• Dividend Reduction, Writedown of Assets, Stock Buyback Highlight Plan
• Second Quarter Earnings, Before Extraordinary Charges, are 35 Cents per Share
• Company Also Closing One Plant, Seeking to Sell Another
  

ALLENTOWN, Pa.---With the regulatory uncertainty of the past 16 months behind it, PP&L Resources (NYSE: PPL) Thursday (8/13) announced major financial and operational initiatives that will better position the company to take advantage of new opportunities in the restructured electricity business.

William F. Hecht, PP&L Resources chairman, president and chief executive officer, said Thursday the company's new strategies emphasize growth in shareowner value through expansion into new markets and the offering of new energy-related products and services.

"The electricity business has fundamentally changed over the past several years," said Hecht. "Now that we understand the financial implications of Pennsylvania's approach to industry restructuring and how it will affect the company, we can move ahead by taking bold steps that will allow PP&L Resources to solidify its position as one of the East Coast's predominant energy companies."

Hecht said the company's initiatives include:

• Changing its dividend policy to allow for more reinvestment in growth opportunities.
• Initiating a buy back plan under which it will purchase up to 10 percent of its common stock.
• Writing off assets that are impaired by the transition to a competitive electricity generation marketplace.

"The financial and operational initiatives that we are announcing today, in many ways mark the end of an era for the company and our strong entry into a new, more competitive environment. While some of these actions are painful at the moment, they position the company for a future that is less constrained by regulatory action and holds much promise for growth," he said.

Hecht said that the state Public Utility Commission's tentative approval of a settlement in the PP&L, Inc., restructuring case provides the company with the information that it needs to undertake the initiatives.

(For more details on the settlement, see the related background material.)

Dividend action

Hecht said the company will reduce its quarterly common stock dividend from 41.75 cents per share to 25 cents per share, effective with the Oct. 1, 1998, dividend payment. He said the reduction will permit the company to retain more of its earnings for investment in business expansion, both in the United States and overseas.

"This dividend reduction is not a decision that the company takes lightly and was made only after examining all our options," said Hecht. "However, as competition increases in our industry, we expect to experience an increase in the volatility of both revenues and earnings that does not permit a continuation of the company's practice of paying out 80 percent to 90 percent of annual earnings as dividends. Such a ratio is very high, even by traditional utility standards, and would severely restrict the company's future financing flexibility.

"Our new dividend policy is to target a payout ratio in the 45 percent to 55 percent range," said Hecht.

Stock buyback

The company also plans to buy back up to 17 million shares of its common stock. Under the buy back program, which commences Friday (8/14), shareowners will have the opportunity to tender their shares within a price range established by the company. The range, set Thursday after the close of the New York Stock Exchange, is $24.50 to $27 per share. The closing price of PP&L Resources stock on Thursday was $24.50.

At midnight on Sept. 11, the company will evaluate all tender offers received to that point and determine the lowest price within the range of offers that will allow the company to purchase up to 17 million shares. This price then will be paid for all shares purchased, even for shares that were tendered at a lower price.

"This stock buyback will allow the company to reduce its permanent capitalization and provide shareowners who do not tender their shares with an increased ownership interest in the company," said Hecht.

"The buyback program also will allow our current shareowners who are seeking a more income-oriented investment the opportunity to sell their interest in PP&L Resources on more favorable terms than may otherwise be available," said Hecht.

"While we certainly don't want to lose shareowners, many of whom have been very loyal to the company over the years, we understand that some of our investors are very dividend-oriented and may want to change their investment strategy with regard to PP&L Resources," said Hecht.

He said that shareowners will begin receiving detailed information about the buyback early next week.

Write-down of assets

The write-off was the result of the state Public Utility Commission tentative approval of a settlement in the company's restructuring case and a settlement in a case that was pending before the Federal Energy Regulatory Commission. As a result of those two items, the company took a $1.6 billion pre-tax write-off in the second quarter.

"We are taking this action now to ensure that our assets are appropriately valued for the new competitive marketplace," said Hecht.

Operational actions

Hecht said the company also is making operational improvements.

PP&L, Inc., told employees Thursday that it will close its Holtwood coal-fired power plant in May of next year and that it will attempt to sell its Sunbury power plant.

(See related news release for more on the plant closings.)

Hecht said the company also is closely examining all its spending, especially costs not directly related to serving customers. "While we have always been focused on providing high-quality service to customers at a low cost, we are intensifying our efforts in this area. The competitive marketplace demands that we recommit ourselves to exceeding customer expectations — both in terms of high quality and low prices," said Hecht.

As a result of the plant closings and other previously announced reductions, the company expects the size of its work force to decrease by about 250 over the next year. PP&L, Inc., currently has 6,300 employees.

The initiatives announced today, Hecht said, will create opportunities for earnings and dividend growth. "We believe that, in the long run, shareowner value will be enhanced by the actions we are taking," said Hecht.

He said that the Allentown, Pa.-based company already has set a clear course for success in the rapidly changing energy business.

"The PP&L Resources of the future is here today. We are a major wholesale supplier of electricity and other forms of energy in an area east of the Mississippi River; we have a significant worldwide presence; we provide premier electricity and natural gas delivery services to a large portion of Pennsylvania; we are an important supplier of retail electricity in the mid-Atlantic region; and we offer a portfolio of energy management and construction services to commercial and industrial customers," said Hecht.

Second quarter results

As a result of the write-off, PP&L Resources reported a net loss of $894 million, or $5.34 per share, for the three-month period ended June 30, 1998, compared to net income of $65 million, or 39 cents per share, for the same period last year. After taxes, the write-off totaled $948 million. Excluding the effects of the write-off and weather, net income was $58 million for the second quarter, or 35 cents per share.

Second quarter results reflect an adjustment in the company's inventory levels and an increase in the reserve needed for the company's uncollectible accounts.

The company also reported on Thursday a net loss of $679 million, or $4.08 per share, for the 12 months ended June 30, 1998. Net income for the same period of 1997 was $333 million or $2.05 per share. Excluding the effects of the write-off, weather and one-time 1997 charges stemming from tax issues related to the company's investments in the United Kingdom, net income for the 12 months ended June 30, 1998, was $322 million or $1.94 per share, compared to net income of $340 million or $2.10 per share for the same period last year.

The 12-month earnings also were reduced by an under collection of fuel costs due to changes in the rate structure in Pennsylvania, the inventory and uncollectible changes that affected second-quarter earnings and startup costs related to the competitive marketplace in Pennsylvania.

There was a 2.5 percent decrease in electricity sold to retail customers during the second quarter compared to the same period in 1997. And, sales for the 12 months ended June 30, 1998, were down about 2.9 percent compared to the same period a year ago. Both figures reflect the loss of sales due to the advent of competition in the retail electricity market.

Despite the large fluctuations in wholesale power prices during the second quarter, PP&L, Inc.'s Energy Marketing Center was successful in generating sufficient revenues to offset losses related to the phase-out of power-purchase agreements with two other utilities.

Electricity delivered to retail customers by PP&L, Inc., in the second quarter of 1998 decreased by about 2 percent compared to the same period last year and by 1.8 percent for the 12 months ended June 30, 1998, compared to the previous 12 months. The decrease results primarily from lower deliveries to industrial customers because of the shutdown of a large steel-producing facility. Mild weather also contributed to the decrease. When adjusted to remove the effects of weather, electricity deliveries were essentially unchanged from a year ago.

(See second quarter financial statements .)

Dividend declaration

At a meeting on Thursday, the PP&L Resources, Inc., board of directors officially declared a quarterly dividend on common stock of 25 cents per share. In addition, the PP&L, Inc., board of directors declared the quarterly dividend on various classes of preferred stock. Both dividends are payable Oct. 1, 1998, to shareowners of record Sept. 10, 1998.