Third Quarter Earnings Call October 29, 2009 Exhibit 99.2
Cautionary Statements and Factors That May Affect Future Results Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the Appendix to this presentation and in the Company’s SEC filings. 1
Agenda • Third Quarter 2009 Earnings, 2009 and 2010 Earnings Forecast and Outlook • Segment Results and Financial Overview • Operational Review • Q&A J. H. Miller P. A. Farr W. H. Spence 2
Earnings Results Third Quarter Earnings from Ongoing Operations $0.45 $0.52 $0.00 $0.50 $1.00 3Q 2008 3Q 2009 Per Share $0.54 $0.05 $0.00 $0.50 $1.00 3Q 2008 3Q 2009 Per Share Third Quarter Reported Earnings Note: See Appendix for the reconciliation of reported earnings and earnings from ongoing operations. $1.73 $0.67 $0.00 $0.50 $1.00 $1.50 $2.00 3Q 2008 3Q 2009 Per Share $1.56 $1.43 $0.00 $0.50 $1.00 $1.50 $2.00 3Q 2008 3Q 2009 Per Share Year-to-Date Reported Earnings Year-to-Date Earnings from Ongoing Operations 3
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2008A* 2009* 2010 Strong Expected Earnings Growth Forecast 4 * Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $2.02 $3.50 Per Share $1.90 $1.60 $3.10
Ongoing Earnings Overview $ 0.07$0.45$0.52Total (0.08)0.200.12International Delivery (0.02)0.090.07Pennsylvania Delivery $ 0.17$0.16$0.33Supply Change Q3 2008 Q3 2009 5 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations.
Supply Segment Earnings Drivers 0.01Margins – West (0.02)O&M (0.01)Depreciation $0.332009 EPS – Ongoing Earnings 0.17Total 0.19Margins – East $0.162008 EPS – Ongoing Earnings 3rd Quarter Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. 6
Pennsylvania Delivery Segment Earnings Drivers (0.01)Delivery Margins $0.072009 EPS – Ongoing Earnings (0.02)Total (0.01)Financing Costs $0.092008 EPS – Ongoing Earnings 3rd Quarter 7 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations.
International Delivery Segment Earnings Drivers (0.03)Effect of Exchange Rates 0.02Financing Costs $0.122009 EPS – Ongoing Earnings (0.08)Total (0.08)Income Taxes & Other 0.01O&M $0.202008 EPS – Ongoing Earnings 3rd Quarter 8 Note: See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations.
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2008A* 2009* 2010 Strong Expected Earnings Growth Forecast 9 * Earnings from ongoing operations – See Appendix for the per share reconciliation of reported earnings and earnings from ongoing operations. $2.02 $3.50 Per Share $1.90 $1.60 $3.10
($605) $189 ($318) $523 $367 $266 ($21) ($180) $1 ($800) ($600) ($400) ($200) $0 $200 $400 $600 $800 2008A 2009E 2010E Supply Segment PA Delivery Segment International Delivery Segment Free Cash Flow before Dividends Forecast Millions 10 Note: See Appendix for reconciliation of cash from operations to free cash flow before dividends
PA and International Delivery Segment Operational Update PA Delivery • Sixth and final RFP for 2010 POLR load completed on October 8 – Solicitations resulted in a total increase of 29.7% for average residential customers • Second solicitation completed for the 2011 to mid-2013 Procurement • PA PUC completed evidentiary hearings regarding PPL Electric Utilities application to build the Pennsylvania portion of the Susquehanna-Roseland 500-kilovolt transmission line • Received $19 million federal grant to deploy smart grid technology International Delivery • Distribution Price Control Review (DPCR 5) – Initial proposals issued in August 2009 and updated by OFGEM in October – Final proposals will be issued in November 2009 and will take effect April 1, 2010 11
Supply Segment Operational Update • Brunner Island’s Unit 1 passed a record run mark of 165 consecutive days • PPL Montana began work on the Rainbow hydroelectric plant – Upon completion in 2012, project will increase amount of clean, renewable power generated by the facility by 70 percent • Expect to begin construction of 120 MW Holtwood hydro plant shortly 12
Supply Segment Asset Hedge Positions 2009 2010 2011 2012 Baseload Expected Generation* (1,000 MWhs) 51.4 52.0 52.2 53.4 East 42.9 43.5 43.9 45.0 West 8.5 8.5 8.3 8.4 Current Hedges (%) 99% 99% 89% 58% East 99% 100% 90% 55% West 96% 90% 83% 73% Average Hedged Price (Energy Only) ($/MWh) $46 $59 $59 $61 East $46 $60 $60 $62 West $47 $50 $56 $57 Expected Average Price (Fully Loaded) ($/MWh) $46 $70 $67 $68 East** $46 $72 $70 $71 West $47 $50 $56 $57 %Hedged Through Swaps/Options Energy Transactions 22% 96% 89% 58% % Hedged Through Load-following Transactions 77% 3% 0% 0% Intermediate/Peaking Expected Generation (1,000 MWhs) 5.8 5.2 5.2 5.3 Current Hedges (%) 88% 17% 0% 0% 13 As of September 30, 2009 *Represents expected sales based on current forecasted assumption for 2009-2012 **Represents energy, capacity, congestion and other revenues
Current Fuel Hedge Positions (1)Base prices for East wholly owned plants which include Montour & Brunner Island but not Keystone & Conemaugh. (2)Excludes contracts subject to mining-related oil surcharges and/or price collars. Note: As of 9/30/2009 2009 2010 2011 2012 Uranium 100% 100% 100% 100% Coal East 100% 97% 83% 60% West 100% 100% 100% 90% Total 100% 98% 88% 68% 14 $35 $40 $45 $50 $55 Balance of 2009 2010 2011 max collar price fixed base price min collar price Weighted Average $/Ton at Mine (1) 7%11% % Diesel Surcharge 78% 5%0%% Collars 88% 89% % Fixed Base Price (2)22% 0%
ppl
Market Prices ELECTRIC PJM On-Peak Off-Peak ATC(2) Mid-Columbia On-Peak Off-Peak ATC(2) GAS(3) NYMEX TZ6NNY PJM MARKET HEAT RATE(4) CAPACITY PRICES (Per MWD) EQA Actual 2008 2009 2010 2011 2012 $81 $44 $59 $63 $65 $49 $32 $39 $41 $43 $69 $38 $48 $52 $53 $65 $36 $52 $56 $57 $51 $29 $41 $45 $45 $59 $33 $47 $51 $51 $8.84 $4.04 $6.21 $6.87 $7.02 $9.85 $4.79 $7.01 $7.69 $7.80 8.2 9.2 8.4 8.2 8.3 $82.00 $158.24 $181.39 $136.79 $123.63 89.6% 89.5% 91.6% 88.6% 91.1% Forward(1) (1) Market prices based on the average of broker quotes as of 9/30/2009 (2) 24-hour average (3) NYMEX and TZ6NNY forward gas prices on 9/30/2009 (4) Market Heat Rate = PJM on-peak power price divided by TZ6NNY gas price A-1
PPL Supply Business Overview 2009E Production GWh A-2 Gas/Oil 38% Coal 34% Nuclear 18% Hydro8% QFs 2% 2009E Installed Capacity MW Gas/Oil 10% Coal 49% Nuclear 32% Hydro 9% Note: Graphs include tolling agreements
PPL’s Generation Portfolio Total Domestic Generation: 12,181 MW Planned Uprate Projects or Additions: 208 MW (1) Reflects reduction of 60 MW expected loss due to increased plant usage during scrubber operation. (2) Includes tolling agreement and renewable energy projects (3) Includes MWs associated with the proposed sale of Shoreham, Edgewood and the PPL Maine hydro assets. A-3 Coal 3,500 Nuclear 2,210 Oil 1,817 Gas 2,282 Hydro 369 CTs 462 QFs 254 Coal 683 Hydro 604 West 1,287 MW Hydro Uprate (2012) 28 Nuclear Uprate (2010-2011) 44 Hydro Uprate (2013) 125 Coal Uprate (2009) 11 (1) East 10,894 MW (2) (3) (3) (3)
Millions $939 $753 $892 $936 $809 $649 $286 $295 $568 $801 $664 $719 $278 $251 $428 $448 $460 $477 $0 $400 $800 $1,200 $1,600 $2,000 $2,400 2008A 2009E 2010E 2011E 2012E 2013E Supply PA Delivery International Delivery $1,503 $2,185 $1,888 $1,299 Capital Expenditures by Segment $1,933 $1,845 A-4
Millions $833 $1,093 $1,358 $1,569 $1,791 $1,998 $2,173 $2,349 $2,549 $2,721 $2,888 $3,093 $0 $1,000 $2,000 $3,000 $4,000 $5,000 2008A 2009E 2010E 2011E 2012E 2013E Transmission Distribution & Other Pennsylvania Delivery Rate Base $3,442 $3,907 $4,290 $4,679 $5,091 $3,006 A-5
• Due dates for bids: PPL Electric Utilities 2011 to mid-2013 Procurement Plan Schedule A-6 August 11, 2009 July 19, 2011 October 20, 2009 October 18, 2011 January 19, 2010 January 9, 2012 April 20, 2010 April 3, 2012 July 20, 2010 July 17, 2012 October 19, 2010 October 16, 2012 April 18, 2011 January 22, 2013 .. .. ..Completed
$1.00 $1.10 $1.22 $1.34 $1.38 $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 2005 2006 2007 2008 2009 $/Share Annualized Continued Dividend Growth A-7
Debt Maturities (1) PPL Capital Funding $201 million maturity paid off in March 2009 (2) PPL Electric Utilities $486 million maturity paid off in August 2009 Note: As of 9/30/2009 A-8 2009 2010 2011 2012 2013 PPL Energy Supply $0 $0 $500 $0 $737 PPL Capital Funding 0 (1) 0 0 0 0 PPL Electric Utilities 0 (2) 0 0 0 500 WPD Group 0 0 0 0 0 Total $0 $0 $500 $0 $1,237 (Millions)
Liquidity Profile (1) Reported as of 9/30/2009 Domestic facilities consist of a diverse bank group, with no bank and its affiliates providing an aggregate commitment of more than 15% of the total committed capacity. A-9 Institution Facility Expiration Date Total Facility (Millions) Letters of Credit Outstanding (1) (Millions) Drawn (1) (Millions) Availability (Millions) PPL Energy Supply 5-year Credit Facility Jun-2012 $3,225 $455 $285 $2,485 Bilateral Credit Facility Mar-2010 200 4 0 196 5-year Structured Credit Facility Mar-2011 300 230 0 70 364-day Credit Facility Sep-2010 400 0 0 400 $4,125 $689 $285 $3,151 PPL Electric Utilities 5-year Credit Facility May-2012 $190 $5 $0 $185 Asset-backed Credit Facility Jul-2010 150 0 0 150 $340 $5 $0 $335 WPD 3-year Credit Facility Jul-2012 £210 £0 £54 £156 5-year Credit Facility Jan-2013 150 0 127 23 Uncommitted Credit Facilities 60 0 21 39 Letter of Credit Facility Mar-2010 3 3 0 0 £423 £3 £202 £218
PPL Energy Supply Collateral Profile A-10 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Letters of Credit Borrowings/CP Outstanding Cash Posted Available Credit Capacity Millions
Supply Segment Reconciliation of Cash from Operations to Free Cash Flow before Dividends A-11 39216Asset Sales (203)Investment in Energy Project $523$189($605)Free Cash Flow before Dividends (61)(15)(58)Other Investing Activities-net (892)(753)(939)Capital Expenditures Increase/(Decrease) in cash due to: $1,437$741$595Cash from Operations 201020092008 (Millions) Actual Projected Note: Asset Sales in 2009 include the anticipated proceeds from the announced pending sale of most of the Maine generating assets and all of the Long Island generating assets. Closing of the sale of the Maine assets is expected on or about November 1, 2009. Closing on the sale of the Long Island assets is expected later in 2009 or in the first quarter of 2010. Asset sales in 2010 include the anticipated proceeds from the announced pending sale of the remaining Maine generating assets.
PA Delivery Segment Reconciliation of Cash from Operations to Free Cash Flow before Dividends (Millions) A-12 303Asset Sales & Other ($318)$266$367Free Cash Flow before Dividends (568)(295)(286)Capital Expenditures (293)Less Transition Bond Repayment Increase/(Decrease) in cash due to: $250$561$643Cash from Operations 201020092008 Note: Asset Sales in 2008 includes the net proceeds from the sale of gas and propane businesses Actual Projected
International Delivery Segment Reconciliation of Cash from Operations to Free Cash Flow before Dividends (Millions) A-13 ($180)($21)$1Free Cash Flow before Dividends (428)(251)(278)Capital Expenditures Increase/(Decrease) in cash due to: $248$230$279Cash from Operations 201020092008 Actual Projected
Pennsylvania International Supply Delivery Delivery Total Quarter Ending September 30, 2009 Reported earnings* ($31) $27 $24 $20 Special Items: Unrealized losses from energy-related, non-trading economic hedges (130) (130) Unrealized gains from foreign currency economic hedges 4 4 Income taxes - Latin American businesses (24) (24) Changes in tax accounting method (25) (25) (155) (20) (175) Earnings from ongoing operations $124 $27 $44 $195 Quarter Ending September 30, 2008 Reported earnings* $98 $32 $73 $203 Special Items: Unrealized gains from energy-related, non-trading economic hedges 67 67 Impairments & other impacts - emission allowances (27) (27) Adjustments - nuclear decommissioning trust investments (1) (1) Sale of gas and propane businesses (4) (4) 39 (4) 35 Earnings from ongoing operations $59 $36 $73 $168 Change excluding special items $65 ($9) ($29) $27 * Represents net income attributable to PPL Corporation. Reconciliation of Third Quarter Reported Earnings and Earnings from Ongoing Operations A-14 (Millions)
Pennsylvania International Supply Delivery Delivery Total Quarter Ending September 30, 2009 Reported earnings ($0.08) $0.07 $0.06 $0.05 Special Items: Unrealized losses from energy-related, non-trading economic hedges (0.34) (0.34) Income taxes - Latin American businesses (0.06) (0.06) Changes in tax accounting method (0.07) (0.07) (0.41) (0.06) (0.47) Earnings from ongoing operations $0.33 $0.07 $0.12 $0.52 Quarter Ending September 30, 2008 Reported earnings $0.26 $0.08 $0.20 $0.54 Special Items: Unrealized gains from energy-related, non-trading economic hedges 0.18 0.18 Impairments & other impacts -emission allowances (0.07) (0.07) Adjustments - nuclear decommissioning trust investments (0.01) (0.01) Sale of gas and propane businesses (0.01) (0.01) 0.10 (0.01) 0.09 Earnings from ongoing operations $0.16 $0.09 $0.20 $0.45 Change excluding special items $0.17 ($0.02) ($0.08) $0.07 Note: Per share amounts are based on diluted shares outstanding. Reconciliation of Third Quarter Reported Earnings and Earnings from Ongoing Operations A-15 (Dollars Per Share)
Pennsylvania International Supply Delivery Delivery Total Year-to-Date September 30, 2009 Reported earnings* ($12) $93 $173 $254 Special Items: Unrealized losses from energy-related, non-trading economic hedges (168) (168) Unrealized losses from foreign currency economic hedges (2) (2) Adjustments - nuclear decommissioning trust investments (1) (1) Impairments & other impacts - emission allowances (15) (15) Impairments - assets held for sale & other (36) (1) (1) (38) Workforce reduction (6) (5) (2) (13) Income taxes - Latin American businesses (24) (24) Changes in tax accounting method (25) (25) (251) (6) (29) (286) Earnings from ongoing operations $239 $99 $202 $540 Year-to-Date September 30, 2008 Reported earnings* $297 $123 $233 $653 Special Items: Unrealized gains from energy-related, non-trading economic hedges 121 121 Impairments & other impacts - emission allowances (27) (27) Adjustments - nuclear decommissioning trust investments (5) (5) Off-site remediation of ash basin leak 1 1 Sale of gas and propane businesses (5) (5) Montana basin seepage litigation (5) (5) Synfuel tax adjustment (13) (13) 72 (5) 67 Earnings from ongoing operations $225 $128 $233 $586 Change excluding special items $14 ($29) ($31) ($46) * Represents net income attributable to PPL Corporation. Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations A-16 (Millions)
Pennsylvania International Supply Delivery Delivery Total Year-to-Date September 30, 2009 Reported earnings ($0.04) $0.25 $0.46 $0.67 Special Items: Unrealized losses from energy-related, non-trading economic hedges (0.45) (0.45) Unrealized losses from foreign currency economic hedges (0.01) (0.01) Impairments & other impacts - emission allowances (0.04) (0.04) Impairments -assets held for sale & other (0.10) (0.10) Workforce reduction (0.01) (0.01) (0.01) (0.03) Income taxes - Latin American businesses (0.06) (0.06) Changes in tax accounting method (0.07) (0.07) (0.67) (0.01) (0.08) (0.76) Earnings from ongoing operations $0.63 $0.26 $0.54 $1.43 Year-to-Date September 30, 2008 Reported earnings $0.78 $0.33 $0.62 $1.73 Special Items: Unrealized gains from energy-related, non-trading economic hedges 0.32 0.32 Impairments & other impacts - emission allowances (0.07) (0.07) Adjustments - nuclear decommissioning trust investments (0.02) (0.02) Sale of gas and propane businesses (0.01) (0.01) Montana basin seepage litigation (0.01) (0.01) Synfuel tax adjustment (0.04) (0.04) 0.18 (0.01) 0.17 Earnings from ongoing operations $0.60 $0.34 $0.62 $1.56 Change excluding special items $0.03 ($0.08) (0.08) $ ($0.13) Note: Per share amounts are based on diluted shares outstanding. Reconciliation of Year-to-Date Reported Earnings and Earnings from Ongoing Operations A-17 (Dollars Per Share)
Reconciliation of Third Quarter Operating Income and Energy Margins A-18 2009 2008 Change Per Share (after-tax) Eastern U.S., pre-tax $391 $269 $122 $0.19 Western U.S., pre-tax 85 75 10 0.01 Domestic gross energy margins, pre-tax $476 $344 $132 $0.20 2009 2008 Operating Income $181 $384 Adjustments: Energy-related businesses, net (8) (14) Other operation and maintenance 317 361 Amortization of recoverable transition costs 73 73 Depreciation 120 117 Taxes, other than income 70 77 Revenue adjustments (a) (168) (1,683) Expense adjustments (a) (109) 1,029 Domestic gross energy margins $476 $344 Three Months Ended September 30, Three Months Ended September 30, (Millions) (a) See additional information on the following slide.
Reconciliation of Third Quarter Operating Income and Energy Margins A-19 2009 2008 Revenue adjustments WPD utility revenue ($165) $ (195) Domestic delivery component of utility revenue (302) (325) Other utility revenue (17) (12) Unrealized (gains) losses from economic hedge activity 307 (1,160) Margins from Supply segment discontinued operations 9 9 Total revenue adjustments ($168) ($1,683) Expense adjustments Unrealized gains (losses) from economic hedge activity $ 86 $ (1,044) Domestic electric ancillaries (10) (15) Gross receipts tax 27 28 Other 6 2 Total expense adjustments $109 ($1,029) September 30, Three Months Ended (Millions)
Reconciliation of PPL’s Reported Earnings and Earnings from Ongoing Operations High Low 2009 2009 2008 2007 Earnings from Ongoing Operations per share of common stock $1.90 $1.60 $2.02 $2.60 Special items (net of taxes): economic hedges (0.45) (0.45) 0.67 0.08 Unrealized losses from foreign currency economic hedges (0.01) (0.01) Adjustments -nuclear decommissioning trust investments (0.04) Sale of Latin American businesses 0.67 Sale of telecommunication operations (0.06) Sale of gas and propane businesses (0.01) (0.11) Settlement of Wallingford cost-based rates 0.09 Impairment of transmission rights (0.04) Change in U.K. tax rate 0.14 Workforce reductions (0.03) (0.03) (0.02) Synfuel tax adjustment (0.04) Montana basin seepage litigation (0.01) Impairments & other impacts - emission allowances (0.04) (0.04) (0.07) Impairments - assets held for sale & other (0.10) (0.10) (0.05) Taxes - Latin American businesses (0.06) (0.06) Changes in tax accounting method (0.07) (0.07) (0.76) (0.76) 0.45 0.75 Reported Earnings per share of common stock $1.14 $0.84 $2.47 $3.35 Note: Per share amounts are based on diluted shares outstanding. Unrealized gains (losses) from energy-related, non-trading Forecast Actual A-20
Credit Ratings A-21 BBB Issuer Rating AAA Aaa Tax-Exempt Bonds (1) STABLE NEGATIVE NEGATIVE Outlook A-A-A3Senior Secured Debt F-2A-2P-2Commercial Paper BBB BBB Baa3 Preferred Stock BBBA-Baa1 Issuer Rating A-A-A3 First Mortgage Bonds A/A-A3/Baa1 Tax-Exempt Bonds (2) BBB BBB Baa3 Preference Stock PPL Electric Utilities BBB BBB-Baa2 Senior Unsecured Debt BBB-BB+ Baa3 Subordinated Debt STABLE NEGATIVE Outlook PPL Capital Funding BBB BBB Issuer Rating BBB+ BBBBaa2Senior Notes STABLE NEGATIVE STABLE Outlook PPL Energy Supply STABLE NEGATIVE NEGATIVE Outlook BBB BBB Baa2Issuer Rating PPL Corporation Fitch Standard & Poor’s Moody’s (1) Letter of Credit-Backed Security (2) Includes both Insured and Non-Insured Securities
Credit Ratings (cont.) A-22 Commercial Paper A-BBB+ Baa1Senior Unsecured Debt F2A-2P-2Commercial Paper POSITIVENEGATIVESTABLE Outlook BBB+ BBB+ Baa1Issuer Rating A-BBB+ Baa1Senior Unsecured Debt F2A-2Commercial Paper POSITIVENEGATIVESTABLE Outlook Western Power Distribution (South West) PLC BBB+ BBB+ Issuer Rating Western Power Distribution (South Wales) PLC POSITIVENEGATIVESTABLE Outlook POSITIVE Outlook BBB Issuer Rating WPD Holdings LLP BBB-BBB-Baa3Issuer Rating BBB BBB-Baa3 Senior Unsecured Debt A-3 Commercial Paper WPD Holdings Limited BBB BBB-Baa3 Pass-Through Certificates STABLE STABLE Outlook PPL Montana Fitch Standard & Poor’s Moody’s
Forward-Looking Information Statement A-23 Statements contained in this presentation, including statements with respect to future earnings, energy prices, margins and sales, growth, revenues, expenses, cash flow, asset disposition, marketing performance, hedging, regulation, corporate strategy and generating capacity and performance, are “forward-looking statements” within the meaning of the federal securities laws. Although PPL Corporation believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, these statements are subject to a number of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: market demand and prices for energy, capacity and fuel; weather conditions affecting customer energy usage and operating costs; competition in power markets; the effect of any business or industry restructuring; the profitability and liquidity of PPL Corporation 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 and the related costs of compliance, including environmental capital expenditures and emission allowance and other expenses; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; asset acquisitions and dispositions; any impact of hurricanes or other severe weather on our business, including any impact on fuel prices; receipt of necessary government permits, approvals, rate relief and regulatory cost recovery; capital market conditions and decisions regarding capital structure; the impact of state, federal or foreign investigations applicable to PPL Corporation and its subsidiaries; the outcome of litigation against PPL Corporation and its subsidiaries; stock price performance; the market prices of equity securities and the impact on pension income and resultant cash funding requirements for defined benefit pension plans; the securities and credit ratings of PPL Corporation and its subsidiaries; political, regulatory or economic conditions in states, regions or countries where PPL Corporation or its subsidiaries conduct business, including any potential effects of threatened or actual terrorism or war or other hostilities; foreign exchange rates; new state, federal or foreign legislation, including new tax legislation; and the commitments and liabilities of PPL Corporation and its subsidiaries. Any such forward-looking statements should be considered in light of such important factors and in conjunction with PPL Corporation’s Form 10-K and other reports on file with the Securities and Exchange Commission.
Definitions of Non-GAAP Financial Measures A-24 “Earnings from ongoing operations” excludes the impact of special items. Special items include charges or credits that are unusual or nonrecurring. Special items also include unrealized gains and losses from energy-related, non-trading economic hedges, foreign currency-related economic hedges and impairments of securities in PPL’s nuclear decommissioning trust funds. The energy-related, non-trading economic hedges are used to hedge a portion of the economic value of PPL’s generation assets and PPL’s load-following and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power). Also included in this special item is the ineffective portion of qualifying cash flow hedges. The foreign currency-related economic hedges are used to hedge a portion of the net income of the international delivery business segment. This economic value in U.S. dollars is subject to changes in the British Pound Sterling to U.S. dollar exchange rate. Management believes that the exclusion of such amounts provides a better matching of ongoing earnings to the actual amounts settled for our underlying hedged assets. Earnings from ongoing operations should not be considered as an alternative to reported earnings, or net income attributable to PPL, which is an indicator of operating performance determined in accordance with generally accepted accounting principles (GAAP). PPL believes that earnings from ongoing operations, although a non-GAAP measure, is also useful and meaningful to investors because it provides them with PPL’s underlying earnings performance as another criterion in making their investment decisions. PPL’s management also uses earnings from ongoing operations in measuring certain corporate performance goals. Other companies may use different measures to present financial performance. “Free cash flow before dividends” is derived by deducting capital expenditures and other investing activities-net, as well as the repayment of transition bonds, from cash flow from operations. Free cash flow before dividends should not be considered as an alternative to cash flow from operations, which is determined in accordance with GAAP. PPL believes that free cash flow before dividends, although a non-GAAP measure, is an important measure to both management and investors since it is an indicator of the company’s ability to sustain operations and growth without additional outside financing beyond the requirement to fund maturing debt obligations. Other companies may calculate free cash flow before dividends in a different manner. "Domestic Gross Energy Margins" is intended to supplement the investors' understanding of PPL’s domestic non-trading and trading activities by combining applicable income statement line items and related adjustments to calculate a single financial measure. PPL believes that "Domestic Gross Energy Margins" is useful and meaningful to investors because it provides them with the results of PPL's domestic non-trading and trading activities as another criterion in making their investment decisions. "Domestic Gross Energy Margins" is not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. PPL's management also uses "Domestic Gross Energy Margins" in measuring certain corporate performance goals used in determining variable compensation. Other companies may use different measures to present the results of their non-trading and trading activities.