee comprised of the senior officers of PPL. Mr.
Hecht has been a director since 1990; his term ends in 2001.
[Photo of Hecht]
STUART HEYDT, 60, is Chief Executive Officer of the Penn State
Geisinger Health System, a not-for-profit corporation involved
in health care and related services. Dr. Heydt, who specializes
in maxillofacial surgery, attended Dartmouth College and
received an M.D. from the University of Nebraska. He is past
president of the American College of Physician Executives and a
director of Bucknell University and Wilkes University. He is
chair of the Audit Committee of PPL and a member of the
Compensation and Corporate Governance and Executive Committees
of PPL and PPL Electric Utilities. Dr. Heydt has been a
director since 1991; his term ends in 2001.
[Photo of Heydt]
DIRECTORS RETIRING AS OF THE ANNUAL MEETING:
The following directors are retiring as of the Annual Meeting. These
directors have provided valued advice to the Company, and we wish them well in
their retirements and future endeavors.
NORMAN ROBERTSON, 72, served as Senior Vice President and Chief
Economist of Mellon Bank N.A., Pittsburgh, Pa., until his
retirement in 1992. Mr. Robertson is an independent economic
advisor to Smithfield Trust Company, a private investment
management firm. He is also an Adjunct Professor of Economics
at Carnegie Mellon University.
[Photo of Robertson]
MARILYN WARE, 56, is Chairman of American Water Works Company,
Inc., Voorhees, N.J., a position she has held since 1988.
American Water Works is the largest water utility holding
company in the country. In addition, she served as a director
of Penn Fuel Gas, Inc. from 1990 to 1998 and is a director of
CIGNA Corp. She attended American University and the University
of Pennsylvania.
[Photo of Ware]
4
<PAGE>
GENERAL INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
Director Attendance at Board Meetings
The Board of Directors held eleven meetings during 1999. Each director
attended at least 75% of the meetings held by the Board and its Committees
during the year. The average attendance of directors at Board and Committee
meetings held during 1999 was 93%.
Compensation of Directors
Directors who are Company employees receive no separate compensation for
service on the Board of Directors or Committees of the Board of Directors.
Non-employee directors receive a retainer of $50,000 per year, of which a
minimum of $32,000 is allocated to a deferred stock account under the
Directors Deferred Compensation Plan ("DDCP"); a fee of $1,000 for attending
Board of Directors meetings, Committee meetings and other meetings at the
Company's request; and a fee of $150 for participating in meetings held by
telephone conference call. Only one attendance fee is paid when the Boards of
PPL and PPL Electric Utilities meet on the same day, and when "dual" committee
meetings are held on the same day. Also, only one retainer is paid for
services on the Boards of both the Company and PPL Electric Utilities.
Non-employee directors may elect to defer all or any part of the retainer
and fees, pursuant to the DDCP. Under this Plan, these directors can defer
compensation into a cash account or a deferred stock account. Payment of these
amounts and applicable interest or dividends can be deferred until after the
directors' retirement from the Board of Directors, at which time they can
receive these funds in one or more annual installments for a period of up to
ten years.
Under the terms of the DDCP, any increase in the annual retainer is
automatically allocated to each director's deferred stock account. As with the
DDCP benefits, this additional deferred stock together with applicable
dividends is available to the directors after retirement from the Board, at
which time they can receive this stock in one or more annual installments for
a period of up to ten years.
5
<PAGE>
Stock Ownership
All directors and executive officers as a group own 3.70% of PPL's Common
Stock. As a result of the Company's 1998 acquisition of Penn Fuel Gas, Inc.,
Ms. Ware owns 3.31% of PPL's Common Stock. Each of the other directors and
executive officers own less than 1% of PPL's Common Stock. The following table
sets forth certain ownership of the Company's stock as of January 1, 2000:
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Name Owned/1/
---- ------------
<S> <C>
F. M. Bernthal.......................................... 6,308
R. G. Byram............................................. 47,266
P. T. Champagne......................................... 25,279
J. W. Conway............................................ 1,000
E. A. Deaver............................................ 13,327
W. J. Flood............................................. 9,705
E. D. Gates............................................. 20,161
R. J. Grey.............................................. 37,207
W. F. Hecht............................................. 216,999
S. Heydt................................................ 9,725
F. A. Long.............................................. 95,901
N. Robertson............................................ 8,151
W. K. Smith............................................. 2,000
M. Ware................................................. 4,759,524/2/
All 18 executive officers and directors as a group...... 5,315,927
</TABLE>
- -------
/1 /The number of shares beneficially owned includes: (i) shares directly
owned by certain relatives with whom directors or officers share voting or
investment power; (ii) shares held of record individually by a director or
officer or jointly with others or held in the name of a bank, broker or
nominee for such individual's account; (iii) shares in which certain
directors or officers maintain exclusive or shared investment or voting
power, whether or not the securities are held for their benefit; (iv) with
respect to executive officers, shares held for their benefit by the Trustee
under the Employee Stock Ownership Plan and shares which may be acquired
upon the exercise of stock options granted under the Company's Incentive
Compensation Plan; (v) with respect to non-employee directors, shares
credited to their deferred stock account under the DDCP, as follows: Dr.
Bernthal, 6,108, Mr. Deaver, 10,123 shares, Mr. Gates, 11,393 shares, Dr.
Heydt, 6,795 shares, Messrs. Flood and Robertson, 2,408 shares each and Ms.
Ware, 1,832 shares; and (vi) with respect to non-employee directors,
additional deferred stock credited to them in connection with the
termination of the Directors Retirement Plan in 1996, as follows: Mr.
Deaver, 1,771 shares, Mr. Flood, 2,101 shares, Mr. Gates, 2,805 shares, Dr.
Heydt, 1,320 shares, and Mr. Robertson, 3,842 shares. These directors do
not have voting or dispositive power over the shares credited to their
deferred stock accounts.
/2 /Includes 4,241,497 shares held by a family limited partnership with
respect to which Ms. Ware has voting and dispositive power; 58,319 shares
owned by trusts and a foundation with respect to which Ms. Ware has shared
voting and dispositive power; and 457,876 shares owned by Ms. Ware's
mother. Ms. Ware disclaims beneficial ownership of 4,114,881 of such
shares.
Board Committees
The Board of Directors has four standing committees--the Executive, Audit,
Compensation and Corporate Governance, and Finance Committees. Each non-
employee director usually serves on one or more of these and PPL Electric
Utilities' Board committees. (PPL Electric Utilities' committees include the
Executive, Compensation and Corporate Governance, Finance, and Nuclear
Oversight Committees.) The Audit, Compensation and Corporate Governance,
Finance and Nuclear Oversight Committees are composed entirely of non-employee
directors.
Executive Committee. The Executive Committee exercises during the periods
between Board meetings all of the powers of the Board of Directors, except
that the Executive Committee may not elect directors, change the membership of
or fill vacancies in the Executive Committee, fix the compensation of the
directors, change the
6
<PAGE>
Bylaws, or take any action restricted by the Pennsylvania Business Corporation
Law or the Bylaws (including actions committed to another Board committee).
The Executive Committee of the Company met three times in 1999. The members of
the Executive Committee for both the Company and PPL Electric Utilities are
Mr. Hecht (chair), Dr. Heydt and Messrs. Deaver, Gates and Robertson.
Audit Committee. The principal functions of the Audit Committee are to
provide governance and assist the Company's Board of Directors in the
oversight of executive management's responsibilities related to the Company's
internal control process and external reporting. This internal control process
is designed to provide reasonable assurance regarding the achievement of the
Company's objectives in the areas of effectiveness and efficiency of
operations, reliability of financial reporting, and compliance with laws,
regulations and standards of integrity. This committee met three times in
1999. The members of the Audit Committee are Dr. Heydt (chair), Dr. Bernthal,
Mr. Flood and Ms. Ware.
Compensation and Corporate Governance Committee. The principal functions of
the Compensation and Corporate Governance Committee are to review and evaluate
at least annually the performance of the chief executive officer and other
senior officers of the Company and its subsidiaries, and to set their
remuneration, including incentive awards; to review the fees paid to outside
directors for their services on the Board of Directors and its Committees; and
to review management's succession planning. For those individuals who are
senior officers of both the Company and PPL Electric Utilities, the
Compensation and Corporate Governance Committees of both companies act jointly
to set remuneration for services to both companies. Another principal
Committee function is to develop and review criteria for the qualifications of
Board members, to establish and administer programs for evaluating the
performance of Board members and to identify and recommend to the Board of
Directors candidates for election to the Board. This committee met six times
in 1999. The members of the Compensation and Corporate Governance Committee
for both the Company and PPL Electric Utilities are Mr. Deaver (chair),
Messrs. Gates and Robertson and Dr. Heydt.
Nominees for directors may be proposed by Shareowners in accordance with the
procedures set forth in the Bylaws. Recommendations for the 2001 Annual
Meeting must be received by seventy-five days prior to the 2001 Annual
Meeting. Shareowners interested in recommending nominees for directors should
submit their recommendations in writing to the Chair of the Compensation and
Corporate Governance Committee, c/o Secretary, Two North Ninth Street,
Allentown, Pennsylvania 18101.
Finance Committee. The principal functions of the Finance Committee are to
approve specific Company financings and corporate financial policies; to
review the Company's annual capital and operating budgets, financing plans and
overall financial strategy; and to review the activities of the unregulated
subsidiaries of the Company. The Finance Committee met ten times in 1999. The
members of the Finance Committee for both the Company and PPL Electric
Utilities are Mr. Gates (chair), Messrs. Deaver and Robertson and Ms. Ware.
7
<PAGE>
Retirement Plans for Executive Officers
PPL Electric Utilities officers upon retirement are eligible for benefits
under the PPL Electric Utilities Retirement Plan and the Supplemental
Executive Retirement Plan ("SERP"). The following table shows the estimated
annual retirement benefits for executive officers payable under these Plans:
Estimated Annual Retirement Benefits
at Normal Retirement Age of 65
Officers Hired Before 1/1/98
<TABLE>
<CAPTION>
Years of Service
Five-Year
Average
Annual
Compensation 15 Years 20 Years 25 Years 30 Years
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$300,000 104,304 144,804 159,804 174,804
350,000 124,554 171,804 189,304 206,804
400,000 144,804 198,804 218,804 238,804
450,000 165,054 225,804 248,304 270,804
500,000 185,304 252,804 277,804 302,804
550,000 205,554 279,804 307,304 334,804
600,000 225,804 306,804 336,804 366,804
650,000 246,054 333,804 366,304 398,804
700,000 266,304 360,804 395,804 430,804
750,000 286,554 387,804 425,304 462,804
800,000 306,804 414,804 454,804 494,804
850,000 327,054 459,000 484,304 526,804
900,000 347,304 468,804 513,804 558,804
950,000 367,554 495,804 543,304 590,804
1,000,000 405,000 540,000 590,000 640,000
1,050,000 425,250 567,000 619,500 672,000
1,100,000 445,500 594,000 649,000 704,000
1,150,000 465,750 621,000 678,500 736,000
1,200,000 486,000 648,000 708,000 768,000
</TABLE>
Benefits under both the Retirement Plan and the SERP benefit formulas are
based on length of service and the average compensation for the highest 60
consecutive months in the final 120 months of employment. For purposes of
calculating benefits under the Retirement Plan, the compensation used is base
salary less amounts deferred pursuant to the Officers Deferred Compensation
Plan. Base salary, including any amounts deferred, is listed in the Summary
Compensation Table which follows. (Of the officers listed in that Table, Mr.
Hecht deferred $52,000 of compensation for each of 1997, 1998 and 1999; Mr.
Long deferred $31,200 for each of 1997, 1998 and 1999; and Mr. Champagne
deferred $17,550 in 1997, $20,800 in 1998, and $25,500 in 1999.) For purposes
of calculating benefits under the SERP, the compensation used is base salary,
cash bonus, and, in some cases, the value of any restricted stock grant for
the year in which earned, as listed in the Table, as well as dividends paid on
restricted stock.
Benefits payable under the Retirement Plan are subject to limits set forth
in the Internal Revenue Code and are not subject to any deduction for Social
Security benefits or other offset. They are computed on the basis of the life
annuity form of pension at the normal retirement age of 65. Benefits payable
under the SERP are computed on the same basis; are offset by Retirement Plan
benefits and the maximum Social Security benefit payable at 65; and are
reduced for retirement prior to age 60.
As of January 1, 2000, the years of credited service under the Retirement
Plan for Messrs. Hecht, Long, Byram and Grey were 29.8, 32.4, 23.3 and 4.7,
respectively. The years of credited service under the SERP for each of these
officers are three years less than under the Retirement Plan (except in the
case of Mr. Byram, who is entitled to nine months of additional credited
service under the SERP, and Mr. Grey, who is entitled to 15.4 years of
additional credited service).
8
<PAGE>
For officers hired on or after January 1, 1998, benefits under the SERP are
based on a new formula, as follows: (i) restricted stock grants are not
included in compensation for purposes of calculating benefits under the SERP;
(ii) the percentage of pay provided as a retirement benefit is changed from
2.7% for the first 20 years of service plus 1.0% for the next 10 years, to
2.0% for the first 20 years and 1.5% for the next 10 years; and (iii) credit
for years of service will commence as of the employee's date of hire instead
of at age 30.
The following table shows the estimated annual retirement benefits for
executive officers payable under the new SERP formula:
Estimated Annual Retirement Benefits
at Normal Retirement Age of 65
Officers Hired On or After 1/1/98
<TABLE>
<CAPTION>
Years of Service
Five-Year
Average
Annual
Compensation 15 Years 20 Years 25 Years 30 Years
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$300,000 90,000 120,000 142,500 165,000
350,000 105,000 140,000 166,250 192,500
400,000 120,000 160,000 190,000 220,000
450,000 135,000 180,000 213,750 247,500
500,000 150,000 200,000 237,500 275,000
550,000 165,000 220,000 261,250 302,500
600,000 180,000 240,000 285,000 330,000
650,000 195,000 260,000 308,750 357,500
700,000 210,000 280,000 332,500 385,000
750,000 225,000 300,000 356,250 412,500
800,000 240,000 320,000 380,000 440,000
850,000 255,000 340,000 403,750 467,500
900,000 270,000 360,000 427,500 495,000
950,000 285,000 380,000 451,250 522,500
1,000,000 300,000 400,000 475,000 550,000
1,050,000 315,000 420,000 498,750 577,500
1,100,000 330,000 440,000 522,500 605,000
1,150,000 345,000 460,000 546,250 632,500
1,200,000 360,000 480,000 570,000 660,000
</TABLE>
For existing officers, as of January 1, 1998, benefits under the SERP are
calculated under the greater of the old formula or the new formula, except
that compensation for purposes of the old formula includes restricted stock
grants only to the extent earned through December 31, 2001 and will be frozen
as of December 31, 2001, and compensation for purposes of the new formula
includes restricted stock grants only to the extent earned through December
31, 1997.
As President of PPL Global, Inc. ("PPL Global"), Mr. Champagne is covered by
that company's Officers Retirement Plan. That plan provides a retirement
benefit, computed on the basis of the life annuity form of pension payable at
age 60, determined by multiplying Mr. Champagne's five-year annual average
compensation (which includes salary, including deferrals to the PPL Global
Officers Deferred Compensation Plan, bonus, and restricted stock but excluding
any dividends paid on restricted stock) times 2% for each year of service
completed by age 60. This benefit is reduced for retirement prior to age 60
and, in some cases, by pensions received from prior employment. As of January
1, 2000, the years of credited service for Mr. Champagne for purposes of this
benefit were 11.6.
9
<PAGE>
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation for the Chief Executive
Officer and the next four most highly compensated executives for the last three
fiscal years, for service for PPL and its subsidiaries. Messrs. Hecht and Long
also served as directors but received no separate remuneration in that
capacity.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------------------------------------------------------
Other Annual Restricted All Other
Name and Salary/1/ Bonus/1/ Compensation/2/ Stock Award/3/ Options Compensation/4/
Principal Position Year ($) ($) ($) ($) (#) ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William F. Hecht 1999 689,178 448,630 0 258,263 155,550 5,826
Chairman, President and 1998 644,604 267,998 0 193,320 0 6,001
Chief Executive Officer 1997 609,550 107,360 0 281,435 0 4,704
Frank A. Long 1999 464,651 248,357 0 150,209 63,670 5,869
Executive Vice President 1998 439,735 157,872 0 115,290 0 6,048
1997 414,704 85,698 0 167,599 0 4,750
Robert G. Byram 1999 291,796 119,136 11,230 80,763 27,010 5,074
Senior Vice President 1998 279,847 81,200 10,770 62,910 0 5,185
and Chief Nuclear 1997 264,967 50,880 0 91,630 0 3,916
Officer--PPL Electric
Utilities
Robert J. Grey 1999 291,796 119,136 0 80,763 27,010 3,894
Senior Vice President, 1998 279,674 81,200 0 62,910 0 3,907
General Counsel and 1997 249,900 48,000 0 86,488 0 2,682
Secretary
Paul T. Champagne 1999 214,713 208,900 0 77,434 18,230 0
President--PPL Global 1998 161,828 99,630 0 1,930 0 0
1997 146,879 57,551 0 2,050 0 0
</TABLE>
- -------
/1/Salary and bonus data include deferred compensation.
/2/Includes longevity pay (which is compensation for vacation earned, but not
taken).
/3/The dollar value of restricted common stock awards was calculated by
multiplying the number of shares awarded by the closing price per share on
the date of the grant. As of December 31, 1999, the officers listed in this
table held the following number of shares of restricted common stock, with
the following values: Mr. Hecht--25,240 shares ($577,365); Mr. Long--15,040
shares ($344,040); Mr. Champagne--5,900 shares ($134,963); Mr. Byram--8,350
shares ($191,006); and Mr. Grey--7,970 shares ($182,314). These year-end
data do not include awards made in January 2000 for 1999 performance, or
awards which had originally been restricted and for which the restriction
periods have lapsed or been lifted. Dividends are paid currently on
restricted stock awards. All outstanding restricted stock awards to these
individuals have a restriction period of three years.
/4/Includes Company contributions to the Officers' Deferred Savings Plan and
the ESOP accounts.
10
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal 1999 to
the named executive officers.
<TABLE>
<CAPTION>
Individual Grants/1/ Grant Date Value
--------------------- ----------------
% of
Total
Options
Number of Granted
Securities to
Underlying Employees Exercise or Expiration Grant Date/2/
Options Granted in 1999 Base Price Date Present Value
Name --------------- --------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
W. F. Hecht............. 155,550 14.9 $26.8438 4/23/09 510,204
F. A. Long.............. 63,670 9.0 26.8438 4/23/09 208,838
R. G. Byram............. 27,010 3.8 26.8438 4/23/09 88,593
R. J. Grey.............. 27,010 3.8 26.8438 4/23/09 88,593
P. T. Champagne......... 18,230 2.6 26.8438 4/23/09 59,794
</TABLE>
- -------
/1 /Exercisable in three equal annual installments beginning April 23, 2000.
/2 /Values indicated are an estimate based on a modified Binomial option
pricing model. Although executives risk forfeiting these options under
certain circumstances, these risks are not factored into the calculated
values. The actual value realized will be determined by the excess of the
stock price over the exercise price on the date the option is exercised.
There is no certainty that the actual value realized will be at or near the
value estimated by the modified Binomial option pricing model.
Assumptions used for the modified Binomial model are as follows:
<TABLE>
<S> <C>
Risk-free interest
rate................... 5.61%
Volatility.............. 16.19%
Dividend yield.......... 6.60%
Time of exercise........ 10 years
</TABLE>
CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into agreements with each of the named executive
officers, which agreements provide benefits to the officers upon certain
terminations of employment following a change in control of the Company (as
such term is defined in the agreements). The benefits provided under these
agreements replace any other severance benefits provided to these officers by
the Company, or any prior severance agreement.
Each of the agreements continues in effect until December 31, 2000, and the
agreements generally are automatically extended for additional one-year
periods. Upon the occurrence of a change in control, the agreements will
expire no earlier than thirty-six months after the month in which the change
in control occurs. Each agreement provides that the officer will be entitled
to the severance benefits described below if the Company terminates the
officer's employment following a change in control for any reason other than
death, disability, retirement or "cause," or if the officer terminates
employment for "good reason" (as such terms are defined in the agreements).
The benefits consist of a lump sum payment equal to three times the sum of
(a) the officer's base salary in effect immediately prior to date of
termination, or if higher, immediately prior to the first occurrence of an
event or circumstance constituting good reason, and (b) the highest annual
bonus in respect of the last three fiscal years ending immediately prior to
the fiscal year in which the change in control occurs, or if higher, the
fiscal year immediately prior to the fiscal year in which first occurs an
event or circumstance constituting good reason. (This bonus amount would
include the value of restricted stock awards for calendar years prior to
1999.) In addition, under the terms of each agreement, the Company would
provide the officer and dependents with continuation of welfare benefits
(reduced to the extent the officer receives comparable benefits), and would
pay the officer unpaid incentive compensation that has been allocated or
awarded, a lump sum payment having an actuarial present value equal to the
additional pension benefits the officer would have received had the officer
continued to be employed by the Company for an additional thirty-six months,
outplacement services for up to three years and a gross-up payment for any
excise tax imposed under the Internal Revenue Code. In addition, under the
agreements, the Company would provide post-retirement health care and life
insurance benefits to officers who would have become eligible for such
benefits within the thirty-six month period following the change in control.
11
<PAGE>
In addition, in the event of a change in control or certain circumstances
that may lead to a change in control, the Compensation and Corporate
Governance Committee of the Board of Directors may change or eliminate the
restriction period applicable to any outstanding restricted stock awards under
the Incentive Compensation Plan.
JOINT REPORT OF THE COMPENSATION AND CORPORATE
GOVERNANCE COMMITTEES REGARDING EXECUTIVE COMPENSATION
GENERALLY
PPL (the "Company") is the parent holding company of PPL Electric Utilities
Corporation ("PPL Electric Utilities"), and PPL Electric Utilities is its
principal subsidiary. The members of the Company's Compensation and Corporate
Governance Committee--all independent outside directors--and Board of
Directors also serve in the same capacity for PPL Electric Utilities. Certain
senior officers of the Company are also senior officers of PPL Electric
Utilities. For those individuals, references below to the Committee and Board
of Directors refer to the Committee and Board of Directors of both the Company
and PPL Electric Utilities and discussions of their compensation include
compensation earned for services to both the Company and PPL Electric
Utilities.
During 1999, the Committee reviewed and evaluated the performance and
leadership of the Chief Executive Officer and the other executive officers who
are listed in the Summary Compensation Table in the Company's Proxy Statement
or the PPL Electric Utilities Information Statement ("senior officers"). The
Committee established the compensation and benefit practices for these
individuals as senior officers of the Company and its subsidiaries, including
PPL Electric Utilities and PPL Global, Inc. (a subsidiary of the Company which
invests in and develops world-wide power projects) ("PPL Global"). Except for
Mr. Champagne, these individuals are also executive officers of PPL Electric
Utilities./1/
For 1999, the Company had in place two major components of executive
compensation for the senior officers--base salary and incentive compensation.
Base salaries reflect the value of the various Company positions relative to
similar positions--both within the Company and in other companies--and
individual executive performance. Incentive compensation is based on corporate
performance./2/ For 1999, the incentive program had three separate elements.
Under the Company's Short-Term Incentive Plan, cash awards were made to the
senior officers based on the achievement of key corporate financial and
operational goals. Under the Company's Incentive Compensation Plan, restricted
shares of the Company's common stock were granted to the senior officers based
on the achievement of certain strategic goals designed to position the Company
for success in the new competitive environment. Incentive goals and
performance targets for these cash and stock awards were developed by the
Committee, and all awards were granted by the Committee. Finally, under the
Incentive Compensation Plan, the Committee granted stock options to the senior
officers. Because these options give officers the right to buy a fixed number
of shares of Company stock in the future at an exercise price based on the
market price on the grant date, the option value is tied directly to increases
in the stock price and these options closely align management and shareowner
interests.
- -------
/1 /Mr. Champagne has no position with PPL Electric Utilities, but is an
executive officer of the Company by virtue of his position as President of
PPL Global, Inc.
/2 /Because of his position as President of PPL Global, Inc., Mr. Champagne's
incentive compensation is based on separate goals and performance targets
established for that position.
12
<PAGE>
BASE SALARIES
In general, the Committee's objective is to provide salary levels that are
sufficiently competitive with comparable companies to enable the Company to
attract and retain high-quality executive talent. To meet this objective, the
Committee regularly reviews salary information for similar companies provided
by outside compensation consultants. In addition, the Committee annually
reviews the performance of each executive to determine the appropriate level
of base salary adjustment for that individual.
In January 1999, the Committee reviewed salary ranges for the senior
officers by comparing these salary levels with levels within the utility
industry generally, and, more specifically, with executive compensation levels
at 15 comparable utilities. All of the comparison companies were included in
the EEI (Edison Electric Institute) Index of Investor-owned Electric
Utilities, which is displayed in the stock performance graph on page 16. The
15 utilities used for comparison purposes were selected based on their
similarity to PPL Electric Utilities in terms of annual revenues and other
measures of size.
After reviewing salary data for executive positions at comparable utilities,
the Committee reviewed the actual salaries and performance appraisals of each
of the senior officers. In the case of the Chief Executive Officer, the
Committee considered the directors' individual appraisals of his performance
in determining his salary. The Committee then solicited input and
recommendations from the Chief Executive Officer regarding the performance and
individual salaries of the other senior officers.
Upon completion of this review, the Committee established the 1999 salaries
of the senior officers. As of January 1999, Mr. Hecht's total compensation was
about 24.2% less than the average total compensation of the chief executive
officers of the comparable companies. Also, the total compensation of the
senior executives as a group was approximately 20.9% less than the average
paid to their counterparts at these companies. Considering this information
and individual performance, the Committee made appropriate salary adjustments,
effective as of January 1, 1999./3/
INCENTIVE AWARDS
The incentive awards component of executive compensation is based on the
Company's achievement of specific corporate financial, operational and
strategic goals and increases in shareowner value. This incentive program
achieves the Company's objective of placing a large portion of executive
compensation "at risk" based on such corporate performance. The incentive
awards are made in the form of cash, restricted Company stock and stock
options.
Cash Awards
Under the Company's Short-Term Incentive Plan, cash awards are made to
officers for the achievement of specific, independent goals established for
each calendar year. For 1999, the following award targets as a percentage of
base salary were established for each officer based on accountability level:
Chief Executive Officer--60%; Executive Vice President--50%; and Sr. Vice
President--40%.
Annual awards are determined by applying these target percentages to the
percentage of goal attainment. The performance goals for each year are
established by the Committee, and the Committee reviews actual results at each
year-end to determine the appropriate goal attainment percentage to apply to
the salary targets.
- -------
/3/Mr. Champagne became President of PPL Global on May 24, 1999, and his
salary was established effective on that date based on the Committee's May
1999 review of salaries for similar subsidiary positions in both regulated
and non-regulated companies.
13
<PAGE>
The goal categories for 1999 were related to specific financial and
operational performance measures for the Company and its subsidiaries,
successful completion of PPL Electric Utilities' securitization program,
business growth, acquisition of additional domestic generation and progress in
positioning the Company and its subsidiaries for success in the competitive
market.
The weightings for each of these general categories varied by the level of
the individual officers to reflect the different levels of influence they have
on attainment of the goals, as follows:
<TABLE>
<CAPTION>
Goal Category
------------------------------------------
Operational--
PPL Electric Operational--
Officer Level Financial Utilities Other Subsidiaries
------------- --------- ------------- ------------------
<S> <C> <C> <C>
Chief Executive Officer.............. 45% 30% 25%
Executive Vice President............. 45 30 25
Sr. Vice President................... 30 40 30
</TABLE>
When the level of goal attainment in each of the above categories was
measured at the end of the year and the category weightings shown above were
multiplied by the annual award target for each position, each officer's cash
award was determined for 1999 performance.
Restricted Stock Awards
Under the Company's Incentive Compensation Plan, restricted Company stock
also is made available to officers based on the achievement of strategic
objectives designed to position the Company to continue to provide value to
its shareowners. Goals for 1999 were related to progress in the Company's
ongoing corporate realignment project, pursuit of new domestic generation
opportunities, business growth in energy marketing and succession planning.
Annual awards are based on the achievement of these strategic goals. The 1999
award targets as a percentage of base salary varied by accountability level,
as follows: Chief Executive Officer--40%; Executive Vice President--35%; and
Sr. Vice President--30%.
Awards are made in the form of restricted stock equivalent to the dollar
value of the percentage applied to base pay in effect at the end of the year.
This stock award encourages increased stock ownership on the part of the
officers and aligns the interests of management and shareowners.
The Committee determines the applicable restriction period for the stock at
the time of grant, which, under the terms of the Incentive Compensation Plan,
must be at least three years and not more than ten years from the date of
grant. That is, the officer can be divested of this stock during the
restriction period if he or she terminates employment with the Company. The
Plan also provides that, upon death or disability of an officer, the
outstanding restricted stock awards made to that officer will be prorated. In
such cases, the Committee may provide the officer with the entire award rather
than the prorated portion. In this way, grants of restricted stock serve as an
incentive for senior management to continue their employment with the Company
and, therefore, contribute to continuity in top management. In the past, the
grants of restricted stock to the senior officers under the Incentive
Compensation Plan have been restricted for a period of three years.
Stock Option Awards
Under the Company's Incentive Compensation Plan, as amended and approved by
shareowners at the 1999 Annual Meeting, the Committee in 1999 for the first
time granted officers options to purchase shares of the Company's common stock
in the future. Because the exercise price for these options is based on the
market price of the stock at the time of the grant, the ultimate value
received by the option holders is directly tied to increases in the stock
price and, therefore, stock options serve to closely link the interests of
management and shareowners and motivate executives to make decisions that will
serve to increase the long-term total return to shareowners. Additionally, the
option grants include vesting and termination provisions which the Committee
believes will encourage the option holders to remain employees of the Company.
As with the cash and restricted stock awards discussed above, the stock option
grants varied by accountability level based on similar award targets.
* * * * * *
The 1999 incentive awards made to the five most highly compensated executive
officers are shown on pages 10 and 11. The Committee based the cash and
restricted stock awards for these officers solely on the corporate goals
achieved. In January 2000, the Committee reviewed performance achieved during
1999 for the financial
14
<PAGE>
and operational goals under the Short-Term Incentive Plan. During 1999, the
Company achieved 102% to 107% of these goals. As a result of the weighting
system described above, the senior officers received the following incentive
cash awards as a percent of base salary: Mr. Hecht--64.1%; Mr. Long--53.4 %;
Mr. Biggar--43.9 %; Mr. Byram--40.8 %; and Mr. Grey--40.8 %. Mr. Champagne
received a 1999 short-term incentive award of 83.6% of base salary, based on
separate goals related to PPL Global's business.
In January 2000, the Committee also reviewed the Company's performance on the
established strategic goals under the Incentive Compensation Plan. During 1999,
the Company achieved 95% of these goals. Applying the award targets set forth
above, the senior officers received the following restricted stock awards as a
percent of base salary: Mr. Hecht--38.0%; Mr. Long--33.3%; Mr. Biggar--28.5%;
Mr. Byram--28.5%; and Mr. Grey--28.5%. Mr. Champagne received a 1999 strategic
incentive award of 31.9% of base salary, based on separate goals related to PPL
Global's business.
Finally, the Committee made the following awards of non-qualified stock
options in April 1999 under the Incentive Compensation Plan: Mr. Hecht--155,550
options; Mr. Long--63,670 options; Mr. Biggar--19,060 options; Mr. Byram--
27,010 options; Mr. Champagne--18,230 options; and Mr. Grey--27,010 options.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In establishing Mr. Hecht's 1999 salary, the Committee reviewed the salaries
of the chief executive officers of the 15 comparison utilities referenced
above. In conducting this review, the Committee concluded that Mr. Hecht's 1998
salary was below the average earned by incumbents in similar positions at those
utilities. As a result of this review and Mr. Hecht's performance, the
Committee set his 1999 salary at $700,000, effective January 1, 1999.
Based on the Company's 1999 performance on the specific corporate financial
and operational goals discussed above, Mr. Hecht received a cash award equal to
approximately 64.1% of his salary. Based on the Company's 1999 performance on
the strategic goals discussed above, Mr. Hecht received a restricted stock
award equal to approximately 38.0% of his salary. In addition, in 1999 Mr.
Hecht was granted 155,550 stock options.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
provides that publicly held corporations may not deduct in any taxation year
certain compensation in excess of $1,000,000 paid to the chief executive
officer and the next four most highly compensated executive officers. In this
regard, shareowners at the 1999 Annual Meeting approved (i) the amendment of
the Company's Incentive Compensation Plan to enable the Company to make stock
option awards under that Plan that are deductible under Section 162(m); and
(ii) the adoption of the Short-Term Incentive Plan under which cash awards to
officers can be deductible under Section 162(m). The Committee will continue to
seek ways to limit the impact of Section 162(m). However, the Committee
believes that the tax deduction limitation should not compromise the Company's
ability to establish and implement incentive programs that support the
compensation objectives discussed above. Accordingly, achieving these
objectives and maintaining required flexibility in this regard may result in
compensation that is not deductible for federal income tax purposes.
The Compensation and Corporate
Governance Committee
E. Allen Deaver, Chair
Elmer D. Gates
Stuart Heydt
Norman Robertson
15
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph depicts the performance of the Company's common stock
over the past five years. For comparison purposes, two other indices are also
shown. The Standard & Poor's 500 Index provides some indication of the
performance of the overall stock market, and the EEI Index of Investor-owned
Electric Utilities reflects the performance of electric utility stocks
generally. The EEI Index is a comprehensive, widely recognized industry index
that includes approximately 83 investor-owned domestic electric utility
companies.
[Comparison Graph Appears Here]
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PPL Corporation**........ 100.00 142.04 140.35 157.81 194.05 165.45
S&P 500 Index............ 100.00 137.58 169.17 225.60 290.08 351.12
EEI Index of Investor-
owned Electric
Utilities............... 100.00 131.02 132.59 168.88 192.34 156.57
</TABLE>
- -------
* Assumes investing $100 on 12/31/94 and reinvesting dividends in PPL common
stock, S&P 500 Index, and EEI Index of Investor-owned Electric Utilities.
** Effective April 27, 1995, all of the outstanding shares of common stock of
PPL Electric Utilities became shares of common stock of PPL. Therefore,
through April 26, 1995, these data reflect the total return on the common
stock of PPL Electric Utilities.
16
<PAGE>
PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, which is composed of
directors who are not employees of the Company or its affiliates, the Board of
Directors of the Company appointed PricewaterhouseCoopers LLP to serve as
independent accountants for the year ending December 31, 2000, for PPL and its
subsidiaries.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting. They will have an opportunity to make a statement if they
want to do so, and they will also be available to respond to appropriate
questions.
The Board of Directors has determined that it would be desirable to request
an expression of opinion from the Shareowners on the appointment of
PricewaterhouseCoopers LLP. If the Shareowners do not ratify the selection of
PricewaterhouseCoopers LLP, the selection of independent accountants will be
reconsidered by the Board of Directors.
MISCELLANEOUS
The Board of Directors is not aware of any other matters to be presented for
action at the Meeting. If any other matter requiring a vote of the Shareowners
should arise, it is intended that the persons named as proxies will vote in
accordance with their best judgment.
METHOD AND EXPENSE OF SOLICITATION OF PROXIES
The cost of soliciting Proxies on behalf of the Board of Directors will be
paid by the Company. In addition to the solicitation by mail, a number of
regular employees may solicit Proxies in person or by telephone, telegraph or
facsimile. Brokers, dealers, banks and their nominees who hold shares for the
benefit of others will be asked to send Proxy material to the beneficial
owners of the shares, and the Company will reimburse them for their expenses.
PROPOSALS FOR 2001 ANNUAL MEETING
To be included in the Proxy material for the 2001 Annual Meeting, any
proposal intended to be presented at that Meeting by a Shareowner must be
received by the Secretary no later than November 15, 2000. To be properly
brought before the Meeting, any proposal must be received by seventy-five days
prior to the 2001 Annual Meeting.
ANNUAL FINANCIAL STATEMENTS
The Company's annual financial statements and related management discussion
are appended to this document.
By Order of the Board of Directors.
Robert J. Grey
Secretary
March 13, 2000
17
<PAGE>
Schedule A
[LOGO]
PPL Corporation
1999 Financial Statements
<PAGE>
Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Glossary of Terms and Abbreviations...................................... A-1
Review of the Financial Condition and Results of Operations of PPL
Corporation............................................................. A-4
Report of Independent Accountants........................................ A-16
Management's Report on Responsibility for Financial Statements........... A-17
Consolidated Statement of Income......................................... A-18
Consolidated Statement of Cash Flows..................................... A-19
Consolidated Balance Sheet............................................... A-20
Consolidated Statement of Shareowners' Common Equity..................... A-22
Consolidated Statement of Preferred Stock................................ A-23
Consolidated Statement of Company-Obligated Mandatorily Redeemable
Preferred Securities.................................................... A-24
Consolidated Statement of Long-Term Debt................................. A-25
Notes to Financial Statements............................................ A-26
Selected Financial and Operating Data.................................... A-48
Executive Officers of PPL Corporation.................................... A-49
Shareowner and Investor Information...................................... A-50
Quarterly Financial, Common Stock Price and Dividend Data................ A-52
</TABLE>
<PAGE>
GLOSSARY OF TERMS AND ABBREVIATIONS
AFUDC (Allowance for Funds Used During Construction)--the cost of equity and
debt funds used to finance construction projects that is capitalized as part
of construction cost.
Aguaytia--Aguaytia Energy, LLC, a consortium of energy companies involved in
the development of gas pipeline and generating units in Peru.
Atlantic--Atlantic City Electric Company.
Bangor Hydro--Bangor Hydro-Electric Company.
BG&E--Baltimore Gas & Electric Company.
BGG--Bolivian Generating Group, LLC, an energy consortium with a 50%
interest in an electric generating company in Bolivia.
Burns Mechanical--Burns Mechanical, Inc., a PPL Spectrum unregulated
subsidiary specializing in mechanical contracting and engineering.
CERCLA--Comprehensive Environmental Response, Compensation and Liability
Act.
Clean Air Act (Federal Clean Air Act Amendments of 1990)--legislation
enacted to address certain environmental issues including acid rain, ozone and
toxic air emissions.
CTC--competitive transition charge on customer bills to recover allowable
transition costs under the Customer Choice Act.
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--Distribuidora Electricidad del Sur S.A., an electric distribution
company in El Salvador, a majority of which is owned by EC.
DEP--Pennsylvania Department of Environmental Protection.
DOE--Department of Energy.
DRIP (Dividend Reinvestment Plan)--program available to shareowners of PPL
common stock and PPL Electric Utilities preferred stock to reinvest dividends
in PPL common stock instead of receiving dividend checks.
DVY--DVY, Incorporated, a mechanical contracting and engineering firm
acquired by Burns Mechanical in October 1999.
EC--Electricidad de Centroamerica, S.A. de C.V, an El Salvadoran holding
company and the majority owner of Del Sur. EC is jointly owned by PPL Global
and Emel.
ECR (Energy Cost Rate)--a tariff applied to PUC-jurisdictional customers to
recover fuel and other energy costs. Effective January 1997, energy costs were
rolled into base rates and the ECR was discontinued.
EGS--electric generation supplier.
EITF (Emerging Issues Task Force)--an organization that aids the FASB in
identifying emerging issues that may require FASB action.
Emel--Empresas Emel, S.A., a Chilean electric distribution holding company.
EMF--electric and magnetic fields.
Energy Act (Energy Policy Act of 1992)--federal legislation passed by
Congress to promote competition in the electric energy market for bulk power.
Energy Marketing Center--business unit within PPL Electric Utilities
responsible for marketing and trading wholesale energy.
EPA--Environmental Protection Agency.
EPS--Earnings per share.
ESOP--Employee Stock Ownership Plan.
FASB (Financial Accounting Standards Board)--a rulemaking organization that
establishes financial accounting and reporting standards.
FERC (Federal Energy Regulatory Commission)--federal agency that regulates
interstate transmission and wholesale sales of electricity and related
matters.
FGD--flue gas desulfurization equipment installed at coal-fired power plants
to reduce sulfur dioxide emissions.
H.T. Lyons--H.T. Lyons, Inc., a PPL unregulated subsidiary specializing in
mechanical contracting and engineering.
IBEW--International Brotherhood of Electrical Workers.
ISO--Independent System Operator.
ITC--intangible transition charge on customer bills to recover intangible
transition costs associated with securitizing stranded costs under the
Customer Choice Act.
A-1
<PAGE>
ITP--intangible transition property created under the Customer Choice Act,
which represents the right to recover intangible transition costs through the
ITC.
JCP&L--Jersey Central Power & Light Company.
LIBOR--London Interbank Offered Rate.
McCarl's--McCarl's Inc., a PPL unregulated subsidiary specializing in
mechanical contracting.
McClure--McClure Company, a PPL unregulated subsidiary specializing in
mechanical contracting and engineering.
MOU--Memorandum of Understanding.
MSHA--Mine Safety and Health Administration.
NOx--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 under PURPA.
OSM--United States Office of Surface Mining.
OTR--Northeast Ozone Transport Region.
PCB (Polychlorinated Biphenyl)--additive to oil used in certain electrical
equipment up to the late-1970s. Now classified as a hazardous chemical.
Penobscot Hydro--Penobscot Hydro Co., Inc., a PPL Global subsidiary which
generates electricity for the New England market.
PJM (PJM Interconnection, LLC)--operates the electric transmission network
and electric energy market in the mid-Atlantic region of the U.S.
PLR--Provider of last resort, referring to PPL Electric Utilities
Corporation providing electricity to retail customers within its delivery
territory who have chosen not to shop for electricity under the Electric
Choice Program.
PPL--PPL Corporation, the parent holding company of PPL Electric Utilities,
PPL Global and other subsidiaries.
PPL Capital Funding--PPL Capital Funding, Inc., a PPL financing subsidiary.
PP&L Capital Funding Trust I--a Delaware statutory business trust created to
issue Preferred Securities and Common Trust Securities.
PP&L Capital Trust--a Delaware statutory business trust created to issue
Preferred Securities, whose common stock is held by PPL Electric Utilities.
PP&L Capital Trust II--a Delaware statutory business trust created to issue
Preferred Securities, whose common stock is held by PPL Electric Utilities.
PPL Electric Utilities--PPL Electric Utilities Corporation
PPL Electric Utilities' Mortgage--PPL Electric Utilities Corporation's
Mortgage and Deed of Trust, dated October 1, 1945, as supplemented.
PPL EnergyPlus--PPL EnergyPlus, LLC, a PPL Electric Utilities unregulated
subsidiary which supplies energy and energy services in newly deregulated
markets.
PPL Gas Utilities--PPL Gas Utilities Corporation, a PPL regulated subsidiary
specializing in natural gas distribution, transmission and storage services,
and the sale of propane.
PPL Global--PPL Global, Inc., a PPL unregulated subsidiary which invests in
and develops world-wide power projects.
PPL Montana--PPL Montana Holdings LLC, a PPL subsidiary which generates
electricity for wholesale and retail customers in Montana and the Northwest.
PPL Spectrum--PPL Spectrum, Inc., a PPL unregulated subsidiary which offers
energy-related products and services.
PP&L Transition Bond Company--PP&L Transition Bond Company LLC, a wholly-
owned subsidiary of PPL Electric Utilities formed to issue transition bonds
under the Customer Choice Act.
Preferred Securities--Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely company debentures (issued by
two Delaware statutory business trusts).
PRP--potentially responsible parties under Superfund.
PUC (Pennsylvania Public Utility Commission)--state agency that regulates
certain ratemaking, services, accounting, and operations of Pennsylvania
utilities.
A-2
<PAGE>
PUC Final Order--final order issued by the PUC on August 27, 1998, approving
the settlement of PPL Electric Utilities' restructuring proceeding.
PUHCA--Public Utility Holding Company Act of 1935.
PURPA (Public Utility Regulatory Policies Act of 1978)--legislation passed
by Congress to encourage energy conservation, efficient use of resources, and
equitable rates.
PURTA--Public Utility Realty Tax Act.
SBRCA--Special Base Rate Credit Adjustment.
SCR--selective catalytic reduction.
SEC--Securities and Exchange Commission.
SER--Schuylkill Energy Resources, Inc.
SFAS (Statement of Financial Accounting Standards)--accounting and financial
reporting rules issued by the FASB.
SIP--State Implementation Plan.
SO\\2\\--sulfur dioxide.
Superfund--federal and state environmental legislation that addresses
remediation of contaminated sites.
SWEB--South Western Electricity plc, a British regional electric utility
company. Following the sale of its supply business in 1999, SWEB was renamed
Western Power Distribution. See WPD, below.
Tolling--an arrangement whereby a third party power marketer supplies fuel
to a power plant and receives the plant's electrical output in return for
paying a pre-established tolling fee.
UGI--UGI Corporation.
U.K.--United Kingdom.
VEBA (Voluntary Employee Benefit Association Trust)--trust accounts for
health and welfare plans for future payments to employees, retirees or their
beneficiaries.
Western Mass. Holdings--Western Massachusetts Holdings, Inc., a PPL
unregulated subsidiary specializing in mechanical contracting and engineering.
WPD--Western Power Distribution, the new name for SWEB's remaining power
distribution business.
Year 2000--a set of date-related problems that may be experienced by
software systems or applications.
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<PAGE>
REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PPL CORPORATION
On February 14, 2000, PP&L Resources, Inc. (incorporated in 1994) filed
Articles of Amendment with the Pennsylvania Department of State to change its
name to PPL Corporation effective immediately. In addition, several of PPL's
direct and indirect subsidiaries changed their names, effective February 14,
2000, as follows:
. PPL Electric Utilities Corporation, formerly known as PP&L, Inc.
(incorporated in 1920), which provides electricity delivery service in
eastern and central Pennsylvania, and markets wholesale energy in the
United States and Canada;
. PPL Global, Inc., formerly known as PP&L Global, Inc., an international
independent power company which invests in and develops world-wide power
projects;
. PPL EnergyPlus, LLC, formerly known as PP&L EnergyPlus Co., LLC
(currently a subsidiary of PPL Electric Utilities), which sells energy
and energy services to deregulated markets;
. PPL Spectrum, Inc., formerly known as PP&L Spectrum, Inc., which markets
energy-related services and products;
. PPL Gas Utilities Corporation, formerly known as Penn Fuel Gas, Inc.,
which, together with its subsidiaries, provides natural gas
distribution, transmission and storage services and sells propane;
. PPL Energy Funding Corporation, formerly known as CEP Group, Inc.,
which, together with its subsidiaries, engages principally in financing
and cash management activities;
. PPL Montana, LLC, formerly known as PP&L Montana, LLC, which generates
electricity for wholesale and retail customers in Montana and the
Northwest;
. PPL Montana Holdings, LLC, formerly known as PP&L Montana Holdings, LLC,
which holds, through subsidiaries, investments in electricity generation
and related assets in Montana; and
. PPL Capital Funding, Inc., formerly known as PP&L Capital Funding, Inc.,
which provides debt funding for PPL and its subsidiaries other than PPL
Electric Utilities.
Other PPL subsidiaries include:
. PP&L Transition Bond Company (a special purpose subsidiary of PPL
Electric Utilities), formed to issue transition bonds under the
Pennsylvania Customer Choice Act; and
. H.T. Lyons, McClure, McCarl's, Burns Mechanical and Western Mass.
Holdings, which are mechanical contracting and engineering firms.
Other subsidiaries may be formed by PPL to take advantage of new business
opportunities.
The financial condition and results of operations of PPL Electric Utilities
and PPL Global are currently the principal factors affecting PPL's financial
condition and results of operations. PPL Montana is also expected to provide a
significant impact on future results of operations. All fluctuations, unless
specifically noted, are primarily due to activities of PPL Electric Utilities
and PPL Global.
Terms and abbreviations appearing in the Review of the Financial Condition
and Results of Operations are explained in the glossary.
Forward-looking Information
Certain statements contained in these financial statements 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 are "forward-looking statements" within
the meaning of the federal securities laws. Although PPL believes 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. In addition to the specific
factors discussed in this Review of Financial Condition and Results of
Operations, the following are among the important
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<PAGE>
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
effect of any business or industry restructuring; profitability and liquidity
of PPL and its subsidiaries; new accounting requirements or new
interpretations or applications of existing requirements; operating
performance of plants and other facilities; environmental conditions and
requirements; system conditions and operating costs; performance of new
ventures; political, regulatory or economic conditions in foreign countries
where PPL Global makes investments; foreign exchange rates; and commitments
and liabilities. Any such forward-looking statements should be considered in
light of such important factors and in conjunction with PPL's other documents
on file with the SEC.
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 PPL 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 PPL
undertakes no obligation to update the information contained in such statement
to reflect subsequent developments or information.
Results of Operations
Earnings
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ -----
<S> <C> <C> <C>
Earnings per share--excluding one-time adjustments........ $2.35 $ 1.87 $2.00
One-time adjustments:
Sale of Sunbury plant and related assets (Note 12)...... .28
Sale of SWEB supply business (Note 12).................. .42
Securitization (Note 5)................................. .13
Write-down carrying value of investments (Note 12)...... (.34)
PUC restructuring charge (Note 6)....................... (5.56)
FERC municipalities settlement (Note 6)................. (0.19)
Windfall profits tax.................................... (.23)
SER settlement.......................................... .11
U.K. tax rate reduction................................. .06 .06
PPL Gas Utilities acquisition costs..................... .03 (.03)
Other impacts of restructuring............................ .22
----- ------ -----
Earnings (loss) per share--actual......................... $2.84 $(3.46) $1.80
===== ====== =====
</TABLE>
The earnings of PPL for 1999, 1998 and 1997 were impacted by several one-
time adjustments. Refer to specific Notes to Financial Statements for
discussion of certain of these one-time adjustments. The one-time adjustments
without note references are discussed in "Other Income and (Deductions)." In
addition, the PUC restructuring adjustments provided a favorable impact of
about 22 cents per share on earnings in the second half of 1998. These
adjustments included lower depreciation on impaired generation assets, reduced
accruals for taxes other than income and a regulatory adjustment to unbilled
revenues. These favorable impacts were partially offset by the immediate
expensing of computer software costs identified as impaired in restructuring
accounting adjustments.
Excluding the effects of these one-time adjustments, 1999 earnings were
$2.35 compared with adjusted earnings of $1.87 for 1998. (In 1999, PPL
discontinued including the impact of weather in calculating adjusted earnings
per share.) The adjusted earnings for 1999 represents a 48 cents per share
improvement, or about 26%, compared with 1998. The earnings improvement was
primarily due to higher margins on wholesale energy and marketing activities,
an increase in electricity supplied to commercial and industrial customers,
lower taxes, lower depreciation on generation assets, and increased earnings
from unregulated operations. The earnings per share for 1999 also reflects the
benefit of fewer common shares outstanding, resulting from stock repurchase
programs. In addition, 1998 earnings were adversely impacted by the unusually
mild winter weather. These earnings improvements in 1999 were partially offset
by a four percent rate reduction for electric delivery customers in
Pennsylvania and by the loss of customers who shopped for alternate electric
generation suppliers. In addition, 1998 earnings benefited from certain
regulatory treatments that did not carry over to 1999.
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<PAGE>
The adjusted earnings of 1998 were 13 cents per share, or 7%, lower than the
similarly adjusted earnings in 1997. Mild winter weather in 1998 adversely
affected earnings by about 20 cents per share. On a weather-adjusted basis,
PPL Electric Utilities' electric delivery sales were 2.9% higher in 1998 than
1997. Earnings in 1998 were also favorably impacted by higher wholesale
electricity revenues. These earnings improvements were partially offset by
higher operating expenses in 1998 from 1997. This includes higher costs
associated with computer information systems, and additional payroll,
consultant services and other expenses to meet the requirements of retail
competition. Increased firm transmission costs related to the Energy Marketing
Center activities and a higher provision for uncollectible customer accounts
also increased operating expenses.
Electric Energy Sales
PPL Electric Utilities' electricity sales for 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(Millions of kWh)
<S> <C> <C> <C>
Electricity delivered to retail customers by PPL Electric
Utilities (a)........................................... 33,045 32,144 31,964
Less: Electricity supplied by others..................... 9,621 1,999 65
------ ------ ------
Electricity supplied to retail customers by PPL Electric
Utilities............................................... 23,424 30,145 31,899
Electricity supplied to retail customers by PPL
EnergyPlus.............................................. 10,271 1,506
------ ------ ------
Total electricity supplied to retail customers (a)....... 33,695 31,651 31,899
Wholesale electricity sales.............................. 31,683 36,708 21,454
</TABLE>
- -------
(a) kWh for customers residing in PPL Electric Utilities' service territory
who are receiving energy from PPL Electric Utilities or PPL EnergyPlus
will be reflected in both of these categories.
In 1998, there was a pilot of the Electric Choice Program under the Customer
Choice Act. Beginning on January 1, 1999, customers were allowed to choose
their electricity supplier. Customers making this choice continue to have
their electricity delivered by the utility that serves their territory.
Electricity delivered to retail customers increased by 901 million kWh, or
2.8%, in 1999 over 1998. This increase was primarily due to the mild winter in
1998. If normal weather had been experienced in both 1999 and 1998, deliveries
would have increased by 0.6%. Industrial sales showed no growth in 1999.
Electricity delivered in 1998 increased by 180 million kWh, or 0.6%, from
1997. However, if normal weather had been experienced in these years,
deliveries would have increased by 2.9%. This increase reflected strong third
and fourth quarter deliveries to all customer classes.
Electricity supplied to retail customers increased by 2,044 million kWh, or
6.5%, in 1999 as compared to 1998. This increase was due to sales by PPL
EnergyPlus in the competitive market, and the impact of mild winter weather in
1998. The slight decrease in electricity supplied in 1998 compared to 1997 was
due to the impact of weather and the pilot Electric Choice Program.
Wholesale electricity sales, which includes sales to other utilities and
energy marketers through contracts, spot market transactions or power pool
arrangements, decreased by 5,025 million kWh in 1999 when compared to 1998.
This was primarily the result of decreased activity of the Energy Marketing
Center in the electricity wholesale market, because of increased retail market
needs and the decline of contract sales. See the following section for more
information.
Operating Revenues
Electric
The increase (decrease) in revenues from electric operations was
attributable to the following:
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
------------- -------------
(Millions of Dollars)
<S> <C> <C>
Retail Electric Revenue
PPL Electric Utilities--electric delivery and PLR
load............................................ $(338) $ 7
PPL EnergyPlus--electric generation supply....... 415
PPL Global Emel/EC--electric delivery............ 245
Other............................................ 26 6
----- ---
$ 348 $13
===== ===
</TABLE>
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<PAGE>
Operating revenues from retail electric operations increased by $348 million
in 1999 over 1998. PPL Electric Utilities and PPL EnergyPlus revenues
increased by $77 million, or 3.3%, for the same period. This increase, in
part, reflects the unfavorable impact of mild winter weather on 1998 sales.
Also, PPL Electric Utilities and PPL EnergyPlus provided 6.5% more electricity
to retail customers during 1999 as compared with 1998. These revenue gains
were partially offset by a one-year 4% reduction in PPL Electric Utilities'
regulated rates, effective January 1, 1999, in connection with the PUC Final
Order in PPL Electric Utilities' restructuring proceeding.
PPL Global consolidated the financial results of Emel and EC in the third
quarter of 1999, effective from January 1, 1999. Accordingly, "Electric
Operating Revenues" includes Emel and EC revenues from delivering electricity
to their customers in Central America. See Note 1 to Financial Statements for
additional information.
Operating revenues for electric operations increased by $13 million in 1998
from 1997. PPL Electric Utilities' electricity deliveries increased by 2.9%,
contributing to this revenue increase. Also, PPL Electric Utilities' revenues
increased due to a change in the regulatory treatment of energy costs. These
revenue gains were substantially offset by mild winter weather in 1998.
Gas and Propane
PPL acquired PPL Gas Utilities in August 1998. The results of PPL Gas
Utilities, including revenues and the associated costs from gas and propane
operations, have been recorded subsequent to acquisition.
Wholesale Energy Marketing and Trading
The increase (decrease) in revenues from wholesale energy marketing and
trading activities was attributable to the following:
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
------------- -------------
(Millions of Dollars)
<S> <C> <C>
Electric
Bilaterial Sales.................................. $ 62 $496
PJM............................................... 63
Cost-based contracts.............................. (69) (45)
Oil & gas sales..................................... 229 62
Other............................................... 1 (3)
---- ----
$223 $573
==== ====
</TABLE>
Operating revenues from wholesale energy marketing and trading increased by
$223 million in 1999 over 1998. This increase was predominately due to
wholesale gas revenues, which increased nearly four-fold. This increase was,
in part, due to a need for more supply to meet the greater demand for gas-
fired generation and an increase in retail gas marketing activities. The
decrease in revenues from cost-based contracts reflects the phase down of the
capacity and energy agreement with JCP&L by 189,000 MW from 1998. The contract
expired on December 31, 1999.
Revenues in 1998 increased by $573 million over 1997, despite the phase-down
of the capacity and energy agreement with JCP&L and the end of the capacity
and energy agreement with Atlantic. The overall revenue increase reflected PPL
Electric Utilities' continued emphasis on competing in wholesale markets and
support of PPL EnergyPlus requirements. Energy purchases also increased to
meet these increased sales. Refer to "Energy Purchases" for more information.
PUC Restructuring Proceeding
Refer to Note 4 to Financial Statements for information regarding the PUC
restructuring proceeding.
Energy-Related Businesses
Energy-related businesses (see Note 1 to Financial Statements) contributed
$60 million to the 1999 operating income of PPL, which was an increase of $35
million from 1998. The improvement reflected PPL Global's higher equity
earnings from its additional investment in WPD and additional operating income
provided by the mechanical contracting and engineering subsidiaries. Energy-
related businesses are expected to provide an increasing share of PPL's future
earnings.
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<PAGE>
Energy-related business provided an additional $16 million to operating
income in 1998 compared with 1997. This was primarily due to PPL Global's
higher equity earnings from its additional investments in Emel, EC and WPD.
With respect to PPL Global's investment in WPD, PPL Corporation is required
to file audited financial statements of WPD, as an amendment to its 10-K, when
such statements become available. WPD's fiscal year ends at March 31, 2000,
and it is expected that such financial statements will become available on or
prior to June 30, 2000.
Electric Fuel Costs
Electric fuel costs decreased by $44 million in 1999 when compared to 1998.
The decrease resulted from lower generation by PPL Electric Utilities' coal-
fired and oil/gas fired units, as well as lower fuel prices for coal. The
lower coal-fired generation resulted from units being dispatched less during
off-peak periods, as a result of NOx allowances affecting the unit costs from
May to September of 1999. The Holtwood plant closing and the Sunbury plant
sale (See "Power Plant Operations" discussion) also contributed to the
decrease in generation. In addition, PPL Electric Utilities entered into a
rail contract which lowered coal freight prices effective June 1999. These
decreases were partially offset by higher fuel prices for nuclear and oil/gas
fired stations.
Electric fuel expense increased by $14 million in 1998 when compared to
1997. This increase reflects higher generation at the coal and oil/gas fired
stations. These units, particularly Martins Creek, were needed as a result of
increased wholesale energy marketing and trading by the Energy Marketing
Center. This increase was partially offset by lower fuel prices for all units,
especially oil/gas fired stations.
Energy Purchases
Excluding the purchases made by Emel and EC, which were consolidated by PPL
Global effective January 1, 1999, energy purchases increased by $316 million
in 1999 when compared to 1998. The increase was primarily due to increased gas
purchases by the Energy Marketing Center, additional wholesale purchases to
support PPL EnergyPlus, and higher wholesale prices for electricity. These
increases were partially offset by a decrease in the volume of electricity
purchases and the reduction of the liability for above-market NUG purchases.
Energy purchases increased by $556 million in 1998 when compared to 1997.
The increase was primarily due to greater quantities of energy purchased to
meet the increased wholesale energy marketing and trading by the Energy
Marketing Center, which includes increased purchases of natural gas and
electric capacity for resale. The related sales are included in wholesale
energy sales. In addition, the overall market price of purchased power was
higher during 1998 compared to 1997 due to market volatility.
Other Operation Expenses
Other operation expenses increased by $91 million from 1998 to 1999.
Operating expenses of acquired companies and certain regulatory impacts caused
a substantial portion of this increase. These included:
. PPL Global's consolidation of Emel and EC, effective January 1, 1999,
which added about $25 million in operation expenses. PPL Global's
acquisition of Penobscot Hydro in 1999 added another $4 million of
operation expenses.
. About $23 million of additional operation expenses of PPL Gas Utilities
recorded in 1999 compared to 1998. PPL Gas Utilities was acquired in
August 1998.
. About $46 million of regulatory credits recorded in 1998. These credits
were for the loss of revenue as a result of the pilot Electric Choice
Program and the deferral of undercollected energy costs. No similar
items were reflected in 1999, as the pilot program was completed and
energy costs were no longer recoverable through the ECR.
Eliminating the effects of the above amounts, the other operation expenses
of PPL decreased by $7 million in 1999 compared with 1998. This decrease was
primarily due to PPL Electric Utilities' cost-cutting initiatives to increase
shareowner value, gains on the sale of emission allowances and decreased load
dispatching activities for system control. These decreases were partially
offset by additional expenses associated with customer choice, and additional
marketing expenses by PPL EnergyPlus. Also, wages and employee benefits were
higher in 1999 than 1998.
Other operation expenses increased by $92 million from 1997 to 1998. This
increase reflected higher costs associated with computer information systems,
and additional payroll, consultant services and other expenses to meet the
requirements of retail competition. This increase was also due to increased
firm transmission costs related to the Energy Marketing Center activities, and
higher provisions for uncollectible customer accounts. Operation costs of PPL
Gas Utilities, which was acquired in 1998, also added to the increase. The
increases in 1998 were partially offset by credits recorded in connection with
the pilot Electric Choice Program.
A-8
<PAGE>
Maintenance Expenses
Maintenance expenses increased by $33 million in 1999 from 1998. About half
of the increase was due to the consolidation of Emel effective January 1, 1999
and the acquisition of PPL Gas Utilities in August 1998. The other half of
this increase was due to higher costs of outage-related and other maintenance
at PPL Electric Utilities' fossil and nuclear power plants, and additional
expenses to maintain transmission and distribution facilities.
Power Plant Operations
In April 1999, PPL Electric Utilities closed its Holtwood coal-fired
generating station. The closing was part of an effort to reduce operating
costs and position PPL Electric Utilities for the competitive marketplace. The
adjacent hydroelectric plant continues to operate.
In November 1999, PPL Electric Utilities sold its Sunbury plant and the
principal assets of its wholly-owned coal processing subsidiary, Lady Jane
Collieries, to Sunbury Holdings, LLC. PPL Electric Utilities received cash
proceeds of $107 million for the assets, including coal inventory, which
resulted in a one-time contribution to earnings of about 28 cents per share.
Depreciation and Amortization
Depreciation and amortization expenses decreased by $81 million from 1998 to
1999. This decrease was mainly due to the write-down of generation-related
assets in connection with the restructuring adjustments recorded in June 1998.
The decrease was partially offset by depreciation associated with the
acquisition of PPL Gas Utilities in August 1998 and the consolidation of Emel
effective January 1, 1999.
Depreciation and amortization expenses decreased by $47 million from 1997 to
1998. This decrease also reflected the write-down of impaired generation-
related assets.
Other Income and (Deductions)
Other income of PPL increased by $31 million from 1998 to 1999. PPL Global's
earnings for 1999 reflected a pre-U.S. tax gain of $78 million from the sale
of SWEB's electricity supply business. Also, PPL Electric Utilities sold its
Sunbury plant and the principal assets of its wholly owned subsidiary, Lady
Jane Collieries, recognizing a $66 million pre-tax gain. These increases in
1999 were partially offset by a $51 million write-down of certain of PPL
Global's international investments: WPD, Aguaytia and BGG. Other income in
1998 also included several favorable one-time adjustments: a $30 million
recovery from SER to settle a suit over disputed purchase prices, a $9 million
credit for a reduction in U.K. corporate tax rates, and a $6 million credit to
earnings to reverse the prior expensing of PPL Gas Utilities acquisition
costs.
Other income in 1998 increased by $94 million from 1997. This increase was
primarily due to the favorable one-time adjustments recorded in 1998, as noted
above, and a windfall profits tax incurred by PPL Global in 1997. In July
1997, the U.K. imposed a windfall profits tax on privatized utilities. SWEB's
tax was about $148 million, of which PPL Global's proportionate share was $37
million.
Financing Costs
PPL experienced higher financing costs associated with long-term debt during
the past few years, primarily associated with the issuance of $2.42 billion of
transition bonds by PP&L Transition Bond Company and the issuance of medium-
term notes by PPL Capital Funding. Refer to "Financing Activities" for more
information. Interest on long-term debt and dividends on preferred stock
increased from $235 million in 1996 to $259 million in 1999, for a total
increase of $24 million. Interest on short-term debt, net of capitalized
interest and AFUDC borrowed funds, increased from $13 million in 1996 to $44
million in 1999. This increase reflects PPL Capital Funding's commercial paper
program initiated in 1998, which added short-term debt.
Income Taxes
Income tax expense decreased by $85 million in 1999 from 1998. This was
primarily due to deferred income taxes no longer required due to
securitization.
Income tax expense in 1998 increased by $22 million from 1997. This was
primarily due to a $106 million increase in pre-tax book income.
A-9
<PAGE>
Financial Condition
Energy Marketing and Trading Activities
PPL Electric Utilities purchases and sells wholesale electric capacity and
energy under its FERC market-based tariff. PPL Electric Utilities has entered
into agreements to sell firm capacity or energy under its market-based tariff
to certain entities located inside and beyond the PJM power pool. PPL Electric
Utilities enters into these agreements to market available energy and capacity
from its generating assets and to profit from market price fluctuations. If
PPL Electric Utilities were unable to deliver firm capacity and energy under
these agreements, under certain circumstances it would be required to pay
damages. These damages would be based on the difference between the market
price to acquire replacement capacity or energy, and the contract price of the
undelivered capacity or energy. Depending on price volatility in the wholesale
energy markets, such damages could be significant. Extreme weather conditions,
unplanned generating plant outages, transmission disruptions, non-performance
by counterparties (or their counterparties) with which it has power contracts
and other factors could affect PPL Electric Utilities' ability to meet its
firm capacity or energy obligations, or cause significant increases in the
market price of replacement capacity and energy. Although PPL Electric
Utilities attempts to mitigate these risks, there can be no assurance that it
will be able to fully meet its firm obligations, that it will not be required
to pay damages for failure to perform, or that it will not experience
counterparty non-performance in the future.
PPL Electric Utilities attempts to mitigate risks associated with open
contract positions by holding back generation capacity to deliver electricity
to satisfy its net firm sales contracts and by purchasing firm transmission
service. In addition, PPL Electric Utilities' Energy Marketing Center adheres
to the Company's risk management policy and programs, including established
credit policies to evaluate counterparty credit risk. To date, PPL Electric
Utilities has not experienced any significant losses due to non-performance by
counterparties.
During 1999, PPL Electric Utilities entered into commodity forward and
option contracts for the physical purchase and sale of energy, as well as
energy related contracts that could be settled financially. On January 1,
1999, PPL Electric Utilities adopted mark-to-market accounting for energy
contracts executed for trading purposes, in accordance with EITF 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities." Under mark-to-market accounting, gains and losses from changes in
market prices on contracts executed for trading purposes are reflected in
current earnings. The earnings effect of mark-to-market accounting was not
significant in 1999. Under EITF 98-10, energy trading activities refer to
energy contracts executed with the objective of generating profits on, or from
exposure to, shifts or changes in market prices. Risk management activities
refer to energy contracts that are designated as (and effective as) hedges of
non-trading activities (i.e., marketing available capacity and energy and
purchasing fuel for consumption). PPL Electric Utilities will continue to use
accrual accounting for energy contracts that are designated as non-trading
activities until it adopts SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective January 1, 2001. SFAS 133, which
expands the definition of a derivative to possibly include commodity contracts
that require physical delivery, requires that an entity recognize all
derivatives in the statement of financial position at fair value. The
accounting for changes in the fair value of a derivative will depend on the
intended use of the derivative and the resulting designation.
PPL Electric Utilities has entered into an agreement to provide wholesale
energy marketing, trading and energy portfolio management services for an
energy cooperative organization that provides energy-related services to
public power entities. The market risk associated with this type of activity
is not significant. PPL Electric Utilities will terminate this agreement early
in 2000. PPL Electric Utilities expects to expand its activities by entering
into similar agreements with other counterparties.
Market Risk Sensitive Instruments
Quantitative and Qualitative Disclosures About Market Risk
PPL actively manages the market risk inherent in its commodity, debt,
foreign currency and equity positions. The Board of Directors of PPL has
adopted a risk management policy to manage the risk exposures related to
energy prices, interest rates and foreign currency exchange rates. The policy
establishes a Risk Management Committee comprised of certain executive
officers which oversees the risk management function. Nonetheless, adverse
changes in commodity prices, interest rates, foreign currency exchange rates
and equity prices may result in losses in earnings, cash flows and/or fair
values. The forward-looking information presented below only
A-10
<PAGE>
provides estimates of what may occur in the future, assuming certain adverse
market conditions, due to reliance on model assumptions. As a result, actual
future results may differ materially from those presented. These disclosures
are not precise indicators of expected future losses, but only indicators of
reasonably possible losses.
See Note 10 to the Financial Statements for a discussion of forward starting
interest rate swaps and treasury locks to hedge debt issuances and retirements
during 1999. Note 10 also describes hedge positions at December 31, 1999 to
manage exposures to interest rate risk for anticipated debt issuance in the
first quarter of 2000.
Commodity Price Risk--Energy Marketing Center
PPL Electric Utilities' risk management program is designed to manage the
risks associated with market fluctuations in the price of electricity, natural
gas, oil and emission allowances. The Company's risk management policy and
programs include risk identification and risk limits management, with
measurement and controls for real time risk monitoring. In 1999, PPL Electric
Utilities entered into fixed-price forward and option contracts that required
physical delivery of the commodity, exchange-for-physical transactions and
over-the-counter contracts (such as swap agreements where settlement is
generally based on the difference between a fixed and index-based price for
the underlying commodity). PPL Electric Utilities expects to continue using
such contracts in 2000 as well as tolling agreements or other contractual
arrangements.
PPL Electric Utilities enters into contracts to hedge the impact of market
fluctuations on its energy-related assets, liabilities and other contractual
arrangements. In addition, as defined by EITF 98-10, it enters into these
contracts for trading purposes to take advantage of market opportunities. PPL
Electric Utilities may at times create a net open position in its portfolio
that could result in significant losses if prices do not move in the manner or
direction anticipated.
PPL Electric Utilities uses various methodologies to simulate forward price
curves in the energy markets to estimate the size and probability of changes
in market value resulting from commodity price movements. The methodologies
require several key assumptions, including selection of confidence levels, the
holding period of the commodity positions, and the depth and applicability to
future periods of historical commodity price information. At December 31,
1999, PPL Electric Utilities estimated that a 10% adverse movement in market
prices across all geographic areas and time periods could have decreased the
value of PPL Electric Utilities' trading portfolio by approximately $1
million, as compared to a $16 million decrease at December 31, 1998. For PPL
Electric Utilities' non-trading portfolio, a 10% adverse movement in market
prices across all geographic areas and time periods could have decreased the
value of PPL Electric Utilities' non-trading portfolio by approximately $11
million at December 31, 1999, as compared to a $17 million decrease at
December 31, 1998. However, this effect would have been offset by the change
in the value of the underlying commodity, i.e., the electricity generated. In
addition to commodity price risk, PPL Electric Utilities' commodity positions
are also subject to operational and event risks including, among others,
increases in load demand and forced outages at generating plants.
Commodity Price Risk--PPL EnergyPlus
During 1999, PPL EnergyPlus entered into various arrangements with retail
customers who elected to shop for an energy provider. These contracts
committed PPL EnergyPlus to the sale of electricity or natural gas without a
specified firm volume. The sale contracts ranged in duration from five months
to three years. To hedge the price risk of these transactions, PPL EnergyPlus
has the ability to supply the electricity through a one-year option contract
with the Energy Marketing Center. Therefore, the potential for short-term
losses associated with PPL EnergyPlus' commodity position is not significant.
PPL EnergyPlus also provides for the transportation and sale of excess
electricity generated by PPL Montana. Changes in the prices of this commodity
can affect PPL Montana's financial results. PPL EnergyPlus manages this
exposure, in part, by using financial derivatives and physical instruments in
hedged transactions to reduce earnings volatility and stabilize cash flows.
PPL EnergyPlus may enter into derivative financial instruments from time to
time for trading purposes.
At December 31, 1999, PPL EnergyPlus estimated that a 10% adverse movement
in market prices across all geographic areas and time periods would not have a
significant impact on the financial statements. At December 31, 1999 PPL
EnergyPlus had no trading transactions as defined under EITF 98-10.
A-11
<PAGE>
Interest Rate Risk
PPL and PPL Electric Utilities have issued debt to finance their operations.
Also, PPL has issued debt to provide funds for unregulated energy investments,
which also increases interest rate risk. PPL and PPL Electric Utilities manage
their interest rate risk by using financial derivative products to adjust the
mix of fixed and floating-rate interest rates in their debt portfolios,
adjusting the duration of their debt portfolios and locking in U.S. treasury
rates (and interest rate spreads over treasuries) in anticipation of future
financing, when appropriate. Risk limits are designed to balance risk exposure
to volatility in interest expense and losses in the fair value of PPL's and
PPL Electric Utilities' debt portfolio due to changes in the absolute level of
interest rates. See Note 10 to Financial Statements for a discussion of
financial derivative instruments outstanding at December 31, 1999.
PPL's potential annual exposure to increased interest expense due to a 10%
increase in interest rates was estimated at $4.9 million at December 31, 1999,
and $6.3 million at December 31, 1998.
PPL is also exposed to changes in the fair value of its debt portfolio. At
December 31, 1999, PPL estimated that its potential exposure to a change in
the fair value of its debt portfolio through a 10% adverse movement in
interest rates was $61.3 million, compared with $118.8 million at December 31,
1998.
PPL utilizes various risk management instruments to reduce its exposure to
adverse interest rate movements for future anticipated financings. While PPL
is exposed to changes in the fair value of these instruments, they are
designed such that any economic loss in value should be offset by interest
rate savings at the time the future anticipated financing is completed. At
December 31, 1999, PPL estimated its potential exposure to a change in the
fair value of these instruments through a 10% adverse movement in interest
rates at $46.3 million. At December 31, 1998 PPL had no financial derivative
instruments outstanding.
Market events that are inconsistent with historical trends could cause
actual results to exceed estimated levels.
Foreign Operations Risk
At December 31, 1999 and 1998, PPL Global had investments of $810 million
and $671 million, respectively, the majority of which were international
investments in energy-related distribution facilities. PPL Global is exposed
to foreign currency risk primarily through investments in affiliates in Latin
America and Europe.
PPL has adopted a foreign currency risk management program designed to limit
or hedge future cross-border cash flows for firm transactions and commitments,
and to hedge economic exposures such as anticipated dividends and projected
asset sales or acquisitions when there is a high degree of certainty that the
exposure will be realized. As of December 31, 1999 and 1998, PPL did not have
any outstanding significant foreign currency-based financing.
Nuclear Decommissioning Fund--Securities Price Risk
PPL Electric Utilities maintains trust funds, as required by the NRC, to
fund certain costs of decommissioning Susquehanna. At December 31, 1999, these
funds were invested primarily in domestic equity securities and fixed rate,
fixed income securities and are reflected at fair value on the Consolidated
Balance Sheet. The mix of securities is designed to provide returns to be used
to fund Susquehanna's decommissioning and to compensate for inflationary
increases in decommissioning costs. However, the equity securities included in
the trusts are exposed to price fluctuation in equity markets, and the value
of fixed rate, fixed income securities are exposed to changes in interest
rates. PPL Electric Utilities actively monitors the investment performance and
periodically reviews asset allocation in accordance with PPL Electric
Utilities' nuclear decommissioning trust policy statement. A hypothetical 10%
increase in interest rates and 10% decrease in equity prices would result in
an $18.6 million reduction in the fair value of the trust assets at December
31, 1999, as compared to a $13.7 million reduction at December 31, 1998.
PPL Electric Utilities' restructuring settlement agreement provides for the
collection of authorized nuclear decommissioning costs through the CTC.
Additionally, PPL Electric Utilities is permitted to seek recovery from
customers of up to 96% of any increases in these costs. Therefore, PPL
Electric Utilities' securities price risk is expected to remain insignificant.
A-12
<PAGE>
Capital Expenditure Requirements
The schedule below shows PPL Electric Utilities' current capital expenditure
projections for the years 2000-2004 and actual spending for the year 1999.
PPL Electric Utilities' Capital Expenditure Requirements
<TABLE>
<CAPTION>
Actual Projected
------ ------------------------
1999 2000 2001 2002 2003 2004
------ ---- ---- ---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Construction expenditures
Generating facilities......................... $ 91 $ 69 $ 69 $123 $ 95 $ 61
Transmission and distribution facilities...... 111 115 114 119 119 123
Environmental................................. 47 98 29 5 23 21
Other......................................... 15 22 18 18 16 16
---- ---- ---- ---- ---- ----
Total Construction Expenditures............. 264 304 230 265 253 221
Nuclear fuel owned and leased................... 42 50 55 56 56 59
Operating leases................................ 38 28 28 28 28 28
---- ---- ---- ---- ---- ----
Total Capital Expenditures.................. $344 $382 $313 $349 $337 $308
==== ==== ==== ==== ==== ====
</TABLE>
Construction expenditures include AFUDC and Capitalized Interest which are
expected to be less than $19 million in each of the years 2000-2004.
PPL Electric Utilities' capital expenditure projections for the years 2000-
2004 total about $1.7 billion. Capital expenditure plans are revised from time
to time to reflect changes in conditions.
Acquisitions and Divestitures
Refer to Note 12 to Financial Statements for information regarding
Acquisitions and Divestitures.
At December 31, 1999, PPL Global had investments in foreign and domestic
facilities, including investments in Emel, DelSur, and Penobscot Hydro (that
are consolidated in PPL Global's financial statements), but excluding PPL
Montana. PPL Global continues to pursue opportunities to develop and acquire
electric generation, transmission and distribution facilities in the U.S. and
abroad.
Financing and Liquidity
Cash and cash equivalents decreased by $207 million more during the twelve
months ended December 31, 1999, compared with the same period in 1998. The
reasons for this change were:
. A $7 million increase in cash provided by operating activities.
. A $694 million increase in cash used in investing activities, primarily
due to the acquisition of the Montana generating assets, partially
offset by the sale of the Sunbury generating and related assets and the
sale of SWEB's supply business.
. A $480 million increase in cash provided by financing activities. This
increase was due to a net increase in long-term debt and a decrease in
payments of common dividends. These financing inflows were partially
offset by lower funds from issuing common stock, and a smaller increase
in short-term debt balances.
From 1997 through 1999, PPL issued $3.2 billion of long-term debt (including
$2.42 billion of securitized debt issued by PP&L Transition Bond Company). For
the same period, PPL issued $146 million of common stock, excluding stock
issued in conjunction with the PPL Gas Utilities acquisition. From 1997
through 1999, PPL retired $2.1 billion of long-term debt and repurchased $836
million of common shares. During the years 1997 through 1999, PPL Electric
Utilities also incurred $185 million of obligations under capital leases.
Refer to Note 11 to Financial Statements for additional information on
credit arrangements and financing activities in 1999.
A-13
<PAGE>
In February 2000, PPL Capital Funding issued $500 million of medium-term
notes in the form of 7.75% series due 2005. This issuance used $500 million of
the $1.2 billion SEC shelf registration filed in September 1999. (See Note 11
to the Financial Statements.) At the time of issuance, PPL also settled a
number of forward-starting swaps that had been entered into in a lower
interest rate environment as a means to lock-in interest rates and limit
exposure to increasing interest rates, all pursuant to PPL's interest rate
risk management program. PPL received net proceeds of $15.8 million from the
settlement of these contracts, which will be deferred on the balance sheet and
subsequently amortized over the life of the medium-term notes. The effective
interest rate on the medium-term notes was reduced by approximately 75 basis
points as a result of this hedging activity. Also, in conjunction with this
transaction, PPL swapped $350 million notional amount of these notes from
fixed to floating-rate instruments, with an initial average rate of three-
months LIBOR plus 45 basis points, to adjust the amount of floating-rate debt
carried in its liability portfolio.
In the first quarter of 2000, PPL Electric Utilities intends to call for
redemption its remaining $28 million of First Mortgage Bonds, 9-1/4% Series
due 2019, through the maintenance and replacement fund provisions of its
mortgage.
On February 25, 2000, the PPL Board of Directors declared a quarterly common
stock dividend of $.265 per share, payable April 1, 2000 to shareowners of
record on March 10, 2000. The amount of the April 1, 2000 dividend represents
an increase of 6% from the amount of the quarterly dividend ($.25 per share)
that had been paid since October 1, 1998. Future dividends, declared at the
discretion of the Board of Directors, will be dependent upon future earnings,
financial requirements and other factors.
Financial Indicators
Earnings for 1999, 1998 and 1997 were impacted by one-time adjustments. (See
"Earnings" for additional information.) The following financial indicators for
PPL reflect the elimination of these impacts from earnings, and provide an
additional measure of the underlying earnings performance of PPL and its
subsidiaries.
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Earnings per share, as adjusted......................... $ 2.35 $ 1.87 $ 2.00
Return on average common equity......................... 16.89% 10.98% 11.69%
Ratio of pre-tax income to interest charges............. 3.04 3.28 3.59
Dividends declared per share............................ $ 1.00 $1.335 $ 1.67
</TABLE>
Environmental Matters
See Note 16 to Financial Statements for a discussion of environmental
matters.
Increasing Competition
The electric utility industry has experienced, and will continue to
experience, a significant increase in the level of competition in the energy
supply market at both the state and federal level.
State Activities
Refer to Note 4 to Financial Statements for a discussion of PPL Electric
Utilities' PUC restructuring proceeding under the Customer Choice Act.
Also refer to Note 4 regarding PPL Electric Utilities' transfer of its
retail electric marketing function to PPL EnergyPlus. PPL EnergyPlus has a PUC
license to act as a Pennsylvania EGS. This license permits PPL EnergyPlus to
offer retail electric supply to participating customers in the service
territory of PPL Electric Utilities and in the service territories of other
Pennsylvania utilities. In 1999, PPL EnergyPlus served industrial and
commercial customers in Pennsylvania, New Jersey and Delaware, and is also
licensed to sell energy in Maine and Montana.
Federal Activities
PPL Electric Utilities and, effective July 1999, PPL EnergyPlus have
authority from the FERC to sell specified ancillary services at market-based
rates in the following markets: the New England power pool, the New York power
pool, the market administered by the California ISO, and the PJM.
A-14
<PAGE>
PPL Electric Utilities and PPL EnergyPlus have 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. PPL Electric
Utilities has a FERC-filed code of conduct governing its relationship with
such affiliates that engage in the sale and/or transmission of electric
energy.
Proposed Corporate Realignment
In September 1999, the Boards of Directors of PPL and PPL Electric Utilities
approved the initiation of a corporate realignment, in order to better
position PPL and its subsidiaries in the new competitive marketplace. This
realignment includes the following key features:
. The transfer of all of PPL Electric Utilities' electric generating
facilities and related assets to new generating subsidiaries of PPL,
under a new unregulated generation company. In order to effect this
transfer, these assets will be released from PPL Electric Utilities'
Mortgage.
. The transfer of PPL Electric Utilities' wholesale energy marketing
business to PPL EnergyPlus, which will be the wholesale and retail
energy marketing subsidiary of PPL and will no longer be a subsidiary of
PPL Electric Utilities.
. The transfer of the U.S. electric generating subsidiaries of PPL Global
to the new generation company.
Upon completion of this corporate realignment, PPL Electric Utilities'
principal business will be the transmission and distribution of electricity to
serve retail customers in its franchised territory in eastern and central
Pennsylvania. PPL Global's principal business will be the acquisition or
development of both U.S. and international energy projects and the ownership
of international energy projects. Other existing subsidiaries of PPL and PPL
Electric Utilities will generally be aligned in the new corporate structure
according to their principal business functions.
The proposed corporate realignment is subject to approval from the PUC, the
FERC and the NRC, as well as certain third-party consents. In December 1999,
the company filed applications for these regulatory approvals. Several
protests and petitions to intervene have been filed in these proceedings,
raising a variety of issues associated with the corporate realignment. PPL
currently expects to complete the corporate realignment in mid-2000.
Year 2000
PPL successfully addressed the Year 2000 issue. The Year 2000 issue was the
result of computer programs written using two digits rather than four to
define the applicable year and other programming techniques which limited date
calculations or assigned special meanings to some dates. All of PPL Electric
Utilities' computer systems that had date-sensitive software or
microprocessors could have recognized a date using "00" as the year 1900
rather than the year 2000. This could have resulted in a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to measure usage, read meters, process
transactions, send bills, receive payments, distribute electricity or operate
electric generation stations. In addition, the Year 2000 issue could have
affected the ability of customers to receive bills sent by PPL Electric
Utilities or to make payments on these bills. PPL Electric Utilities has not
experienced any significant problems in this regard.
Based upon present assessments, PPL Electric Utilities estimates that it
incurred approximately $13 million in Year 2000 remediation costs. These costs
have been expensed as incurred.
Other PPL domestic and international affiliates successfully completed the
Year 2000 rollover with no significant problems. PPL's electricity
distribution companies in the U.K., Chile, Bolivia, and El Salvador all
reported fewer than normal outages, which were unrelated to Year 2000. In
addition, PPL Gas Utilities and generating facilities in Montana and Maine
also successfully made the Year 2000 transition without incident.
A-15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareowners
of PPL Corporation:
In our opinion, the accompanying consolidated balance sheet and consolidated
statements of preferred stock, of company-obligated mandatorily redeemable
preferred securities and of long-term debt and the related consolidated
statements of income, of cash flows and of shareowners' common equity present
fairly, in all material respects, the financial position of PPL Corporation
and subsidiaries (the "Company") at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2000
A-16
<PAGE>
PPL CORPORATION
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of PPL is responsible for the preparation, integrity and
objectivity of the consolidated financial statements and all other sections of
this annual report. The financial statements were prepared in accordance with
generally accepted accounting principles and the Uniform System of Accounts
prescribed by the Federal Energy Regulatory Commission. In preparing the
financial statements, management makes informed estimates and judgments of the
expected effects of events and transactions based upon currently available
facts and circumstances. Management believes that the financial statements are
free of material misstatement and present fairly the financial position,
results of operations and cash flows of PPL.
PPL's consolidated financial statements have been audited by
PricewaterhouseCoopers LLP (PricewaterhouseCoopers), independent certified
public accountants. PricewaterhouseCoopers' appointment as auditors was
previously ratified by the shareowners. Management has made available to
PricewaterhouseCoopers all PPL's financial records and related data, as well
as the minutes of shareowners' and directors' meetings. Management believes
that all representations made to PricewaterhouseCoopers during its audit were
valid and appropriate.
PPL maintains a system of internal control designed to provide reasonable,
but not absolute, assurance as to the integrity and reliability of the
financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial
reporting. The concept of reasonable assurance recognizes that the cost of a
system of internal control should not exceed the benefits derived and that
there are inherent limitations in the effectiveness of any system of internal
control.
Fundamental to the control system is the selection and training of qualified
personnel, an organizational structure that provides appropriate segregation
of duties, the utilization of written policies and procedures and the
continual monitoring of the system for compliance. In addition, PPL maintains
an internal auditing program to evaluate PPL's system of internal control for
adequacy, application and compliance. Management considers the internal
auditors' and PricewaterhouseCoopers' recommendations concerning its system of
internal control and has taken actions which are believed to be cost-effective
in the circumstances to respond appropriately to these recommendations.
Management believes that PPL's system of internal control is adequate to
accomplish the objectives discussed in this report.
The Board of Directors, acting through its Audit Committee, oversees
management's responsibilities in the preparation of the financial statements.
In performing this function, the Audit Committee, which is composed of four
independent directors, meets periodically with management, the internal
auditors and the independent certified public accountants to review the work
of each. The independent certified public accountants and the internal
auditors have free access to the Audit Committee and to the Board of
Directors, without management present, to discuss internal accounting control,
auditing and financial reporting matters.
Management also recognizes its responsibility for fostering a strong ethical
climate so that PPL's affairs are conducted according to the highest standards
of personal and corporate conduct. This responsibility is characterized and
reflected in the business policies and guidelines of PPL's operating
subsidiaries. These policies and guidelines address: the necessity of ensuring
open communication within PPL; potential conflicts of interest; proper
procurement activities; compliance with all applicable laws, including those
relating to financial disclosure; and the confidentiality of proprietary
information.
/s/ William F. Hecht
William F. Hecht
Chairman, President and Chief Executive Officer
/s/ John R. Biggar
John R. Biggar
Senior Vice President and Chief Financial Officer
A-17
<PAGE>
CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Operating Revenues
Electric................................................ $2,758 $2,410 $2,397
Natural gas and propane................................. 109 35
Wholesale energy marketing and trading.................. 1,446 1,223 650
Energy related businesses............................... 277 118 30
------ ------ ------
Total............................................... 4,590 3,786 3,077
------ ------ ------
Operating Expenses
Operation
Electric fuel......................................... 446 490 476
Natural gas and propane............................... 46 13
Energy purchases for retail load and wholesale........ 1,518 1,060 504
Other................................................. 686 595 503
Amortization of recoverable transition costs.......... 172
Maintenance............................................. 215 182 184
Depreciation and amortization (Note 1).................. 257 338 385
Taxes, other than income (Note 8)....................... 161 188 204
Energy related businesses............................... 217 93 21
------ ------ ------
Total............................................... 3,718 2,959 2,277
------ ------ ------
Operating Income......................................... 872 827 800
------ ------ ------
Other Income and (Deductions)........................... 97 66 (28)
------ ------ ------
Income Before Interest, Income Taxes and Minority
Interest................................................ 969 893 772
Interest Expense...................................... 277 230 215
------ ------ ------
Income Before Income Taxes, Minority Interest and
Extraordinary Items..................................... 692 663 557
Income Taxes (Note 8)................................. 174 259 237
Minority Interest (Note 1)............................ 14
------ ------ ------
Income Before Extraordinary Items........................ 504 404 320
Extraordinary Items (net of income taxes) (Note 6)....... (46) (948)
------ ------ ------
Income (Loss) Before Dividends on Preferred Stock........ 458 (544) 320
Preferred Stock Dividend Requirements................. 26 25 24
------ ------ ------
Net Income (Loss)........................................ $ 432 $ (569) $ 296
====== ====== ======
Earnings Per Share of Common Stock
Basic and Diluted (Note 1):
Income Before Extraordinary Items................... $ 3.14 $ 2.29 $ 1.80
Extraordinary Items (net of tax).................... (0.30) (5.75)
------ ------ ------
Net Income (Loss)........................................ $ 2.84 $(3.46) $ 1.80
====== ====== ======
Dividends Declared per Share of Common Stock............ $ 1.00 $1.335 $ 1.67
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-18
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss)...................................... $ 432 $(569) $ 296
Extraordinary items (net of income taxes).............. (46) (948)
------- ----- -----
Net income before extraordinary items.................. 478 379 296
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization........................ 257 338 385
Regulatory debits and credits........................ 194 (61) (36)
Amortization of property under capital leases........ 59 58 68
Amortization of NUG above market liability........... (104)
Gain on sale of generating assets and electric energy
projects............................................ (146)
Minority interest.................................... 14
Writedown of investments in electric energy
projects............................................ 51
Preferred stock dividend requirement................. 26 25 24
Equity in (earnings) loss of unconsolidated
affiliates.......................................... (59) (49) 2
Deferred income taxes and investment tax credits..... (43) 12 18
Change in current assets and current liabilities....... (82) (42) (2)
Other operating activities--net........................ (1) (23) 22
------- ----- -----
Net cash provided by operating activities.......... 644 637 777
------- ----- -----
Cash Flows From Investing Activities
Expenditures for property, plant and equipment......... (318) (304) (310)
Sale of generating assets and electric energy
projects.............................................. 221
Investment in generating assets and electric energy
projects.............................................. (1,095) (306) (152)
Sale of nuclear fuel to trust.......................... 14 54 60
Purchases of available-for-sale securities............. (15) (72)
Sales and maturities of available-for-sale securities.. 70 111
Purchases and sales of other financial investments--
net................................................... 4 76
Other investing activities--net........................ (1) 12 (4)
------- ----- -----
Net cash used in investing activities.............. (1,179) (485) (291)
------- ----- -----
Cash Flows From Financing Activities
Issuance of long-term debt............................. 2,620 495 111
Retirement of long-term debt........................... (1,644) (295) (210)
Issuance of common stock............................... 8 62 76
Purchase of treasury stock............................. (416) (419)
Issuance of Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding
solely parent debentures.............................. 250
Purchase of subsidiary's preferred stock............... (369)
Payments on capital lease obligations.................. (59) (58) (68)
Payment of common and preferred dividends.............. (180) (278) (298)
Net increase (decrease) in short-term debt............. 215 487 (9)
Other financing activities--net........................ (71) (1) (20)
------- ----- -----
Net cash provided by (used in) financing
activities........................................ 473 (7) (537)
------- ----- -----
Net Increase (Decrease) In Cash and Cash Equivalents.... (62) 145 (51)
Cash and Cash Equivalents at Beginning of Period....... 195 50 101
------- ----- -----
Cash and Cash Equivalents at End of Period............. $ 133 $ 195 $ 50
======= ===== =====
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized)................. $ 267 $ 237 $ 208
Income taxes......................................... $ 184 $ 248 $ 244
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-19
<PAGE>
CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents (Note 1).............................. $ 133 $ 195
Accounts receivable (less reserve: 1999, $22; 1998, $16)........ 399 298
Unbilled revenues............................................... 310 170
Fuel, materials and supplies--at average cost................... 200 207
Prepayments..................................................... 119 15
Unrealized energy trading gains................................. 26 2
Other........................................................... 106 61
------- ------
1,293 948
------- ------
Investments
Investment in unconsolidated affiliates at equity (Note 1)...... 424 688
Nuclear plant decommissioning trust fund (Notes 1 and 9)........ 255 206
Other (Note 10)................................................. 16 12
------- ------
695 906
------- ------
Property, Plant and Equipment
Electric utility plant in service--net (Note 1)
Transmission and distribution................................. 2,462 2,179
Generation.................................................... 2,352 1,601
General....................................................... 259 223
------- ------
5,073 4,003
Construction work in progress--at cost.......................... 181 117
Nuclear fuel owned and leased--net.............................. 139 162
------- ------
Electric utility plant--net................................... 5,393 4,282
Gas and oil utility plant--net.................................. 171 175
Other property--net............................................. 80 23
------- ------
5,644 4,480
------- ------
Regulatory Assets and Other Noncurrent Assets (Note 6)
Recoverable transition costs.................................... 2,647 2,819
Other........................................................... 895 454
------- ------
3,542 3,273
------- ------
$11,174 $9,607
======= ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-20
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Liabilities and Equity
Current Liabilities
Short-term debt (Note 11).. $ 857 $ 636
Long-term debt............. 468 1
Capital lease obligations.. 58 59
Above market NUG contracts
(Note 6).................. 99 105
Accounts payable........... 399 197
Taxes and interest
accrued................... 144 95
Dividends payable.......... 43 46
Unrealized energy trading
losses.................... 28 9
Other...................... 184 128
------- ------
2,280 1,276
------- ------
Long-term Debt.............. 3,689 2,983
------- ------
Deferred Credits and Other
Noncurrent Liabilities
Deferred income taxes and
investment tax credits
(Note 8).................. 1,548 1,574
Above market NUG purchases
(Note 6).................. 674 775
Capital lease obligations.. 67 109
Other (Notes 1 and 9)......... 892 753
------- ------
3,181 3,211
------- ------
Commitments and Contingent
Liabilities (Note 16)......
------- ------
Minority Interest (Note 1).. 64
------- ------
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trust holding
solely company debentures.. 250 250
------- ------
Preferred Stock
With sinking fund
requirements.............. 47 47
Without sinking fund
requirements.............. 50 50
------- ------
97 97
------- ------
Shareowners' Common Equity
Common stock............... 2 2
Capital in excess of par
value..................... 1,860 1,866
Treasury stock (Note 1).... (836) (419)
Earnings reinvested........ 654 372
Accumulated other
comprehensive income (Note
1)........................ (55) (4)
Capital stock expense and
other..................... (12) (27)
------- ------
1,613 1,790
------- ------
$11,174 $9,607
======= ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-21
<PAGE>
CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY
PPL Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Common stock at beginning of
year........................ $ 2 $ 2 $ 2
Issuance of common stock....
-------- -------- -------
Common stock at end of year.. 2 2 2
-------- -------- -------
Capital in excess of par
value at beginning of year.. 1,866 1,669 1,590
Common stock issued through
the ESOP and the DRIP (a).. 8 62 76
Common stock issued for
purchase of PPL Gas
Utilities.................. 135
Other....................... (14) 3
-------- -------- -------
Capital in excess of par
value at end of year........ 1,860 1,866 1,669
-------- -------- -------
Treasury stock at beginning
of year..................... (419)
Purchase of treasury stock.. (417) (419)
-------- -------- -------
Treasury stock at end of
year........................ (836) (419)
-------- -------- -------
Earnings reinvested at
beginning of year........... 372 1,164 1,143
Net income (loss) (b)....... 432 (569) 296
Cash dividends declared on
common stock............... (150) (223) (275)
-------- -------- -------
Earnings reinvested at end of
year........................ 654 372 1,164
-------- -------- -------
Accumulated other
comprehensive income at
beginning of year (c)....... (4) 13
Foreign currency translation
adjustments, net of tax
benefit of $6, $3, $0 (b).. (51) 1 (13)
Unrealized gain (loss) on
available-for-sale
securities (b)............. (2) 2
Minimum pension liability
adjustment (b)............. (3) (2)
-------- -------- -------
Accumulated other
comprehensive income at end
of year..................... (55) (4) --
-------- -------- -------
Capital stock expense at
beginning of year........... (27) (26) (3)
Other....................... 15 (1) (23)
-------- -------- -------
Capital stock expense at end
of year..................... (12) (27) (26)
-------- -------- -------
Total Shareowners' Common
Equity...................... $ 1,613 $ 1,790 $ 2,809
======== ======== =======
Common stock shares
(thousands) at beginning of
year (a).................... 157,412 166,248 162,665
Common stock issued through
ESOP and DRIP ............. 282 2,604 3,583
Common stock issued for
purchase of PPL Gas
Utilities.................. 5,556
Treasury stock purchased..... (13,997) (16,996)
-------- -------- -------
Common stock shares at end of
year........................ 143,697 157,412 166,248
======== ======== =======
</TABLE>
- -------
(a) $.01 par value, 390,000 thousand shares authorized. Each share entitles the
holder to one vote on any question presented to any shareowners' meeting.
(b) Statement of Comprehensive Income (Note 1):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net income (loss).......... $ 432 $ (569) $ 296
Other comprehensive
income, net of tax:
Foreign currency
translation adjustments.. (51) 1 (13)
Unrealized gain (loss) on
available-for-sale
securities............... (2) 2
Minimum pension liability
adjustment............... (3) (2)
-------- -------- -------
Total other comprehensive
income.................... (51) (4) (13)
-------- -------- -------
Comprehensive income (loss)...$ 381 $ (573) $ 283
======== ======== =======
</TABLE>
(c) See Note 1 for disclosure of balances for each component of Accumulated
Other Comprehensive Income.
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-22
<PAGE>
CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31,
PPL Corporation and Subsidiaries (a)
(Millions of Dollars)
<TABLE>
<CAPTION>
Outstanding Shares
------------ Outstanding Shares
1999 1998(b) 1999(b) Authorized
---- ------- ----------- ----------
<S> <C> <C> <C> <C>
PPL Electric Utilities
Preferred Stock--$100 par, cumulative
4 1/2%................................... $25 $25 247,658 629,936
Series................................... 72 72 726,665 10,000,000
--- ---
$97 $97
=== ===
</TABLE>
Details of Preferred Stock(c)
<TABLE>
<CAPTION>
Sinking Fund Provisions
-----------------------
Outstanding Shares Optional Shares to be
--------------- Outstanding Redemption Redeemed Redemption
1999(b) 1998(b) 1999(b) Price Per Share Annually Period
------- ------- ----------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
With Sinking Fund
Requirements
Series Preferred
5.95%................. $ 1 $ 1 10,000 (d) 10,000 April 2001
6.125%................ 31 31 315,500 (d) (e) 2003-2008
6.15%................. 10 10 97,500 (d) 97,500 April 2003
6.33%................. 5 5 46,000 (d) 46,000 July 2003
--- ---
$47 $47
=== ===
Without Sinking Fund
Requirements
4 1/2% Preferred....... $25 $25 247,658 $110.00
Series Preferred
3.35%................. 2 2 20,605 103.50
4.40%................. 11 11 117,676 102.00
4.60%................. 3 3 28,614 103.00
6.75%................. 9 9 90,770 (d)
--- ---
$50 $50
=== ===
</TABLE>
Increases (Decreases) in Preferred Stock
There were no issuances or redemptions of preferred stock in 1999, 1998 or
1997.
- -------
(a) Each share of PPL Electric Utilities' preferred stock entitles the holder
to one vote on any question presented to PPL Electric Utilities'
shareowners' meetings. There were also 10,000,000 shares of PPL's
preferred stock and 5,000,000 shares of PPL Electric Utilities' preference
stock authorized; none were outstanding at December 31, 1999 and 1998.
(b) In 1997, PPL acquired 79.11% ($369 million par value) of the outstanding
preferred stock of PPL Electric Utilities in a tender offer. PPL Electric
Utilities repurchased these shares from PPL and cancelled them in August
1999, using the proceeds of securitization.
(c) The involuntary liquidation price of the preferred stock is $100 per
share. The optional voluntary liquidation price is the optional redemption
price per share in effect, except for the 4 1/2% Preferred Stock for which
such price is $100 per share (plus in each case any unpaid dividends).
(d) These series of preferred stock are not redeemable prior to the following
years: 5.95%, 2001; 6.125%, 6.15%, 6.33% and 6.75%, 2003.
(e) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500;
2008, 28,000.
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-23
<PAGE>
CONSOLIDATED STATEMENT OF COMPANY-OBLIGATED
MANDATORILY REDEEMABLE PREFERRED SECURITIES AT DECEMBER 31,
PPL Corporation and Subsidiaries (a)
(Millions of Dollars)
<TABLE>
<CAPTION>
Outstanding Outstanding
----------- -----------
1999 1998 1999 Authorized Maturity(b)
----- ----- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Company-Obligated Mandatorily
Redeemable
Preferred Securities of
Subsidiary Trusts Holding
Solely Company Debentures--$25
per security
8.10%......................... $ 150 $ 150 6,000,000 6,000,000 July 2027
8.20%......................... 100 100 4,000,000 4,000,000 April 2027
----- -----
$ 250 $ 250
===== =====
</TABLE>
- -------
(a) In 1997, PPL Electric Utilities arranged for the issuance of a total of
$250 million of company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely company debentures by PP&L
Capital Trust and PP&L Capital Trust II, two Delaware statutory business
trusts. These preferred securities are supported by a corresponding amount
of junior subordinated deferrable interest debentures issued by PPL
Electric Utilities to the trusts. PPL Electric Utilities owns all of the
common securities, representing the remaining undivided beneficial
ownership interest in the assets of the trusts. The proceeds derived from
the issuance of the preferred securities and the common securities were
used by PP&L Capital Trust and PP&L Capital Trust II to acquire $103
million and $155 million principal amount of Junior Subordinated
Deferrable Interest Debentures, ("Subordinated Debentures") respectively.
PPL Electric Utilities has guaranteed all of the trusts' obligations under
the preferred securities. The proceeds of the sale of these preferred
securities were loaned by PPL Electric Utilities to PPL for the tender
offer for PPL Electric Utilities preferred stock.
(b) The preferred securities are subject to mandatory redemption, in whole or
in part, upon the repayment of the Subordinated Debentures at maturity or
their earlier redemption. At the option of PPL Electric Utilities, the
Subordinated Debentures are redeemable on and after April 1, 2002 (for the
8.20% securities) and July 1, 2002 (for the 8.10% securities) in whole at
any time or in part from time to time. The amount of preferred securities
subject to such mandatory redemption will be equal to the amount of
related Subordinated Debentures maturing or being redeemed. The redemption
price is $25 per security plus an amount equal to accumulated and unpaid
distributions to the date of redemption.
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-24
<PAGE>
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
Outstanding
-------------------
1999 1998 Maturity(b)
------ ------ -----------------
<S> <C> <C> <C>
First Mortgage Bonds(a)
6%................................... $ 125 $ 125 June 1, 2000
7 3/4%............................... 28(c) 150 May 1, 2002
6 7/8%............................... 19(c) 100 February 1, 2003
6 7/8%............................... 25(c) 150 March 1, 2004
6 1/8% to 7.70%...................... 475(c)(d) 675 2005-2009
7 3/8%............................... 10(c) 100 2010-2014
9 1/4%............................... 28(c) 215 2015-2019
9 3/8 to 7.30%....................... 88(c) 750 2020-2024
First Mortgage Pollution Control
Bonds(a)
6.40% Series H....................... 90 90 November 1, 2021
5.50% Series I....................... 53 53 February 15, 2027
6.40% Series J....................... 116 116 September 1, 2029
6.15% Series K....................... 55 55 August 1, 2029
------ ------
1,112 2,579
Series 1999-1 Transition Bonds
6.08 to 7.15%........................ 2,390(e) 2001-2008
Medium-Term Notes
5.75 to 7.7%......................... 597(f) 397 2000-2007
Pollution Control Revenue Bonds........ 9 9 June 1, 2027
Unsecured Promissory Notes............. 17 18 2005-2022
Other Long-Term Debt................... 38(g) 2000-2015
------ ------
4,163 3,003
Unamortized (discount) and premium--
net................................... (6) (19)
------ ------
4,157 2,984
Less amount due within one year........ (468) (1)
------ ------
Total long-term debt................. $3,689 $2,983
====== ======
</TABLE>
- -------
(a) Substantially all owned electric utility plant is subject to the lien of
PPL Electric Utilities' Mortgage.
(b) Aggregate long-term debt maturities through 2004 are (millions of
dollars); 2000, $468; 2001, $315; 2002, $278; 2003, $364; 2004, $390.
There are no bonds outstanding that have sinking fund requirements.
(c) In August 1999, PPL Electric Utilities used a portion of the proceeds from
securitization to repurchase $1.467 billion of its first mortgage bonds
through tender offers and open market purchases.
(d) In May 1998, PPL Electric Utilities issued $200 million First Mortgage
Bonds, 6 1/8% Reset Put Securities Series due 2006. In connection with
issuance, PPL Electric Utilities assigned to a third party the option to
call the bonds from the holders on May 1, 2001. These bonds will mature on
May 1, 2006, but will be required to be surrendered by the existing
holders on May 1, 2001 either through the exercise of the call option by
the callholder or, if such option is not exercised, through the automatic
exercise of a mandatory put by the trustee on behalf of the bondholders.
(e) In August 1999, PP&L Transition Bond Company issued $2.42 billion of
transition bonds to securitize a portion of PPL Electric Utilities'
stranded costs. The bonds were issued in eight different classes, with
expected average lives of 1 to 8.7 years. On December 27, 1999, a $29.7
million bond principal payment was made on Class A-1 bonds.
(f) In October 1999, PPL Capital Funding issued $200 million of medium-term
notes in the form of 7.70% Reset Put Securities due 2007. In connection
with this issuance, PPL Capital Funding assigned to a third party an
option to call the notes from the holders on November 15, 2002. These
notes will mature on November 15, 2007, but will be required to be
surrendered by the existing holders on November 15, 2002 either through
the exercise of the call option by the callholder or, if such option is
not exercised, through the automatic exercise of a mandatory put.
(g) In 1999, PPL Global acquired additional interests in Emel and EC,
resulting in majority ownership and control of these companies. As a
result, in the third quarter PPL Global consolidated the financial
statements of Emel and EC.
The accompanying Notes to Consolidated Financial Statements are an integral
part of the financial statements.
A-25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Terms and abbreviations appearing in Notes to Financial Statements are
explained in the glossary.
1. Summary of Significant Accounting Policies
Business and Consolidation
At December 31, 1999, PPL was the parent holding company of PPL Electric
Utilities, PPL Global, PPL Montana, PPL Gas Utilities, PPL Capital Funding,
PPL Spectrum, H.T. Lyons, McClure, McCarl's and Western Mass. Holdings.
The financial condition and results of operations of PPL Electric Utilities
(including its subsidiary PPL EnergyPlus) and PPL Global are currently the
principal factors affecting PPL's financial condition and results of
operations. PPL Electric Utilities generates electricity, provides electricity
delivery service in eastern and central Pennsylvania, sells retail electricity
throughout Pennsylvania and deregulated markets, and trades or markets
wholesale energy in the United States and Canada. PPL Global develops
electricity generation and delivery projects worldwide.
PPL consolidates the financial statements of its affiliates when it has
majority ownership and control. All significant intercompany transactions have
been eliminated. Minority interests in operating results and equity ownership
are reflected in the consolidated financial statements.
The consolidated financial statements reflect the accounts of all controlled
affiliates on a current basis, with the exception of PPL Global's investments
in Emel and EC, which are included on a one-month lag. PPL Global's investment
in WPD (formerly SWEB) is accounted for using the equity method and reported
on a one-month lag. PPL Global has a 51% equity ownership interest in WPD but
lacks voting control. (See Note 3.) Less than 50% owned affiliates are
accounted for using the equity method, reported on a one-quarter lag. These
reporting lags are required because financial statements from these
investments are not timely for PPL Global to apply the equity method
currently.
When ownership interest in an affiliate increases through a series of
acquisitions and subsequently results in control, as was the case for PPL
Global's investments in Emel and EC, the equity method of accounting ceases to
apply. In accordance with Accounting Research Bulletin 51, "Consolidated
Financial Statements," the affiliate's results are included in the
consolidated financial statements as though it were acquired at the beginning
of the year. The portion of the affiliate's earnings owned by outside
shareowners prior to PPL achieving control is included in "Minority Interest"
on the Consolidated Statement of Income.
Reclassification
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the current presentation. The Consolidated Balance
Sheet has been reclassified, with components presented in order of liquidity.
This change recognizes the increasing significance of PPL's unregulated
activities. The Consolidated Statement of Shareowner's Common Equity has also
been reclassified in connection with SFAS 130, "Reporting Comprehensive
Income."
Earnings Per Share
SFAS 128, "Earnings Per Share," requires the disclosure of basic and diluted
EPS. Basic EPS is calculated by dividing earnings available to common
shareowners ("Net Income" on the PPL's Consolidated Statement of Income) by
the weighted average number of common shares outstanding during the period. In
the calculation of diluted EPS, weighted average shares outstanding are
increased for additional shares that would be outstanding if potentially
dilutive securities were converted to common stock. In April 1999, PPL made
its initial award of stock options under its Incentive Compensation Plan. (See
Note 13 to Financial Statements.) Stock options are the only potentially
dilutive securities outstanding, but had no impact on 1999 EPS. For the twelve
months ended December 31, 1999 and 1998, the weighted average shares
outstanding (in thousands) were 152,287 and 164,651, respectively.
A-26
<PAGE>
Management's Estimates
These financial statements were prepared using management's best estimates
of existing conditions. Actual results could differ from these estimates.
Accounting Records
The accounting records for PPL Electric Utilities and PPL Gas Utilities are
maintained in accordance with the Uniform System of Accounts prescribed by the
FERC and adopted by the PUC.
Regulation
Historically, PPL Electric Utilities accounted for its operations in
accordance with the provisions of SFAS 71, which requires rate-regulated
entities to reflect the effects of regulatory decisions in their financial
statements. PPL Electric Utilities discontinued application of SFAS 71 for the
generation portion of its business, effective June 30, 1998. PPL Gas Utilities
continues to be subject to SFAS 71.
Electric Utility Plant in Service
Following are the classes of PPL's Electric Utility Plant in Service with
associated accumulated depreciation reserves, at December 31, 1999 and 1998
(millions of dollars):
<TABLE>
<CAPTION>
Transmission
and
Distribution Generation General Total
------------ ---------- ------- -------
<S> <C> <C> <C> <C>
December 31, 1999:
Basis.................................. $ 3,836 $ 6,837 $ 415 $11,088
Accumulated depreciation............... (1,374) (4,485) (156) (6,015)
------- ------- ----- -------
$ 2,462 $ 2,352 $ 259 $ 5,073
======= ======= ===== =======
December 31, 1998:
Basis.................................. $ 3,395 $ 6,351 $ 383 $10,129
Accumulated depreciation............... (1,216) (4,750) (160) (6,126)
------- ------- ----- -------
$ 2,179 $ 1,601 $ 223 $ 4,003
======= ======= ===== =======
</TABLE>
Electric Utility Plant in Service is recorded at original cost, unless
impaired, in which case the plant's basis is reduced to its estimated fair
value. Property, plant and equipment acquired is recorded at the fair market
value at acquisition date. Generation plant is reflected at the lower of cost
or market value, as these assets are no longer subject to the provisions of
SFAS 71. The other classes of Electric Utility Plant in Service, as well as
items capitalized subsequent to an acquisition, are recorded at historical
cost.
AFUDC is capitalized as part of the construction costs for regulated
projects. Capitalized interest is recorded for generation-related projects.
The cost of repairs and replacements are charged to expense as incurred for
non-regulated projects. When regulated property, plant and equipment is
retired, the original cost plus the cost of retirement, less salvage, is
charged to accumulated depreciation. When entire regulated operating units are
sold or non-regulated plant is retired or sold, the costs of such assets and
the related accumulated depreciation are removed from the balance sheet and
the gain or loss, if any, is included in income, unless otherwise required by
the FERC.
Depreciation is computed over the estimated useful lives of property using
various methods including the straight-line, composite, and group methods. PPL
Electric Utilities' provisions for depreciation, as a percent of average gross
depreciable property, approximated 2.1% in 1999, 3.7% in 1998 and 3.8% in
1997.
Amortization of Goodwill
Goodwill, which is included in "Regulatory Assets and Other Non-Current
Assets" on the Consolidated Balance Sheet, is amortized on a straight-line
basis over a 40-year period. Goodwill capitalized as part of PPL Global's
investments in unconsolidated affiliates is also being amortized over a 40-
year period.
A-27
<PAGE>
Nuclear Decommissioning and Fuel Disposal
An annual provision for PPL Electric Utilities' share of the future cost to
decommission the Susquehanna station, equal to the amount allowed for
ratemaking purposes, is charged to depreciation expense. Such amounts are
invested in external trust funds which can be used only for future
decommissioning costs. See Note 9.
Recoverable Transition Costs
Based on the PUC Final Order, PPL Electric Utilities was amortizing its
competitive transition (or stranded) costs over an eleven-year transition
period beginning January 1, 1999 and ending December 31, 2009. In August 1999,
competitive transition costs of $2.402 billion were converted to intangible
transition costs when securitized by the issuance of transition bonds. The
intangible transition costs are being amortized over the life of the
transition bonds--August 1999 through December 2008, in accordance with an
amortization schedule filed with the PUC. The remaining competitive transition
costs are also being amortized based on an amortization schedule previously
filed with the PUC, adjusted for those competitive transition costs that were
converted to intangible transition costs. As a result of the conversion of a
significant portion of the competitive transition costs into intangible
transition costs, amortization of substantially all of the remaining
competitive transition costs will occur in 2009.
Liability for Above Market NUG Contracts
At June 30, 1998, PPL Electric Utilities recorded an estimated liability for
above market contracts with NUGS. Effective January 1999, PPL Electric
Utilities began reducing this liability as an offset to "Energy Purchases" on
the Consolidated Statement of Income. This reduction is based on the estimated
timing of the purchases from the NUGs and projected market prices for this
generation. This accounting will continue through 2014, when the last of the
existing NUG contracts expires.
Accounting for Price Risk Management
PPL engages in price risk management activities for both energy trading and
non-trading activities as defined by EITF 98-10, "Accounting for Contracts
Involved in Energy Trading and Risk Management Activities." In 1999, PPL
entered into commodity forward and financial contracts for the physical
purchase and sale of energy as well as energy contracts that can be settled
financially. In 1998, these instruments were reflected in the financial
statements using the accrual method of accounting. As of January 1, 1999, PPL
adopted mark-to-market accounting for energy trading contracts, in accordance
with EITF 98-10, and gains and losses from changes in market prices are
reflected in "Energy Purchases" on the Consolidated Statement of Income.
PPL will continue to use EITF 98-10 to account for its commodity forward and
financial contracts until it adopts SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" effective on January 1, 2001. At that
time, PPL will change the accounting for any of its outstanding contracts that
qualify as derivatives under SFAS 133.
PPL and PPL Electric Utilities entered into forward starting swaps and
treasury locks to hedge the interest rate risk associated with debt issuances.
The gains or losses on these swaps have been deferred and are being recognized
over the life of the debt, in accordance with SFAS 80, "Accounting for Futures
Contracts."
PPL or its subsidiaries also enter into foreign currency exchange contracts
to hedge future cash flows for firm transactions and commitments and to hedge
economic exposures such as anticipated dividends and projected asset sales or
acquisitions when there is a high degree of certainty that the exposure will
be realized. Until PPL adopts SFAS 133, market gains and losses are recognized
in accordance with SFAS 52, "Foreign Currency Translation," and are included
in accumulated other comprehensive income on the Consolidated Balance Sheet.
Leases
Leased property of PPL Electric Utilities capitalized on the Consolidated
Balance Sheet consists solely of nuclear fuel. Future lease payments for
nuclear fuel are based on the quantity of electricity produced at the
Susquehanna station. These payments are expected to approximate $50 to $59
million per year through 2004. The maximum amount of nuclear fuel available
for lease under current arrangements is $200 million. Payments on other leased
property, which are classified as operating leases, are projected at $28
million per year through 2004. These leases included vehicles, personal
computers and other equipment.
A-28
<PAGE>
Revenue Recognition
"Electric," "Natural Gas and Propane," and "Wholesale Energy Marketing and
Trading" revenues are recorded based on deliveries through the end of the
calendar month.
"Energy-Related Businesses" revenue includes PPL Global, PPL Spectrum, and
the mechanical contracting and engineering subsidiaries. PPL Global's revenue
reflects its proportionate share of affiliate earnings under the equity method
of accounting, as described in the Business and Consolidation section of this
Note 1. PPL Spectrum and the mechanical contracting and engineering
subsidiaries record profits from construction contracts on the percentage-of-
completion method of accounting. Under the percentage-of-completion method,
the relationship of actual costs incurred to total estimated costs of the
contracts is applied to total income to be derived from the contracts. Income
from time and material contracts is recognized currently as the work is
performed. Costs include all direct material and labor costs and job-related
overhead. Provisions for estimated loss on uncompleted contacts, if any, are
made in the period in which such losses are determined.
Income Taxes
The provision for PPL Electric Utilities' deferred income taxes for
regulated assets is based upon the ratemaking principles reflected in rates
established by the PUC and FERC. The difference in the provision for deferred
income taxes for regulated assets and the amount that otherwise would be
recorded under generally accepted accounting principles is deferred and
included in taxes recoverable through future rates on the Consolidated Balance
Sheet. See Note 8.
PPL Electric Utilities deferred the investment tax credits when utilized,
and is amortizing the deferrals over the average lives of the related assets.
PPL and its subsidiaries file a consolidated federal income tax return.
Pensions and Other Postretirement and Postemployment Benefits
The subsidiaries of PPL have noncontributory pension plans covering
substantially all employees. Funding is based on actuarially determined
computations that consider the amount deductible for income tax purposes and
the minimum contribution required under the Employee Retirement Income
Security Act of 1974.
The company also provides for certain health care and life insurance
benefits for retired employees and inactive employees covered by disability
plans. See Note 14 for details presented in conformity with SFAS 132
"Employers' Disclosures about Pensions and Other Postretirement Benefits."
Cash Equivalents
All highly liquid debt instruments purchased with original maturities of
three months or less are considered to be cash equivalents.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income,
defined as changes in common equity from transactions not related to
shareowners. For PPL Electric Utilities, other comprehensive income consists
of unrealized gains or losses on available-for-sale securities and the excess
of additional pension liability over unamortized prior service costs. The
other comprehensive income of PPL consists of the foregoing as well as foreign
currency translation adjustments recorded by PPL Global. In accordance with
SFAS 130, comprehensive income is reflected on the Consolidated Statement of
Shareowners' Common Equity, and "Accumulated Other Comprehensive Income" is
presented on the Consolidated Balance Sheet.
The accumulated other comprehensive income of PPL at December 31, 1999
consists of (in millions): foreign currency translation adjustments, ($50);
unrealized gains on available-for-sale securities, $1; and adjustments to
minimum pension liability, ($6). Accumulated other comprehensive income was
not significant at December 31, 1998.
A-29
<PAGE>
Treasury Stock
Treasury shares are reflected on the Consolidated Balance Sheet as an offset
to common equity under the cost method of accounting. Management has no
definitive plans for the future use of these shares. Treasury shares are not
considered outstanding in calculating earnings per share.
Foreign Currency Translation
All assets and liabilities of foreign subsidiaries are translated at period-
end exchange rates. Income and expense items are translated at average
exchange rates prevailing during the relevant periods. The resulting
translation adjustments are recorded as a component of "Accumulated Other
Comprehensive Income." Gains or losses related to foreign currency
transactions are recognized in income currently.
2. Segment and Related Information
PPL's principal business segment is PPL Electric Utilities, which (in
conjunction with PPL EnergyPlus) provides electricity delivery service in
eastern and central Pennsylvania, sells retail electricity throughout
Pennsylvania and deregulated electricity markets, and markets wholesale
electricity in the United States and Canada. PPL's other reportable business
segment, PPL Global (excluding the Montana generating assets acquired in 1999,
which are owned by PPL Montana and not consolidated with PPL Global for
financial reporting purposes), invests in and develops worldwide power
projects, with the majority of its international investments located in the
U.K., Chile, and El Salvador. PPL Global also owns and operates generating
facilities in the United States. PPL Global's revenue represents equity
earnings in unconsolidated investments, revenues from the sale of generation
to wholesale customers, and revenue from the delivery of electricity to retail
customers. Other operating revenues of PPL represent gas distribution,
unregulated generating activities (including PPL Montana), mechanical
contracting and engineering, and unregulated energy services. Financial data
for PPL's business segments were as follows (millions of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Income Statement data
Operating revenues
PPL Electric Utilities................................ $3,952 $3,643 $3,049
PPL Global............................................ 330 47 32
Other and Eliminations................................ 308 96 (4)
------ ------ ------
4,590 3,786 3,077
Depreciation and amortization
PPL Electric Utilities................................ 233 335 385
PPL Global............................................ 18
Other and Eliminations................................ 6 3
------ ------ ------
257 338 385
Interest expense
PPL Electric Utilities................................ 214 196 207
PPL Global............................................ 44 22 8
Other and Eliminations................................ 19 12
------ ------ ------
277 230 215
Income taxes
PPL Electric Utilities................................ 151 273 247
PPL Global............................................ 29 (4) (3)
Other and Eliminations................................ (6) (10) (7)
------ ------ ------
174 259 237
Extraordinary items, net of taxes
PPL Electric Utilities................................ (46) (948)
PPL Global............................................
Other and Eliminations................................
------ ------ ------
(46) (948)
</TABLE>
A-30
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Net income (loss)--actual
PPL Electric Utilities..................................... 398 (587) 308
PPL Global................................................. 37 15 (17)
Other and Eliminations..................................... (3) 3 5
----- ---- ----
432 (569) 296
Net income (loss)--excluding one-time adjustments (a)
PPL Electric Utilities..................................... 337 304 308
PPL Global................................................. 24 6 10
Other and Eliminations..................................... (3) 10
----- ---- ----
$ 358 $310 $328
</TABLE>
- -------
(a) One-time adjustments: additions to (deductions from) net income
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
PPL Electric Utilities
Sale of Sunbury plant and related assets..................... $ 42
Securitization............................................. 19
PUC restructuring charge................................... (915)
FERC municipality settlement............................... (32)
SER settlement............................................. 18
Other impacts of restructuring............................. 38
------ ---- ----
61 (891)
PPL Global
SWEB sale of supply business................................. 64
Writedown of carrying value of certain investments......... (51)
U.K. income tax rate reduction............................. 9 10
Windfall profits tax....................................... (37)
------ ---- ----
13 9 (27)
Other and Eliminations
PPL Gas Utilities acquisition costs.......................... 3 (5)
------ ---- ----
$ 3 $ (5)
- ------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
------ ---- ----
<S> <C> <C> <C>
Cash Flow data
Expenditures for property, plant & equipment
PPL Electric Utilities..................................... $ 300 $297 $310
PPL Global................................................. 4
Other and Eliminations..................................... 14 7
------ ---- ----
318 304 310
Investment in generating assets and electric energy
projects
PPL Electric Utilities.....................................
PPL Global................................................. 315 306 152
Other and Eliminations..................................... 780
------ ---- ----
$1,095 $306 $152
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Balance Sheet data
Cumulative net investment in unconsolidated affiliates
PPL Electric Utilities........................................ $ 17 $ 17
PPL Global.................................................... 407 671
Other and Eliminations........................................
------- ------
424 688
Total assets
PPL Electric Utilities........................................ 9,092 8,838
PPL Global.................................................... 1,424 757
Other and Eliminations........................................ 658 12
------- ------
$11,174 $9,607
</TABLE>
A-31
<PAGE>
3. Investments in Unconsolidated Affiliates
PPL's investments in unconsolidated affiliates were $424 million and $688
million at December 31, 1999 and 1998, respectively. The most significant
investment was PPL Global's investment in WPD, which was $303 million at
December 31, 1999 and $373 million at December 31, 1998. At December 31, 1999
PPL Global had a 51% equity ownership interest in WPD, but lacked voting
control. Accordingly, PPL Global accounts for its investment in WPD (and other
investments where it has majority ownership but lacks voting control) under
the equity method of accounting. The December 31, 1998 balance included PPL
Global's $243 million investment in Emel and EC. In 1999 PPL Global acquired a
controlling interest in these affiliates, and consolidated their financial
results. See Note 1 for additional information regarding consolidation.
Investments in unconsolidated affiliates at December 31, 1999, and the
effective equity ownership percentages, are as follows:
Bolivian Generating Group, LLC--29.3%
Latin American Energy & Electricity Fund I, LP--16.6%
Aguaytia Energy, LLC--11.4%
WPD Holdings UK--51%
Hidrocentrais Reunidas, LDA--50%
Hidro Iberica, B. V.--50%
Bangor Pacific Hydro Associates--50%
Southwest Power Partners, LLC--50%
PPLG Lux Finance, S.a.r.l.--53.4%
Safe Harbor Water Power Corporation--33.3%
Summarized below is financial information from the financial statements of
these affiliates, as comprehended in the PPL consolidated financial statements
for the periods noted: (For purpose of comparability, the summarized
information of Emel and EC is excluded from all periods.)
<TABLE>
<CAPTION>
(in millions of dollars)
December 31
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
Balance Sheet Data
Current Assets...................................... $ 389 $ 236
Noncurrent Assets................................... 3,340 3,227
Current Liabilities................................. 367 409
Noncurrent Liabilities.............................. 1,890 2,044
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Income Statement Data
Revenues................................................ $1,130 $1,206 $1,292
Operating Income........................................ 212 188 181
Net Income (Loss)....................................... 427 137 (14)
</TABLE>
4. PUC Restructuring Proceeding
In August 1998, the PUC entered its Final Order approving the settlement of
PPL Electric Utilities' restructuring proceeding under Pennsylvania's Customer
Choice Act. Among other things, that Order:
. permitted PPL Electric Utilities 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. PPL Electric Utilities' stranded
costs are those which would have been recoverable under traditional rate
regulation, but may not be recoverable in the competitive marketplace.
PPL Electric Utilities was permitted a return of 10.86% on the
unamortized balance of these stranded costs.
. authorized PPL Electric Utilities to issue transition bonds to
securitize up to $2.85 billion of its stranded costs. In August 1999,
PP&L Transition Bond Company issued $2.42 billion of transition bonds.
. required PPL Electric Utilities to reduce rates to all retail customers
by four percent effective January 1, 1999 through December 31, 1999.
A-32
<PAGE>
. required PPL Electric Utilities to unbundle its retail electric rates
beginning on January 1, 1999, to reflect separate prices for the
transmission and distribution charges, the CTC, the ITC, and the
generation charge. The CTC is a charge paid by all customers who receive
delivery service from PPL Electric Utilities, to recover PPL Electric
Utilities' stranded costs. The ITC, which offsets the CTC on customer
bills, is a charge paid by delivery customers to reflect the
securitization of stranded costs.
. required PPL Electric Utilities to transfer its retail marketing
function to a new subsidiary, PPL EnergyPlus. PPL EnergyPlus has a PUC
license to act as a Pennsylvania EGS. This license permits PPL
EnergyPlus to offer retail electric supply to participating customers in
PPL Electric Utilities' service territory and in the service territories
of other Pennsylvania utilities. In 1999, PPL EnergyPlus offered energy
to industrial and commercial customers in Pennsylvania and in other
states that have opened their markets to competitive suppliers.
. permitted, but did not require, PPL Electric Utilities to transfer
ownership and operation of its generating facilities to a separate
corporate entity at book value.
5. Securitization
In August 1999, PP&L Transition Bond Company issued $2.42 billion of
transition bonds to securitize a portion of PPL Electric Utilities' stranded
costs. The bonds were issued in eight different classes, with expected average
lives of 1 to 8.7 years. PP&L Transition Bond Company, a special purpose
Delaware limited liability company, was formed for the purpose of purchasing
and owning ITP, and pledging its interest in ITP to a trustee to collateralize
transition bonds. The assets of PP&L Transition Bond Company, including the
ITP, are not available to creditors of PPL or PPL Electric Utilities. The
transition bonds are obligations of PP&L Transition Bond Company and are non-
recourse to PPL and PPL Electric Utilities.
PPL Electric Utilities used a portion of the securitization proceeds to
acquire equity held by PPL, including $380 million of preferred stock and $481
million of common stock. In addition, PPL Electric Utilities used a portion of
the proceeds to repurchase $1.467 billion of its first mortgage bonds through
tender offers and open market purchases. In August 1999, PPL Electric
Utilities recorded an extraordinary charge of $59 million for the premiums and
related expenses to extinguish this first mortgage debt. See Note 6 for
additional information.
PPL used $417 million of the proceeds it received from PPL Electric
Utilities to purchase 14 million shares of its common stock.
PPL Electric Utilities' customers will benefit from securitization through
an expected average rate reduction of approximately one percent for the period
the transition bonds are outstanding. With securitization, a substantial
portion of the CTC has been replaced with an ITC, which passes 75% of the net
financing savings back to customers. The actual reduction will vary by year,
by customer class and by level of use.
In December 1999, the PUC approved PPL Electric Utilities' calculation of
ITC under-recoveries for the period from August through November 1999. PPL
Electric Utilities calculated ITC under-recoveries of $14.5 million for this
period. The PUC accepted rates proposed by PPL Electric Utilities to implement
new ITC rates to collect these under-recoveries in 2000.
6. Extraordinary Items
PUC Restructuring and FERC Settlement
Historically, PPL Electric Utilities prepared its financial statements for
its regulated operations in accordance with SFAS 71, which requires rate-
regulated companies to reflect the effects of regulatory decisions in their
financial statements. PPL Electric Utilities deferred certain costs pursuant
to rate actions of the PUC and the FERC and recovered, or expected to recover,
such costs in electric rates charged to customers.
The EITF addressed the appropriateness of the continued application of SFAS
71 by entities in states that have enacted restructuring legislation similar
to Pennsylvania's Customer Choice Act. The EITF came to a consensus on Issue
No. 97-4, "Deregulation of the Pricing of Electricity--Issues Related to the
Application of FASB Statements 71 and 101," which concluded that an entity
should cease to apply SFAS 71 when a deregulation plan is in place and its
terms are known. For PPL Electric Utilities, with respect to the generation
A-33
<PAGE>
portion of its business, this occurred effective June 30, 1998 based upon the
outcome of the PUC restructuring proceeding. PPL Electric Utilities adopted
SFAS 101 for the generation side of its business. SFAS 101 required a
determination of impairment of plant assets performed in accordance with SFAS
121, and the elimination of all effects of rate regulation that were
recognized as assets and liabilities under SFAS 71.
PPL Electric Utilities performed impairment tests of its electric generation
assets on a plant specific basis and determined that $2.388 billion of its
generation plant was impaired at June 30, 1998. Impaired plant was the excess
of the net plant investment at June 30, 1998 over the present value of the net
cash flows during the remaining lives of the plants. Annual net cash flows
were determined by comparing estimated generation sustenance costs to
estimated regulated revenues for the remainder of 1998, market revenues for
1999 and beyond, and revenues from bulk power contracts. The net cash flows
were then discounted to present value.
In addition to the impaired generation plant, PPL Electric Utilities
estimated that there were other stranded costs totaling $1.989 billion at June
30, 1998. This primarily included generation-related regulatory assets and
liabilities and an estimated liability for above-market purchases under NUG
contracts. The total estimated impairment described above was $4.377 billion.
The PUC's Final Order in the restructuring proceeding, entered on August 27,
1998, permitted the recovery of $2.819 billion through the CTC on a present
value basis, excluding amounts for nuclear decommissioning and consumer
education, resulting in a net under-recovery of $1.558 billion. PPL Electric
Utilities recorded an extraordinary charge for this under-recovery in June
1998.
Under FERC Order 888, 16 small utilities which had power supply agreements
with PPL Electric Utilities signed before July 11, 1994, requested and were
provided with PPL Electric Utilities' current estimate of its stranded costs
applicable to these customers if they were to terminate their agreements in
1999. Subject to certain conditions, FERC-approved settlement agreements
executed with 15 of these customers provide for continued power supply by PPL
Electric Utilities through January 2004. As a result of these settlements, PPL
Electric Utilities, in the second quarter of 1998, recorded an extraordinary
charge in the amount of $56 million.
The extraordinary items related to the PUC restructuring proceeding and the
FERC settlement are reflected on the Consolidated Statement of Income, net of
income taxes.
Details of amounts written-off in June 1998 were as follows (millions of
dollars):
<TABLE>
<S> <C>
Impaired generation-related assets................................... $2,388
Above-market NUG contracts........................................... 854
Generation-related regulatory assets and other....................... 1,135
------
Total.............................................................. 4,377
Recoverable transition costs (a)..................................... (2,819)
------
Extraordinary item pre-tax--PUC...................................... 1,558
--FERC..................................... 56
------
1,614
Tax effects.......................................................... (666)
------
Extraordinary items.................................................. $ 948
======
</TABLE>
- -------
(a) Excluding recoveries for nuclear decommissioning and consumer education
expenditures.
PPL Electric Utilities believes that the electric transmission and
distribution operations continue to meet the requirements of SFAS 71 and that
regulatory assets associated with these operations will continue to be
recovered through rates from customers. At December 31, 1999, $309 million of
net regulatory assets, other than the recoverable transition costs, remain on
PPL Electric Utilities' books. These regulatory assets will continue to be
recovered through regulated transmission and distribution rates over periods
ranging from one to 30 years.
Extinguishment of Debt
SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt," requires
that a material aggregate gain or loss from the extinguishment of debt be
classified as an extraordinary item, net of the related income tax effect.
A-34
<PAGE>
As explained in Note 5, PPL Electric Utilities repurchased $1.467 billion of
first mortgage bonds in August 1999, using the proceeds from the issuance of
transition bonds. PPL Electric Utilities recorded an extraordinary charge of
$59 million for the premiums and related expenses to reacquire these first
mortgage bonds. Details of this extraordinary charge were as follows (millions
of dollars):
<TABLE>
<S> <C>
Reacquisition cost of debt........................................... $1,554
Net carrying amount of debt.......................................... (1,454)
------
Extraordinary charge pre-tax......................................... 100
Tax effects.......................................................... (41)
------
Extraordinary charge................................................. $ 59
======
</TABLE>
The extraordinary charge related to extinguishment of debt was partially
offset in December 1999 with a credit relating to wholesale power activity.
7. Sales to Other Electric Utilities
PPL Electric Utilities provided JCP&L with 189,000 kilowatts of capacity and
related energy from all of its generating units during 1999. This agreement
terminated on December 31, 1999. PPL Electric Utilities is reselling the
returning capacity and energy through its Energy Marketing Center. Under a
separate agreement, PPL Electric Utilities is providing additional capacity
and energy to JCP&L. This capacity and energy sale increased from 200,000
kilowatts to 300,000 kilowatts in June 1999 and continues at this level
through May 2004. Prices for this capacity and energy are market-based.
In August 1999, the FERC approved new interconnection and power supply
agreements between PPL Electric Utilities and UGI. Under the new power supply
agreement, effective August 1999, UGI purchases capacity from PPL Electric
Utilities 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 agreement terminates in February 2001.
PPL Electric Utilities provides BG&E with 129,000 kilowatts, or 6.6%, of its
share of capacity and related energy from the Susquehanna station. Sales to
BG&E will continue through May 2001.
8. Income and Other Taxes
For 1999, 1998 and 1997 the corporate federal income tax rate was 35%, and
the PA corporate net income tax rate was 9.99%.
The tax effects of significant temporary differences comprising PPL's net
deferred income tax liability were as follows (millions of dollars):
<TABLE>
<CAPTION>
PPL Electric
PPL Utilities
-------------- --------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Deferred Tax Assets
Deferred investment tax credits............... $ 71 $ 78 $ 71 $ 78
Purchase contracts............................ 360 389 337 389
Accrued pension costs......................... 108 99 106 99
Contribution in aid of construction........... 28 22 27 22
Other......................................... 153 128 138 124
Valuation allowance........................... (6) (6) (4) (4)
------ ------ ------ ------
714 710 675 708
------ ------ ------ ------
Deferred Tax Liabilities
Electric utility plant--net................... 813 743 811 743
Restructuring--CTC/ITP........................ 1,026 1,169 1,026 1,169
Taxes recoverable through future rates........ 107 100 107 100
Reacquired debt costs......................... 14 13 13 13
Other......................................... 82 40 31 26
------ ------ ------ ------
2,042 2,065 1,988 2,051
------ ------ ------ ------
Net deferred tax liability...................... $1,328 $1,355 $1,313 $1,343
====== ====== ====== ======
</TABLE>
A-35
<PAGE>
Details of the components of income tax expense, a reconciliation of federal
income taxes derived from statutory tax rates applied to income from
continuing operations for accounting purposes, and details of taxes other than
income are as follows (millions of dollars):
Income Tax Expense
<TABLE>
<CAPTION>
PPL Electric
PPL Utilities
---------------- ----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income Tax Expense
Provision-Federal......................... $188 $183 $162 $190 $198 $170
Provision-State........................... 36 64 57 35 64 58
---- ---- ---- ---- ---- ----
224 247 219 225 262 228
---- ---- ---- ---- ---- ----
Deferred-Federal.......................... 76 19 19 53 18 20
Deferred-State............................ (109) 3 9 (110) 3 9
---- ---- ---- ---- ---- ----
(33) 22 28 (57) 21 29
---- ---- ---- ---- ---- ----
Investment tax credit, net-federal........ (17) (10) (10) (17) (10) (10)
---- ---- ---- ---- ---- ----
Total................................... $174 $259 $237 $151 $273 $247
==== ==== ==== ==== ==== ====
Federal..................................... 247 192 171 226 206 180
State....................................... (73) 67 66 (75) 67 67
---- ---- ---- ---- ---- ----
$174 $259 $237 $151 $273 $247
==== ==== ==== ==== ==== ====
</TABLE>
Reconciliation of Income Tax Expense
<TABLE>
<CAPTION>
PPL Electric
PPL Utilities
---------------- ----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Reconciliation of Income Tax Expense
Indicated federal income tax on pre-tax
income before extraordinary items at
statutory tax rate--35%................. $242 $232 $195 $221 $230 $209
Increase/(decrease) due to:
State income taxes....................... (50) 43 40 (51) 43 40
Flow through of depreciation differences
not previously normalized............... 3 9 22 3 9 22
Amortization of investment tax credit.... (12) (10) (10) (12) (10) (10)
Research & experimentation income tax
credits................................. 0 (1) (1) 0 (1) (1)
Other.................................... (9) (14) (9) (10) 2 (13)
---- ---- ---- ---- ---- ----
(68) 27 42 (70) 43 38
---- ---- ---- ---- ---- ----
Total income tax expense................... $174 $259 $237 $151 $273 $247
==== ==== ==== ==== ==== ====
Effective income tax rate.................. 25.1% 39.1% 42.5% 23.9% 40.0% 41.5%
</TABLE>
In August 1999, PPL Electric Utilities released approximately $78 million of
deferred income taxes associated with the CTC that were no longer required
because of securitization.
Taxes Other than Income
<TABLE>
<CAPTION>
PPL Electric
PPL Utilities
-------------- --------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
State gross receipts............................. $108 $105 $104 $105 $104 $104
State utility realty............................. 13 41 46 12 41 46
State capital stock.............................. 13 18 34 11 17 34
Social security and other........................ 27 24 20 25 23 20
---- ---- ---- ---- ---- ----
$161 $188 $204 $153 $185 $204
==== ==== ==== ==== ==== ====
</TABLE>
A-36
<PAGE>
9. Nuclear Decommissioning Costs
PPL Electric Utilities' most recent estimate of the cost to decommission the
Susquehanna station was completed in 1993 and was a site-specific study, based
on immediate dismantlement and decommissioning of each unit following final
shutdown. The study indicated that PPL Electric Utilities' 90% share of the
total estimated cost of decommissioning the Susquehanna station is
approximately $724 million in 1993 dollars. The estimated cost includes
decommissioning the radiological portions of the station and the cost of
removal of nonradiological structures and materials. The operating licenses
for Units 1 and 2 expire in 2022 and 2024, respectively.
Decommissioning costs have been historically charged to operating expense
and have been based upon amounts included in customer rates. Beginning in
1998, decommissioning costs have been reclassified as a component of
depreciation expense. Beginning in January 1999, in accordance with the PUC
Final Order, decommissioning costs will be recovered from customers through
the CTC over the 11 year life of the CTC rather than the remaining life of
Susquehanna. The recovery will include a return on unamortized decommissioning
costs. Decommissioning charges were $27 million in 1999 and $12 million in
1998 and 1997.
Amounts collected from customers for decommissioning, less applicable taxes,
are deposited in external trust funds for investment and can be used only for
future decommissioning costs. The market value of securities held and accrued
income in the trust funds at December 31, 1999 and 1998 were approximately
$255 million and $206 million, respectively. The trust funds experienced, on a
fair market value basis, a $26 million net gain in 1999, which included net
unrealized appreciation of $21 million, and a net gain in 1998 of $31 million,
which included net unrealized appreciation of $26 million. The trust fund
activity is reflected in the nuclear plant decommissioning trust fund and in
other noncurrent liabilities on the Consolidated Balance Sheet. Accrued
nuclear decommissioning costs were $260 million and $209 million at December
31, 1999 and 1998, respectively.
In February 2000, the FASB issued another exposure draft on the accounting
for liabilities related to closure and removal of long-lived assets, including
decommissioning of nuclear power plants. As a result, current industry
accounting practices for decommissioning may change, including the possibility
that the estimated cost for decommissioning could be recorded as a liability
at the present value of the estimated future cash outflows that will be
required to satisfy those obligations.
10. Financial Instruments
During 1999, PPL and PPL Electric Utilities entered into forward starting
interest rate swaps and treasury locks with various counterparties to hedge
the interest rate risk associated with anticipated debt issuances, including
the issuance of transition bonds in August 1999. All financial instruments
associated with hedging the interest rate risk of the transition bonds were
settled at the end of July. Proceeds of $24.8 million were received and
deferred on the balance sheet in August, and will subsequently be amortized
over the life of the transition bonds using the effective interest rate
method. Seventy-five percent of these savings are being passed back to
customers. On the same day that PPL Electric Utilities priced its transition
bonds, it entered into short-dated treasury lock transactions with a notional
amount of $1.07 billion to lock in the treasury rate related to its offer to
purchase any or all of $1.66 billion of selected series of its first mortgage
bonds. These contracts were settled one week later for an amount that was not
significant. See Note 5 for additional information about transition bonds.
In October 1999, PPL settled $170 million of notional amount of swaps in
connection with the issuance of medium-term notes (as described in Note 11).
PPL received net proceeds from these settlements of about $9 million. This
amount has been deferred on the balance sheet and will subsequently be
amortized over the life of the medium-term notes using the effective interest
rate method.
At December 31, 1999, PPL had also entered into forward-starting interest
rate swap agreements with various counterparties to hedge the interest rate
risk associated with debt issuances expected in the first quarter of 2000.
These interest rate swap agreements involve the future exchange of floating
rate interest payments for fixed rate interest payments over the life of the
agreements. PPL agreed to pay fixed rates between 5.88%--7.06% on notional
amounts of $1.05 billion, with maturity dates between February 15, 2005 and
March 31, 2030. PPL will receive a variable rate interest payment based on
either a 3-month or 6-month LIBOR rate through the maturity dates of these
agreements. The estimated fair value of the forward interest rate swaps, which
represents the estimated amount PPL would receive if it had terminated these
agreements at December 31, 1999, was $32.5 million. In the fourth quarter, PPL
Electric Utilities also entered into $171 million notional amount of interest
rate swaps whereby the company agreed to pay a floating interest rate and
receive a fixed interest rate payment.
A-37
<PAGE>
These swaps were executed with the intent of adjusting the amount of floating-
rate debt carried in its liability portfolio. At December 31, 1999 the
estimated fair value of these contracts, representing the amount PPL Electric
Utilities would pay if it terminated these agreements at December 31, 1999 was
$4.9 million.
During the fourth quarter of 1999, PPL also executed forward currency
agreements with various counterparties to hedge a portion of its currency risk
associated with its net investment in a foreign subsidiary. These agreements
were settled in December 1999 with a realized gain of $1.9 million. This gain
was recorded in "Accumulated Other Comprehensive Income" on the Consolidated
Balance Sheet. At December 31, 1999 there were no forward currency agreements
outstanding.
The carrying amount on the Consolidated Balance Sheet and the estimated fair
value of PPL's financial instruments are as follows (millions of dollars):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Assets
Nuclear plant decommissioning trust
fund (a)............................ $ 255 $ 255 $ 206 $ 206
Financial investments (a)............ 1 1 1 1
Other investments (a)................ 15 15 11 11
Cash and cash equivalents (a)........ 133 133 195 195
Other financial instruments included
in other current assets (a)......... 4 4 5 5
Liabilities
Preferred stock with sinking fund
requirements (b).................... 47 45 47 50
Company-obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely
company debentures (b).............. 250 217 250 259
Long-term debt (b)................... 4,157 4,189 2,984 3,176
Commercial paper and bank loans (a).. 857 857 636 636
</TABLE>
- -------
(a) The carrying value of these financial instruments generally is based on
established market prices and approximates fair value.
(b) The fair value generally is based on quoted market prices for the
securities where available and estimates based on current rates offered to
PPL where quoted market prices are not available.
11. Credit Arrangements & Financing Activities
PPL Electric Utilities issues commercial paper and, from time to time,
borrows from banks to provide short-term funds for general corporate purposes.
Bank borrowings generally bear interest at rates negotiated at the time of the
borrowing. At December 31, 1999, PPL Electric Utilities had $183 million of
commercial paper outstanding.
PPL Capital Funding, whose purpose is to provide debt funding for PPL and
its subsidiaries other than PPL Electric Utilities, also issues commercial
paper. As with all PPL Capital Funding debt, this commercial paper is
guaranteed by PPL. At December 31, 1999, PPL Capital Funding had $298 million
of commercial paper outstanding.
In July 1999, PPL Electric Utilities, PPL Capital Funding and PPL (as
guarantor for PPL Capital Funding) entered into a new 364-day $750 million
credit facility with a group of banks. This facility replaced a $350 million
364-day revolving credit facility shared by PPL Electric Utilities and PPL
Capital Funding and five separate $80 million 364-day credit facilities
maintained by PPL Capital Funding. No borrowings are outstanding under this
new facility.
In June 1999, PPL Electric Utilities instituted a short-term bond program in
order to meet short-term working capital requirements and to increase
financing flexibility. Under this program, a total of $600 million of short-
term bonds were issued, with no more than $200 million of such bonds
outstanding at any one time. This program was completed in August 1999, and no
such bonds were outstanding at December 31, 1999.
In August 1999, PPL purchased 14 million shares of common stock for $417
million, under forward purchase agreements with third parties. Also in August
1999, PPL Electric Utilities repurchased and subsequently retired $1.467
billion of first mortgage bonds through tender offers and open market
purchases. See Note 5 for additional information on the issuance of $2.42
billion of transition bonds to securitize stranded costs, some of the proceeds
of which were used to fund this purchase of common stock and tendered debt.
A-38
<PAGE>
In January 1999, PPL and PPL Capital Funding filed a $400 million shelf
registration with the SEC for the registration of debt securities. In October
1999, PPL Capital Funding used this shelf registration to issue $200 million
of medium-term notes in the form of 7.70% Reset Put Securities Series due
2007. In connection with this issuance, PPL Capital Funding assigned to a
third party the option to call the notes from the holders on November 15,
2002. These notes will mature on November 15, 2007, but will be required to be
surrendered by the existing holders on November 15, 2002 either through the
exercise of the call option or, if such option is not exercised, through the
automatic exercise of a mandatory put. If the call option is exercised, the
notes will be remarketed and the interest rate will be reset for the remainder
of their term to the maturity date. If the call option is not exercised, the
mandatory put will be exercised and PPL Capital Funding will be required to
repurchase the notes at 100% of their principal amount on November 15, 2002.
PPL, PPL Capital Funding and PP&L Capital Funding Trust I filed a $1.2
billion shelf registration with the SEC in September 1999 for the registration
of debt and equity securities. It is expected that such securities will be
issued from time to time to provide funding for general corporate purposes,
including making loans to the unregulated subsidiaries of PPL and reducing
commercial paper balances.
In November 1999, PPL Montana entered into $950 million of credit
facilities, non-recourse to PPL, with a group of banks, including a $675
million 364-day facility and two revolving credit facilities totaling $275
million which mature in 2002. The purpose of these facilities is to provide
bridge loan financing for the acquisition of the Montana assets and to fund
PPL Montana's working capital needs. At December 31, 1999, $370 million of
borrowings were outstanding under these facilities.
In December 1999, Emel repaid $145 million of outstanding bank loans with
proceeds from a borrowing from CEP Reserves, Inc., a PPL Electric Utilities
indirect subsidiary. A $145 million demand note was established for the
repayment of funds from Emel to CEP Reserves. Emel will pay a market-based
rate of interest on the outstanding loan.
12. Acquisitions and Divestitures
In August 1998 PPL acquired PPL Gas Utilities. The transaction was treated
as a purchase for accounting and financial reporting purposes. PPL issued
approximately 5.6 million shares of common stock with a value of approximately
$135 million, to acquire all PPL Gas Utilities' common and preferred stock.
Under the terms of the merger agreement, shareowners of PPL Gas Utilities
received 6.968 common shares of PPL for each common share of PPL Gas Utilities
that they owned and 0.682 common shares of PPL for each preferred share of PPL
Gas Utilities that they owned.
In February 1999, PPL acquired McCarl's; in April 1999, PPL Spectrum
acquired Burns Mechanical; and in September 1999, PPL acquired Western Mass.
Holdings. In October 1999, Burns Mechanical merged with DVY. The purchase
prices for these mechanical contractor and engineering firms were not
individually significant. In 1998 PPL had acquired H.T. Lyons and McClure.
In May 1999, PPL Global acquired most of Bangor Hydro's generating assets
and certain transmission rights, as well as its interest in an oil-fired
generation facility, for $79 million. In August 1999, PPL Global purchased
Bangor Hydro's 50% interest in the 20-megawatt West Enfield hydroelectric
station for $10 million.
In July 1999, PPL Global acquired an additional 29.4% interest in Emel for
$95 million, resulting in majority ownership and control of the company. In
August 1999, PPL Global acquired an additional 18.5% interest in Emel for $44
million. During October and November 1999, PPL Global acquired another 10%
interest in Emel for $23 million and acquired interests in four of Emel's
subsidiaries at a cost of $48 million. As a result of these acquisitions, PPL
Global's ownership of Emel increased to 95.4%. Acquisition of the controlling
interest in Emel in July 1999 also gave PPL Global a majority interest in EC,
a holding company jointly owned by PPL Global and Emel. As a result, PPL
Global consolidated the financial statements of Emel and EC effective January
1, 1999.
In July 1999, PPL Global reached an agreement with Duke Energy North America
to jointly complete the Griffith Energy Project, a gas-fired, combined-cycle
power plant near Kingman, Arizona. As part of the agreement, PPL Global
transferred a 50% interest in the project to Duke. PPL Global will fund 50% of
the capital cost of the project. The facility, expected to be in service in
2001, will have a nominal base-load capacity of 500 megawatts and a peak
capacity of 600 megawatts. The project cost is anticipated to be about $300
million.
A-39
<PAGE>
In September 1999, PPL Global's U.K. subsidiary, SWEB, sold its electricity
supply business to London Electricity for about $264 million. PPL Global
recorded an after tax gain from the sale of $64 million. The supply business
provided about 15% of SWEB's annual earnings. PPL Global and Southern Energy
will continue joint ownership of the electric delivery business, which has
been renamed Western Power Distribution (WPD). WPD will continue to own and
operate an extensive power network in southwest Britain, transporting and
delivering electricity to 1.4 million customers.
In November 1999, PPL Electric Utilities sold its Sunbury plant and the
principal assets of its wholly-owned coal processing subsidiary, Lady Jane
Collieries, to Sunbury Holdings, LLC. PPL Electric Utilities received cash
proceeds of $107 million for these assets, which resulted in an after tax gain
of about $42 million.
In 1998 PPL Global signed definitive agreements with the Montana Power
Company ("Montana Power"), Portland General Electric Company ("Portland") and
Puget Sound Energy, Inc. ("Puget") to acquire interests in 13 Montana power
plants, with 2,372 gross megawatts of generating capacity, for a purchase
price of $1.546 billion. The acquisition involves the Colstrip and Corette
coal-fired plants, 11 hydroelectric facilities and a storage reservoir. The
Puget and Portland agreements also provide for the acquisition of related
transmission assets for an additional $126 million, subject to certain
conditions.
In December 1999, PPL Global completed the purchase of about 1,315 gross
megawatts of generating assets from Montana Power for $757 million. PPL
Montana used $365 million of credit facilities, and PPL contributed
approximately $392 million of project equity funds, through the issuance of
PPL Capital Funding commercial paper and the redemption of investments, to
acquire these assets. PPL Montana applied purchase accounting to record the
transaction, and the assets acquired and the liabilities assumed were recorded
at estimated fair value. The excess of the purchase price over the recorded
assets and liabilities was about $71 million, at December 31, 1999, and was
allocated as goodwill. This acquisition transferred to PPL Montana the 11
hydroelectric facilities, the storage reservoir, the Corette plant and Montana
Power's ownership interest in three of the four units of the Colstrip plant,
along with other generation-related assets. PPL Montana is now operating these
facilities. PPL Montana also acquired the energy marketing and trading
operation of Montana Power for an amount that was not significant. The Montana
marketing and trading operation, which is now part of PPL EnergyPlus, is
selling electricity in wholesale and retail markets in Montana and the
Northwest.
PPL Global's acquisition of the Colstrip interests of Portland and Puget,
totalling 1,057 additional megawatts, is subject to several conditions,
primarily the receipt of satisfactory regulatory approvals from the state
utility commissions in Oregon and Washington. The Washington Utilities and
Transportation Commission issued a decision in September 1999 with respect to
Puget's 735-megawatt interest in Colstrip, which Puget is disputing in the
state appellate court. On February 29, 2000, the Oregon Public Utility
Commission denied Portland's application to sell its 322 megawatt interest in
Colstrip, but stated that it would be willing to reconsider the decision if
Portland could demonstrate sufficient additional benefits to Oregon ratepayers
as a result of the sale. The interested parties are reviewing the regulatory
decisions and evaluating possible actions to address the decisions. The
acquisition agreements permit each party to terminate the respective
agreements if closing does not occur by April 30, 2000. PPL cannot predict the
outcome of these proceedings, whether the outcome will be satisfactory to the
parties, or the effect of these proceedings on the timing or the ability to
complete these acquisitions.
In December 1999, the U.K.'s Office of Gas and Electricity Markets, the
regulatory authority for electricity and natural gas distribution, announced
the final price review for the electric distribution companies, including WPD.
In this final price review, WPD was given a one-time rate cut of 19%, the
lowest rate among distribution companies in the U.K. The price cut will be
effective for five years starting in April 2000. As a result of this action,
PPL Global evaluated the carrying value of its investment in WPD and the
investment was written down by $36 million. In unrelated transactions, PPL
Global wrote down the carrying value of two other international investments by
a total of $16 million.
13. Stock-Based Compensation
Under the PPL Incentive Compensation Plan ("ICP") and the Incentive
Compensation Plan for Key Employees ("ICPKE") (together, the "Plans"),
restricted shares of common stock as well as stock options may be granted to
officers and other key employees of PPL, PPL Electric Utilities and other
affiliated companies.
A-40
<PAGE>
Awards under the Plans are made in the common stock of PPL by the Compensation
and Corporate Governance Committee of the Board of Directors in the case of
the ICP, and by the PPL Corporate Leadership Council in the case of the ICPKE.
Each Plan limits the number of shares available for awards to two percent of
the outstanding common stock of PPL on the first day of each calendar year.
The maximum number of options which can be awarded under each Plan to any
single eligible employee in any calendar year is 1.5 million shares. Any
portion of these shares that has not been granted may be carried over and used
in any subsequent year. If any award lapses or is forfeited or the rights to
the participant terminate, any shares of common stock are again available for
grant. Shares delivered under the Plans may be in the form of authorized and
unissued common stock, common stock held in treasury by PPL or common stock
purchased on the open market (including private purchases) in accordance with
applicable securities laws.
Restricted Stock
Restricted shares of common stock are outstanding shares with full voting
and dividend rights. However, the shares are subject to forfeiture or
accelerated payout under Plan provisions for termination, retirement,
disability and death. Restricted shares vest fully if control of PPL changes,
as defined by the Plans.
Restricted stock awards of 108,890, 107,198 and 39,011 shares, with per
share weighted-average fair values of $26.74, $22.74, and $23.39, were granted
in 1999, 1998 and 1997, respectively. Compensation expense for these three
years was less than $2 million annually. At December 31, 1999, there were
224,903 restricted shares outstanding. These awards currently vest three years
from the date of grant.
Stock Options
Under the Plans, stock options may also be granted with an option exercise
price per share not less than the fair market value of PPL's common stock on
the date of grant. The options are exercisable beginning one year after the
date of grant, assuming the individual is still employed by PPL or a
subsidiary, in installments as determined by the Compensation and Corporate
Governance Committee of the Board of Directors in the case of the ICP, and the
Corporate Leadership Council in the case of the ICPKE. The Committee (or the
Corporate Leadership Council, in the case of the ICPKE) has discretion to
accelerate the exercisability of the options. All options expire ten years
from the grant date. The options become exercisable if control of PPL changes,
as defined by the Plans.
At December 31, 1999, there were 626,020 stock options outstanding, with a
fair value of $2.37 per option. Fair value was determined using a modified
Black-Scholes model with the following assumptions: Risk-free interest rate--
5.61%; Expected stock volatility--16.19%; Expected dividend yield rate--6.60%;
and Expected Option life (years)--10.
PPL applies Accounting Principles Board Opinion 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for stock
options. Since stock options are granted at market price, no compensation cost
has been recognized. Compensation calculated in accordance with the disclosure
requirements of FASB 123, "Accounting for Stock-Based Compensation," was not
significant and had no impact on earnings per share. (See Note 1).
In April 1999, PPL made its initial award of stock options under the Plan. A
summary of the stock option activity for 1999 follows:
<TABLE>
<CAPTION>
Weighted
Shares Average Price
------- -------------
<S> <C> <C>
Outstanding December 31, 1998............................ 0
Granted................................................ 704,800 $26.8465
Exercised.............................................. 0
Forfeited.............................................. (78,780) $26.8438
Outstanding December 31, 1999............................ 626,020 $26.8468
Exercisable December 31, 1999............................ 13,570 $26.8438
</TABLE>
Outstanding options had a weighted-average remaining life of 9.2 years at
December 31, 1999.
A-41
<PAGE>
14. Retirement and Postemployment Benefits
Pension and Other Postretirement Benefits
PPL and its subsidiaries sponsor various pension and other postretirement
and postemployment benefit plans.
PPL Electric Utilities, PPL Montana, Penobscot Hydro, and PPL Gas Utilities
have funded, noncontributory defined benefit plans covering substantially all
employees. PPL and its subsidiaries also provide supplemental retirement
benefits to directors, executives, and other key management employees through
nonqualified retirement plans.
Substantially all employees of PPL's subsidiaries will become eligible for
certain health care and life insurance benefits upon retirement through
contributory plans. The employees of North Penn Gas, a subsidiary of PPL Gas
Utilities, are eligible for certain health care and life insurance benefits
upon retirement through a noncontributory plan. Benefits for the PPL Electric
Utilities and North Penn Gas postretirement benefits are paid from funded VEBA
trusts sponsored by each company. PPL Electric Utilities and North Penn Gas
made contributions to the VEBA trusts of $29 million and $1 million,
respectively, during 1999. At December 31, 1999, PPL Electric Utilities had a
regulatory asset of $7 million relating to postretirement benefits that is
being amortized and recovered in rates with a remaining life of 13 years.
Net pension and postretirement medical benefit costs were (millions of
dollars):
<TABLE>
<CAPTION>
Postretirement
Pension Medical
Benefits Benefits
---------------- ----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............................... $ 42 $ 35 $ 32 $ 5 $ 4 $ 4
Interest cost.............................. 78 69 64 19 16 17
Expected return on plan assets............. (99) (87) (77) (7) (4) (2)
Net amortization and deferral.............. (9) (13) (11) 12 9 10
---- ---- ---- --- --- ---
Net periodic pension and postretirement
benefit cost.............................. $ 12 $ 4 $ 8 $29 $25 $29
==== ==== ==== === === ===
</TABLE>
The net periodic pension cost charged to operating expenses was $9 million
in 1999, $2 million in 1998 and $5 million in 1997. Retiree health and
benefits costs charged to operating expenses were approximately $20 million in
1999, $19 million in 1998 and $23 million in 1997. Costs in excess of the
amounts charged to expense were charged to construction and other accounts.
Postretirement medical costs at December 31, 1999 were based on the
assumption that costs would increase 7.5% in 1999, then the rate of increase
would decline gradually to 6% in 2006 and thereafter. A one-percentage point
change in the assumed health care cost trend assumption would have the
following effects (in millions):
<TABLE>
<CAPTION>
One One
Percentage Percentage
Point Point
Increase Decrease
---------- ----------
<S> <C> <C>
Effect on service cost and interest cost components...... $ 1 $ (1)
Effect on postretirement benefit obligation.............. 12 (10)
</TABLE>
The following assumptions were used in the valuation of the benefit
obligations:
<TABLE>
<CAPTION>
Postretirement
Pension Medical
Benefits Benefits
---------------- ----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate............................... 7.0% 6.25% 6.75% 7.0% 6.25% 6.75%
Expected return on plan assets.............. 8.0% 8.0% 8.0% 6.35% 6.35% 6.5%
Rate of compensation increase............... 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
</TABLE>
A-42
<PAGE>
The funded status of the combined plans was as follows (millions of
dollars):
<TABLE>
<CAPTION>
Postretirement
Pension Benefits Medical Benefits
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit Obligation, January 1......... $ 1,232 $ 1,022 $ 303 $ 244
Service cost........................ 42 35 5 4
Interest cost....................... 78 69 19 16
Plan amendments..................... 2 67 18 10
Actuarial (gain)/loss............... (127) 77 (15) 42
Acquisitions/Divestitures........... 25* 2*
Special termination benefits........ 3 9
Actual expense paid................. (3) (3)
Net benefits paid................... (46) (44) (15) (13)
-------- -------- -------- --------
Benefit Obligation, December 31....... 1,206 1,232 317 303
Change in Plan Assets
Plan assets at fair value, January 1.. 1,627 1,429 104 66
Actual return on plan assets........ 201 244 9 13
Employer contributions.............. 1 1 33
Acquisitions/Divestitures........... 19*
Actual expense paid................. (3) (3) 38
Net benefits paid................... (46) (44) (16) (13)
-------- -------- -------- --------
Plan assets at fair value, December
31................................... 1,799 1,627 130 104
Funded Status
Funded Status of Plan................. 593 395 (187) (199)
Unrecognized transition assets........ (45) (49) 113 122
Unrecognized prior service cost....... 110 115 33 14
Unrecognized net (gain)/loss.......... (906) (691) 23 44
-------- -------- -------- --------
Asset/(liability) recognized.......... (248) (230) (18) (19)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Amounts recognized in the Consolidated Balance Sheet
consist of:
Prepaid benefit cost.............................. 1 1
Accrued benefit liability......................... (250) (231) (18) (19)
Intangible asset.................................. 1 1
Additional minimum liability...................... (11) (13)
Accumulated other comprehensive income............ 11 12
----- ----- ---- ----
Net Amount Recognized............................... $(248) $(230) $(18) $(19)
</TABLE>
- -------
* Acquisition of PPL Montana & Penobscot Hydro net of Sunbury divestiture.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were (in millions) $41, $34 and $6 respectively, as of
December 31, 1999, and $40, $34 and $6 respectively, as of December 31, 1998.
PPL Electric Utilities and its subsidiaries formerly engaged in coal mining
accrued an additional liability for the cost of health care of their retired
miners. At December 31, 1999, the liability was $19 million. The liability is
net of $50 million of estimated future benefit payments offset by $31 million
of available assets in PPL Electric Utilities funded VEBA trusts.
Savings Plans
Substantially all employees of PPL's subsidiaries are eligible to
participate in deferred savings plans (401k's). Company contributions to the
plans approximated $6 million in 1999, $4 million in 1998, and $2 million in
1997. Increasing contributions were the result of company acquisitions and a
1999 enhanced matching formula for the PPL Electric Utilities plans.
A-43
<PAGE>
Postemployment Benefits
PPL Electric Utilities provides health and life insurance benefits to
disabled employees and income benefits to eligible spouses of deceased
employees. Postemployment benefits charged to operating expenses were not
significant in 1999, 1998 or 1997.
15. Jointly Owned Facilities
At December 31, 1999, subsidiaries of PPL owned undivided interests in the
following facilities (millions of dollars):
<TABLE>
<CAPTION>
Electric
Utility Construction
Ownership Plant in Other Accumulated Work in
Interest Service Property Depreciation Progress
--------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
PPL Electric Utilities
Generating Stations
Susquehanna............. 90.00% $4,133 $3,408 $26
Keystone................ 12.34% 69 43 1
Conemaugh............... 11.39% 104 50 2
Merrill Creek Reservoir... 8.37% $22 11
PPL Montana
Generating Stations
Colstrip Units 1 & 2.... 50.00% 192 4 4
Colstrip Unit 3......... 30.00% 160 3 2
PPL Global
Generating Station
Wyman................... 8.33% 15
</TABLE>
Each participant, either on its own behalf or through another PPL affiliate,
provided its own financing for its share of the facility. Each of the
participants received a portion of the total output of the generating stations
equal to its percentage ownership. The participant's share of fuel and other
operating costs associated with the stations is reflected on the Consolidated
Statement of Income.
16. Commitments and Contingent Liabilities
Construction Expenditures
PPL Electric Utilities' construction expenditures for the period 2000-2004
are estimated to aggregate $1.7 billion, including AFUDC and capitalized
interest. For discussion pertaining to construction expenditures, see Review
of Financial Condition and Results of Operations under the caption "Financial
Condition--Capital Expenditure Requirements."
Nuclear Insurance
PPL Electric Utilities 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. PPL Electric Utilities 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, PPL Electric Utilities could be assessed retroactive
premiums in the event of the insurers' adverse loss experience. At December
31, 1999, the maximum amount PPL Electric Utilities could be assessed under
these programs was about $24 million.
PPL Electric Utilities' 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. PPL Electric
Utilities 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, PPL Electric Utilities 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.
A-44
<PAGE>
Environmental Matters
Air
The Clean Air Act deals, in part, with acid rain, attainment of federal
ambient ozone standards and toxic air emissions. PPL subsidiaries are in
compliance with the 1995 Phase I acid rain provisions and have taken steps to
comply with the year 2000 Phase II acid rain provisions.
PPL Electric Utilities has met the 1995 ambient ozone requirements of the
Clean Air Act by reducing its rate of NOx emissions by nearly 50% through the
use of low NOx burners. During 1999, further seasonal (May-June) NOx
reductions to 55% from 1990 levels were achieved in response to PA DEP's rule
implementing the Northeast Ozone Transport Region's Memorandum of
Understanding (OTR MOU). These reductions were achieved with operational
initiatives that rely, to a large extent, on the low NOx burners.
The PA DEP has proposed further seasonal (May-June) NOx reductions to 80%
from 1990 levels starting in 2003. These further reductions are based on the
requirements of the OTR MOU and two EPA ambient ozone initiatives: the
September, 1998, EPA SIP-call issued under Section 110 of the Clean Air Act,
requiring reductions from 22 eastern states, including Pennsylvania; and the
Northeastern states, requiring reductions from sources in 12 northeastern
states and D.C., including PPL Electric Utilities' sources. Despite various
court challenges to the EPA initiatives, the PA DEP is expected to move
forward with the 2003 NOx reductions based on the OTR MOU. PPL Electric
Utilities estimates that the 2003 NOx reductions will be achieved with the
installation of SCR (selective catalytic reduction) technology on PPL Electric
Utilities' three largest units.
EPA has also developed new standards for ambient levels of fine
particulates. These standards were challenged and remanded to EPA by the D.C.
Circuit Court in 1999. The new particulates standard, if finalized, may
require further reductions in SO\\2\\ for certain PPL subsidiaries and may
expand the planned seasonal NOx reductions at PPL Electric Utilities to year-
round commencing in 2010-2012.
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 what should be regulated. The EPA has concluded that mercury is the
power plant air toxin of greatest concern, but that more evaluation is needed
before it can determine whether it must be regulated. The EPA is now seeking
mercury and chlorine sampling and other data from electric generating units,
including those operated by PPL Electric Utilities and PPL Montana.
The EPA recently initiated enforcement actions against eight utilities,
asserting that older, coal-fired power plants operated by those utilities
have, over the years, been modified in ways that subject them to more
stringent "New Source" requirements under the Clean Air Act. The EPA also has
threatened similar enforcement action with respect to plants operated by
other, unnamed utilities, as well as facilities in other industries. PPL and
PPL Electric Utilities at this time are unable to predict whether such EPA
enforcement actions will be brought with respect to any PPL Electric Utilities
or PPL Montana plants and the scope, outcome or ultimate financial impact of
any potential EPA actions. Compliance with any such EPA enforcement actions
could result in additional capital and operating expenses in amounts which are
not now determinable but which could be significant.
The EPA is also proposing to revise its regulations in a way that will
require power plants to meet new source performance standards and/or undergo
new source review for many maintenance and repair activities that are
currently exempted as routine.
Expenditures to meet the 2000 acid rain and 2003 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. PPL 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 significant.
Water and Residual Waste
The final NPDES permit for PPL Electric Utilities' 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.
A-45
<PAGE>
Capital expenditures through the year 2003 to correct groundwater
degradation at fossil-fueled generating stations, and to address waste water
control at PPL Electric Utilities' 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 this regard, PPL Electric Utilities currently
estimates that about $6 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.
Superfund and Other Remediation
In 1995, PPL Electric Utilities entered into a consent order with the DEP to
address a number of sites where PPL Electric Utilities may be liable for
remediation or contamination. This may include potential PCB contamination at
certain PPL Electric Utilities substations and pole sites; potential
contamination at a number of coal gas manufacturing facilities formerly owned
and operated by PPL Electric Utilities; and oil or other contamination which
may exist at some of PPL Electric Utilities' former generating facilities. As
of December 31, 1999, PPL Electric Utilities has completed work on
approximately two-thirds of the sites included in the consent order.
In 1996, PPL Gas Utilities entered into a similar consent order with the DEP
to address a number of its sites where PPL Gas Utilities may be liable for
remediation of contamination. The sites primarily include former coal gas
manufacturing facilities. Prior to PPL acquiring PPL Gas Utilities in August
of 1998 PPL Gas Utilities had obtained a "no further action" determination
from the DEP for two of the 20 sites covered by the order.
At December 31, 1999, PPL Electric Utilities and PPL Gas Utilities had
accrued approximately $6 million and $16 million, respectively, representing
the amounts they can reasonably estimate they will have to spend for site
remediation, including those sites covered by each company's consent orders
mentioned above.
In October 1999, the Montana Supreme Court held in favor of several
citizens' groups that the right to a clean and healthful environment is a
fundamental right guaranteed by the Montana Constitution. The Court's ruling
could result in significantly more stringent environmental laws and
regulations as well as an increase in citizens' suits under Montana's
environmental laws. The effect on PPL Montana of any such changes in laws or
regulations or any such increase in citizen suits is not currently
determinable but could be significant.
Future cleanup or remediation work at sites currently under review, or at
sites not currently identified, may result in material additional operating
costs for PPL subsidiaries that cannot be estimated at this time. PPL Montana
has been indemnified by the Montana Power Company for any preacquisition
environmental liability. However, this indemnification is conditioned on
certain circumstances that can result in PPL Montana and the Montana Power
Company sharing in certain costs within limits set forth in the Asset Purchase
Agreement.
General
Due to the environmental issues discussed above or other environmental
matters, PPL Electric Utilities 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, PPL Electric Utilities 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
PPL provides certain guarantees for its subsidiaries. Specifically, PPL
guarantees all of the debt of PPL Capital Funding. As of December 31, 1999,
PPL guaranteed $597 million of medium-term notes and $298 million of
commercial paper issued by PPL Capital Funding. At December 31, 1998 PPL had
guaranteed $397 million of PPL Capital Funding's medium-term notes, and $552
million of its commercial paper. PPL also provided loan guarantees to PPL
Global subsidiaries, totaling $118 million in 1999 and $13 million in 1998.
Also, PPL guaranteed notes of a subsidiary of PPL Gas Utilities, amounting to
$18 million and $19 million at the end of 1999 and 1998, respectively.
Additionally, PPL has guaranteed certain obligations of PPL EnergyPlus for up
to $271 million under power purchase and sales agreements. These guarantees
amounted to $31 million in 1998.
A-46
<PAGE>
At December 31, 1999 and 1998, PPL Electric Utilities provided a guarantee
in the amount of $12 million in support of one of its subsidiaries.
Source of Labor Supply
As of December 31, 1999, PPL and its subsidiaries had 9,166 employees,
including 6,314 full-time PPL Electric Utilities employees and 470 full-time
PPL Montana employees. Approximately 62 percent of PPL Electric Utilities'
full-time employees are represented by the IBEW. Approximately 68 percent of
PPL Montana employees are represented by the IBEW. PPL Electric Utilities
reached a new labor agreement with the IBEW in 1998. This agreement expires in
May 2002. PPL Montana's contract with the IBEW expires in 2001.
17. New Accounting Standards
In June 1999, the FASB issued SFAS 137 which defers the effective date of
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," to
fiscal years beginning after June 15, 2000. PPL and PPL Electric Utilities
intend to adopt SFAS 133 as of January 1, 2001. The impact of adopting this
statement on the net income and financial position of PPL and PPL Electric
Utilities is not expected to be material.
18. Subsequent Events
In February 2000, PPL Capital Funding issued $500 million of medium-term
notes in the form of 7.75% series due 2005. This issuance used $500 million of
the $1.2 billion SEC shelf registration filed in September 1999. At the time
of issuance, PPL also settled a number of forward-starting swaps that had been
entered into in a lower interest rate environment as a means to lock-in
interest rates and limit exposure to increasing interest rates, all pursuant
to PPL's Interest Rate Risk Management Program. The Company received net
proceeds of $15.8 million from the settlement of these contracts, which will
be deferred on the balance sheet and subsequently amortized over the life of
the medium-term notes. The effective interest rate on the medium-term notes
was reduced by approximately 75 basis points as a result of this hedging
activity. Also, in conjunction with this transaction, PPL swapped $350 million
notional amount of these notes from fixed to floating-rate instruments with an
initial average rate of three-months LIBOR plus 45 basis points to adjust the
amount of floating-rate debt carried in its liability portfolio.
A-47
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
PPL Corporation
<TABLE>
<CAPTION>
1999(a) 1998(a) 1997(a) 1996 1995(a)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income Items--millions
Operating revenues.................... $ 4,590 $ 3,786 $ 3,077 $ 2,926 $ 2,752
Operating income (f).................. 872 827 800 810 836
Net Income (Loss)..................... 432 (569) 296 329 323
Balance Sheet Items--millions (b)
Property, plant and equipment, net.... 5,644 4,480 6,820 6,960 6,970
Recoverable transition costs.......... 2,647 2,819
Total assets.......................... 11,174 9,607 9,485 9,670 9,492
Long-term debt........................ 4,157 2,984 2,735 2,832 2,859
Company-obligated mandatorily
redeemable preferred securities of
subsidiary trusts holding solely
company debentures................... 250 250 250
Preferred stock
With sinking fund requirements...... 47 47 47 295 295
Without sinking fund requirements... 50 50 50 171 171
Common equity......................... 1,613 1,790 2,809 2,745 2,597
Short-term debt....................... 857 636 135 144 89
Total capital provided by investors... 6,974 5,757 6,026 6,187 6,011
Capital lease obligations............. 125 168 171 247 220
Financial Ratios
Return on average common equity--%
(e).................................. 16.89 10.98 11.69 12.30 11.23
Embedded cost rates (b)
Long-term debt--%................... 6.95 7.40 7.88 7.89 7.95
Preferred stock--%.................. 5.87 5.87 5.85 6.09 6.09
Preferred securities--%............. 8.43 8.43 8.43
Times interest earned before income
taxes (e)............................ 3.04 3.28 3.59 3.55 3.17
Ratio of earnings to fixed charges--
total enterprise basis (c), (e)...... 2.86 3.10 3.40 3.45 3.08
Ratio of earnings to fixed charges and
dividends on preferred stock--total
enterprise basis (c), (e)............ 2.61 2.78 3.02 2.90 2.51
Common Stock Data
Number of shares outstanding--
thousands
Year-end............................ 143,697 157,412 166,248 162,665 159,403
Average............................. 152,287 164,651 164,550 161,060 157,649
Number of record shareowners (b)...... 91,553 100,458 117,293 123,290 128,075
Earnings (loss) per share--reported... $ 2.84 $ (3.46) $ 1.80 $ 2.05 $ 2.05
Earnings per share excluding one-time
adjustments (e)...................... $ 2.35 $ 1.87 $ 2.00 $ 2.05 $ 1.79
Dividends declared per share.......... $ 1.00 $ 1.335 $ 1.67 $ 1.67 $ 1.67
Book value per share (b).............. $ 11.23 $ 11.37 $ 16.90 $ 16.87 $ 16.29
Market price per share (b)............ $22.875 $27.875 $23.938 $ 23 $ 25
Dividend payout rate--% (e)........... 43 71 84 81 93
Dividend yield--% (d)................. 4.37 4.79 6.98 7.26 6.68
Price earnings ratio (e).............. 9.73 14.91 11.97 11.22 13.97
</TABLE>
- -------
(a) The earnings for each year, except for 1996, were affected by one-time
adjustments. These adjustments affected net income and certain items under
Financial Ratios and Common Stock Data. See "Earnings" in Review of
Financial Condition and Results of Operations for a description of one-
time adjustments in 1999, 1998 and 1997.
(b) At year-end.
(c) Computed using earnings and fixed charges of PPL and its subsidiaries.
Fixed charges consist of interest on short- and long-term debt, other
interest charges, interest on capital lease obligations and the estimated
interest component of other rentals.
(d) Based on year-end market prices.
(e) Based on earnings excluding one-time adjustments.
(f) Operating income of 1997 and earlier years restated to conform to the
current presentation.
A-48
<PAGE>
EXECUTIVE OFFICERS OF PPL CORPORATION
Officers of PPL Corporation are elected annually by the Board of Directors
to serve at the pleasure of the Board. There are no family relationships among
any of the executive officers, or any arrangement or understanding between any
executive officer and any other person pursuant to which the officer was
selected.
There have been no events under any bankruptcy act, no criminal proceedings
and no judgments or injunctions material to the evaluation of the ability and
integrity of any executive officer during the past five years.
Listed below are the executive officers of PPL Corporation as of December
31, 1999:
<TABLE>
<CAPTION>
Effective Date of
Election to
Name Age Position Present Position
---- --- -------- -----------------
<S> <C> <C> <C>
William F. Hecht........ 56 Chairman, President and Chief Executive Officer February 24, 1995
Frank A. Long........... 59 Executive Vice President February 24, 1995
Robert G. Byram*........ 54 Senior Vice President and Chief Nuclear Officer April 1, 1997
John R. Biggar.......... 55 Senior Vice President and Chief Financial November 1, 1998
Officer
Paul T. Champagne*...... 41 President-PPL Global, Inc. May 24, 1999
Robert J. Grey.......... 49 Senior Vice President, General Counsel and March 1, 1996
Secretary
Terry H. Hunt........... 51 Senior Vice President-Strategic Planning October 1, 1998
Joseph J. McCabe........ 49 Vice President and Controller August 1, 1995
James E. Abel........... 48 Vice President-Finance and Treasurer June 1, 1999
</TABLE>
- -------
* Mr. Byram and Mr. Champagne have been designated executive officers of PPL
Corporation by virtue of their respective positions at PPL Corporation
subsidiaries.
Each of the above officers, with the exception of Messrs. Champagne, Grey
and Hunt, has been employed by PPL Electric Utilities for more than five years
as of December 31, 1999. Mr. Champagne joined PPL Global in January 1995.
Prior to that time, he was Regional Manager-Business Development--Midwest at
Mission Energy Company. Mr. Grey joined PPL Electric Utilities in March 1995.
He had been General Counsel of Long Island Lighting Company since 1992. Mr.
Hunt joined PPL Electric Utilities in October 1998. He had been President and
CEO of PPL Gas Utilities.
Prior to their election to the positions shown above, the following
executive officers held other positions within PPL Electric Utilities since
January 1, 1995: Mr. Byram was Senior Vice President --Nuclear and Senior Vice
President--Generation and Chief Nuclear Officer; Mr. Biggar was Vice
President-Finance, Vice President--Finance and Treasurer and Senior Vice
President-Financial; Mr. Grey was Vice President, General Counsel and
Secretary; Mr. McCabe was Controller; and Mr. Abel was Manager--Treasury,
Manager--Auditing, and Treasurer.
A-49
<PAGE>
SHAREOWNER AND INVESTOR INFORMATION
Annual Meeting: The annual meeting of shareowners of PPL Corporation is held
each year on the fourth Friday of April. The 2000 annual meeting will be held
on Friday, April 28, 2000, at Lehigh University's Stabler Arena, at the
Goodman Campus Complex located in Lower Saucon Township, outside Bethlehem,
PA.
Proxy Statement Material: A proxy statement and notice of PPL's annual
meeting is mailed to all shareowners of record as of February 29, 2000.
Dividends: The 2000 dates for consideration of the declaration of dividends
on PPL Common Stock by the Board of Directors or its Executive Committee are
February 25, May 26, August 25 and November 17. Subject to the declaration,
such dividends are paid on the first day of April, July, October and January.
Dividend checks are mailed in advance of those dates with the intention that
they arrive as close as possible to the payment dates. The 2000 record dates
for dividends are expected to be March 10, June 9, September 8, and December
8.
Direct Deposit of Dividends: Shareowners may choose to have their dividend
checks deposited directly into their checking or savings account. Quarterly
dividend payments are electronically credited on the dividend date, or the
first business day thereafter.
Dividend Reinvestment Plan: Shareowners may choose to have dividends on
their PPL Common Stock reinvested in PPL Common Stock instead of receiving the
dividend by check.
Certificate Safekeeping: Shareowners participating in the Dividend
Reinvestment Plan may choose to have their common stock certificates forwarded
to PPL Electric Utilities for safekeeping.
Lost Dividend or Interest Checks: Dividend or interest checks lost by
investors, or those that may be lost in the mail, will be replaced if the
check has not been located by the 10th business day following the payment
date.
Transfer of Stock or Bonds: Stock or bonds may be transferred from one name
to another or to a new account in the name of another person. Please contact
Investor Services regarding transfer instructions.
Bondholder Information: Much of the information and many of the procedures
detailed here for shareowners also apply to bondholders. Questions related to
bondholder accounts should be directed to Investor Services.
Lost Stock or Bond Certificates: Please contact Investor Services for an
explanation of the procedure to replace lost stock or bond certificates.
PPL Summary Annual Report: Published and mailed in mid-March to all
shareowners of record.
Shareowner News: An easy-to-read newsletter containing current items of
interest to shareowners--published and mailed at the beginning of each
quarter.
Periodic Mailings: Letters regarding new investor programs, special items of
interest, or other pertinent information are mailed on a non-scheduled basis
as necessary.
Duplicate Mailings: The summary annual report and other investor
publications are mailed to each investor account. If you have more than one
account, or if there is more than one investor in your household, you may
contact Investor Services to request that only one publication be delivered to
your address. Please provide account numbers for all duplicate mailings.
Shareowner Information Line: Shareowners can get detailed corporate and
financial information 24 hours a day using the Shareowner Information Line.
They can hear timely recorded messages about earnings, dividends and other
company news releases; request information by fax; and request printed
materials in the mail.
The toll-free Shareowner Information Line is 1-800-345-3085.
Other PPL publications, such as the annual and quarterly reports to the
Securities and Exchange Commission (Forms 10-K and 10-Q) will be mailed upon
request.
A-50
<PAGE>
Another part of this service is an enhanced Internet home page
(www.pplresources.com). Shareowners can access PPL Securities and Exchange
Commission filings, stock quotes and historical performance. Visitors to our
website can provide their E-mail address and indicate their desire to receive
future earnings or news releases automatically.
Investor Services: For any questions you have or additional information you
require about PPL and its subsidiaries, please call the Shareowner Information
Line, or write to:
George I. Kline
Manager-Investor Services
PPL Corporation
Two North Ninth Street
Allentown, PA 18101
Internet Access: For updated information throughout the year, check out our
home page at http://www.pplresources.com. You may also contact Investor
Services via E-mail at [email protected].
Listed Securities: Fiscal Agents:
New York Stock Exchange Stock Transfer Agents and Registrars
Norwest Bank Minnesota, N.A.
PPL Corporation: Shareowner Services
Common Stock (Code: PPL) 161 North Concord Exchange
South St. Paul, MN 55075
PPL Electric Utilities Corporation: PPL Electric Utilities Corporation
4 1/2% Preferred Stock Investor Services Department
(Code: PPLPRB) Dividend Disbursing Office and
4.40% Series Preferred Stock Dividend Reinvestment Plan Agent
(Code: PPLPRA) PPL Electric Utilities Corporation
Investor Services Department
PP&L Capital Trust:
8.20% Preferred Securities Mortgage Bond Trustee
(Code: PPLPRC) Bankers Trust Co.
Attn: Security Transfer Unit
PP&L Capital Trust II: P.O. Box 291569
8.10% Preferred Securities Nashville, TN 37229
(Code: PPLPRD)
Bond Interest Paying Agent
Philadelphia Stock Exchange PPL Electric Utilities Corporation
PPL Corporation: Investor Services Department
Common Stock
PPL Electric Utilities Corporation
4 1/2% Preferred Stock
3.35% Series Preferred Stock
4.40% Series Preferred Stock
4.60% Series Preferred Stock
A-51
<PAGE>
QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited)
PPL Corporation and Subsidiaries
(Millions of Dollars, except per share data)
<TABLE>
<CAPTION>
For the Quarters Ended(a)
-----------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- --------
<S> <C> <C> <C> <C>
1999
Operating revenues......................... $ 1,067 $ 1,004 $1,386 $ 1,133
Operating income........................... 262 164 238 208
Net income before extraordinary items...... 120 63 161 134
Net income................................. 120 63 102 147
Earnings per common share (b).............. 0.76 0.40 0.68 1.02
Dividends declared per common share (c).... 0.25 0.25 0.25 0.25
Price per common share
High..................................... 28 1/2 31 7/8 32 28 1/2
Low...................................... 24 3/4 24 1/8 25 3/8 20 3/8
1998
Operating revenues......................... $ 880 $ 838 $1,166 $ 902
Operating income........................... 236 148 262 181
Net income before extraordinary items...... 101 54 136 88
Net income (loss).......................... 101 (894) 136 88
Earnings (loss) per common share (b)....... 0.60 (5.34) 0.81 0.56
Dividends declared per common share (c).... 0.4175 0.4175 0.25 0.25
Price per common share
High..................................... 24 1/4 24 3/8 26 3/8 28 15/16
Low...................................... 21 11/16 20 7/8 22 24 15/16
</TABLE>
- -------
(a) PPL's electric and gas utility businesses are seasonal in nature with peak
sales periods generally occurring in the winter months. In addition,
earnings in 1999 and 1998 were affected by one-time adjustments.
Accordingly, comparisons among quarters of a year may not be indicative of
overall trends and changes in operations.
(b) The sum of the quarterly amounts may not equal annual earnings per share
due to changes in the number of common shares outstanding during the year
or rounding.
(c) PPL has paid quarterly cash dividends on its common stock in every year
since 1946. The dividends paid per share in 1998 were $1.50 and in 1999
were $1.00. The most recent regular quarterly dividend paid by PPL was 25
cents per share (equivalent to $1.00 per annum) paid January 1, 2000.
Future dividends, declared at the discretion of the Board of Directors,
will be dependent upon future earnings, financial requirements and other
factors.
A-52
<PAGE>
For any questions you may have or additional information you may require
about your account, change in stock ownership, dividend payments and the
reinvestment of dividends, please call the Shareowner Information Line, or
write to:
George Kline, Manager
Investor Services Department
PPL Electric Utilities Corporation
Two North Ninth Street, Allentown, PA 18101
Shareowner Information Line: 800-345-3085
---------------
PPL and PPL Utilities file a joint Form 10-K Report and Form 10-Q Report
with the Securities and Exchange Commission. The Form 10-K Report for 1999 and
the Form 10-Q Report for the quarter ending March 31, 2000 are available
without charge by writing to the Investor Services Department at the address
printed above, or by calling the toll-free number.
Whether you plan to attend the meeting or not, please mark, date, sign and
mail the accompanying Proxy as soon as possible. An envelope, which requires
no postage if mailed in the United States, is included for your convenience.
---------------
For the latest information on PPL Corporation,
visit our location on the Internet at
http://www.pplresources.com
<PAGE>
[LOGO OF PPL]
ADMISSION TICKET
PPL CORPORATION ANNUAL MEETING OF SHAREHOLDERS
1:30 p.m., April 28, 2000
Lehigh University's Stabler Arena
Bethlehem, Pennsylvania
March 13, 2000
DEAR SHAREOWNER:
It is a pleasure to invite you to attend the 2000 Annual Meeting of
Shareowners, which will be held at 1:30 p.m. on Friday, April 28, 2000, at
Lehigh University's Stabler Arena, at the Goodman Campus Complex, located in
Lower Saucon Township outside Bethlehem, following the Annual Meeting of
Shareowners of PPL Electric Utilities Corporation.
Detailed information as to the business to be transacted at the meeting is
contained in the accompanying Notice of Annual Meeting and Proxy Statement. We
will conclude the formal portion of the meeting with a discussion of the
company's operations and a question-and-answer period will follow.
We hope you will be able to attend in person. If you plan to attend the
meeting, please detach and return your proxy now and bring this admission ticket
with you to the meeting. If you are unable to attend the meeting but have any
questions or comments on the company's operations, we would like to hear from
you.
Your vote is important. Whether you own one share or many, please mark,
sign, date and return your proxy as soon as possible so that you will be
represented at the meeting in accordance with your wishes.
Sincerely yours,
/s/William F. Hecht
-----------------------
William F. Hecht
Chairman, President and
Chief Executive Officer
PROXY [LOGO OF PPL]
PLEASE DATE AND SIGN YOUR NAME(S) EXACTLY AS SHOWN AT
RIGHT, AND INDICATE YOUR VOTE ON THE REVERSE SIDE. MAKE
SURE THE RETURN ADDRESS ON THIS CARD SHOWS IN THE WINDOW
OF THE RETURN ENVELOPE. RETAIN THE TOP PORTION OF THIS
PAGE AS YOUR ADMISSION TICKET FOR THE ANNUAL MEETING.
[ ] CHECK HERE IF THE INFORMATION
SHOWN ABOVE HAS CHANGED.
IMPORTANT: When signing as attorney, executor,
administrator, trustee or guardian, please give
PROXY VOTE your full title as such. In the case of JOINT
PPL CORPORATION HOLDERS, all should sign.
2 N 9TH STREET
ALLENTOWN PA 18101-9971 ________________ Date ________________
________________ Date ________________
<PAGE>
[MAP APPEARS HERE]
INDICATE YOUR VOTE BY PLACING AN (X) IN THE APPROPRIATE BOX, USING BLACK OR DARK
BLUE INK. PLEASE DATE AND SIGN YOUR NAME(S) ON THE REVERSE SIDE.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREOWNERS, APRIL 28, 2000
William F. Hecht, Frank A. Long and Norman Robertson, and each of them, are
hereby appointed proxies, with the power of substitution, to vote the shares of
the undersigned, as directed on the reverse side of this proxy, at the Annual
Meeting of Shareowners of PPL Corporation to be held on April 28, 2000, and
adjournments thereof, and in their discretion to vote and act upon any other
matters as may properly come before said meeting and any adjournments thereof.
Shares represented by all properly executed proxies will be voted at the Annual
Meeting in the manner specified. If properly executed and returned, and no
specification is made, votes will be cast "FOR" all items on the proxy.
1. ELECTION OF DIRECTORS 2. APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(1) JOHN W. CONWAY
(2) E. ALLEN DEAVER
(3) ELMER D. GATES
(4) W. KEITH SMITH
FOR ALL WITHHOLD
FOR ALL EXCEPT(*) FOR ALL FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
(*) TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE AND MARK AN (X) IN THE "FOR ALL
EXCEPT" BOX.
