<PAGE>
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 September 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 November 9, 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
September 30,
1994 1993
Operating Revenues (See Note 3) $156,512 $160,615
Operating Expenses:
Fuel, principally coal,
used in generation (See Note 3) 33,972 44,860
Electric power purchased 15,603 10,689
Other operating expenses 27,939 27,120
Maintenance 15,209 12,755
Depreciation 16,308 15,191
Federal and state income taxes 14,208 15,943
Other taxes 3,536 3,417
Total Operating Expenses 126,775 129,975
Net Operating Income 29,737 30,640
Other Income and Deductions:
Interest and dividend income 771 827
Other income and deductions - net 1,719 1,312
Total Other Income and Deductions 2,490 2,139
Income Before Interest Charges 32,227 32,779
Interest Charges 8,585 7,989
Net Income 23,642 24,790
Preferred Stock Dividend Requirements 564 629
Net Income Applicable to Common Stock $ 23,078 $ 24,161
The accompanying Notes to Financial Statements are an integral
part of these statements.
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<PAGE>
KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Nine
Months Ended
September 30,
1994 1993
Operating Revenues (See Note 3) $477,066 $454,760
Operating Expenses:
Fuel, principally coal,
used in generation (See Note 3) 121,203 132,385
Electric power purchased 47,842 26,128
Other operating expenses 82,271 77,688
Maintenance 48,640 39,216
Depreciation 48,646 45,606
Federal and state income taxes 36,872 39,091
Other taxes 11,241 10,642
Total Operating Expenses 396,715 370,756
Net Operating Income 80,351 84,004
Other Income and Deductions:
Interest and dividend income 3,273 2,359
Other income and deductions - net 4,767 4,513
Total Other Income and Deductions 8,040 6,872
Income Before Interest Charges 88,391 90,876
Interest Charges 24,932 25,116
Net Income 63,459 65,760
Preferred Stock Dividend Requirements 1,820 1,888
Net Income Applicable to Common Stock $ 61,639 $ 63,872
The accompanying Notes to Financial Statements are an integral
part of these statements.
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<PAGE>
KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Nine Months
Ended September 30,
1994 1993
Cash Flows from Operating Activities:
Net Income $ 63,459 $ 65,761
Items not requiring (providing) cash currently:
Depreciation 48,646 45,606
Deferred income taxes and investment tax credit (4,768) 1,939
Change in fuel inventory (2,968) 3,853
Change in accounts receivable (1,651) (10,192)
Change in accounts payable 623 4,722
Change in accrued taxes 3,648 5,869
Change in accrued utility revenues 4,964 3,037
Change in liability to ratepayers (28,704) 34,889
Change in escrow funds 29,582 (38,001)
Other--net 3,665 10,067
Net Cash Provided by Operating Activities 116,496 127,550
Cash Flows from Investing Activities:
Construction expenditures - utility (130,035) (104,932)
Nonutility property (237) (4,955)
Other 337 124
Cash Used by Investing Activities (129,935) (109,763)
Cash Flows from Financing Activities:
Short-term borrowings - net 59,100 -
Issuance of long-term debt - 123,500
Funds deposited with trustee - net 18,393 -
Retirement of long-term debt, including premiums (21) (180,677)
Retirement of preferred stock, including premium (20,302) -
Payment of dividends (48,114) (47,270)
Net Cash Provided (Used) by Financing Activities 9,056 (104,447)
Net Decrease in Cash and Cash Equivalents (4,383) (86,660)
Cash and Cash Equivalents Beginning of Period 8,832 94,299
Cash and Cash Equivalents End of Period $ 4,449 $ 7,639
Supplemental Disclosures
Cash paid for:
Interest on long-term debt $ 20,063 $ 24,767
Federal and state income taxes $ 38,414 $ 33,148
The accompanying Notes to Financial Statements are an integral
part of these statements.
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<PAGE>
KENTUCKY UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
Sept. 30, Dec. 31,
1994 1993
ASSETS
Utility Plant:
Plant in service, at cost $2,079,701 $2,004,688
Less: Accumulated depreciation 925,102 879,960
1,154,599 1,124,728
Construction work in progress 209,325 158,829
1,363,924 1,283,557
Current Assets:
Cash and cash equivalents 4,449 8,832
Escrow funds - coal contract litigation 8,170 37,752
Construction funds held by trustee 2 18,268
Accounts receivable 43,108 41,457
Accrued utility revenues 20,611 25,575
Fuel, principally coal, at average cost 34,041 31,073
Materials and supplies, at average cost 18,649 17,261
Other 7,584 7,804
136,614 188,022
Investments, Deferred Charges and Other Assets:
Accumulated deferred income taxes 42,162 35,778
Unamortized loss on reacquired debt 12,578 13,295
Other 36,387 38,400
91,127 87,473
Total Assets $1,591,665 $1,559,052
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 567,123 $ 552,106
Preferred stock 40,000 40,000
Long-term debt 442,015 442,045
1,049,138 1,034,151
Current Liabilities:
Preferred stock and long-term debt
due within one year 21 20,021
Short-term borrowings 59,100 -
Accounts payable 44,629 44,006
Accrued interest 9,993 7,302
Accrued taxes 8,308 4,660
Customers' deposits 6,284 10,803
Accrued payroll and vacations 10,075 7,709
Liab. to ratepayers - coal contract litigation 8,163 36,867
Other 7,148 6,434
153,721 137,802
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 254,593 248,103
Accumulated deferred investment tax credits 39,302 42,385
Regulatory liabilities 65,946 69,689
Other 28,965 26,922
388,806 387,099
Total Capitalization and Liabilities $1,591,665 $1,559,052
The accompanying Notes to Financial Statements are an integral
part of these statements.
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<PAGE>
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
Utili-ties 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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<PAGE>
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. OPERATING REVENUES AND FUEL COSTS
Pursuant to regulatory orders, Kentucky Utilities has been
refunding fuel cost savings related to the resolution of a coal
contract dispute. Refunds to Kentucky retail customers commenced
in July 1994. Refunds were made to Virginia retail customers
during the period August 1993 through June 1994. Refunds were
made to wholesale customers under the jurisdiction of the Federal
Energy Regulatory Commission in lump sum payments in September
1993.
Operating revenues and fuel expense for the respective
periods were reduced by the following amounts resulting from the
above- mentioned refunds:
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1994 1993 1994 1993
(in thousands of dollars)
Reductions in:
Operating
Revenues $17,540 $4,312 $18,442 $4,312
Fuel, principally
coal, used in
generation $18,614 $5,098 $21,980 $5,098
The difference between the reduction in Operating Revenues
and the reduction in Fuel Expense is attributed to incurred
litigation costs, fuel costs savings related to off-system sales
and costs incurred to administer the refund plan. These amounts
were allowed to be retained by Kentucky Utilities pursuant to
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<PAGE>
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
regulatory orders.
LIQUIDITY & RESOURCES
Kentucky Utilities' construction expenditures increased
approximately $26 million for the nine-month period ended
September 30, 1994 compared to the same period of 1993. The
increase is primarily attributable to expenditures for compliance
with the 1990 Clean Air Act Amendments.
Kentucky Utilities plans to issue $54 million of tax-exempt
debt during the 4th quarter of 1994 to fund certain solid waste
disposal facilities' expenditures.
RESULTS OF OPERATIONS
Quarter ended September 30, 1994, compared
to the Quarter ended September 30, 1993
Increase (Decrease)
From Prior Year
Three Months
Ended Sept. 30, 1994
kWh Revenues
(%) (000's)
Residential (9) $ (3,017)
Commercial (1) 489
Industrial 9 3,114
Mine Power & Public Authorities 6 1,718
Total Retail Sales - 2,304
Other Electric Utilities 59 7,403
Miscellaneous Revenues & Other - (582)
Total Before Refund 9 9,125
Provision for Refund -
Litigation Settlement - (13,228)
Total 9 $ (4,103)
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating revenues were impacted by refunds to customers of
fuel cost savings associated with the resolution of a coal
contract dispute. Refer to Note 3 of the Notes to Financial
Statements for further discussion. Operating revenues, before
the impact of the refunds to customers, increased $9.1 million
(6%) primarily as a result of a 9% increase in kilowatt-hour
sales. The increase in kilowatt-hour sales is primarily
attributable to increases in industrial and off-system sales
partially offset by a decrease in residential sales. The
increase in industrial sales reflects the continued improvement
of the manufacturing segment of the service area. About 40% 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
at neighboring utilities. The decrease in residential sales
resulted from the mild weather experienced during the third
quarter of 1994.
Fuel expense was also impacted by the previously mentioned
refunds to customers. Refer to Note 3 of the Notes to Financial
Statements for further discussion. Fuel expense, excluding the
effect of the refunds to customers, increased $2.6 million (5%).
This increase reflects a 4% increase in tons of coal consumed and
a 1% increase in the average price per ton of coal consumed.
Purchased power expense increased by $4.9 million (46%) due to
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
higher demand costs ($3.6 million) and greater kilowatt-hour
purchases ($1.3 million). The increase in demand costs is
primarily due to the permanent increase in capacity entitlement,
effective January 1994, from Electric Energy, Inc. (EEI). The
increased kilowatt-hour purchases were primarily from EEI. A
contract between Kentucky Utilities and EEI allows Kentucky
Utilities to purchase, on an economic basis, 20% of the available
capacity from a 1,000-megawatt generating station owned by EEI.
Maintenance expenses increased $2.5 million (19%), primarily
due to the timing of scheduled maintenance at Kentucky Utilities'
generating stations.
Nine Months ended September 30, 1994, compared
to the Nine Months ended September 30, 1993
Increase (Decrease)
From Prior Year
Nine Months
Ended Sept. 30, 1994
kWh Revenues
(%) (000's)
Residential 2 $ 4,790
Commercial 3 3,698
Industrial 8 6,591
Mine Power & Public Authorities 5 3,170
Total Retail Sales 4 18,249
Other Electric Utilities 52 17,890
Miscellaneous Revenues & Other - 297
Total Before Refund 11 36,436
Provision for Refund -
Litigation Settlement - (14,130)
Total 11 $ 22,306
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KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating revenues were impacted by refunds to customers of
fuel cost savings associated with the resolution of a coal
contract dispute. Refer to Note 3 of the Notes to Financial
Statements for further discussion. Operating revenues, before
the impact of the refunds to customers, increased $36.4 million
(8%) primarily as a result of an 11% 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 increase in industrial sales reflects
the continued improvement of the manufacturing segment of the
service area. About 40% of the increase in industrial sales is
attributable to greater sales to TMM due its to recent plant
expansion. The increase in off-system sales is attributable to
an increase in demand for power due to maintenance programs at
neighboring utilities and to warm weather during the second
quarter of 1994.
Fuel expense was also impacted by the previously mentioned
refunds to customers. Refer to Note 3 of the Notes to Financial
Statements for further discussion. Fuel expense, excluding the
effect of the refunds to customers, increased $5.7 million (4%).
This increase reflects a 3% increase in the average price per ton
of coal consumed and a 1% increase in the tons of coal consumed.
Purchased power expense increased $21.7 million (83%) due to
higher demand costs ($10 million) and to greater kilowatt-hour
purchases ($11.7 million). The increase in demand costs is
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<PAGE>
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
primarily due to the permanent increase in capacity entitlement,
effective January 1994, from EEI. The increased kilowatt-hour
purchases were primarily from EEI.
Maintenance expenses increased $9.4 million (24%). 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.
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<PAGE>
PART II. OTHER INFORMATION
KENTUCKY UTILITIES COMPANY
ITEM 1. LEGAL PROCEEDINGS
By order of July 19, 1994, the Kentucky Public Service
Commission (PSC) approved Kentucky Utilities' plan for
environmental surcharge adjustments to customer billings
beginning in August 1994. The surcharge, authorized by a
Kentucky statute enacted in 1992, is designed to recover certain
ongoing operating and capital costs, not already included in
existing rates, related to compliance with federal, state or
local environmental requirements associated with the production
of energy from coal, including the 1990 Clean Air Act Amendments.
Surcharge billings are subject to periodic PSC review to confirm
the level of environmental expenditures and to reconcile previous
surcharge billings with actual costs.
Two requests for rehearing were filed by interveners before
the PSC. The PSC denied those requests for rehearings.
On September 9, 1994, the Attorney General of the Commonwealth
of Kentucky (Attorney General) filed an action in the Franklin
County (KY) Circuit Court challenging the constitutionality of
the Kentucky surcharge statute and seeking to vacate the PSC
order of July 19, 1994 on the ground, among others, that the
environmental surcharge approved by the PSC will deprive Kentucky
Utilities' customers of their property without due process of
law. Management believes that, based on its review of the
circumstances, the surcharge statute is constitutional and it is
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<PAGE>
probable that the PSC order of July 19, 1994 approving the
surcharge will be upheld. In the remote occurrence that the
statute is declared unconstitutional, amounts collected pursuant
to the PSC order may be subject to refund.
By motion filed November 8, 1994, the Attorney General and two
interveners are seeking to have surcharge collections deposited
with the court pending the outcome of the litigation. Kentucky
Utilities believes that the motion is without merit and should be
denied.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed as part of this report:
Exhibit
Number Description
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule (required for electronic
filing only in accordance with Item 601(c)(1) of
Regulation S-K.)
(b) Reports on Form 8-K.
None.
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<PAGE>
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 November 9, 1994 /s/ John T. Newton
John T. Newton
Chairman of the Board and
Chief Executive Officer
Date November 9, 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
Sept. 30, 1994
(in thousands,
except ratio)
Earnings
Net Income $ 78,983
Adjustments
Fixed charges 32,965
Income taxes
Current Federal 36,728
Current State 9,660
Deferred Federal-Net 212
Deferred State-Net (548)
Deferred investment tax credit-Net (92)
Income taxes included in Other Income
and Deductions
Current Federal and State 1,829
Deferred Federal and State (661)
Amortization of investment tax credit (4,024)
Undistributed income of Electric
Energy, Inc. (80)
Total Earnings $154,972
Fixed Charges
Interest on long-term debt $ 31,293
Other interest charges 1,672
Total Fixed Charges $ 32,965
Ratio of Earnings to Fixed Charges 4.70
Note--Rentals are not material and have not been included in
fixed charges.
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<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet as of September 30, 1994 and the Income Statement for the period ended
September 30, 1994 and is qualified in its entirety by reference to such Form
10-Q Quarterly Report.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,363,924
<OTHER-PROPERTY-AND-INVEST> 13,103
<TOTAL-CURRENT-ASSETS> 136,614
<TOTAL-DEFERRED-CHARGES> 75,926
<OTHER-ASSETS> 2,098
<TOTAL-ASSETS> 1,591,665
<COMMON> 308,140
<CAPITAL-SURPLUS-PAID-IN> (594)
<RETAINED-EARNINGS> 259,577
<TOTAL-COMMON-STOCKHOLDERS-EQ> 567,123
0
40,000
<LONG-TERM-DEBT-NET> 442,015
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 59,100
<LONG-TERM-DEBT-CURRENT-PORT> 21
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 483,406
<TOT-CAPITALIZATION-AND-LIAB> 1,591,665
<GROSS-OPERATING-REVENUE> 477,066<F1>
<INCOME-TAX-EXPENSE> 36,872
<OTHER-OPERATING-EXPENSES> 359,843
<TOTAL-OPERATING-EXPENSES> 396,715
<OPERATING-INCOME-LOSS> 80,351
<OTHER-INCOME-NET> 8,040
<INCOME-BEFORE-INTEREST-EXPEN> 88,391
<TOTAL-INTEREST-EXPENSE> 24,932
<NET-INCOME> 63,459
1,820
<EARNINGS-AVAILABLE-FOR-COMM> 61,639
<COMMON-STOCK-DIVIDENDS> 46,232
<TOTAL-INTEREST-ON-BONDS> 23,959
<CASH-FLOW-OPERATIONS> 116,496
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>See Note 3 of the Notes to Financial Statements.
<F2>All outstanding common stock of Kentucky Utilities Company is held by its
parent company, KU Energy Corporation. Therefore, earnings per share is not
applicable.
</FN>
</TABLE>
