SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3464
Kentucky Utilities Company
(Exact name of registrant as specified in its charter)
Kentucky and Virginia 61-0247570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Quality Street, Lexington, Kentucky 40507
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 606-255-2100
Not Applicable
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No .
Number of shares of Common Stock outstanding at August 11, 1994:
37,817,878 shares (owned by the parent-KU Energy Corporation).
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PART I. FINANCIAL INFORMATION
KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
June 30,
1994 1993
Operating Revenues $154,026 $139,909
Operating Expenses:
Fuel, principally coal, used in generation 43,372 43,867
Electric power purchased 16,356 5,471
Other operating expenses 27,645 25,397
Maintenance 18,893 15,140
Depreciation 16,151 15,192
Federal and state income taxes 7,933 9,111
Other taxes 3,642 3,522
Total Operating Expenses 133,992 117,700
Net Operating Income 20,034 22,209
Other Income and Deductions:
Interest and dividend income 766 649
Other income and deductions - net 1,875 1,519
Total Other Income and Deductions 2,641 2,168
Income Before Interest Charges 22,675 24,377
Interest Charges 8,202 7,955
Net Income 14,473 16,422
Preferred Stock Dividend Requirements 564 630
Net Income Applicable to Common Stock $ 13,909 $ 15,792
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Six
Months Ended
June 30,
1994 1993
Operating Revenues $320,554 $294,145
Operating Expenses:
Fuel, principally coal, used in generation 87,231 87,525
Electric power purchased 32,239 15,439
Other operating expenses 54,332 50,568
Maintenance 33,431 26,461
Depreciation 32,338 30,415
Federal and state income taxes 22,664 23,148
Other taxes 7,705 7,225
Total Operating Expenses 269,940 240,781
Net Operating Income 50,614 53,364
Other Income and Deductions:
Interest and dividend income 2,502 1,532
Other income and deductions - net 3,048 3,201
Total Other Income and Deductions 5,550 4,733
Income Before Interest Charges 56,164 58,097
Interest Charges 16,347 17,127
Net Income 39,817 40,970
Preferred Stock Dividend Requirements 1,256 1,259
Net Income Applicable to Common Stock $ 38,561 $ 39,711
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Six Months
Ended June 30,
1994 1993
Cash Flows from Operating Activities:
Net Income $ 39,817 $ 40,970
Items not requiring (providing) cash currently:
Depreciation 32,338 30,415
Deferred income taxes and investment tax credit (3,342) 3,032
Change in fuel inventory 179 (1,552)
Change in accounts receivable 2,059 (3,402)
Change in accounts payable (3,195) (444)
Change in accrued taxes 2,998 620
Change in accrued utility revenues 1,865 827
Change in liability to ratepayers (791) 38,979
Change in escrow funds 1,577 (44,886)
Other--net (3,179) 12,123
Net Cash Provided by Operating Activities 70,326 76,682
Cash Flows from Investing Activities:
Construction expenditures - utility (89,468) (47,299)
Nonutility property - (4,956)
Other 170 108
Cash Used by Investing Activities (89,298) (52,147)
Cash Flows from Financing Activities:
Short-term borrowings - net 47,900 -
Issuance of long-term debt - 123,500
Funds deposited with trustee - net 18,393 (123,795)
Retirement of long-term debt, including premiums (21) (57,334)
Retirement of preferred stock, including premium (20,302) -
Payment of dividends (32,139) (31,513)
Net Cash Provided (Used) by Financing Activities 13,831 (89,142)
Net Decrease in Cash and Cash Equivalents (5,141) (64,607)
Cash and Cash Equivalents Beginning of Period 8,832 94,299
Cash and Cash Equivalents End of Period $ 3,691 $ 29,692
Supplemental Disclosures
Cash paid for:
Interest on long-term debt $ 15,302 $ 17,018
Federal and state income taxes $ 25,378 $ 20,690
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
June 30, Dec. 31,
1994 1993
ASSETS
Utility Plant:
Plant in service, at cost $2,020,277 $2,004,688
Less: Accumulated depreciation 910,853 879,960
1,109,424 1,124,728
Construction work in progress 231,087 158,829
1,340,511 1,283,557
Current Assets:
Cash and cash equivalents 3,691 8,832
Escrow funds - coal contract litigation 36,175 37,752
Construction funds held by trustee 2 18,268
Accounts receivable 39,398 41,457
Accrued utility revenues 23,710 25,575
Fuel, principally coal, at average cost 30,894 31,073
Materials and supplies, at average cost 18,271 17,261
Other 8,396 7,804
160,537 188,022
Investments, Deferred Charges and Other Assets:
Accumulated deferred income taxes 40,359 35,778
Unamortized loss on reacquired debt 12,831 13,295
Other 37,572 38,400
90,762 87,473
Total Assets $1,591,810 $1,559,052
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 559,473 $ 552,106
Preferred stock 40,000 40,000
Long-term debt 442,018 442,045
1,041,491 1,034,151
Current Liabilities:
Preferred stock and long-term debt
due within one year 21 20,021
Short-term borrowings 47,900 -
Accounts payable 40,811 44,006
Accrued interest 7,029 7,302
Accrued taxes 7,658 4,660
Customers' deposits 6,278 10,803
Accrued payroll and vacations 8,146 7,709
Liab. to ratepayers - coal contract litigation 36,076 36,867
Other 8,367 6,434
162,286 137,802
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 252,448 248,103
Accumulated deferred investment tax credits 40,330 42,385
Regulatory liabilities 67,780 69,689
Other 27,475 26,922
388,033 387,099
Total Capitalization and Liabilities $1,591,810 $1,559,052
The accompanying Notes to Financial Statements are an integral
part of these statements.
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KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PRESENTATION OF CONDENSED INFORMATION
Pursuant to the rules and regulations of the Securities and
Exchange Commission, certain information has been condensed and
certain footnote disclosures have been omitted, which are normal-
ly included in financial statements prepared in accordance with
generally accepted accounting principles.
These financial statements should be read in conjunction
with the financial statements and notes thereto in the Kentucky
Utilities Company (Kentucky Utilities) Annual Report on Form 10-K
for the year ended December 31, 1993.
In the opinion of management, the information furnished
herein reflects all adjustments which are necessary to present
fairly the results of the periods shown and the disclosures which
have been made are adequate to make the information not mislead-
ing. Results of interim periods are not necessarily indicative
of results for any twelve-month period due to the seasonal nature
of Kentucky Utilities' business.
2. PREFERRED STOCK
Kentucky Utilities issued $20 million of 6.53% preferred
stock in December 1993. On February 1, 1994, Kentucky Utilities
used the proceeds from this issue, together with other available
funds, to redeem its 7.84% Preferred Stock at a total cost of
$20.3 million (including a redemption premium of $.3 million).
Kentucky Utilities announced its intention to redeem this
preferred stock on December 22, 1993.
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY & RESOURCES
Kentucky Utilities' construction expenditures increased
approximately $20 million and $42 million for the three-month and
six-month periods ended June 30, 1994, respectively, when
compared to the corresponding periods of 1993. The increases are
attributable primarily to expenditures for combustion turbine
peaking units and for compliance with the 1990 Clean Air Act
Amendments.
Kentucky Utilities expects to fund approximately 50% of its
remaining 1994 construction expenditures from the issuance of
short-term and long-term debt with the balance primarily from
internal sources.
RESULTS OF OPERATIONS
Quarter ended June 30, 1994, compared
to the Quarter ended June 30, 1993
Increase (Decrease)
From Prior Year
Three Months
Ended June 30, 1994
kWh Revenues
(%) (000's)
Residential 6 $ 2,395
Commercial 4 1,529
Industrial 8 2,186
Mine Power & Public Authorities 4 883
Total Retail Sales 6 6,993
Other Electric Utilities 58 7,037
Provision for Refund -
Litigation Settlement - (365)
Miscellaneous Revenues & Other - 452
Total 14 $ 14,117
Operating revenues increased $14.1 million (10%) primarily
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
as a result of a 14% increase in kilowatt-hour sales. The
increase in kilowatt-hour sales is primarily attributable to
increases in residential, commercial, industrial and off-system
sales. The increases in residential and commercial sales reflect
unusually warm weather during the month of June 1994. The
increase in industrial sales reflects continued economic growth
in the service area. Approximately one third of the increase in
industrial sales is due to greater sales to Toyota Motor
Manufacturing U.S.A., Inc. (TMM), Kentucky Utilities' largest
customer. TMM completed an $800 million assembly plant expansion
in March 1994. The increase in off-system sales is attributable
to an increase in demand for power due to unusually warm weather
and maintenance programs at neighbor-ing utilities. Revenues
were reduced by approximately $.4 million resulting from refunds
to customers of amounts recovered from a litigation settlement
with a former coal supplier.
Fuel and purchased power expense increased $10.4 million
(21%). Fuel expense decreased $.5 million (1%). This decrease
reflects a 5% decline in net kilowatt-hour generation offset by a
4% increase in the average price per ton of coal consumed. Fuel
expense also reflects a $.4 million reduction associated with the
refunding to customers of fuel cost savings related to the
resolution of a coal contract dispute. Purchased power expense
increased by $10.9 million due to greater kilowatt-hour purchases
($7.2 million) and higher demand costs ($3.7 million). The
increase in kilowatt-hour purchases during the second quarter of
1994 is the result of the previously discussed sales increases as
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
well as the decline in net kilowatt-hour generation. The
increased kilowatt-hour purchases reflect a permanent increase in
capacity entitlement, effective January 1994, under an existing
purchased power contract with Electric Energy, Inc. (EEI) and
greater kilowatt-hour purchases from Owensboro Municipal
Utilities (OMU). Scheduled maintenance of OMU's generating units
in the second quarter of 1993 resulted in a reduction of
availability during that period. The increase in demand costs is
primarily due to the permanent increase in capacity entitlement
from EEI.
Maintenance expenses increased $3.8 million (25%), primarily
due to the timing of scheduled maintenance at Kentucky Utilities'
generating stations.
Six Months ended June 30, 1994, compared
to the Six Months ended June 30, 1993
Increase (Decrease)
From Prior Year
Six Months
Ended June 30, 1994
kWh Revenues
(%) (000's)
Residential 9 $ 7,807
Commercial 5 3,209
Industrial 8 3,477
Mine Power & Public Authorities 4 1,452
Total Retail Sales 7 15,945
Other Electric Utilities 48 10,487
Provision for Refund -
Litigation Settlement - (902)
Miscellaneous Revenues & Other - 879
Total 12 $ 26,409
Operating revenues increased $26.4 million (9%) primarily as
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
a result of a 12% increase in kilowatt-hour sales. The increase
in kilowatt-hour sales is primarily attributable to increases in
residential, commercial, industrial and off-system sales. The
increases in residential and commercial sales reflect colder
weather during the first quarter of 1994 and unusually warm
weather during the month of June 1994. The increase in
industrial sales reflects continued economic growth in the
service area. Approximately one third of the increase in
industrial sales is due to greater sales to TMM due to its recent
plant expansion. The increase in off-system sales is
attributable to an increase in demand for power due to extreme
weather conditions and maintenance programs at neighboring
utilities. Revenues were reduced by approximately $.9 million
resulting from refunds to customers of amounts recovered from a
litigation settlement with a former coal supplier. The $.9
million, which was charged against revenue, represents $3.3
million of fuel savings less $2.4 million for incurred litigation
costs and off-system sales which Kentucky Utilities was allowed
to retain pursuant to a regulatory order.
Fuel and purchased power expense increased $16.5 million
(16%). Fuel expense reflects a $3.3 million reduction associated
with the refunding to customers of fuel cost savings related to
the resolution of a coal contract dispute. This reduction in fuel
expense was substantially offset by a 3.5% increase in the
average price of coal consumed. Net kilowatt-hour generation
remained fairly constant in comparison to the corresponding six-
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
month period in 1993. Purchased power expense increased $16.8
million due to greater kilowatt-hour purchases ($10.4 million)
and higher demand costs ($6.4 million). The increase in
kilowatt-hour purchases is the result of the previously discussed
sales increases. The increased kilowatt-hour purchases reflect a
permanent increase in capacity entitlement, effective January
1994, under an existing purchased power contract with EEI. The
increase in demand costs is primarily due to the permanent
increase in capacity entitlement from EEI.
Maintenance expenses increased $7.0 million (26%). The
increase is the result of distribution utility line maintenance
costs incurred as a result of extensive ice storm damage during
the first quarter of 1994, as well as the timing of scheduled
maintenance at Kentucky Utilities' generating stations.
ENVIRONMENTAL SURCHARGE
On July 19, 1994, the Kentucky Public Service Commission
(PSC) approved Kentucky Utilities' environmental surcharge
application. The surcharge is designed to recover certain
ongoing operating and capital costs of complying with federal,
state or local environmental requirements associated with the
production of energy from coal, including the 1990 Clean Air Act
Amendments. The environmental surcharge was implemented in
August 1994. Kentucky Utilities estimates that it will recover
approximately $15 million in environmental costs during the first
twelve months and about $23 million during the second twelve
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
months. Amounts collected will be subject to PSC review every
two years.
Two intervenors have filed petitions with the PSC seeking a
rehearing of the PSC's surcharge order. The PSC has not ruled on
either petition. Any party to the proceeding may appeal the
final PSC order to the Franklin County (KY) Circuit Court.
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PART II. OTHER INFORMATION
KENTUCKY UTILITIES COMPANY
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the April 26, 1994 Annual Meeting of Shareholders, the
following proposal was acted upon and approved.
(1) To elect three Directors to the Board of Directors of
Kentucky Utilities Company.
Votes
Votes for Withheld
Milton W. Hudson 37,817,878 0
John T. Newton 37,817,878 0
William L. Rouse, Jr. 37,817,878 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibit is filed as part of this report:
Exhibit
Number Description
12 Computation of Ratio of Earnings to Fixed Charges.
(b) Reports on Form 8-K.
None.
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KENTUCKY UTILITIES COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KENTUCKY UTILITIES COMPANY
(Registrant)
Date August 11, 1994 /s/ John T. Newton
John T. Newton
Chairman and President
Date August 11, 1994 /s/ Michael D. Robinson
Michael D. Robinson
Controller
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EXHIBIT 12
KENTUCKY UTILITIES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
12 Months Ended
June 30, 1994
(in thousands,
except ratio)
Earnings
Net Income $ 80,133
Adjustments
Fixed charges 32,290
Income taxes
Current Federal 38,893
Current State 10,058
Deferred Federal-Net (440)
Deferred State-Net (720)
Deferred investment tax credit-Net (97)
Income taxes included in Other Income
and Deductions
Current Federal and State 529
Deferred Federal and State 502
Amortization of investment tax credit (4,024)
Undistributed income of Electric
Energy, Inc. 13
Total Earnings $157,137
Fixed Charges
Interest on long-term debt $ 31,052
Other interest charges 1,238
Total Fixed Charges $ 32,290
Ratio of Earnings to Fixed Charges 4.87
Note--Rentals are not material and have not been included in
fixed charges.
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