SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
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 of Incorporation) (I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Preferred Stock, 4 3/4% cumulative, Philadelphia Stock Exchange, Inc.
stated value $100 per share
Securities registered pursuant to Section 12(g) of the Act:
Preferred stock, cumulative, stated value $100 per share
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant: None
Number of shares of Common Stock outstanding at March 9, 1995: 37,817,878
shares (owned by the parent - KU Energy Corporation).
Documents Incorporated by Reference: None
Exhibit Index appears on page 42.
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KENTUCKY UTILITIES COMPANY
Form 10-K
Annual Report to the Securities and Exchange Commission
For the Year Ended December 31, 1994
_____________
TABLE OF CONTENTS
Item Page
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 10
4. Submission of Matters to a Vote of Security Holders . . . . . . 10
Executive Officers of the Registrant . . . . . . . . . . . . . 11
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 13
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 14
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 16
8. Financial Statements and Supplementary Data . . . . . . . . . . 24
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . 40
PART III
10. Directors and Executive Officers of the Registrant . . . . . . 40
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 40
12. Security Ownership of Certain Beneficial Owners and Management 40
13. Certain Relationships and Related Transactions . . . . . . . . 40
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . 42
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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PART I
Item 1. Business
General
Kentucky Utilities Company (Kentucky Utilities) is a wholly owned
subsidiary of KU Energy Corporation (KU Energy). Kentucky Utilities is a
public utility engaged in producing and selling electric energy.
Kentucky Utilities provides electric service to about 418,100 customers
in over 600 communities and adjacent suburban and rural areas in 77
counties in central, southeastern and western Kentucky, and to about
28,300 customers in 5 counties in southwestern Virginia. In Virginia,
Kentucky Utilities operates under the name Old Dominion Power Company.
Of the Kentucky communities, 160 are incorporated municipalities served
under unexpired municipal franchises and the rest are unincorporated
communities where no franchises are required. Service has been provided
in Virginia without franchises for a number of years. This lack of
Virginia franchises is not expected to have a material adverse effect on
Kentucky Utilities' operations. Kentucky Utilities also sells electric
energy at wholesale for resale in 12 municipalities.
The territory served by Kentucky Utilities has an aggregate population
estimated at about 1,000,000. The largest city served is Lexington,
Kentucky. The population of the metropolitan Lexington area is estimated
at about 225,000. The populations of the next 10 largest cities served
at retail range from about 21,000 to 9,000. The territory served
includes most of the Blue Grass Region of central Kentucky and parts of
the coal mining areas in southeastern and western Kentucky and
southwestern Virginia. Lexington is the center of the Blue Grass Region,
in which thoroughbred horse, burley tobacco and bourbon whiskey
distilling industries are located. Among the principal industries in the
territory served are coal mining, automotive and related industries, the
manufacture of paper and paper products and of electrical and other
machinery and primary metals processing.
Revenues
Kentucky Utilities' sources of electric revenues and the respective
percentages of total revenues for the three years 1992-1994 were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
Amount % Amount % Amount %
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential $ 213,574 34 $210,759 35 $ 194,817 34
Commercial 142,207 22 138,271 23 133,519 23
Industrial 120,043 19 111,857 18 102,808 18
Mine Power 36,498 6 34,977 6 36,696 7
Public Authorities 49,869 8 48,142 8 45,570 8
Other Electric Utilities 89,665 14 62,463 10 58,979 10
Miscellaneous Revenues 4,181 - 3,428 - 3,432 -
Provision for Refund -
Litigation Settlement (19,385) (3) (3,309) - - -
Total $ 636,652 100 $606,588 100 $ 575,821 100
</TABLE>
The electric utility business is affected by varying seasonal weather
patterns. As a result, operating revenues (and associated operating
expenses) are not generated evenly throughout the year. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results
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of Operations - Sales and Revenues for information related to revenues
from sales to Other Electric Utilities.
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Operations
Kentucky Utilities' net generating capability was 3,265 megawatts at
December 31, 1994. An additional 110-megawatt combustion turbine peaking
unit was placed into commercial operation in February 1995. The net
generating capability available for operation at any time may be lower
because of periodic outages of generating units due to inspection,
maintenance, fuel restrictions, or modifications required by regulatory
agencies. Kentucky Utilities obtains power from other utilities under
bulk power purchase and interchange contracts. At December 31, 1994,
Kentucky Utilities' system capability, including purchases from others,
was 3,805 megawatts. The all-time system peak demand, on a one-hour
integrated basis, occurred on July 28, 1993 and was 3,176 megawatts.
The percentage of Kentucky Utilities' system output which was internally
generated and purchased for the periods indicated was as follows:
1994 1993 1992
Internally Generated 83% 89% 87%
Purchased 17% 11% 13%
Kentucky Utilities is one of 28 members of the East Central Area
Reliability Coordination Agreement, the purpose of which is to augment
the reliability of the members' bulk power supply through coordination of
planning and operation of generation and transmission facilities. The
members are engaged in the generation, transmission and sale of electric
power and energy in the east central area of the United States, which
covers all or portions of Michigan, Indiana, Ohio, Kentucky,
Pennsylvania, Virginia, West Virginia and Maryland. Kentucky Utilities
also has interconnections and contractually established operating
arrangements with neighboring utilities and cooperatives.
Under a contract with Owensboro Municipal Utilities (OMU), Kentucky
Utilities has agreed to purchase from OMU the surplus output of the 150-
megawatt and 250-megawatt generating units at OMU's Elmer Smith station.
Purchases under the contract are made under a contractual formula which
has resulted in costs which were and are expected to be comparable to the
cost of other power purchased or generated by Kentucky Utilities. Such
power constituted about 8% of Kentucky Utilities' net system output
during 1994. See Note 4 of the Notes to Financial Statements.
Kentucky Utilities owns 20% of the common stock of Electric Energy, Inc.
(EEI), which owns and operates a 1,000-megawatt station in southern
Illinois. Kentucky Utilities' entitlement is 20% of the available
capacity of the station. Such power constituted about 8% of Kentucky
Utilities' net system output in 1994. See Note 4 of the Notes to
Financial Statements.
Kentucky Utilities had approximately 2,240 employees at December 31,
1994, of which about 300 are covered by union contracts expiring
August 1995.
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Fuel Matters
Coal-burning generating units provided more than 99% of Kentucky
Utilities' net kilowatt-hour generation for 1994. The remainder of
Kentucky Utilities' net generation for 1994 was provided by hydroelectric
plants, oil and/or natural gas burning units. The average delivered cost
of coal purchased, per ton and per million BTU (MBTU), and the percentage
of spot coal purchases for the periods indicated were as follows:
1994 1993 1992
Per ton - all sources $ 28.91 $ 27.92 $ 27.94
Per MBTU - all sources $ 1.19 $ 1.15 $ 1.16
Per ton - spot purchases only $ 28.33 $ 26.23 $ 25.32
Per MBTU - spot purchases only $ 1.16 $ 1.08 $ 1.07
Spot purchases as % of all sources 46 % 44 % 42 %
Kentucky Utilities maintains its fuel inventory at levels estimated to be
necessary to avoid operational disruptions at its coal-fired generating
units. Reliability of coal deliveries can be affected from time to time
by a number of factors, including coal mine labor strikes and other
supplier or transporter operating difficulties.
Kentucky Utilities believes there are adequate reserves available to
supply its existing base-load generating units with the quantity and
quality of coal required for those units throughout their useful lives.
Kentucky Utilities intends to meet a substantial portion of its coal
requirements with 5 year contracts. Kentucky Utilities anticipates that
coal supplied under such agreements will represent about two-thirds of
the requirements over the next several years. As part of this strategy,
Kentucky Utilities is currently and will continue to negotiate
replacement contracts as contracts expire. Kentucky Utilities does not
anticipate any problems negotiating new contracts for future coal needs.
The balance of coal requirements will be met through spot purchases. See
Note 4 of the Notes to Financial Statements for the estimated obligations
under fuel contracts for each of the years 1995 through 1999.
Kentucky Utilities has no long-term contracts in place for the purchase
of natural gas for its combustion turbine peaking units. Kentucky
Utilities does not anticipate encountering any significant problems
acquiring an adequate supply of fuel necessary to operate its new peaking
units. See "Construction" for a discussion of Kentucky Utilities' plans
to add peaking capacity.
Environmental Matters
Federal and state agencies have adopted environmental protection
standards which apply to the electric operations of Kentucky Utilities.
Capital expenditures to comply with these standards amounted to about
$185 million during the 1990-1994 time period.
Kentucky Utilities' generating units are operated in compliance with the
Kentucky Natural Resources and Environmental Protection Cabinet's (the
"Cabinet") State Implementation Plan (the "KYSIP") and New Source
Performance Standards developed under the Clean Air Act. The KYSIP is a
federally-approved plan for the attainment of the national ambient air
quality standards. The KYSIP contains standards relating to the
emissions of various pollutants (sulfur dioxide, particulates and
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nitrogen oxides) from Kentucky Utilities' fossil-fuel fired steam
electric generating units. These emission standards are of varying
stringencies and compliance with these standards is attained through a
variety of air pollution control technologies (scrubbers, electrostatic
precipitators, and low NOx burners) and the use of low sulfur coal.
Kentucky Utilities' operations are in substantial compliance with current
emission standards.
The acid rain control provisions of the 1990 Clean Air Act Amendments,
which are effective in two phases, require Kentucky Utilities to further
decrease the emissions of sulfur dioxide and nitrogen oxides from its
fossil-fuel fired steam electric generating units. Ghent Unit 1, E. W.
Brown Units 1, 2 and 3, and Green River Unit 4 have been designated as
Phase I affected units which are required to comply with sulfur dioxide
emission reduction obligations beginning January 1, 1995. In order to
comply with these sulfur dioxide emission limitations, Kentucky Utilities
has installed a scrubber and related facilities on Ghent Unit 1 (which
was declared commercial December 20, 1994) and switched to lower sulfur
coal on some other Phase I affected units. In addition, the retrofit of
low NOx burners on these units is required in order to comply with
nitrogen oxide limitations and is expected to be complete in the Spring
of 1995, which is in compliance with applicable requirements of the
United States Environmental Protection Agency (EPA). The EPA issued
final acid rain permits for each of Kentucky Utilities' Phase I affected
units. The EPA's approval of Kentucky Utilities acid rain compliance
plan was accompanied by bonus allowances awarded for the installation of
the scrubber on Ghent Unit 1 and an extension of the Phase I effective
date to January 1, 1997, for certain portions of the sulfur dioxide
emission limitations. Kentucky Utilities' current emission allowance
strategy is to bank unused sulfur dioxide emission allowances. These
unused allowances result from the bonus allowances received from the EPA
and the expected reduced sulfur dioxide emissions from the installation
of the Ghent Unit 1 scrubber. These banked allowances are expected to
allow Kentucky Utilities to delay capital expenditures associated with
Kentucky Utilities' Phase II acid rain compliance obligations, which are
effective January 1, 2000. Kentucky Utilities' Phase II compliance
strategy, in addition to utilizing banked allowances, may include
additional fuel switching or the installation of additional scrubbers.
However, Kentucky Utilities will continue to reassess its options for
complying with Phase II emission reduction requirements to determine an
overall least cost strategy. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations - Construction
Requirements and - Environmental Matters for additional discussion.
During 1990, each of Kentucky Utilities' five fossil-fuel fired steam
electric generating stations was re-issued a wastewater discharge permit
by the Cabinet under the Clean Water Act's National Pollutant Discharge
Elimination System. These 5-year permits place water quality-based
effluent limitations (i.e., thermal and chemical limits) on each of the
power plant's discharges. Kentucky Utilities' operations are in
substantial compliance with the conditions in the permits. Kentucky
Utilities does not anticipate any difficulties in renewing the required
permits which are expiring in 1995.
Pursuant to the Resource Conservation and Recovery Act, utility wastes
(fly ash, bottom ash and scrubber sludge) have been categorized as
special wastes (i.e., wastes of large volume, but low environmental
hazard). The EPA has concluded that the disposal of coal combustion by-
products by practices common to the utility industry are adequate for the
protection of human health and the environment. The Cabinet also
regulates utility wastes as special wastes under its waste management
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program.
Under the Toxic Substances Control Act, the EPA regulates the use,
servicing, repair, storage and disposal of electrical equipment
containing polychlorinated biphenyls (PCB). To comply with these
regulations, Kentucky Utilities has implemented procedures to be followed
in the handling, storage and disposal of PCBs. In addition, Kentucky
Utilities has completed the mandated phase out of all of its pole-class
PCB capacitors and has no vault-type PCB transformers in use, in or near
commercial buildings.
On February 13, 1990, Kentucky Utilities received a letter from the EPA
identifying Kentucky Utilities and others as potentially responsible
parties under the Comprehensive Environmental Response Compensation and
Liability Act (CERCLA or "Superfund") for a disposal site in Daviess
County, Kentucky. The letter also asked Kentucky Utilities, and the
other persons or entities named, to proceed voluntarily with a
remediation program at the site. Under Superfund, a responsible party
may be liable for all or a portion of all monies expended by the
government to take corrective action at the site. The EPA has turned
over responsibility for investigation of the site and development of a
remediation plan to a group (not including Kentucky Utilities) originally
named as potentially responsible parties. Kentucky Utilities has entered
into an agreement with the group as to the portion of the investigation
and development costs to be borne by Kentucky Utilities in connection
with the site. The agreement does not cover costs which may be incurred
in connection with any remediation plan. Any remediation plan would be
subject to approval of the EPA. Although a final plan has yet to be
developed or approved, Kentucky Utilities does not believe that any
liability with respect to the site will have a material impact on its
financial position or results of operations.
Regulation
Kentucky Utilities is subject to the jurisdiction of the Kentucky Public
Service Commission (PSC) and the Virginia State Corporation Commission
(SCC) as to rates, service, accounts, issuance of securities and in other
respects. By reason of owning and operating a small amount of electric
utility property in one county in Tennessee (having a gross book value of
about $212,000), Kentucky Utilities may also be subject to the
jurisdiction of the Tennessee Public Service Commission as to rates,
accounts, issuance of securities and in other respects. Since 1992,
utilities in Kentucky have been allowed to use either a historical test
period or a forward-looking test period in rate filings.
Kentucky Utilities' fuel adjustment clause for Kentucky customers, which
operates to reflect changes in the cost of fuel in billings to customers,
is designed to conform to a general regulation providing for a uniform
monthly fuel adjustment clause for all electric utilities in Kentucky
subject to the jurisdiction of the PSC. The clause is based on a formula
approved by the Federal Energy Regulatory Commission (FERC) but with
certain modifications, including the exclusion of excess fuel expense
attributable to certain forced outages, the filing of fuel procurement
documentation, a procedure for billing over and under recoveries of fuel
cost fluctuations from the base rate level and provision for periodic
public hearings to review past adjustments, to make allowance for any
past adjustments found not justified, to disallow any improper expenses
and to re-index base rates to include current fuel costs.
The fuel adjustment clause mechanism for Virginia customers, which is
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adjusted annually, uses an average fuel cost factor based primarily on
projected test year fuel costs. The fuel cost factor is adjusted for the
over or under collection of fuel costs from the previous year.
Rate regulation in Kentucky allows each utility, with a PSC-approved
environmental compliance plan and environmental surcharge rider, to
recover on a current basis the cost of complying with federal, state or
local environmental requirements, including the 1990 Clean Air Act
Amendments, which apply to coal combustion wastes and by-products from
facilities utilized for the production of energy from coal. During 1994,
the PSC approved Kentucky Utilities' environmental surcharge, which is
designed to allow Kentucky Utilities to recover any compliance related
operating expenses and to earn a return on compliance related capital
expenditures on costs not already included in existing rates through the
application of the surcharge each month to customers' bills. Surcharge
billings are subject to periodic PSC review of the level of environmental
expenditures and reconciliation of previous surcharge billings with
actual costs. For additional information regarding the environmental
surcharge, see Item 3, Legal Proceedings.
Integrated resource planning regulations in Kentucky require Kentucky
Utilities and the other major utilities to make biennial filings with the
PSC, of various historical and forecasted information relating to
forecasted load, capacity margins and demand-side management techniques.
Pursuant to Kentucky law, the PSC has established the boundaries of the
service territory or area of each supplier of retail electric service in
Kentucky (including Kentucky Utilities), other than municipal
corporations, within which each such supplier shall have the exclusive
right to render retail electric service.
The SCC requires each Virginia utility to make annual filings of either a
base rate change or an Annual Informational Filing consisting of a set of
standard financial schedules. These filings are subject to review by the
SCC Staff. The SCC issues a Staff Report, which includes any findings or
recommendations to the SCC relating to the individual utility's financial
performance during the historic 12 month period, including previously
accepted adjustments.
The FERC has jurisdiction under the Federal Power Act over certain of the
electric utility facilities and operations and accounting practices of
Kentucky Utilities, and in certain other respects as provided in the Act.
The FERC has classified Kentucky Utilities as a "public utility" as
defined in the Act.
Kentucky Utilities is presently exempt from all the provisions of the
Public Utility Holding Company Act of 1935, except Section 9(a)(2)
thereof (which relates to the acquisition of securities of public utility
companies), by virtue of the exemption granted by an order of the
Securities and Exchange Commission dated April 19, 1949 and, absent
further action by the Commission, by virtue of annual exemption
statements filed by Kentucky Utilities with the Commission pursuant to
Rule 2 prescribed under the Act.
National Energy Policy Act
See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operation - Utility Issues - Competition.
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Transmission Services and Power Services Tariffs
On September 30, 1994, Kentucky Utilities filed an application with the
FERC for approval to sell power on a wholesale basis at market-based
rates under a proposed Power Services (PS) Tariff. In connection with
the PS Tariff filing, Kentucky Utilities also filed a Transmission
Service Tariff (TS) under which it would provide firm and nonfirm
transmission services to eligible customers. Kentucky Utilities would
offer the TS Tariff to customers seeking access to KU's transmission
lines, and would use the TS Tariff for its own transmission needs when it
makes opportunity sales.
On November 30, 1994, the FERC accepted for filing the Transmission
Services Tariff and permitted the tariff to be placed in effect, subject
to refund, on December 1, 1994. A procedural schedule was also
established, with hearings scheduled for July, 1995. In the same Order,
the FERC rejected Kentucky Utilities' proposed market-based PS Tariff,
without prejudice, thereby permitting Kentucky Utilities to correct
identified deficiencies. On December 13, 1994, Kentucky Utilities filed
a response to the FERC's Order seeking clarification of certain aspects
of the Order and included in its response certain supplemental
information which the FERC deemed necessary for approval of the PS
Tariff.
Item 2. Properties
<TABLE>
Kentucky Utilities owns and operates the following electric generating
stations:
<CAPTION>
Nameplate Effective
Rating (KW) Capability (KW)
<S> <C> <C> <C> <C>
Steam: Ghent Ghent, Ky 2,226,060 2,000,000
Green River South Carrollton, Ky 263,636 241,000
E. W. Brown Burgin, Ky 739,534 661,000
Tyrone Tyrone, Ky 137,500 135,000
Pineville Four Mile, Ky 37,500 35,000
Hydro: Dix Dam &
Lock #7 Burgin, Ky 30,297 24,000
Gas/Oil Peaking: Haefling Lexington, Ky 62,100 59,000
E.W. Brown Burgin, Ky 119,000 110,000
3,615,627 3,265,000
</TABLE>
Substantially all properties are subject to the lien of Kentucky
Utilities' Mortgage Indenture.
Construction
Construction on two 110-MW combustion turbine peaking units was
substantially completed in 1994. The first peaking unit was placed into
commercial operation in 1994 and the second unit was placed into
commercial operation in February 1995. The total construction
expenditures of Kentucky Utilities for the years 1995 through 1999 are
estimated at $521 million. Such expenditures include an estimated
$182 million for generating facilities, $66 million for transmission
facilities and $273 million for distribution and general facilities.
Included in total construction expenditures for the 1995-1999 period are
$120 million for 440-MW of peak generating capacity, in addition to the
units mentioned above, to be added during 1995-1999 (110-MW in each year
1995-1998) and $23 million for environmental compliance (of which
$18 million is for compliance with the 1990 Clean Air Act Amendments).
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All necessary permits and approvals for the units to go on line in 1995
and 1996 have been obtained. Kentucky Utilities has no plans to install
base load generating capacity before 2010. Construction expenditures for
the years 1990 through 1994 aggregated about $581 million. See Note 4 of
the Notes to Financial Statements for the estimated amounts of
construction expenditures for each of the years 1995 through 1999.
Kentucky Utilities frequently reviews its construction program and
construction expenditures, which may be affected by numerous factors,
including the rate of load growth, changes in construction costs, changes
in environmental regulations, least cost planning, the adequacy of rate
relief and Kentucky Utilities' ability to raise necessary capital (See
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations). Kentucky Utilities' planned additions to its
electric generating capacity are based on future load projections using
estimated load growth rates. Consideration is also given to projections
by neighboring utilities of their future loads and capacity. However,
forecasts of future loads are subject to numerous uncertainties,
including economic conditions and effectiveness of energy conservation
measures.
Item 3. Legal Proceedings
By order of July 19, 1994, the 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 of the
level of environmental expenditures and reconciliation of previous
surcharge billings with actual costs.
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. The Attorney General has been joined by interveners
asserting similar claims on behalf of ratepayer groups. In December
1994, the Circuit Court denied a motion by the Attorney General and two
interveners seeking to have surcharge collections deposited with the
court pending the outcome of the litigation. Management believes that,
based on its review of the circumstances, the surcharge statute is
constitutional and 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.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Executive Officers of the Registrant
Current Positions Held During at Least the
Name and Age Positions Held Last 5 Years
John T. Newton Chairman and Chairman of the Board of Kentucky
Age 64 Director Utilities since November 1987, and
President from January 1987 to
November 1994. Director of
Kentucky Utilities since December
1974.
Michael R. Whitley President and President of Kentucky Utilities
Age 51 Director since November 1994, and Director
since March 1992. Senior Vice-
President of Kentucky Utilities
from March 1987 to November 1994.
Secretary of Kentucky Utilities
from July 1978 to November 1992.
James M. Allison Senior Vice- Senior Vice-President of Kentucky
Age 41 President Utilities since November 1994.
Vice-President of Kentucky
Utilities from February 1993 to
November 1994. President and
Chief Operating Officer of
Wheeling Power Company from
October 1989 to January 1993.
O. M. Goodlett Senior Vice- Senior Vice-President of Kentucky
Age 47 President Utilities since November 1992.
Vice-President of Kentucky
Utilities from April 1982 to
November 1992.
Wayne T. Lucas Senior Vice- Senior Vice-President of Kentucky
Age 47 President Utilities since November 1994.
Vice President of Kentucky
Utilities from November 1986 to
November 1994.
George S. Brooks II General Corporate Secretary of Kentucky
Age 44 Counsel and Utilities since November 1992, and
Corporate General Counsel since January
Secretary 1988.
Gary E. Blake Vice-President Vice-President of Kentucky
Age 41 Utilities since November 1992.
Western Division Manager of
Kentucky Utilities from October
1991 to November 1992. Assistant
Western Division Manager of
Kentucky Utilities from March 1990
to October 1991. Field Operations
Coordinator for Kentucky Utilities
from April 1986 to March 1990.
William E. Casebier Vice-President Vice-President of Kentucky
Age 52 Utilities since May 1988.
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Executive Officers of the Registrant (continued)
Current Positions Held During at Least the
Name and Age Positions Held Last 5 Years
Linda M. DiMascio Vice-President Vice-President of Kentucky
Age 40 Utilities since February 1995.
Director of Human Resources of
Tucker Housewares from September
1994 to February 1995. Senior
Area Coordinator for U.S.
Manufacturing Department of Mobil
Oil Corporation from April 1992 to
September 1994. Assistant
Employee Relations Manager,
Torrance Refinery of Mobil Oil
Corporation from October 1989 to
April 1992.
Robert M. Hewett Vice-President Vice-President of Kentucky
Age 47 Utilities since January 1982.
Ronald L. Whitmer Vice-President Vice-President of Kentucky
Age 62 Utilities since November 1992.
Director of Production and
Generation Construction of
Kentucky Utilities from May 1985
to November 1992.
William N. English Treasurer Treasurer of Kentucky Utilities
Age 44 since April 1982.
Michael D. Robinson Controller Controller of Kentucky Utilities
Age 39 since August 1990. Assistant
Controller of Kentucky Utilities
from August 1983 to August 1990.
John J. Maloy, Jr. Assistant Assistant Treasurer of Kentucky
Age 40 Treasurer Utilities since August 1984.
(Not an Executive Officer)
Note: Officers are elected annually by the Board of Directors. There is
no family relationship between any executive officer and any other
executive officer or any director.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
All of the outstanding common stock of Kentucky Utilities is held by
KU Energy.
The following table sets forth the cash distributions (in thousands of
dollars) on common stock paid by Kentucky Utilities for the periods
indicated:
1994 1993
First Quarter $ 15,411 $ 15,127
Second Quarter $ 15,411 $ 15,127
Third Quarter $ 15,411 $ 15,127
Fourth Quarter $ 15,411 $ 15,127
See Note 5 of the Notes to Financial Statements.
-14-
<PAGE>
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
Year ended December 31, 1994 1993 1992 1991 1990
(in thousands)
Operating Revenues:
<S> <C> <C> <C> <C> <C>
Residential $213,574 $ 210,759 $194,817 $ 202,885 $187,100
Commercial 142,207 138,271 133,519 137,653 131,990
Industrial 120,043 111,857 102,808 98,595 96,524
Mine power 36,498 34,977 36,696 37,093 37,877
Public authorities 49,869 48,142 45,570 46,332 43,125
Total sales to ultimate
consumers 562,191 544,006 513,410 522,558 496,616
Other electric utilities 89,665 62,463 58,979 61,542 53,295
Miscellaneous revenues and other 4,181 3,428 3,432 3,560 3,870
Provision for refund -
litigation settlement (19,385) (3,309) - - -
Total operating revenues 636,652 606,588 575,821 587,660 553,781
Operating Expenses:
Fuel used in generation (1) 170,654 178,910 168,470 183,167 175,439
Electric power purchased 61,442 34,711 32,753 26,744 27,521
Other operating expenses 112,712 104,930 93,915 91,779 85,111
Maintenance 66,134 59,451 61,118 58,590 52,606
Depreciation 65,259 60,800 58,849 57,337 56,173
Federal and state income taxes 44,683 48,178 41,489 46,569 42,331
Other taxes 14,582 14,347 13,359 12,858 12,384
Total operating expenses 535,466 501,327 469,953 477,044 451,565
Net Operating Income 101,186 105,261 105,868 110,616 102,216
Other Income and Deductions 9,299 8,331 11,226 12,062 15,102
Income Before Interest Charges
and AFUDC 110,485 113,592 117,094 122,678 117,318
Interest Charges:
Interest on long-term debt 32,147 31,650 39,571 36,559 36,132
Other interest 2,411 1,249 1,394 1,626 1,219
Total interest charges 34,558 32,899 40,965 38,185 37,351
AFUDC 1,585 593 169 262 146
Net Income $ 77,512 $ 81,286 $ 76,298 $ 84,755 $ 80,113
Preferred Stock Dividend
Requirements 2,384 2,558 2,518 3,031 5,513
Net Income Applicable to Common
Stock $ 75,128 $ 78,728 $ 73,780 $ 81,724 $ 74,600
Common Dividends $ 61,644 $ 60,509 $108,996 $ 56,727 $ 55,214
(1) Amounts for 1994 and 1993 reflect reductions of $23.1 million and $4.1 million,
respectively, associated with refunds to customers related to a litigation settlement
with a former coal supplier.
</TABLE>
-15-
<PAGE>
<TABLE>
Item 6. Selected Financial Data
(continued)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Assets (in thousands) $1,618,100 $1,523,274 $1,408,453 $1,412,961 $1,416,487
Capitalization: (in thousands)
Bonds $ 495,830 $ 441,830 $ 443,330 $ 407,330 $ 408,070
Notes 86 107 128 149 171
Unamortized premium on
long-term debt 96 108 519 713 772
Preferred stock 40,000 40,000 40,000 40,000 40,000
Preferred stock with mandatory
redemption - - - - -
Common stock equity 565,201 552,106 534,073 569,289 546,477
Total capitalization $1,101,213 $1,034,151 $1,018,050 $1,017,481 $ 995,490
% Total Capitalization
Represented by:
Long-term debt 45.1 42.7 43.6 40.1 41.1
Preferred stock 3.6 3.9 3.9 3.9 4.0
Common stock equity 51.3 53.4 52.5 56.0 54.9
Kilowatt-hours Generated,
Purchased and Sold:
(in thousands)
Power generated 15,524,844 14,934,839 13,700,313 14,183,713 13,024,722
Power purchased 3,066,917 1,926,299 2,032,110 1,464,812 1,425,899
Power interchanged - net 2,638 1,556 3,393 (10,725) 14,934
Total 18,594,399 16,862,694 15,735,816 15,637,800 14,465,555
Less - losses and company use 998,010 1,066,251 876,862 906,468 878,337
Remainder - kilowatt-hours
sold 17,596,389 15,796,443 14,858,954 14,731,332 13,587,218
Sales classified:
Residential 4,706,058 4,702,697 4,278,098 4,385,670 4,012,324
Commercial 3,272,370 3,217,504 3,080,045 3,122,156 2,968,049
Industrial 3,641,469 3,409,213 3,093,113 2,874,016 2,791,304
Mine power 974,233 933,317 977,032 955,410 983,778
Public authorities 1,225,668 1,199,893 1,123,494 1,133,176 1,048,483
Total sales to
ultimate consumers 13,819,798 13,462,624 12,551,782 12,470,428 11,803,938
Other electric utilities 3,776,591 2,333,819 2,307,172 2,260,904 1,783,280
Total 17,596,389 15,796,443 14,858,954 14,731,332 13,587,218
Average Number of Customers 440,590 432,636 425,403 419,340 413,843
Residential Sales (per customer):
Average kilowatt-hours 12,781 12,995 12,007 12,471 11,546
Average revenue $ 580.05 $ 582.41 $ 546.80 $ 576.93 $ 538.43
System Capability - Megawatts:
Kentucky Utilities' plants 3,265 3,164 3,163 3,162 3,150
Purchased contracts 540 365 293 254 251
Total system capability 3,805 3,529 3,456 3,416 3,401
Net System Maximum Demand -
Megawatts 3,127 3,176 2,845 2,894 2,835
Load Factor (%) 59.8 57.7 59.4 58.4 56.5
Heat Rate (BTU per KWH) (1) 10,306 10,367 10,344 10,350 10,449
Fuel - Average Cost per Ton(1) $ 28.84 $ 28.31 $ 27.88 $ 29.67 $ 30.74
Average Cost per Million BTU(1) $ 1.19 $ 1.17 $ 1.18 $ 1.24 $ 1.28
(1) Based on coal consumed
</TABLE>
-16-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Kentucky Utilities Company (KU), an electric utility, is a wholly owned
subsidiary of KU Energy Corporation (KU Energy).
RESULTS OF OPERATIONS
1994 Compared to 1993
Net Income Applicable to Common Stock
Net income applicable to common stock in 1994 was $75.1 million as
compared to $78.7 million in 1993. The decline reflects increases in
operating expenses primarily related to purchased power. The benefits of
weather in the first half of 1994 were offset by the impact of milder
weather in the third and fourth quarters of the year. Net income
applicable to common stock for 1994 includes a one-time recovery of about
$1.9 million associated with the resolution of a coal contract dispute.
For additional detail concerning the refunds resulting from resolution of
the dispute, refer to Note 1 of the Notes to Financial Statements,
"Operating Revenues and Fuel Costs".
<TABLE>
Sales and Revenues
Increase (Decrease)
From Prior Years
<CAPTION>
1994 1993
kWh Revenues kWh Revenues
(%) (000's) (%) (000's)
<S> <C> <C> <C> <C>
Residential - $ 2,815 10 $15,942
Commercial 2 3,936 4 4,752
Industrial 7 8,186 10 9,049
Mine Power & Public
Authorities 3 3,248 2 853
Total Retail Sales 3 18,185 7 30,596
Other Electric Utilities 62 27,202 1 3,484
Miscellaneous Revenues
and Other - 753 - (4)
Total Before Refund 11 46,140 6 34,076
Provision for Refund -
Litigation Settlement - (16,076) - (3,309)
Total 11 $ 30,064 6 $30,767
</TABLE>
Kilowatt-hour (kWh) sales in 1994 were 11% above sales in 1993. The
increase was primarily due to greater sales to neighboring utilities and
increased sales to industrial customers. Sales to other electric
utilities rose 62% in 1994 due to increased demand for power from
neighboring utilities. While management believes the level of sales to
other utilities was unusually high in 1994, KU will aggressively pursue
future opportunities in the bulk power market. Industrial sales rose 7%
in 1994 reflecting a continued trend of growth in the manufacturing
sector of KU's service area. About 42% of the industrial sales increase
for 1994 was due to greater sales to Toyota Motor Manufacturing, USA,
Inc. (TMM), KU's largest customer. In March 1994, TMM completed an $800
million assembly plant expansion. Residential sales were flat as
-17-
<PAGE>
compared to 1993.
As a result of refunds to customers of fuel costs savings associated with
the resolution of a coal contract dispute, operating revenues in 1994
were reduced by about $19.4 million, and fuel expense was reduced by
about $23.1 million (refer to Note 1 of the Notes to Financial
Statements, "Operating Revenues and Fuel Costs"). Excluding the impact
of the refund to customers, revenues in 1994 increased $46.1 million (8%)
over 1993 as a result of increased kWh sales.
1994 Kilowatt-Hour Sales by Classification
Year Ended December 31, 1994
Residential 27%
Commercial 19%
Industrial 21%
Mine Power 5%
Public Authorities 7%
Other Electric Utilities 21%
Total 100%
Fuel Expense
Excluding the effect of the above referenced refunds to customers, fuel
expense increased $10.7 million (6%) in 1994. This increase was due to a
3% increase in annual coal consumption attributable to greater kWh
generation and to a 2% increase in the average price per ton of coal
consumed.
Purchased Power Expense
Purchased power expense increased $26.7 million (77%) in 1994 due to
higher demand costs ($13.8 million) and increased kWh purchases ($12.9
million). The higher demand costs are related to KU's decision to
increase purchased power commitments as part of its strategy to obtain
the most economical sources of energy supply, which allows KU to delay
the need for additional baseload capacity. Effective January 1, 1994, KU
elected to increase from 5% to 20% its entitlement to the available
capacity of a 1,000-megawatt generating station owned by Electric Energy,
Inc. (EEI). KU is a 20% owner of EEI. The increase in power purchases
was primarily from EEI.
Maintenance Expense
Maintenance expense for 1994 was $6.7 million (11%) above 1993. The
increase was primarily due to damage from two severe ice storms in the
first quarter of 1994 and to scheduled maintenance at KU's generating
stations.
1993 Compared to 1992
Net Income Applicable to Common Stock
-18-
<PAGE>
Net income applicable to common stock was $78.7 million in 1993 compared
to $73.8 million in 1992. The increase in 1993 was largely due to
weather-related growth in sales and lower interest charges attributable
to debt refinancings and redemptions. Earnings in 1993 were negatively
impacted by an increase in other operating expenses and a decline in
interest and dividend income.
Sales and Revenues
Sales in 1993 were 6% above 1992. The increase was the result of greater
sales to residential and industrial customers. The increase in
residential sales was largely weather-related. KU's customers set an
all-time record peak demand for electricity of 3,176 megawatts in July
1993 during a period of unusually warm weather. The increase in
industrial sales for 1993 reflected the general strength of the service
area economy as well as an increase in the number of industrial
customers.
Excluding the effect of refunds to customers associated with the
resolution of a coal contract dispute (refer to Note 1 of the Notes to
Financial Statements, "Operating Revenues and Fuel Costs"), revenues
increased $34.1 million (6%) in 1993. This increase was primarily a
result of greater kWh sales.
Fuel and Purchased Power Expenses
Fuel expense, excluding the effect of the above referenced refunds to
customers, increased 9% in 1993. The increase was primarily due to a 7%
increase in coal consumption attributable to greater kWh generation.
Purchased power expense for 1993 was $2.0 million (6%) above 1992. The
increase reflected greater demand charges associated with a new short-
term capacity contract with a neighboring utility, partially offset by a
5% decrease in power purchases. The decline in power purchases was due
to a reduction in the availability of Owensboro Municipal Utilities'
(OMU) generating units during scheduled maintenance of those units in the
second quarter of 1993. A contract between KU and OMU allows KU to
purchase, on an economic basis, surplus power from a 400-megawatt
generating station owned by OMU.
Other Operating Expenses
Other operating expenses for 1993 increased $11.0 million (12%),
$6.3 million of which resulted from the adoption of a new accounting
standard. (Refer to Note 3 of the Notes to Financial Statements, "Other
Postretirement Benefits").
Other Income and Deductions
Other income and deductions in 1993 declined $2.6 million. A reduction
in interest and dividend income was the result of lower levels of cash
investments.
Interest Charges
Interest charges decreased $8.2 million (20%) in 1993. The decline
resulted from the redemption of two debt issues near the beginning of the
-19-
<PAGE>
second quarter of 1993 and the refinancing of several debt issues during
the second half of 1992 and early in the third quarter of 1993 at
significantly lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
KU continues to maintain a strong financial position. At the end of
1994, common stock equity represented 51.3% of total capitalization while
long-term debt was 45.1%, and preferred stock was 3.6%. KU's financial
strength is reflected in excellent credit ratings. Rating agencies are
applying stricter standards to utility credits in light of increasing
competition in the utility industry. This has resulted in credit
downgrades for some utilities. Despite the more stringent standards, KU
has maintained high quality bond ratings of AA (Duff & Phelps), Aa2
(Moody's) and AA- (Standard & Poor's).
<TABLE>
Total Capitalization
<CAPTION>
As of December 31, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Capitalization (in millions) $1,101 $1,034 $1,018 $1,017 $ 995
Long-Term Debt 45.1% 42.7% 43.6% 40.1% 41.1%
Preferred Stock 3.6% 3.9% 3.9% 3.9% 4.0%
Common Stock Equity 51.3% 53.4% 52.5% 56.0% 54.9%
</TABLE>
Cash from operations accounted for 55% of cash requirements in 1994 as
compared to 67% in 1993 and 68% for 1992. Cash requirements in the above
percentages exclude optional debt refinancings and redemptions and
optional preferred stock redemptions.
Financing
On behalf of KU, $54 million of Variable Rate Collateralized Solid Waste
Disposal Facility Revenue Bonds was issued in 1994, and $50 million of
5 3/4% Collateralized Solid Waste Disposal Facility Revenue Bonds was
issued in 1993. Proceeds from the sale of these tax exempt issues were
used to fund a portion of the costs of certain environmental compliance
facilities at KU's Ghent Generating Station.
To provide working capital for operations, KU issued commercial paper in
1994. At the end of 1994, KU had $76.3 million outstanding under its
commercial paper program.
Taking advantage of favorable market conditions in 1993, KU refinanced
$120 million of first mortgage bonds at significantly lower interest
rates. KU had refinanced about $180 million of higher cost debt in 1992.
These refinancings reduced annual interest expense by about $5.4 million.
-20-
<PAGE>
KU also issued $20 million of 6.53% preferred stock in December 1993.
Proceeds from the sale of this issue were used to redeem KU's 7.84%
preferred stock in February 1994.
-21-
<PAGE>
Through refinancing activities, KU has lowered its embedded costs of
long-term debt and preferred stock as shown below.
<TABLE>
Embedded Cost
<CAPTION>
<S> <C> <C> <C>
As of December 31, 1994 1993 1992
Long-Term Debt 7.06% 7.23% 8.00%
Preferred Stock 5.64% 6.37% 6.30%
</TABLE>
Construction Requirements
Construction expenditures were $193 million in 1994. Of that amount,
about $62 million related to compliance with the 1990 Clean Air Act
Amendments, $21 million to other environmental compliance measures and
$38 million to construction of combustion turbine generating units
(peaking units).
Projected construction expenditures for the 1995-1999 period are
$521 million. Included in this amount is $120 million for peaking units.
Also included in the 1995-1999 construction total is $23 million for
environmental compliance measures of which $18 million is for compliance
with the 1990 Clean Air Act Amendments.
KU expects to provide about 93% of its 1995-1999 construction
requirements through internal sources of funds with the balance primarily
from long-term debt and/or preferred stock.
<TABLE>
Construction Expenditures by Function - Actual 1994 and Estimated 1995-1999
Actual Estimated
<CAPTION>
(in millions of dollars) 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Total Construction Expenditures $ 193 $ 123 $ 117 $ 106 $ 100 $ 75
Environmental Compliance 42.7% 8.1% 6.3% 5.6% -% -%
Generation 25.4% 33.1% 36.8% 31.3% 31.1% 15.1%
Distribution 23.0% 36.5% 36.8% 42.9% 47.6% 67.9%
Transmission and Other 8.9% 22.3% 20.1% 20.2% 21.3% 17.0%
</TABLE>
UTILITY ISSUES
Competition
Increasing competitive pressures continue to challenge the utility
industry. Set in motion by the National Energy Policy Act of 1992
(NEPA), these pressures are moving the utility industry to a less
regulated and more competitive operating environment. Under NEPA, the
Federal Energy Regulatory Commission (FERC) was given authority to order
utilities to open their transmission lines to third parties. NEPA also
removed long-standing constraints on the development of wholesale power
generation by establishing a new class of independent power producers
which are generally exempt from traditional utility regulation.
-22-
<PAGE>
While NEPA prohibits the FERC from ordering utilities to provide
transmission access to retail customers (so-called retail wheeling),
several states are considering proposals that would allow retail
wheeling.
To date, competition from independent power producers has not been a
factor in KU's service area largely due to KU's low rates. There are no
pending proposals for retail wheeling in Kentucky or Virginia. However,
the final impact of NEPA on the utility industry is yet to be determined.
KU believes that competition will become more intense and that customers
will demand and be given more energy options. With utility rates that
are among the lowest in the nation, KU believes it is well-positioned for
an increasingly competitive environment.
In September 1994, KU filed for FERC approval of a Power Services Tariff
which would allow KU to leverage its low-cost position by selling power
at competitive market-based rates. In connection with the Power Services
Tariff filing, KU also filed a Transmission Service Tariff. KU would
offer the Transmission Service Tariff to customers seeking access to its
transmission lines, and would use the transmission tariff for its own
transmission needs when it makes opportunity sales.
The Transmission Service Tariff became effective, subject to refund, on
December 1, 1994, according to a November 1994 FERC order. In the same
order, the FERC rejected, without prejudice, KU's proposed Power Services
Tariff. KU has subsequently filed a response seeking clarification of
certain aspects of the order. KU's filing included supplemental
information which the FERC deemed necessary for approval of the Power
Services Tariff.
In addition, KU has launched a series of innovative marketing programs
designed to increase market share. KU has also developed strategic
initiatives to increase off-system sales and to expand its market through
economic development. KU's strong competitive position was confirmed in
1994 by the findings of a management and operations audit by the Kentucky
Public Service Commission (PSC).
Management Audit
In August 1994, the PSC released the findings of a comprehensive
management and operations audit that found KU to be "one of the better
managed electric utilities in the country".
The audit, which began in November 1993, was a part of the PSC's ongoing
management audit program. Vantage Consulting, Inc., selected by the PSC
to perform the audit, found that "...KU is one of the most cost-effective
utilities in the country." The audit findings cited KU's low embedded
cost of generation, lean staff ratios, good corporate citizenship and
favorable ratings from customers, employees and the financial community.
Included in the audit report was a list of recommendations, accepted by
KU, designed to maintain KU's strong position in the future. Most of
these are strategic considerations that help position KU as an even
stronger energy provider in the increasingly competitive electric utility
industry.
-23-
<PAGE>
ENVIRONMENTAL MATTERS
Clean Air Act
The Clean Air Act Amendments of 1990 require KU to reduce sulfur dioxide
and nitrogen oxide emissions in two phases. Phase I requirements, which
were effective January 1, 1995, were met primarily through the
installation of a flue gas desulfurization system (scrubber) on Unit 1 of
KU's Ghent Generating Station. The scrubber became operational in
December 1994. KU estimates capital costs for the scrubber and other
equipment modifications related to Clean Air Act compliance to be $151
million through the year 1999. About $133 million of this amount had
been spent through the end of 1994.
The flexible design of the Ghent Unit 1 scrubber provides an option of
installing an additional scrubber on Ghent Unit 2 at a favorable cost.
This option, which is not included in the above capital costs, may be
considered if it is cost beneficial to the KU system to meet Phase II
requirements, which become effective January 1, 2000. KU has purchased
12,900 Phase I emission allowances and has been awarded about 114,000
additional allowances through the Environmental Protection Agency's (EPA)
Phase I Extension Plan Program. KU's current emission allowance strategy
is to bank unused sulfur dioxide emission allowances. Under the current
strategy, allowances accumulated (from the additional allowances received
from the EPA and expected reduced emissions from the installation of the
scrubber) will begin to be consumed when Phase II requirements become
effective.
KU will continue to review and revise its compliance plans accordingly,
to ensure that its environmental obligations are met in the most
efficient and cost-effective manner.
Environmental Cost Recovery
In July 1994, the PSC approved KU's January 1994 application to implement
an environmental surcharge. The surcharge, authorized by a Kentucky
statute enacted in 1992, is designed to recover certain operating and
capital costs 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. KU's environmental
surcharge was implemented in August 1994. KU estimates that it will
result in an average increase of about 4% in a customer's monthly bill,
leaving KU's rates very competitive. The constitutionality of the
surcharge is being challenged in the Franklin County (Kentucky) Circuit
Court. Management believes that, based on its review of the
circumstances, the surcharge statute is constitutional and the PSC
approval of July 1994 will be upheld.
Other
In 1990, KU received a letter from the EPA identifying KU and others as
potentially responsible parties under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 for a disposal site in
Daviess County, Kentucky. The EPA has turned over responsibility for
investigation of the site and development of a remediation plan to a
group (not including KU) originally named as potentially responsible
parties. KU has entered into an agreement with the group as to the
portion of the investigation and development costs to be borne by KU in
connection with the site. Any remediation plan would be subject to
approval of the EPA. Although a final, approved plan has yet to be
developed, KU does not believe that any liability with respect to the
-24-
<PAGE>
site will have a material impact on its financial position or results of
operations.
PROVIDING FOR CUSTOMER GROWTH
KU's forecast indicates annual growth in sales and peak demand of 2.1%
and 1.7%, respectively, over the next 15 years. KU plans to provide for
customer growth in the '90s through purchased power, the addition of
combustion turbine peaking units and demand-side management. There are
no plans for additional coal-fired baseload capacity before 2010.
INFLATION
KU's rates are designed to recover operating and historical plant costs.
Financial statements, which are prepared in accordance with generally
accepted accounting principles, report operating results in terms of
historic costs and do not evaluate the impact of inflation. Inflation
affects KU's construction costs, operating expenses and interest charges.
Inflation can also impact KU's financial performance if rate relief is
not granted on a timely basis for increased operating costs.
-25-
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kentucky Utilities Company:
We have audited the accompanying balance sheets and statements of
capitalization of Kentucky Utilities Company (a Kentucky and Virginia
corporation) as of December 31, 1994 and 1993, and the related statements
of income and retained earnings, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements
and the schedule referred to below are the responsibility of Kentucky
Utilities' management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kentucky
Utilities Company as of December 31, 1994 and 1993, and the results of
its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As explained in Notes 2 and 3 to the financial statements, effective
January 1, 1993, Kentucky Utilities Company changed its method of
accounting for income taxes and postretirement benefits other than
pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item
14(A)(2) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
January 30, 1995
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<PAGE>
<TABLE>
Statements of
Income and
Retained
Earnings
Kentucky Utilities Company
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1994 1993 1992
<S> <C> <C> <C>
Operating Revenues (See Note 1) $ 636,652 $ 606,588 $ 575,821
Operating Expenses:
Fuel, principally coal, used in generation
(See Note 1) 170,654 178,910 168,470
Electric power purchased 61,442 34,711 32,753
Other operating expenses 112,712 104,930 93,915
Maintenance 66,134 59,451 61,118
Depreciation 65,259 60,800 58,849
Federal and state income taxes 44,683 48,178 41,489
Other taxes 14,582 14,347 13,359
Total Operating Expenses 535,466 501,327 469,953
Net Operating Income 101,186 105,261 105,868
Other Income and Deductions:
Interest and dividend income 4,295 2,813 6,611
Other income and deductions - net 6,098 5,926 4,734
Total Other Income and Deductions 10,393 8,739 11,345
Income Before Interest Charges 111,579 114,000 117,213
Interest Charges:
Interest on long-term debt 32,147 31,650 39,571
Other interest charges 1,920 1,064 1,344
Total Interest Charges 34,067 32,714 40,915
Net Income 77,512 81,286 76,298
Preferred Stock Dividend Requirements 2,384 2,558 2,518
Net Income Applicable to Common Stock $ 75,128 $ 78,728 $ 73,780
Retained Earnings Beginning of Year $ 244,429 $ 226,210 $ 261,426
Add Net Income 77,512 81,286 76,298
321,941 307,496 337,724
Deduct:
Dividends on preferred stock 2,384 2,558 2,518
Dividends on common stock 61,644 60,509 108,996
Preferred stock redemption expense 257 - -
64,285 63,067 111,514
Retained Earnings End of Year $ 257,656 $ 244,429 $ 226,210
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
-27-
<PAGE>
<TABLE>
Statements of
Cash Flows
Kentucky Utilities Company
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1994 1993 1992
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $ 77,512 $ 81,286 $ 76,298
Items not requiring (providing) cash currently:
Depreciation 65,259 60,800 58,849
Deferred income taxes (1,559) 5,725 3,974
Investment tax credit deferred (4,110) (4,131) (4,149)
Changes in current assets and liabilities:
Change in fuel inventory (4,579) 7,694 (642)
Change in accounts receivable (203) (9,331) 7,338
Change in accounts payable 5,511 22,768 (1,819)
Change in liability to ratepayers (29,958) 36,867 -
Change in escrow funds 30,841 (37,752) -
Other - net 2,555 724 (4,049)
Net Cash Provided by Operating Activities 141,269 164,650 135,800
Cash Flows from Investing Activities:
Construction expenditures - utility (193,344) (177,069) (86,077)
Nonutility property (465) (4,956) -
Other 836 380 801
Net Cash Used by Investing Activities (192,973) (181,645) (85,276)
Cash Flows from Financing Activities:
Short-term borrowings - net 76,300 - -
Issuance of long-term debt 54,000 173,500 219,930
Funds deposited with trustee - net 95 (18,268) 528
Retirement of long-term debt, including premiums (21) (180,677) (190,756)
Retirement of preferred stock, including premium (20,302) - -
Issuance of preferred stock - 20,000 -
Payment of dividends (64,089) (63,027) (111,514)
Net Cash Provided (Used) by Financing Activities 45,983 (68,472) (81,812)
Net Decrease in Cash and Cash Equivalents (5,721) (85,467) (31,288)
Cash and Cash Equivalents Beginning of Year 8,832 94,299 125,587
Cash and Cash Equivalents End of Year $ 3,111 $ 8,832 $ 94,299
Supplemental Disclosures
Cash paid for:
Interest on long-term debt $ 30,594 $ 33,860 $ 41,912
Federal and state income taxes $ 45,270 $ 42,483 $ 39,091
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
-28-
<PAGE>
<TABLE>
Balance
Sheets Kentucky Utilities Company
<CAPTION>
As of December 31, (in thousands of dollars) 1994 1993
Assets
Utility Plant:
<S> <C> <C>
Plant in service, at cost $ 2,238,926 $ 2,004,688
Less: Accumulated depreciation 933,394 879,960
1,305,532 1,124,728
Construction work in progress 104,385 158,829
Total Utility Plant 1,409,917 1,283,557
Current Assets:
Cash and cash equivalents 3,111 8,832
Escrow funds - coal contract litigation 6,911 37,752
Construction funds held by trustee 18,553 18,268
Accounts receivable, net of allowance
for doubtful accounts 41,660 41,457
Accrued utility revenues 24,227 25,575
Fuel, principally coal, at average cost 35,652 31,073
Plant materials and operating supplies, at average cost 20,081 17,261
Other 10,616 7,804
Total Current Assets 160,811 188,022
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 12,324 13,295
Other 35,048 38,400
Total Investments, Deferred Charges and Other Assets 47,372 51,695
Total Assets $ 1,618,100 $ 1,523,274
Capitalization and Liabilities
Capitalization: (See Statements of Capitalization)
Common stock equity $ 565,201 $ 552,106
Preferred stock 40,000 40,000
Long-term debt 496,012 442,045
Total Capitalization 1,101,213 1,034,151
Current Liabilities:
Preferred stock and long-term debt due within one year 21 20,021
Short-term borrowings 76,300 -
Accounts payable 49,517 44,006
Accrued interest 7,328 7,302
Accrued taxes 9,422 4,660
Customers' deposits 6,423 10,803
Accrued payroll and vacations 8,207 7,709
Liability to ratepayers - coal contract litigation 6,909 36,867
Other 6,275 6,434
Total Current Liabilities 170,402 137,802
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 214,892 212,325
Accumulated deferred investment tax credits 38,275 42,385
Regulatory tax liability 60,788 64,086
Other 32,530 32,525
Total Deferred Credits and Other Liabilities 346,485 351,321
Total Capitalization and Liabilities $ 1,618,100 $ 1,523,274
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
-29-
<PAGE>
<TABLE>
Statements of
Capitalization
Kentucky Utilities Company
<CAPTION>
As of December 31, (in thousands of dollars) 1994 1993
Common Stock Equity:
Common stock, without par value,
<S> <C> <C>
outstanding 37,817,878 shares $ 308,140 $ 308,140
Capital stock expense and other (595) (463)
Retained earnings 257,656 244,429
Total Common Stock Equity 565,201 552,106
Preferred Stock, cumulative, without par value,$100 stated value
4 3/4%, outstanding 200,000 shares 20,000 20,000
6.53%, outstanding 200,000 shares 20,000 20,000
7.84%, outstanding 200,000 shares - 20,000
Less: Amounts to be redeemed within one year - 20,000
Total Preferred Stock 40,000 40,000
Long-Term Debt:
First Mortgage Bonds:
5.95% Series Q, due June 15, 2000 61,500 61,500
7 3/8% Series K, due December 1, 2002 35,500 35,500
6.32% Series Q, due June 15, 2003 62,000 62,000
7.92% Series P, due May 15, 2007 53,000 53,000
8.55% Series P, due May 15, 2027 33,000 33,000
245,000 245,000
First Mortgage Bonds, Pollution Control Series:
7 3/8% Pollution Control Series 7, due May 1, 2010 4,000 4,000
7.45% Pollution Control Series 8, due September 15, 2016 96,000 96,000
6 1/4% Pollution Control Series 1B, due February 1, 2018 20,930 20,930
6 1/4% Pollution Control Series 2B, due February 1, 2018 2,400 2,400
6 1/4% Pollution Control Series 3B, due February 1, 2018 7,200 7,200
6 1/4% Pollution Control Series 4B, due February 1, 2018 7,400 7,400
7.60% Pollution Control Series 7, due May 1, 2020 8,900 8,900
5 3/4% Pollution Control Series 9, due December 1, 2023 50,000 31,900
5 3/4% County of Carroll, Kentucky, Collateralized Solid
Waste Disposal Facility Revenue Bonds, due
December 1, 2023 - 18,100
Variable Rate Pollution Control Series 10, due
November 1, 2024 35,700 -
Variable Rate County of Carroll, Kentucky, Collateralized
Solid Waste Disposal Facility Revenue Bonds, due
November 1, 2024 18,300 -
250,830 196,830
Total First Mortgage Bonds 495,830 441,830
Unamortized premium 96 108
8% secured note, due January 5, 1999(net of current maturity) 86 107
Total Long-Term Debt 496,012 442,045
Total Capitalization $ 1,101,213 $ 1,034,151
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
-30-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
1. Summary of Significant Accounting Policies
General
Kentucky Utilities Company (Kentucky Utilities) is the principal
subsidiary of KU Energy Corporation. Certain amounts from prior periods
have been reclassified to conform with the current year presentation.
Regulation
Kentucky Utilities is a public utility subject to regulation by the
Kentucky Public Service Commission (PSC), the Virginia State Corporation
Commission (SCC) and the Federal Energy Regulatory Commission (FERC).
With respect to accounting matters, Kentucky Utilities maintains its
accounts in accordance with the Uniform System of Accounts as defined by
these agencies. Its accounting policies conform to generally accepted
accounting principles applicable to rate regulated enterprises and
reflect the effects of the ratemaking process. Other than the
unamortized loss on reacquired debt, Kentucky Utilities' regulatory
assets are insignificant.
Utility Plant
Utility plant is stated at the original cost of construction. The cost
of repairs and minor renewals is charged to maintenance expense as
incurred. Property unit replacements are capitalized and the
depreciation reserve is charged with the cost, less net salvage, of units
retired.
Depreciation
Provision for depreciation of utility plant is based on straight-line
composite rates applied to the cost of depreciable property. The rates
approximated 3.4% in 1994, and 3.3% in 1993 and 1992.
Cash and Cash Equivalents
For purposes of reporting cash flows, Kentucky Utilities considers highly
liquid investments with a maturity of three months or less from the date
of purchase to be cash equivalents.
Kentucky Utilities utilizes a cash management mechanism that funds
certain bank accounts for checks as they are presented to those banks.
Kentucky Utilities classified checks written but not presented to those
banks, which amounted to $11.5 million and $9.9 million at December 31,
1994 and 1993, respectively, in accounts payable.
Financial Instruments
Kentucky Utilities' temporary cash investments are classified as held-to-
maturity and are reported under the caption "Cash and cash equivalents"
on the Balance Sheet.
-31-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Unamortized Loss on Reacquired Debt
Kentucky Utilities defers costs (primarily call premiums) arising from
the reacquisition or retirement of long-term debt. Costs related to
refinanced debt are amortized over the lives of the new debt issues.
Costs related to retired debt not refinanced are amortized over the
period to the scheduled maturity of the retired debt.
Operating Revenues and Fuel Costs
Revenues are recorded based on services rendered to customers. Kentucky
Utilities accrues an estimate of revenues for electric service furnished
from the meter reading dates to the end of each accounting period. Cost
of fuel used in electric generation is charged to expense as the fuel is
consumed. The cost of fuel for 1992 included an amortization of buyout
costs associated with the termination of a coal supply contract. A fuel
adjustment clause adjusts operating revenues for changes in the level of
fuel costs charged to expense. An environmental surcharge, implemented
in August 1994, permits the utility to recover certain ongoing operating
and capital costs of compliance with federal, state or local
environmental requirements associated with the production of energy from
coal, including the 1990 Clean Air Act Amendments.
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:
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1994 1993
<S> <C> <C>
Operating Revenues $ 19,385 $ 3,309
Fuel, principally coal, used in generation $ 23,082 $ 4,095
</TABLE>
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 regulatory orders.
Income Taxes
Kentucky Utilities establishes deferred tax assets and liabilities, as
appropriate, for all temporary differences, and adjusts deferred tax
balances to reflect changes in tax rates expected to be in effect during
the periods the temporary differences reverse. Investment tax credits
resulted from provisions of the tax law which permitted a reduction of
-32-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Kentucky Utilities' tax liability based on certain construction
expenditures. Such credits have been deferred in the accounts and are
being amortized as reductions in income tax expense over the life of the
related property. Because of rate regulation, changes in tax rates are
deferred and amortized as the temporary differences reverse.
2. Income Taxes
Effective January 1, 1993, Kentucky Utilities adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The adoption of this standard did not have a material impact on results
of operation, cash flows or financial position.
Kentucky Utilities is included in the consolidated federal tax return of
its parent company, KU Energy. Income taxes are allocated to the
individual companies, including Kentucky Utilities, based on their
respective taxable income or loss.
The accumulated deferred income taxes as set forth below and in the
Balance Sheet arise from the following temporary differences:
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1994 1993
Deferred Tax Assets:
Unamortized investment tax credit and other property
<S> <C> <C>
related differences $ 31,805 $ 28,529
Other 17,363 13,146
Less: Amounts included in current assets 6,726 5,897
42,442 35,778
Deferred Tax Liabilities:
Accelerated depreciation and other property
related differences 251,282 241,893
Other 6,052 6,210
257,334 248,103
Net accumulated deferred income tax liability $ 214,892 $ 212,325
</TABLE>
-33-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
<TABLE>
The components of income tax expense are as follows:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1994 1993 1992
Income taxes charged to Operating Income:
<S> <C> <C> <C>
Current - federal $ 37,058 $ 35,893 $ 30,838
- state 8,812 9,484 7,951
45,870 45,377 38,789
Deferred - federal (1,114) 2,837 2,269
- state 13 71 561
(1,101) 2,908 2,830
Deferred investment tax credit (86) (107) (130)
44,683 48,178 41,489
Income taxes charged to Other Income and Deductions:
Current - federal 1,537 (2,056) (7)
- state 344 (560) (217)
1,881 (2,616) (224)
Deferred - federal (365) 2,261 909
- state (93) 556 235
(458) 2,817 1,144
Amortization of deferred investment tax credit (4,024) (4,024) (4,019)
(2,601) (3,823) (3,099)
Total income tax expense $ 42,082 $ 44,355 $ 38,390
</TABLE>
The provision for deferred income taxes in 1992 primarily related to
accelerated depreciation and other property related differences.
Kentucky Utilities' effective income tax rate, determined by dividing
income taxes by the sum of such taxes and net income, was 35.2% in 1994,
35.3% in 1993 and 33.5% in 1992. The difference between the effective
rate and the statutory federal income tax rate is attributable to the
following factors:
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1994 1993 1992
Federal income tax computed
<S> <C> <C> <C>
at 35%, 35% and 34%, respectively $ 41,858 $ 43,974 $ 38,994
Add (Deduct):
State income taxes, net of federal
income tax benefit 5,899 6,208 5,630
Amortization of deferred investment tax credit (4,110) (4,131) (4,140)
Other, net (1,565) (1,696) (2,094)
Total income tax expense $ 42,082 $ 44,355 $ 38,390
</TABLE>
3. Retirement Benefits
Pensions
Kentucky Utilities has a noncontributory defined benefit pension plan
covering substantially all of its employees. Benefits under this plan
are based on years of service, final average base pay and age at
-34-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
retirement. Kentucky Utilities' funding policy is to make such
contributions as are necessary to finance the benefits provided under the
plan. Kentucky Utilities' contributions meet the funding standards set
forth in the Employee Retirement Income Security Act of 1974. The plan
assets consist primarily of equity and fixed income investments.
Kentucky Utilities also has a Supplemental Security Plan for certain
management personnel. Retirement benefits under this plan are based on
years of service, earnings and age at retirement. The plan has no
advance funding. Benefit payments are made to retired employees or their
beneficiaries from the general assets of Kentucky Utilities.
<TABLE>
The reconciliation of the funded status of the retirement plans and the
pension liability recorded by Kentucky Utilities is as follows:
<CAPTION>
As of December 31, (in thousands of dollars) 1994 1993
<S> <C> <C>
Fair value of plan assets $ 154,314 $ 157,137
Projected benefit obligation (169,599) (169,309)
Plan assets less than projected benefit obligation (15,285) (12,172)
Unrecognized net loss from past
experience different than that assumed 5,246 6,361
Unrecognized prior service cost 4,705 4,966
Unrecognized net asset (1,799) (1,949)
Regulatory effect recorded (3,229) (5,146)
Pension liability $ (10,362) $ (7,940)
Accumulated benefit obligation (including vested benefits
of $124,094 and $128,779, respectively) $ 126,146 $ 130,758
</TABLE>
<TABLE>
Components of Net Pension Cost:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1994 1993 1992
Service cost (benefits earned during the
<S> <C> <C> <C>
period) $ 6,017 $ 5,036 $ 4,774
Interest cost on projected benefit obligation 12,366 12,311 11,482
Actual return on plan assets (3,723) (13,229) (11,384)
Net amortization and deferral (8,765) 1,785 350
Regulatory effect recorded (1,916) 56 705
Net pension cost $ 3,979 $ 5,959 $ 5,927
</TABLE>
<TABLE>
Assumptions Used in Determining Actuarial Valuations:
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Weighted average discount rate used to
determine the projected benefit obligation 8 1/4 % 7 1/2% 8 3/4%
Rate of increase for compensation levels (1) 5 1/2 % 4 3/4% 6%
Weighted average expected long-term rate
of return on assets 8 1/4 % 8 1/4% 8 3/4%
(1) 6%, 5 1/4% and 6 1/2%, respectively, used for the Supplemental Security Plan
valuation.
</TABLE>
-35-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Other Postretirement Benefits
Effective January 1, 1993, Kentucky Utilities adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This standard provides
accounting and disclosure requirements associated with Kentucky
Utilities' obligation to provide postretirement benefits other than
pensions to present and future retirees. In accordance with this
standard, Kentucky Utilities accrues, during the years that the employee
renders service, the expected cost of providing these benefits for
retired employees, their beneficiaries and covered dependents. The
impact on results of operations was an increase in pre-tax expense for
the year ended December 31, 1993 of $6.3 million (net of capitalized
payroll benefits). Kentucky Utilities, prior to 1993, recognized these
costs on a pay-as-you-go (cash) basis. Amounts paid for retirees for
1992 amounted to $2.3 million.
Kentucky Utilities provides certain health care and life insurance
benefits to eligible retired employees and their dependents. The
postretirement health care plan is contributory for employees who retired
after December 31, 1992, with retiree contributions indexed annually
based upon the experience of retiree medical expenses for the preceding
year. Pre-1993 retirees are not required to contribute to the plan.
Kentucky Utilities' employees become eligible for retiree medical
benefits after 15 years of service and attainment of age 55. The life
insurance plan is noncontributory and is based on compensation levels
prior to retirement.
In 1993, Kentucky Utilities began funding, in addition to current
requirements for benefit payments, the maximum tax-favored amount allowed
through certain tax deductible funding vehicles. Kentucky Utilities
anticipates making similar funding decisions in future years, but will
consider and make such funding decisions on the basis of tax, regulatory
and other relevant conditions in effect at such times. The plan assets
consist primarily of equity investments.
<TABLE>
The reconciliation of the funded status of the plans and the
postretirement benefit liability recorded by Kentucky Utilities is as
follows:
<CAPTION>
As of December 31, (in thousands of dollars) 1994 1993
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $ (31,992) $ (38,331)
Fully eligible active plan participants (8,287) (8,448)
Other active plan participants (25,578) (28,813)
(65,857) (75,592)
Plan assets at fair value 5,341 2,440
Accumulated postretirement benefit obligation
in excess of plan assets (60,516) (73,152)
Unrecognized net (gain)/loss from past
experience different from that assumed (11,353) 3,230
Unrecognized transition obligation 60,142 63,483
Regulatory effect recorded - 689
Accrued postretirement benefit liability $ (11,727) $ (5,750)
</TABLE>
-36-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
<TABLE>
Components of the net periodic postretirement benefit cost are as follows:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1994 1993
Service cost (benefits attributed to service
<S> <C> <C>
during the period) $ 2,105 $ 2,048
Interest cost on accumulated postretirement
benefit obligation 4,926 5,730
Actual return on plan assets (80) -
Net amortization and deferral (118) -
Amortization of transition obligation 3,341 3,341
Regulatory effect recorded 689 (689)
Net periodic postretirement benefit cost $ 10,863 $ 10,430
</TABLE>
-37-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
<TABLE>
<CAPTION>
Assumptions Used in Determining Actuarial Valuations: 1994 1993
Weighted average discount rate used to
<S> <C> <C>
determine the projected benefit obligation 8 1/4% 7 1/2%
Rate of increase for compensation levels 5 1/2% 4 3/4%
Weighted average expected long-term rate of
return on assets 8 1/4% -
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered health care benefits is assumed for 1995. The health
care cost trend rate is assumed to decrease gradually to 5.5% through
2003 and remain at that level thereafter over the projected payout period
of the benefits. Increasing the assumed health care cost trend rates by
1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994, by $11 million
(17%) and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for the year by $1.5 million
(21%).
4. Commitments and Contingencies
<TABLE>
The effects of certain commitments made by Kentucky Utilities are
estimated below:
<CAPTION>
(in thousands of dollars) 1995 1996 1997 1998 1999 1995-1999
Estimated Construction
<S> <C> <C> <C> <C> <C> <C>
Expenditures $122,900 $117,400 $105,600 $100,200 $ 75,000 $521,100
Estimated Contract
Obligations:
Fuel 136,400 79,700 66,100 29,100 20,800 332,100
Purchased power 24,800 26,100 27,100 26,700 26,400 131,100
Operating leases 3,100 3,100 3,000 3,000 3,000 15,200
Sinking Fund Requirements:
First mortgage bonds $ 376 $ 376 $ 376 $ 376 $ 376 $ 1,880
</TABLE>
Construction Program
Kentucky Utilities frequently reviews its construction program and may
revise its projections of related expenditures based on revisions to its
estimated load growth and projections of its future load.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations - Construction Requirements for a discussion of
future expenditures relating to construction of peaking units and
compliance with the 1990 Clean Air Act Amendments.
Coal Supply
Obligations under Kentucky Utilities' coal purchase contracts are stated
at prices effective January 1, 1995, and are subject to changes as
defined by the terms of the contracts.
Purchased Power Agreements
-38-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Kentucky Utilities has purchase power arrangements with Owensboro
Municipal Utilities (OMU) and Electric Energy, Inc. (EEI). Under the OMU
agreement, which expires on January 1, 2020, Kentucky Utilities
purchases, on an economic basis, all of the output of a 400-MW generating
station not required by OMU. The amount of purchased power available to
Kentucky Utilities during 1995-1999, which is expected to be
approximately 9% of Kentucky Utilities' total kWh requirements, is
dependent upon a number of factors including the units' availability,
maintenance schedules, fuel costs and OMU requirements. Payments are
based on the total costs of the station allocated per terms of the OMU
agreement, which generally follows delivered kWh. Included in the total
costs is Kentucky Utilities' proportionate share of debt service
requirements on $27.3 million of OMU bonds outstanding at
December 31, 1994. The debt service is allocated to Kentucky Utilities
based on its annual allocated share of capacity, which averaged
approximately 51% in 1994. In 1995, Kentucky Utilities' total costs will
increase to include its proportionate share of debt service requirements
on approximately $176.9 million of additional OMU bonds issued to finance
capital improvements designed to enable OMU to comply with the 1990 Clean
Air Act Amendments.
Kentucky Utilities has a 20% equity ownership in EEI, which is accounted
for on the equity method of accounting. Kentucky Utilities' entitlement,
beginning January 1, 1994, is 20% of the available capacity of a 1,000-MW
station. Payments are based on the total costs of the station allocated
per terms of an agreement among the owners, which generally follows
delivered kWh.
Sinking Fund Requirements
Annual sinking fund requirements for Kentucky Utilities' first mortgage
bonds may be met with cash or expenditures for bondable property as
provided in the Mortgage Indenture. Kentucky Utilities intends to meet
the 1995 sinking fund requirements with expenditures for bondable
property.
Lines of Credit
Kentucky Utilities has aggregate bank lines of credit of $90 million, all
of which remained unused at December 31, 1994. A portion of these credit
lines ($30 million) expires in September, 1995 and the balance ($60
million) expires in December, 1997. In support of these lines of credit,
Kentucky Utilities compensates the banks by paying a commitment fee.
5. Common Stock
Kentucky Utilities is subject to restrictions applicable to all
corporations under Kentucky and Virginia law on the use of retained
earnings for cash dividends on common stock, as well as those contained
in its Mortgage Indenture and Articles of Incorporation. At December 31,
1994, there were no restricted retained earnings.
6. Preferred Stock
-39-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
In December 1993, Kentucky Utilities issued 200,000 shares of 6.53%
preferred stock. The proceeds were used to redeem 200,000 shares of
7.84% preferred stock on February 1, 1994.
<TABLE>
Each series of preferred stock is redeemable at the option of Kentucky
Utilities upon 30 days' written notice as follows:
<CAPTION>
Redemption Price per Share
Series (plus accrued and unpaid dividends, if any)
<S> <C>
4 3/4% $101.00
6.53% (Not redeemable prior to December 1, 2003.)
$103.265 through November 30, 2004, decreasing
approximately $.33 each twelve months thereafter to
$100 on or after December 1, 2013.
</TABLE>
As of December 31, 1994, there were 5.3 million shares of Kentucky
Utilities preferred stock, having a maximum aggregate stated value of
$200 million, authorized for issuance.
7. Short-Term and Long-Term Debt
Kentucky Utilities' short-term financing requirements are satisfied
through the sale of commercial paper. The weighted average interest rate
on the year-end balance was 6.07% for 1994.
In 1993, Kentucky Utilities entered into a loan agreement with the County
of Carroll, Kentucky to finance the construction of solid waste disposal
facilities. The County of Carroll issued $50 million of revenue bonds,
with the proceeds held in a construction fund by a trustee. In 1994,
Kentucky Utilities completed the draw down of the remaining $18.1 million
revenue bond proceeds.
In 1994, Kentucky Utilities entered into a loan agreement with the County
of Carroll, Kentucky to finance the construction of solid waste disposal
facilities. The County of Carroll issued $54 million of variable rate
revenue bonds, with the proceeds held in a construction fund. In 1994,
Kentucky Utilities drew down $35.7 million relating to these bonds.
Kentucky Utilities Pollution Control Series 10 Bonds are issued under
Kentucky Utilities' Mortgage Indenture.
Under the provisions for the variable rate revenue bonds, Kentucky
Utilities can choose between various interest rate options. Currently,
the daily interest rate mode is being utilized. The average annual
interest rate on the bonds during 1994 was 4.10%. The variable rate
bonds are subject to tender for purchase at the option of the holder and
to mandatory tender for purchase upon the occurrence of certain events.
If tendered bonds are not remarketed, Kentucky Utilities has available
lines of credit which may be used to repurchase the bonds.
Substantially all of Kentucky Utilities' utility plant is pledged as
security for the First Mortgage Bonds.
-40-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
8. Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and cash equivalents, escrow funds, construction funds, short-term
borrowings and customers' deposits carrying values approximate fair value
because of the short maturity of these amounts.
Long-term debt fair values are based on quoted market prices for Kentucky
Utilities' first mortgage bonds and on current rates available to
Kentucky Utilities for debt of the same remaining maturities for Kentucky
Utilities' pollution control bonds and promissory note.
Kentucky Utilities has an interest rate swap agreement with a notional
amount of $70 million. Fair value of this instrument is the estimated
amount the counter-party would pay to Kentucky Utilities to terminate the
swap at the date of measurement. This agreement expires in 1996.
Kentucky Utilities has no downside interest rate risk associated with
this agreement.
<TABLE>
The estimated fair values of Kentucky Utilities' financial instruments at
December 31 are as follows:
1994 1993
<CAPTION>
Carrying Estimated Carrying Estimated
(in thousands of dollars) Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Interest rate swap $ - $ 1,550 $ - $ 2,550
Long-term debt $ 496,033 $ 475,976 $ 442,066 $ 489,042
</TABLE>
If the difference between fair value and carrying value of Kentucky
Utilities' long-term debt was settled at amounts approximating those
above, the anticipated regulatory treatment would require return of or
allow recovery of these amounts in rates over a prescribed amortization
period. Accordingly, any settlement would not have a significant impact
on Kentucky Utilities' financial position or results of operations.
-41-
<PAGE>
Supplementary
Quarterly
Financial
Information
(Unaudited)
Kentucky Utilities Company
Quarterly financial results for 1994 and 1993 are summarized below.
Generally, quarterly results may fluctuate due to seasonal variations,
changes in fuel costs and other factors. Operating revenues for the
third quarter of 1994 were reduced by $17.5 million related to refunds to
customers of fuel cost savings associated with the resolution of a coal
contract dispute. Operating revenues for other quarters were
insignificantly impacted by the refunds. Refer to Note 1 of the Notes to
Financial Statements for additional information.
<TABLE>
<CAPTION>
Quarter 4th 3rd 2nd 1st
(in thousands of dollars)
1994
<S> <C> <C> <C> <C>
Operating Revenues $ 159,586 $ 156,512 $ 154,026 $ 166,528
Net Operating Income 20,835 29,737 20,034 30,580
Net Income 14,053 23,642 14,473 25,344
Net Income Applicable
to Common Stock 13,489 23,078 13,909 24,652
1993
Operating Revenues $ 151,828 $ 160,615 $ 139,909 $ 154,236
Net Operating Income 21,257 30,640 22,209 31,155
Net Income 15,526 24,790 16,422 24,548
Net Income Applicable
to Common Stock 14,856 24,161 15,792 23,919
These quarterly amounts reflect, in Kentucky Utilities' opinion, all
adjustments (including only normal recurring adjustments) necessary for a
fair presentation.
</TABLE>
-42-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Refer to KU Energy's definitive proxy statement (the "Proxy Statement")
filed with the Securities and Exchange Commission in connection with its
1995 Annual Shareholder Meeting under the caption "Election of
Directors--General" for the information required by this item pertaining
to directors. Such information is incorporated herein by reference and
is also filed herewith as Exhibit 99B. Information required by this item
relating to executive officers of Kentucky Utilities is set forth under a
separate caption in Part I hereof.
Item 11. Executive Compensation
Refer to KU Energy's Proxy Statement under the caption "Election of
Directors -- Directors' Compensation, and -- Executive Compensation" (but
excluding any information contained under the subheadings -- "Report of
Compensation Committee on Executive Compensation", and -- "Performance
Graph") for the information required by this item. Such information is
incorporated herein by reference and is also filed herewith as
Exhibit 99B.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Refer to KU Energy's Proxy Statement under the caption "Election of
Directors--Voting Securities Beneficially Owned by Directors, Nominees
and Executive Officers; Other Information" for the information required
by this item. Such information is incorporated herein by reference and
is also filed herewith as Exhibit 99B.
Item 13. Certain Relationships and Related Transactions
None.
-43-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) The following (1) financial statements, (2) schedules, and (3)
exhibits, are filed as a part of this Annual Report.
(1) Financial Statements
Report of Independent Public Accountants,
Statements of Income and Retained Earnings for the three
years ended December 31, 1994,
Statements of Cash Flows for the three years ended
December 31, 1994,
Balance Sheets as of December 31, 1994 and 1993,
Statements of Capitalization as of December 31, 1994 and
1993, and
Notes to Financial Statements.
(2) Schedules
Schedule II Valuation and qualifying accounts.
The following Schedules are omitted as not applicable or not
required under Regulation S-X:
I, III, IV, V.
-44-
<PAGE>
(3) Exhibits
Number Description Page
3.A Amended and Restated Articles of Incorporation of
Kentucky Utilities Company. (Exhibits 4.03 and 4.04
to Form 8-K Current Report of Kentucky Utilities
Company, dated December 10, 1993). Incorporated by
reference. -
3.B By-laws of Kentucky Utilities Company dated
December 14, 1992. (Exhibit 3B to Form 10-K Annual
Report of Kentucky Utilities Company for the year
ended December 31, 1992). Incorporated by reference. -
4.A Indenture of Mortgage or Deed of Trust dated
May 1, 1947 between Kentucky Utilities Company and
Continental Illinois National Bank and Trust Company
of Chicago and Edmond B. Stofft, as Trustees (Amended
Exhibit 7(a) in File No. 2-7061), and Supplemental
Indentures thereto dated, respectively,
January 1, 1949 (Second Amended Exhibit 7.02 in File
No. 2-7802), July 1, 1950 (Amended Exhibit 7.02 in
File No. 2-8499), June 15, 1951 (Exhibit 7.02(a) in
File No. 2-8499), June 1, 1952 (Amended Exhibit 4.02
in File No. 2-9658), April 1, 1953 (Amended Exhibit
4.02 in File No. 2-10120), April 1, 1955 (Amended
Exhibit 4.02 in File No. 2-11476), April 1, 1956
(Amended Exhibit 2.02 in File No. 2-12322),
May 1, 1969 (Amended Exhibit 2.02 in File No. 2-
32602), April 1, 1970 (Amended Exhibit 2.02 in File
No. 2-36410), September 1, 1971 (Amended Exhibit 2.02
in File No. 2-41467), December 1, 1972 (Amended
Exhibit 2.02 in File No. 2-46161), April 1, 1974
(Amended Exhibit 2.02 in File No. 2-50344),
September 1, 1974 (Exhibit 2.04 in File No. 2-59328),
July 1, 1975 (Exhibit 2.05 in File No. 2-59328),
May 15, 1976 (Amended Exhibit 2.02 in File No. 2-
56126), April 15, 1977 (Exhibit 2.06 in File No. 2-
59328), August 1, 1979 (Exhibit 2.04 in File No. 2-
64969), May 1, 1980 (Exhibit 2 to Form 10-Q Quarterly
Report of Kentucky Utilities for the quarter ended
June 30, 1980), September 15, 1982 (Exhibit 4.04 in
File No. 2-79891), August 1, 1984 (Exhibit 4B to Form
10-K Annual Report of Kentucky Utilities Company for
the year ended December 31, 1984), June 1, 1985
(Exhibit 4 to Form 10-Q Quarterly Report of Kentucky
Utilities Company for the quarter ended June 30,
1985), May 1, 1990 (Exhibit 4 to Form 10-Q Quarterly
Report of Kentucky Utilities Company for the quarter
ended June 30, 1990), May 1, 1991 (Exhibit 4 to Form
10-Q Quarterly Report of Kentucky Utilities Company
for the quarter ended June 30, 1991), May 15, 1992
(Exhibit 4.02 to Form 8-K of Kentucky Utilities
-45-
<PAGE>
Number Description Page
4.A Company dated May 14, 1992), August 1, 1992 (Exhibit
(cont.) 4 to Form 10-Q Quarterly Report of Kentucky Utilities
Company for the quarter ended September 30, 1992),
June 15, 1993 (Exhibit 4.02 to Form 8-K of Kentucky
Utilities Company dated June 15, 1993) and
December 1, 1993 (Exhibit 4.01 to Form 8-K of
Kentucky Utilities Company dated December 10, 1993).
Incorporated by reference. -
4.B Supplemental Indenture dated March 1, 1992 between
Kentucky Utilities and Continental Bank, National
Association and M. J. Kruger, as Trustees, providing
for the conveyance of properties formerly held by Old
Dominion Power Company. (Exhibit 4B to Form 10-K
Annual Report of Kentucky Utilities Company for the
year ended December 31, 1992). Incorporated by
reference. -
4.C Supplemental Indenture dated November 1, 1994 between
Kentucky Utilities Company and Bank of America
Illinois, as Trustee. 48-65
10.A Kentucky Utilities' Amended and Restated Performance
Share Plan (Exhibit 10A to Form 10-Q Quarterly Report
of Kentucky Utilities Company for the quarter ended
June 30, 1993). Incorporated by reference. -
10.B Kentucky Utilities' Annual Performance Incentive Plan
(Exhibit 10B to Form 10-K Annual Report of Kentucky
Utilities Company for the year ended December 31,
1990). Incorporated by reference. -
10.C Amendment No. 1 to Kentucky Utilities' Annual
Performance Incentive Plan (Exhibit 10D to Form 10-K
Annual Report of Kentucky Utilities Company for the
year ended December 31, 1991). Incorporated by
reference. -
10.D Amendment No. 2 to Kentucky Utilities' Annual
Performance Incentive Plan (Exhibit 10H to Form 10-K
Annual Report of Kentucky Utilities Company for the
year ended December 31, 1993). Incorporated by
reference. -
10.E Amendment No. 3 to Kentucky Utilities' Annual
Performance Incentive Plan (Exhibit 10I to Form 10-K
Annual Report of Kentucky Utilities Company for the
year ended December 31, 1993). Incorporated by
reference. -
10.F Kentucky Utilities' Executive Optional Deferred
Compensation Plan (Exhibit 10C to Form 10-K Annual
Report of Kentucky Utilities Company for the year
ended December 31, 1990). Incorporated by reference. -
10.G Amendment No. 1 to Kentucky Utilities' Executive
Optional Deferred Compensation Plan (Exhibit 10F to
Form 10-K Annual Report of Kentucky Utilities Company
for the year ended December 31, 1991). Incorporated
by reference. -
-46-
<PAGE>
Number Description Page
10.H Amendment No. 2 to Kentucky Utilities' Executive
Optional Deferred Compensation Plan (Exhibit 10J to
Form 10-K Annual Report of Kentucky Utilities Company
for the year ended December 31, 1993). Incorporated
by reference. -
10.I Kentucky Utilities' Supplemental Security Plan
(Exhibit 10I to Form 10-K Annual Report of Kentucky
Utilities Company for the year ended December 31,
1991). Incorporated by reference. -
10.J Amendment No. 1 to Kentucky Utilities' Supplemental
Security Plan. 66-67
10.K Amendment No. 2 to Kentucky Utilities' Supplemental
Security Plan. 68-70
10.L Kentucky Utilities' Director Retirement Retainer
Program, and Amendment No. 1 (Exhibit 10G to Form
10-K Annual Report of Kentucky Utilities Company for
the year ended December 31, 1991). Incorporated by
reference. -
10.M Kentucky Utilities' Amended and Restated Director
Deferred Compensation Plan 71-87
12 Computation of Ratio of Earnings to Fixed Charges 88
21 List of Subsidiaries 89
23 Consent of Independent Public Accountants 90
27 Financial Data Schedule (required for electronic
filing only in accordance with Item 601(c)(1) of
Regulation S-K). -
99.A Description of Common Stock 91-92
99.B Director and Executive Officer Information 93-101
Note - Exhibit numbers 10.A through 10.M are management contracts
or compensatory plans or arrangements required to be filed as
exhibits to this Form 10-K.
-47-
<PAGE>
The following instruments defining the rights of holders of certain long-
term debt of Kentucky Utilities Company have not been filed with the
Securities and Exchange Commission but will be furnished to the
Commission upon request.
1. Loan Agreement dated as of May 1, 1990 between Kentucky Utili-
ties and the County of Mercer, Kentucky, in connection with
$12,900,000 County of Mercer, Kentucky, Collateralized Solid
Waste Disposal Facility Revenue Bonds (Kentucky Utilities
Company Project) 1990 Series A, due May 1, 2010 and May 1, 2020.
2. Loan Agreement dated as of May 1, 1991 between Kentucky Utili-
ties and the County of Carroll, Kentucky, in connection with
$96,000,000 County of Carroll, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series A, due September 15, 2016.
3. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $2,400,000 County of Carroll, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series C, due February 1, 2018.
4. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Muhlenberg, Kentucky, in connection
with $7,200,000 County of Muhlenberg, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series A, due February 1, 2018.
5. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Mercer, Kentucky, in connection with
$7,400,000 County of Mercer, Kentucky, Collateralized Pollution
Control Revenue Bonds (Kentucky Utilities Company Project) 1992
Series A, due February 1, 2018.
6. Loan Agreement dated as of August 1, 1992 between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $20,930,000 County of Carroll, Kentucky, Collateralized
Pollution Control Revenue Bonds (Kentucky Utilities Company
Project) 1992 Series B, due February 1, 2018.
7. Loan Agreement dated as of December 1, 1993, between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $50,000,000 County of Carroll, Kentucky, Collateralized
Solid Waste Disposal Facilities Revenue Bonds (Kentucky
Utilities Company Project) 1993 Series A due December 1, 2023.
8. Loan Agreement dated as of November 1, 1994, between Kentucky
Utilities and the County of Carroll, Kentucky, in connection
with $54,000,000 County of Carroll, Kentucky, Collateralized
Solid Waste Disposal Facilities Revenue Bonds (Kentucky
Utilities Company Project) 1994 Series A due November 1, 2024.
(B) No reports on Form 8-K were filed by Kentucky Utilities during the
last quarter of 1994.
-48-
<PAGE>
<TABLE>
SCHEDULE II
KENTUCKY UTILITIES COMPANY
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Year Ended December 31, 1994 1993 1992
(in thousands)
Accumulated Provision for Uncollectible Accounts Receivable
<S> <C> <C> <C>
Balance at beginning of year $ 923 $ 1,033 $ 1,132
Balance at end of year $ 457 $ 923 $ 1,033
</TABLE>
Note-Other valuation and qualifying accounts are not significant.
-49-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on
March 9, 1995.
KENTUCKY UTILITIES COMPANY
/s/ John T. Newton
John T. Newton
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant in the capacities and on the date indicated.
Signature Title
/s/ John T. Newton
John T. Newton Chairman and Director (Principal Executive
Officer)
/s/ Michael R. Whitley
Michael R. Whitley President and Director
/s/ O. M. Goodlett
O. M. Goodlett Senior Vice-President (Principal Financial
Officer)
/s/ Michael D. Robinson
Michael D. Robinson Controller (Principal Accounting Officer)
/s/ Mira S. Ball
Mira S. Ball Director
/s/ W. B. Bechanan
W. B. Bechanan Director
/s/ Harry M Hoe
Harry M. Hoe Director
/s/ Milton W. Hudson
Milton W. Hudson Director
/s/ Frank V. Ramsey, Jr.
Frank V. Ramsey, Jr. Director
/s/ Warren W. Rosenthal
Warren W. Rosenthal Director
/s/ William L. Rouse, Jr.
William L. Rouse, Jr. Director
/s/ Charles L. Shearer
Charles L. Shearer Director
March 9, 1995
-50-
<PAGE>
Exhibit 4.C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Supplemental Indenture
DATED NOVEMBER 1, 1994
------------
KENTUCKY UTILITIES COMPANY
TO
BANK OF AMERICA ILLINOIS
AND ROBERT J. DONAHUE,
AS TRUSTEES
------------
(SUPPLEMENTAL TO THE INDENTURE OF MORTGAGE OR DEED OF TRUST DATED
MAY 1, 1947, AS AMENDED, HERETOFORE EXECUTED BY KENTUCKY UTILITIES
COMPANY TO CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST
COMPANY OF CHICAGO AND EDMOND B. STOFFT, AS TRUSTEES.)
------------
(PROVIDING FOR FIRST MORTGAGE BONDS,
POLLUTION CONTROL SERIES NO. 10,
DUE NOVEMBER 1, 2024)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-51-
<PAGE>
SUPPLEMENTAL INDENTURE, dated November 1, 1994, made and entered into by and
between KENTUCKY UTILITIES COMPANY, a corporation organized and existing
under the laws of the Commonwealths of Kentucky and Virginia (hereinafter
commonly referred to as the "Company"), and BANK OF AMERICA ILLINOIS, an
Illinois banking corporation having its office or place of business in the
City of Chicago, Cook County, State of Illinois, formerly named Continental
Bank, National Association and Continental Illinois National Bank and Trust
Company of Chicago (hereinafter commonly referred to as the "Trustee"), and
ROBERT J. DONAHUE (successor Co-Trustee), of the City of Chicago, Cook
County, State of Illinois, as Trustees under the Indenture of Mortgage or
Deed of Trust dated May 1, 1947, as modified and amended by the several
indentures supplemental thereto heretofore executed by and between the
Company and the Trustees from time to time under said Indenture of Mortgage
or Deed of Trust; said Indenture of Mortgage or Deed of Trust, as so
modified and amended, being hereinafter commonly referred to as the
"Indenture"; and said Trustees under the Indenture being hereinafter
commonly referred to as the "Trustees" or the "Trustees under the
Indenture"; Witnesseth:
WHEREAS, the Company, by resolution of its Board of Directors or the Pricing
Committee thereof duly adopted, has determined to issue forthwith an additional
series of its bonds to be secured by the Indenture, as hereby modified and
amended, such bonds to be known and designated as First Mortgage Bonds,
Pollution Control Series No. 10 (hereinafter sometimes referred to as the
"bonds of Series No. 10" or the "bonds of said Series"), and to be authorized,
authenticated and issued only as registered bonds without coupons; and
WHEREAS, the County of Carroll in the Commonwealth of Kentucky (the "County")
has agreed to issue $54,000,000 in principal amount of its Collateralized Solid
Waste Disposal Facilities Revenue Bonds (Kentucky Utilities Company Project)
1994 Series A (the "Revenue Bonds"), which Revenue Bonds will be issued
pursuant to the provisions of the Indenture of Trust dated as of November 1,
1994 (the "County Indenture"), between the County and Bank One, Lexington,
N.A., Lexington, Kentucky, as Trustee (said Trustee or any successor trustee
under the County Indenture being hereinafter referred to as the "County
Trustee"); and
WHEREAS, the proceeds of the Revenue Bonds (other than any accrued interest
thereon) will be loaned by the County to the Company pursuant to the provisions
of the Loan Agreement dated as of November 1, 1994 (the "Agreement"), between
the County and the Company, in order to finance certain solid waste disposal
facilities which have been or will be acquired, constructed and installed at
the Ghent Generating Station of the Company located in said County and which
are more fully described in Exhibit A to the Agreement; and
WHEREAS, payments by the Company under and pursuant to the Agreement have
been assigned by the County to the County Trustee in order to secure the
payment of the Revenue Bonds; and in order to further secure the payment of the
Revenue Bonds, the Company desires to issue its bonds of Series No. 10 to the
County Trustee as provided in the Agreement; and
WHEREAS, the Company desires, in accordance with the provisions of Article I,
Section 6(e) of Article II and Article XVI of the Indenture, to execute this
supplemental indenture for the purpose of creating and authorizing its bonds of
Series No. 10 and modifying or amending certain provisions of the Indenture in
the particulars and to the extent hereinafter in this supplemental indenture
specifically provided; and
WHEREAS, the execution and delivery by the Company of this supplemental
indenture have been duly authorized by the Board of Directors of the Company or
the Pricing Committee thereof; and the Company has requested, and hereby
requests, the Trustees to enter into and join with the Company in the execution
and delivery of this supplemental indenture; and
-52-
<PAGE>
WHEREAS, the bonds of Series No. 10 are to be authorized, authenticated and
issued only in the form of registered bonds without coupons, and each of such
bonds shall be substantially in the following form, to wit:
(Form of face of bond of Series No. 10)
This bond is nontransferable except as may be required to effect a
transfer to any successor trustee under the Indenture of Trust dated as of
November 1, 1994 between Carroll County, Kentucky, and Bank One,
Lexington, N.A. as Trustee.
No. ___________ $ ___________
Kentucky Utilities Company
First Mortgage Bond, Pollution Control Series No. 10
Due November 1, 2024
Kentucky Utilities Company, a Kentucky and Virginia corporation (hereinafter
referred to as the "Company"), for value received, hereby promises to pay to
Bank One, Lexington, N.A., as Trustee under the Indenture of Trust (the "County
Indenture") dated November 1, 1994, from the County of Carroll, Kentucky, (the
"County") to Bank One, Lexington, N.A., or any successor trustee under the
County Indenture (the "County Trustee"), the principal sum of Dollars
on the Demand Redemption Date, as hereinafter defined, and to pay on the Demand
Redemption Date to the County Trustee interest on said sum from the Initial
Interest Accrual Date, as hereinafter defined, to the Demand Redemption Date,
at the interest rate or rates determined for the "Interest Rate Mode" (as
described in Section 2.02 of the County Indenture) applicable to the Revenue
Bonds referred to on the reverse hereof selected from time to time by the
Company, subject to the provisions hereinafter set forth in the event of a
rescission of a Redemption Demand, as hereinafter defined. Both the principal
of and the interest on this bond shall be payable at the office or agency of
the Company in Chicago, Illinois, in any coin or currency of the United States
of America which at the time of payment is legal tender for public and private
debts.
The provisions of this bond are continued on the reverse side hereof and such
continued provisions shall have the same effect, for all purposes, as though
fully set forth at this place. This bond shall not be valid or become
obligatory for any purpose unless and until it shall have been authenticated by
the execution by the Trustee or its successor in trust under the Indenture of
the Trustee's Certificate endorsed hereon.
IN WITNESS WHEREOF, Kentucky Utilities Company has caused this bond to be
executed in its name by the manual or facsimile signature of its President or
one of its Vice-Presidents, and its corporate seal or a facsimile thereof to be
hereto affixed or imprinted hereon and attested by the manual or facsimile
signature of its Secretary or one of its Assistant Secretaries.
Dated as of
Kentucky Utilities Company
By __________________________________
President
Attest:
- -------------------------------
Secretary
-53-
<PAGE>
(Form of reverse side of bond of Series No. 10)
This bond is one of the bonds of the Company issued and to be issued from
time to time under and in accordance with and all secured by the indenture of
mortgage or deed of trust dated May 1, 1947, executed and delivered by the
Company to Bank of America Illinois (formerly Continental Bank, National
Association and formerly Continental Illinois National Bank and Trust Company
of Chicago and hereinafter referred to as the "Trustee") and Edmond B. Stofft,
as Trustees, and the indentures supplemental thereto heretofore executed and
delivered by the Company to the Trustees under said indenture of mortgage,
including the indenture supplemental thereto dated November 1, 1994, executed
and delivered by the Company to said Bank of America Illinois and Robert J.
Donahue (successor Co-Trustee), as Trustees (collectively the "Trustees"),
prior to the authentication of this bond (said indenture of mortgage and said
supplemental indentures being hereinafter referred to, collectively, as the
"Indenture"). Reference to the Indenture and to all supplemental indentures, if
any, hereafter executed pursuant to the Indenture is hereby made for a
description of the property mortgaged and pledged, the nature and extent of the
security and the rights of the holders and registered owners of said bonds and
of the Trustees and of the Company in respect of such security. By the terms of
the Indenture the bonds to be secured thereby are issuable in series which may
vary as to date, amount, date of maturity, rate of interest, redemption
provisions, medium of payment and in other respects as in the Indenture
provided.
This bond is one of a series of bonds of the Company issued under the
Indenture and designated as First Mortgage Bonds, Pollution Control Series No.
10 (hereinafter called the "bonds of Series No. 10" or the "bonds of said
Series"). The bonds of Series No. 10 have been issued to Bank One, Lexington,
N.A., Lexington, Kentucky, as trustee (said trustee or any successor trustee
being hereinafter referred to as the "County Trustee") under the Indenture of
Trust dated as of November 1, 1994 (the "County Indenture"), between the County
and the County Trustee, to secure payment of the Collateralized Solid Waste
Disposal Facilities Revenue Bonds (Kentucky Utilities Company Project) 1994
Series A (the "Revenue Bonds"), issued by the County under the County
Indenture, the proceeds of which (other than any accrued interest thereon) have
been loaned to the Company pursuant to the provisions of the Loan Agreement
dated as of November 1, 1994 (the "Agreement"), between the Company and the
County.
Except as provided in the next succeeding paragraph, upon an event of default
under Section 9.1 of the Agreement or an event of default under Section 9.01(a)
or (b) of the County Indenture, the bonds of Series No. 10 shall be redeemable
in whole upon receipt by the Trustee of a written demand (hereinafter called a
"Redemption Demand") from the County Trustee stating that there has been such a
default, stating that it is acting pursuant to the authorization granted by
Section 9.02(c) of the County Indenture, specifying the last date or dates to
which interest on the Revenue Bonds has been paid (such date being hereinafter
referred to as the "Initial Interest Accrual Date") and demanding redemption of
the bonds of said Series. The Trustee shall, within 10 days after receiving
such Redemption Demand, mail a copy thereof by certified mail to the Company
marked to indicate the date of its receipt by the Trustee. Promptly upon
receipt by the Company of such copy of a Redemption Demand, the Company shall
fix a date on which it will redeem the bonds of said Series so demanded to be
redeemed (hereinafter called the "Demand Redemption Date"). Notice of the date
fixed as the Demand Redemption Date shall be mailed by the Company to the
Trustee at least 30 days prior to such Demand Redemption Date. The date to be
fixed by the Company as the Demand Redemption Date may be any date up to and
including the earlier of (x) the 120th day after receipt by the Trustee of the
Redemption Demand or (y) November 1, 2024; provided that if the Trustee shall
not have received such notice fixing the Demand Redemption Date within 90 days
after receipt by it of the Redemption Demand, the Demand Redemption Date shall
be deemed to be the earlier of (x) the 120th day after receipt by the Trustee
of the Redemption Demand or (y) November 1, 2024. The Trustee shall mail notice
of the Demand Redemption Date (such notice being hereinafter called
-54-
<PAGE>
the "Demand Redemption Notice") to the County Trustee not more than 10 or less
than five days prior to the Demand Redemption Date. Notwithstanding the
foregoing, if any of the events of default described in the first sentence of
this paragraph is existing on November 1, 2024, such date shall be deemed to be
the Demand Redemption Date without further action (including actions specified
in this paragraph) by the County Trustee, the Trustee or the Company. The bonds
of Series No. 10 shall be redeemed by the Company on the Demand Redemption
Date, upon surrender thereof by the County Trustee to the Trustee, at a
redemption price equal to the principal amount thereof plus accrued interest
thereon at the rate or rates then applicable to the Revenue Bonds or determined
under the provisions of the County Indenture from the Initial Interest Accrual
Date to the Demand Redemption Date. If a Redemption Demand is rescinded by the
County Trustee by written notice to the Trustee prior to the Demand Redemption
Date, no Demand Redemption Notice shall be given, or, if already given, shall
be automatically annulled, and interest on the bonds of said Series shall cease
to accrue, all interest accrued thereon shall be automatically rescinded and
cancelled and the Company shall not be obligated to make any payments of
principal of or interest on the bonds of said Series; but no such rescission
shall extend to or effect any subsequent default or impair any right consequent
thereon.
In the event that all the bonds outstanding under the Indenture shall, if not
already due, have become immediately due and payable, whether by declaration or
otherwise, and such acceleration shall not have been annulled, the bonds of
Series No. 10 shall bear interest at the rate or rates applicable to the
Revenue Bonds from the Initial Interest Accrual Date, as specified in a written
notice pursuant to Article II, Section 2 of the supplemental indenture dated as
of November 1, 1994 referred to above to the Trustee from the County Trustee,
and the principal of and interest on the bonds of said Series from the Initial
Interest Accrual Date shall be payable in accordance with the provisions of
Article X of the Indenture.
Upon payment of the principal of and premium, if any, and interest on the
Revenue Bonds, whether at maturity or prior to maturity by redemption or
otherwise, and the surrender thereof to and cancellation thereof by the County
Trustee, or upon provision for the payment thereof having been made in
accordance with Article VIII of the County Indenture, bonds of Series No. 10 in
a principal amount equal to the principal amount of the Revenue Bonds so
surrendered and cancelled shall be surrendered by the County Trustee to the
Trustee whereupon the bonds of said Series so surrendered shall be deemed fully
paid and the obligations of the Company thereunder shall be terminated, and
such bonds of said Series shall be cancelled by the Trustee.
No recourse shall be had for the payment of the principal of or interest on
this bond, or for any claim based hereon, or otherwise in respect hereof or of
the Indenture or any indenture supplemental thereto, to or against any
incorporator, stockholder, officer or director, past, present or future, of the
Company, or of any predecessor or successor corporation, either directly or
through the Company or such predecessor or successor corporation, under any
constitution or statute or rule of law, or by the enforcement of any assessment
or penalty, or otherwise, all such liability of incorporators, stockholders,
directors and officers being waived and released by the registered owner hereof
by the acceptance of this bond and being likewise waived and released by the
terms of the Indenture.
This bond is nontransferable except as may be required to effect a transfer
to any successor trustee under the County Indenture. Any such transfer may be
made by the registered owner hereof, in person or by attorney duly authorized,
at the principal office or place of business of the Trustee under the
Indenture, upon the surrender and cancellation of this bond and the payment of
any stamp tax or other governmental charge, and upon any such transfer a new
registered bond or bonds without coupons, of the same series and for the same
aggregate principal amount, will be issued to the transferee in exchange
herefor.
AND WHEREAS, there is to be endorsed on each of the bonds of Series No. 10
(whether in temporary or definitive form) a certificate of the Trustee
substantially in the following form, to-wit:
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Trustee's Certificate
This bond is one of the bonds of the series designated therein, described in
the within mentioned Indenture.
Bank of America Illinois
as Trustee
By __________________________________
Authorized Officer
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Now, Therefore, in consideration of the premises and of the sum of One Dollar
($1.00) duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of further assuring to the Trustees under the Indenture their title to, or lien
upon, the property hereinafter described, under and pursuant to the terms of
the Indenture and for the purpose of further securing the due and punctual
payment of the principal of and interest and the premium, if any, on all bonds
which have been heretofore or shall be hereafter issued under the Indenture and
indentures supplemental thereto and which shall be at any time outstanding
thereunder and secured thereby, and for the purpose of securing the faithful
performance and observance of all the covenants and conditions set forth in the
Indenture and/or in any indenture supplemental thereto, the Company has given,
granted, bargained, sold, transferred, assigned, pledged, mortgaged, warranted
the title to and conveyed, and by these presents does give, grant, bargain,
sell, transfer, assign, pledge, mortgage, warrant the title to and convey unto
BANK OF AMERICA ILLINOIS and ROBERT J. DONAHUE, as Trustees under the Indenture
as therein provided, and the successors in the trusts thereby created, and to
their assigns, all the right, title and interest of the Company in and to any
and all premises, plants, property, leases and leaseholds, franchises, permits,
rights and powers, of every kind and description, real and personal (1) which
have been acquired by the Company through construction, purchase, consolidation
or merger, or otherwise, and which at the date hereof are owned by the Company,
and (2) which shall be acquired by the Company, through construction, purchase,
consolidation, merger, or otherwise, on or subsequent to the date hereof,
together, in each case, with the rents, issues, products and profits therefrom,
excepting, however, and there is hereby expressly reserved and excluded from
the lien and effect of the Indenture and of this supplemental indenture, all
right, title and interest of the Company, now owned, or hereinafter acquired,
in and to (a) all cash, bonds, shares of stock, obligations and other
securities not deposited with the Trustee or Trustees under the Indenture, and
(b) all accounts and bills receivable, judgments (other than for the recovery
of real property or establishing a lien or charge thereon or right therein) and
choses in action not specifically assigned to and pledged with the Trustee or
Trustees under the Indenture, and (c) all lamps and supplies, machinery,
appliances, goods, wares, merchandise, commodities, equipment, apparatus,
materials and/or supplies acquired or held by the Company for sale, lease,
rental or consumption in the ordinary course of business, and (d) the last day
of each of the demised terms created by any lease of property leased to the
Company and under each and every renewal of any such lease, the last day of
each and every such demised term being hereby expressly reserved to and by the
Company, and (e) all gas, oil, ore, copper and other minerals now or hereafter
existing upon, within or under any real estate of the Company subject to, or
hereby subjected to, the lien of the Indenture.
Without in any way limiting or restricting the generality of the foregoing
description or the foregoing exceptions and reservations, the Company hereby
expressly gives, grants, bargains, sells, transfers, assigns, pledges,
mortgages, warrants the title to and conveys unto said BANK OF AMERICA ILLINOIS
and ROBERT J. DONAHUE, as Trustees under the Indenture, and unto their
successor or successors in trust, and their assigns, under the trusts and for
the purposes of the Indenture, as hereby amended, the properties described in
Section 5 of Article V of this supplemental indenture (said description being
incorporated herein by reference with the same force and effect as if set forth
at length herein), and which properties have been acquired by the Company,
through construction, purchase, consolidation or merger, or otherwise, and
which are owned by the Company at the date of the execution hereof together
with the tenements, hereditaments and appurtenances thereunto belonging or
appertaining.
To Have and to Hold all said property, right and interests hereinabove
described or referred to and conveyed, assigned, pledged or mortgaged, or
intended to be conveyed, assigned, pledged or mortgaged, together with the
rents, issues, products and profits therefrom unto said BANK OF AMERICA
ILLINOIS and ROBERT J. DONAHUE, as Trustees under the Indenture, as hereby
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modified and amended, and unto their successor or successors in trust forever,
But in Trust, Nevertheless, upon the trusts, for the purposes and subject to
all the terms, conditions, provisions and restrictions of the Indenture, as
hereby modified and amended.
And upon the considerations and for the purposes aforesaid, and in order to
provide, pursuant to the terms of the Indenture, for the issuance under the
Indenture, as hereby modified and amended, of bonds of Series No. 10 and to fix
the terms, provisions and characteristics of the bonds of said Series, and to
modify and amend the Indenture in the particulars and to the extent hereinafter
in this supplemental indenture specifically provided, the Company hereby
covenants and agrees with the Trustees as follows:
ARTICLE I
A series of bonds issuable under the Indenture, as hereby modified and
amended, and to be known and designated as "First Mortgage Bonds, Pollution
Control Series No. 10" (hereinafter sometimes referred to as the "bonds of
Series No. 10" or the "bonds of said Series"), and which shall be executed,
authenticated and issued only in the form of registered bonds without coupons,
in denominations of $5,000 and integral multiples thereof, is hereby created
and authorized. The bonds of said Series shall be payable as provided in
Section 2 of Article II hereof and shall be substantially in the form thereof
hereinbefore recited. Each bond of said Series shall be issued to and
registered in the name of the County Trustee and shall be nontransferable
except as required to effect any transfer of bonds of said Series to any
successor trustee under the County Indenture. Each bond of said Series shall be
dated as of the date of issuance of the Revenue Bonds.
ARTICLE II
Section 1. The bonds of Series No. 10 shall bear interest, and the principal
thereof and interest thereon shall be payable, only to the extent and in the
manner provided in Section 2 of this Article. The bonds of said Series shall
mature on November 1, 2024. The bonds of said Series shall be payable, both as
to principal and interest, at the office or agency of the Company in Chicago,
Illinois in any coin or currency of the United States of America which at the
time of payment is legal tender for public and private debts.
The bonds of said Series shall be deemed fully paid, and the obligations of
the Company thereunder shall be terminated, to the extent and in the manner
provided in Section 3 of this Article.
Section 2. (a) Except as provided in paragraph (b) of this Section 2, upon an
event of default under Section 9.1 of the Agreement or upon an event of default
under Section 9.01(a) or (b) of the County Indenture, the bonds of Series No.
10 shall be redeemable in whole upon receipt by the Trustee of a written demand
(hereinafter called a "Redemption Demand") from the County Trustee stating that
there has been such a default, stating that it is acting pursuant to the
authorization granted by Section 9.02(c) of the County Indenture, specifying
the last date or dates to which interest on the Revenue Bonds has been paid
(such date being hereinafter referred to as the "Initial Interest Accrual
Date") and demanding redemption of the bonds of said Series. The Trustee shall,
within 10 days after receiving such Redemption Demand, mail a copy thereof by
certified mail to the Company marked to indicate the date of its receipt by the
Trustee. Promptly upon receipt by the Company of such copy of a Redemption
Demand, the Company shall fix a date on which it will redeem the bonds of said
Series so demanded to be redeemed (hereinafter called the "Demand Redemption
Date"). Notice of the date fixed as the Demand Redemption Date shall be mailed
by the Company to the Trustee at least 30 days prior to such Demand Redemption
Date. The date to be fixed by the Company as the Demand Redemption Date may be
any date up to and including the earlier of (x) the 120th day after receipt by
the Trustee of the Redemption Demand or (y) November 1, 2024; provided that if
the
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Trustee shall not have received such notice fixing the Demand Redemption Date
within 90 days after receipt by it of the Redemption Demand, the Demand
Redemption Date shall be deemed to be the earlier of (x) the 120th day after
receipt by the Trustee of the Redemption Demand or (y) November 1, 2024. The
Trustee shall mail notice of the Demand Redemption Date (such notice being
hereinafter called the "Demand Redemption Notice") to the County Trustee not
more than 10 or less than five days prior to the Demand Redemption Date.
Notwithstanding the foregoing, if any of the events of default described in the
first sentence of this paragraph (a) is existing on November 1, 2024, such date
shall be deemed to be the Demand Redemption Date without further action
(including actions specified in this paragraph (a)) by the County Trustee, the
Trustee or the Company. The bonds of Series No. 10 shall be redeemed by the
Company on the Demand Redemption Date, upon surrender thereof by the County
Trustee to the Trustee, at a redemption price equal to the principal amount
thereof, plus accrued interest thereon at the rate or rates then applicable to
the Revenue Bonds or determined under the provisions of the County Indenture
from the Initial Interest Accrual Date to the Demand Redemption Date. If a
Redemption Demand is rescinded by the County Trustee by written notice to the
Trustee prior to the Demand Redemption Date, no Demand Redemption Notice shall
be given, or, if already given, shall be automatically annulled, and interest
on the bonds of said Series shall cease to accrue, all interest accrued thereon
shall be automatically rescinded and cancelled and the Company shall not be
obligated to make any payments of principal of or interest on the bonds of said
Series; but no such rescission shall extend to or affect any subsequent default
or impair any right consequent thereon.
(b) In the event that all the bonds outstanding under the Indenture shall, if
not already due, have become immediately due and payable, whether by
declaration or otherwise, and such acceleration shall not have been annulled,
the bonds of Series No. 10 shall bear interest at the interest rate or rates
then applicable to the Revenue Bonds from the Initial Interest Accrual Date, as
specified in a written notice to the Trustee from the County Trustee, and the
principal of and interest on the bonds of said Series from the Initial Interest
Accrual Date shall be payable in accordance with the provisions of Article X of
the Indenture.
(c) Anything herein contained to the contrary notwithstanding, the Trustee is
not authorized to take any action pursuant to a Redemption Demand or a
rescission thereof or a written notice required by paragraph (b) of this
Section 2, and such Redemption Demand, rescission or notice shall be of no
force or effect, unless it is executed in the name of the County Trustee by one
of its Vice-Presidents.
Section 3. Upon payment of the principal of and premium, if any, and interest
on the Revenue Bonds, whether at maturity or prior to maturity by redemption or
otherwise, and the surrender thereof to and cancellation thereof by the County
Trustee, or upon provision for the payment thereof having been made in
accordance with Article VIII of the County Indenture, bonds of Series No. 10 in
a principal amount equal to the principal amount of the Revenue Bonds so
surrendered and cancelled shall be surrendered by the County Trustee to the
Trustee, whereupon the bonds of said Series so surrendered shall be deemed
fully paid and the obligations of the Company thereunder shall be terminated,
and such bonds of said Series shall be cancelled and destroyed by the Trustee
by shredding, compacting or other suitable means and a certificate of such
cancellation and destruction shall be delivered to the Company.
Section 4. The bonds of Series No. 10 shall be executed on behalf of the
Company and sealed with the corporate seal of the Company, all in the manner
provided in or permitted by Section 6 of Article I of the Indenture, as
follows:
(a) bonds of said Series executed on behalf of the Company by its
President or a Vice-President and by its Secretary or an Assistant
Secretary may be so executed by the manual or facsimile signature of such
President or Vice-President and of such Secretary or Assistant Secretary,
as the case may be, of the Company, or of any person or persons who shall
have been such officer or officers, as the case may be, of the Company on
or subsequent to the date of this
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supplemental indenture, notwithstanding that he or they may have ceased to
be such officer or officers of the Company at the time of the actual
execution, authentication, issue or delivery of any of such bonds of said
Series, and any such manual or facsimile signature or signatures of such
officer or officers of the Company, as above provided, on any such bonds
shall constitute execution of such bonds on behalf of the Company by such
officer or officers of the Company for the purposes of the Indenture, as
hereby modified and amended, and shall be valid and effective for all
purposes, provided that all bonds of said Series shall always be executed
on behalf of the Company by the manual or facsimile signature of its
President or a Vice-President and of its Secretary or an Assistant
Secretary, as above provided, and provided, further, that none of such
bonds shall be executed on behalf of the Company by the manual or facsimile
signature of the same officer or person acting in more than one capacity;
and
(b) such corporate seal of the Company may be facsimile, and any bonds of
said series on which such facsimile seal of the Company shall be affixed,
impressed, imprinted or reproduced shall be deemed to be sealed with the
corporate seal of the Company for the purposes of the Indenture, as hereby
modified and amended, and such facsimile seal shall be valid and effective
for all purposes.
ARTICLE III
Section 10 of Article III of the Indenture is hereby further amended to
provide that the Company agrees to observe and comply with the provisions of
said section as so amended hereby so long as the bonds of Series No. 10 are
outstanding. The bonds outstanding on the date hereof to which said Section 10
applies are Series K, Nos. 7, 8, Series P, Nos. 1B, 2B, 3B and 4B, Series Q and
No. 9.
No covenant to provide a maintenance and renewal fund is made in respect of
the bonds of Series No. 10. The absence of such a covenant shall not, however,
limit the right of the Company to use, apply or certify bonds of Series No. 10
to comply with, or to satisfy its obligations under, any provision of the
Indenture (including, without limitation, the provisions of Section 1 of
Article VII of the Indenture).
The bonds of Series No. 10 are intended to be used as collateral for and to
secure payment of the Revenue Bonds as hereinabove provided, and, accordingly,
the bonds of Series No. 10 shall be dated as of the date of issuance of the
Revenue Bonds and shall bear interest from the Initial Interest Accrual Date,
as hereinabove provided, notwithstanding anything to the contrary contained in
the Indenture with respect to the dating of bonds and the date from which
interest on bonds shall accrue.
ARTICLE IV
Section 1. Capitalized terms used in this Article IV and not otherwise
defined in this Indenture shall have the meanings set forth in the County
Indenture.
Section 2. Subsequent to the issuance of the Revenue Bonds, the Company shall
not be required to establish compliance with the net earnings requirements of
Section 5 of Article II of the Indenture in connection with any Conversion of
Interest Rate Mode on the Revenue Bonds or any change in length of Long Term
Rate Period. So long as the Revenue Bonds operate in any Interest Rate Mode
other than the Long Term Rate where the Long Term Rate Period ends on the day
prior to the final maturity of the Revenue Bonds, the Company shall include,
for purposes of any required calculation of such net earnings requirement (as
such requirement shall then be in effect), interest on the bonds of Series No.
10 at an annual rate of 15%. If at any time the interest rate on the Revenue
Bonds is a Long Term Rate where the Long Term Rate Period ends on the day prior
to the final maturity of the Revenue Bonds, the Company may include, for
purposes of any calculation of such net earnings requirement, interest on bonds
of Series No. 10 at the Long Term Rate then borne by the Revenue Bonds.
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ARTICLE V
Section 1. The provisions of this supplemental indenture shall be effective
from and after the execution hereof; and the Indenture, as hereby modified and
amended, shall remain in full force and effect.
Section 2. Each holder or registered owner of a bond of any series not now
outstanding which shall be authenticated by the Trustee and issued by the
Company under the Indenture (as hereby amended) subsequent to the execution of
this supplemental indenture and of any coupon pertaining to any such bond, by
the acquisition, holding or ownership of such bond and coupon, thereby consents
and agrees to, and shall be bound by, the provisions of this supplemental
indenture.
Section 3. Each reference in the Indenture, or in this supplemental
indenture, to any article, section, term or provision of the Indenture shall
mean and be deemed to refer to such article, section, term or provision of the
Indenture, as hereby modified and amended, except where the context otherwise
indicates.
Section 4. All the covenants, provisions, stipulations and agreements in this
supplemental indenture contained are and shall be for the sole and exclusive
benefit of the parties hereto, their successors and assigns, and of the holders
and registered owners from time to time of the bonds and of the coupons issued
and outstanding from time to time under and secured by the Indenture, as hereby
modified and amended.
This supplemental indenture has been executed in a number of identical
counterparts, each of which so executed shall be deemed to be an original.
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At the time of the execution of this supplemental indenture, the aggregate
principal amount of all indebtedness outstanding, or to be outstanding, under
and secured by the Indenture, as hereby modified and amended, is $495,830,000,
consisting of and represented by First Mortgage Bonds, Series K, Pollution
Control Series No. 7 and 8, Series P, Pollution Control Series No. 1B through
No. 4B, inclusive, Series Q and Pollution Control Series No. 9 and 10 of the
Company, as follows:
<TABLE>
<CAPTION>
INTEREST PRINCIPAL
SERIES RATE MATURITY DATE AMOUNT
------ -------- ------------- ---------
<S> <C> <C> <C>
K 7 3/8 December 1, 2002 $35,500,000
No. 7 7 3/8 May 1, 2010 4,000,000
7.60 May 1, 2020 8,900,000
No. 8 7.45 September 15, 2016 96,000,000
P 7.92 May 15, 2007 53,000,000
8.55 May 15, 2027 33,000,000
No. 1B 6 1/4 February 1, 2018 20,930,000
No. 2B 6 1/4 February 1, 2018 2,400,000
No. 3B 6 1/4 February 1, 2018 7,200,000
No. 4B 6 1/4 February 1, 2018 7,400,000
Q 5.95 June 15, 2000 61,500,000
6.32 June 15, 2003 62,000,000
No. 9 5 3/4 December 1, 2023 50,000,000
No. 10 (a) November 1, 2024 54,000,000(b)
</TABLE>
- --------
(a) The interest rate or rates determined for the "Interest Rate Mode" as
described in Section 2.02 of the County Indenture.
(b) To be presently issued by the Company under the Indenture, as hereby
modified and amended.
All of said bonds of Series K, Series P and Series Q, respectively, were sold
by the Company to, and upon the issue thereof were owned and held by, the
corporations and partnerships whose names and residences are stated in the
Supplemental Indentures dated December 1, 1972, May 15, 1992 and June 15, 1993,
respectively, executed by the Company to the Trustees under said Indenture as
heretofore modified and amended.
All of said bonds of Series No. 7 and Series No. 8 were heretofore issued and
delivered by the Company to, and upon the issuance thereof were held by, First
Security National Bank and Trust Company, One First Security Plaza, Lexington,
Fayette County, Kentucky 40507, as trustee (now succeeded by Bank One,
Lexington, N.A.).
All of said bonds of Series No. 1B through 4B, inclusive, and Series No. 9
were heretofore issued and delivered by the Company to, and upon the issuance
thereof were held by, Bank One, Lexington, N.A., 201 East Main Street,
Lexington, Fayette County, Kentucky 40507, as trustee.
The Fifty Four Million Dollars ($54,000,000) in principal amount of bonds of
Series No. 10 proposed to be issued by the Company under the Indenture, as
hereby modified and amended, are to be issued and delivered by the Company to,
and upon the issuance thereof held by, Bank One, Lexington, N.A., 201 East Main
Street, Lexington, Fayette County, Kentucky 40507, as Trustee under the County
Indenture.
Section 5. The Company hereby gives, grants, bargains, sells, transfers,
assigns, pledges, mortgages, warrants the title to and conveys unto the Trustee
under the Indenture, upon the trusts and for the purposes of the Indenture, as
hereby modified, the following described properties:
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First. The following described gas-fired combustion turbine unit of the
Company, together with transformers, substation, switching equipment and
facilities related thereto, located in Kentucky:
Item 1. The 110 MW nameplate rated Generating Unit No. 9 installed at the
E.W. Brown Generating Station of the Company, located near Burgin in Mercer
County.
Second. The following described electric substations and switching stations
of the Company located in Kentucky, heretofore conveyed to the Trustees under
the Indenture, the size or voltage of which have been subsequently converted or
increased as set forth below:
Item 1. The 161-69 kV substation near Earlington, Hopkins County (Walker)
the size of which has been increased by the addition of a 69 kV capacitor
bank.
Third. The following described electric substations and switching stations of
the Company are located in Kentucky:
Item 1. The 138 kV switching station near Burgin in Mercer County is an
addition to the system.
Fourth. The following described electric transmission lines of the Company
located in Kentucky.
Item 1. The 161 kV single circuit wood pole line extending between River
Queen switch structure and the River Queen substation near Midland in
Muhlenberg County.
Item 2. The 69 kV single circuit wood pole line extending between River
Queen switch structure and the River Queen substation near Midland in
Muhlenberg County.
Item 3. The 138 kV #1 single circuit steel pole line extending from the
Brown North/Brown Plant line to the Brown CT Substation near Shakertown in
Mercer County.
Item 4. The 138 kV #2 single circuit steel pole line extending from the
Brown North/Brown Plant line to the Brown CT Substation near Shakertown in
Mercer County.
Item 5. The 69 kV single circuit wood pole line extension from the
Wheatcroft Substation into the new Nebo Substation near Nebo in Hopkins
County.
Item 6. The 69 kV single circuit wood pole line extending from the
Morganfield/Corydon line to the Peabody Coal Camp NO. 1 Substation near
Waverly in Union County.
Item 7. The 69 kV single circuit wood pole line extending from the Rocky
Branch/Pocket 69 kV to the Alva Substation near Alva in Harlan County.
Item 8. The 69 kV single circuit wood pole line extending from the
Pineville/Rocky Branch line to the Fourmile Substation near Fourmile in
Bell County.
Item 9. The 69 kV single circuit wood pole line extending from the Lake
Reba/Paint Lick line to the Bluegrass Ordnance Substation near Richmond in
Madison County.
Item 10. The 69 kV single circuit wood pole line extending from the Green
River Plant/Hillside line to the Muhlenberg Prison Substation near South
Carrollton in Muhlenberg County.
Fifth. The following described real estate of the Company situated in Garrard
County, Kentucky:
Beginning at a point in the property line between the center line of Kemper
Lane and Doolin said point being approximately 370 feet northwest of a
corner common to Doolin and Rogers and Kemper Lane. Then, beginning at the
proposed roadway described below and the center of Kemper Lane; thence
South 64(degrees) 08' East 1350 feet, thence North 86(degrees) 08' E 272
feet, thence North 03(degrees) 52' West 20 feet to the true point of the
beginning; thence North 86(degrees) 07' 55" East 200 feet; thence North
03(degrees) 52' 05" West 250 feet; thence South 86(degrees) 07' 55" West
275 feet; thence South 03(degrees) 52' 05" East 250 feet; thence south
86(degrees) 07' 55" West 75 feet to the point of beginning, and containing
approximately 1.58 acres.
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Temporary Construction Easement: There will also be a 50 foot temporary
work space around the gas compressor site to be used during the
construction only. Being the property acquired by the Company by deed dated
January 5, 1994 and recorded in Deed Book 164, Page 503, Garrard County
Court Clerk's Office.
Sixth. The following described real estate of the Company situated in Hopkins
County, Kentucky:
Tract 1: Beginning at the South corner of the original Kentucky Utilities
Company power plant lot; said point being located South 45 deg. 00' West
210.00 feet from the West right-of-way of North McEuen Avenue; thence South
45 deg. 00' West 5.56 feet to a point; thence with a new division line
North 46 deg. 53' 33" West 162.28 feet; thence with another new division
line North 59 deg. 55' 44" West 54.65 feet to an original corner of
Kentucky Utilities Company power plant lot; thence with said lot North 45
deg. 00' East 25.00 feet; South 45 deg. 00' East 215.00 feet to the
beginning, containing 0.052 acres.
Tract 2: Beginning at the original Southwest corner of the Kentucky
Utilities Company power plant lot; said point being located South 45 deg.
00' West 275.00 feet from the West right-of-way of North McEuen Avenue;
thence with the South line of Kentucky Utilities Company 5 acre tract North
73 deg. 10' 08" West 278.70 feet; thence with a new division line South 19
deg. 06' 55" West 36.00 feet; thence with another new division line South
71 deg. 13' 29" East 200.29 feet; thence South 66 deg. 37' 38" East 204.71
feet to a corner in Kentucky Utilities Company power plant lot; thence with
said lot North 45 deg. 00' West 140.00 feet to the beginning, containing
0.340 acres, and being the property acquired by the Company by deed dated
January 17, 1994 and recorded in Deed Book 526, Page 147, Hopkins County
Court Clerk's office.
Seventh. The following described real estate of the Company situated in
Jessamine County, Kentucky:
Beginning at an iron pin (set), a common corner of Switzer and Maddox, said
iron pin being in the easterly right-of-way of Clays Mill Road; thence with
the easterly right-of-way of Clays Mill Road N 21(degrees) 11' 42" E 216.59
feet to an iron pin (set); thence through the lands of Switzer for two
calls, S 69(degrees) 57' 04" E 220.00 feet to an iron pin (set) and S
25(degrees) 25' 54" W 265.00 feet to an iron pin (set) in the common line
of Switzer and Maddox; thence with said common line N 56(degrees) 37' 00" W
205.00 feet to the beginning and containing 1.164 acres. Being further
described as parcel 2 on the Plat attached to the Deed of record in Deed
Book 312, Page 244, Jessamine County Clerk's office, and marked Exhibit A.
Also conveyed herein is a temporary twenty-foot access easement ("Access
Easement") for ingress and egress to the above Real Property utilizing an
existing entrance. The Easement is more particularly described on said
Exhibit A and is identified thereon as a "temporary access for ingress and
egress", and being the property acquired by the Company by deed dated
November 12, 1993 and recorded in Deed Book 312, Page 244, Jessamine County
Court Clerk's office.
Eighth. The following described real estate of the Company situated in
Montgomery County, Kentucky:
Beginning at a pin set corner to McNew and Cline said pin being located
South 12 degrees 54 minutes 00 seconds East 403.93 feet from the South
right of way of the Old Owingsville Road and with Tract 2 for the following
calls: South 12 degrees 54 minutes 09 seconds East, 130.00 feet to a pin
set corner to Tract 3B of Cline and with Tract 3B; South 76 degrees 52
minutes 06 seconds West, 279.97 feet to a pin set corner to Cline and
Hatton leaving Cline and with said Hatton the following call: North 13
degrees 45 minutes 25 seconds West, 140.00 feet to a pin set corner to
Hatton and McNew leaving Hatton and with said McNew the following call:
North 78 degrees 53 minutes 52 seconds East, 282.19 feet to the point of
beginning and being subject to right of ways, easements, etc. of record or
otherwise. Based on a field survey done by R.D. Jones General Surveys in
May of 1994 and being further described as Tract 3C on the said survey made
a part of the Deed of record in Deed Book 213, Page 377, Montgomery County
Clerk's office. The above described parcel contains .87 acres.
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Also conveyed herein is a permanent 16 foot access easement ("Access
Easement") for ingress and egress to the above Real Property which will
also accommodate a distribution utility line which will be conveyed to
party of the second part by separate instrument. This access easement is
described as follows:
Beginning at a point in the South right of way of the Old Owingsville Road
said point being located 8 feet east of and parallel to Tract 3 and 4 and
parallel to said tract line; and thence, South 12 degrees 54 minutes 04
seconds East 533.93 feet to a point said point being located south 76
degrees 52 minutes 06 seconds West 8.0 feet from the Southeast corner of
lot 3C, and being the property acquired by the Company by deed dated August
5, 1994 and recorded in Deed Book 213, Page 377, Montgomery County Court
Clerk's office.
Ninth. The following described real estate of the Company situated in
Muhlenberg County, Kentucky:
Beginning at a point in the South right-of-way of the Airport Road; said
point is located South 79(degrees) 41' 40" East 373.28 feet from the
intersection of the East right-of-way of Kentucky Highway 189 (Greenville-
Central City By-Pass) and the South right-of-way of the Airport Road;
thence with the South right-of-way of the Airport Road South 80(degrees)
20' 00" East 400.00 feet to the original Northeast corner of the tract of
which this is a point; thence with the original East line South 05(degrees)
25' 00" West 298.97 feet; thence with the original South line South
55(degrees) 43' 00" West 586.37 feet; thence with a new division line North
09(degrees) 40' 00" East 705.11 feet to the beginning, containing 4.786
acres, as per survey by Associated Engineers, Inc. dated March 22, 1994,
and being the property acquired by the Company by deed dated June 30, 1994
and recorded in Deed Book 430, Page 69, Muhlenberg County Court Clerk's
office.
Tenth. The following described real estate of the Company situated in Pulaski
County, Kentucky:
A certain tract or parcel of land, lying and being in Pulaski County,
Kentucky, and bounded and described as follows:
Point of beginning an Iron Pin in east right of way of Monticello Road and
being west corner of property. THENCE with right of way North 05 degrees 00
minutes 00 seconds East for a distance of 123.32 feet to an Iron Pin.
THENCE leaving right of way South 87 degrees 01 minutes 58 seconds East for
a distance of 145.00 feet to an Iron Pin; South 05 degrees 00 minutes 00
seconds West for a distance of 123.32 feet to an Iron Pin; North 87 degrees
01 minutes 58 seconds West for a distance of 145.00 feet to the point of
beginning. Together with subject to covenants, easements, and restrictions
of record. Said property contains 0.41 acres, more or less, as surveyed by
Weylan G. Daulton, Kentucky L.S. #2463, on 3/31/94, and being the property
acquired by the Company by deed dated April 11, 1994 and recorded in Deed
Book 548, Page 322, Pulaski County Court Clerk's office.
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<PAGE>
In Witness Whereof, said Kentucky Utilities Company has caused this
instrument to be executed in its corporate name by its President or a Vice-
President and its corporate seal to be hereunto affixed and to be attested and
countersigned by its Secretary or an Assistant Secretary, and said Bank of
America Illinois, for the purpose of entering into and joining with the Company
in the execution of this supplemental indenture, has caused this instrument to
be executed in its corporate name by one of its Vice-Presidents and its
corporate seal to be hereunto affixed and to be attested by one of its Trust
Officers, and said Robert J. Donahue for the purpose of entering into and
joining with the Company in the execution of this supplemental indenture, has
signed and sealed this instrument; all as of the day and year first above
written.
KENTUCKY UTILITIES COMPANY
By /s/ O. M. Goodlett
O. M. Goodlett
Senior Vice President
Attest: /s/ George S. Brooks II
George S. Brooks II
General Counsel and Secretary
(Corporate Seal)
Bank of America Illinois
By /s/ T. M. Jacobson
T. M. Jacobson
Vice President
Attest: /s/ Michele Gallo
Michele Gallo
Trust Officer
(Corporate Seal)
/s/ Robert J. Donahue
Robert J. Donahue
(Seal)
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<PAGE>
Commonwealth of Kentucky
ss:
County of Fayette
I, Rella M. Evans, a Notary Public in and for said County in the Commonwealth
aforesaid, do hereby certify that O. M. Goodlett, Senior Vice President of
Kentucky Utilities Company, a Kentucky and Virginia corporation, and George S.
Brooks II, General Counsel and Secretary of said corporation, who are both
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument as such officers of said corporation, and who are both
personally known to me to be such officers, appeared before me this day in
person and severally acknowledged before me that they signed, sealed and
delivered said instrument as their free and voluntary act as such officers, and
as the free and voluntary act and deed of said corporation, for the uses and
purposes therein set forth; and said O. M. Goodlett, upon oath, acknowledged
himself to be Senior Vice President of said corporation and that, as such
officer, being authorized so to do, he executed said instrument for the
purposes therein contained, by signing the name of said corporation thereto by
himself as such officer.
Given under my hand and official seal this 16th day of November, 1994.
/s/ Rella M. Evans
Rella M. Evans
Notary Public
My commission expires: November 20,
1995
(Notarial Seal)
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<PAGE>
State of Illinois
ss:
County of Cook
I, V. Washington, a Notary Public in and for said County in the State
aforesaid, do hereby certify that:
(a) T. M. Jacobson, a Vice President of Bank of America Illinois, an
Illinois banking corporation, and Michele Gallo, a Trust Officer of said
corporation, who are both personally known to me to be the same persons
whose names are subscribed to the foregoing instrument as such Vice
President and Trust Officer, respectively, of said corporation, and who are
both personally known to me to be such officers, appeared before me this
day in person and severally acknowledged before me that they signed, sealed
and delivered said instrument as their free and voluntary act as such
officers, and as the free and voluntary act and deed of said corporation,
for the uses and purposes therein set forth; and said T. M. Jacobson upon
oath, acknowledged herself to be a Vice President of said corporation and
that, as such officer, being authorized so to do, she executed said
instrument for the purposes therein contained, by signing the name of said
corporation thereto by herself as such officer; and
(b) Robert J. Donahue, personally known to me to be the same person
described in, and whose name is subscribed to, the foregoing instrument,
appeared before me this day in person and acknowledged before me that he
executed, signed, sealed and delivered said instrument as his free and
voluntary act and deed, for the uses and purposes therein set forth.
Given under my hand and official seal this 15th day of November, 1994.
/s/ V. Washington
V. Washington
Notary Public
My commission expires: September 20,
1996
(Notarial Seal)
----------------
This instrument was prepared by George S. Brooks II, Esq., One Quality
Street, Lexington, Kentucky 40507.
/s/ George S. Brooks II
George S. Brooks II
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EXHIBIT 10.J
Amendment No. 1 To
Kentucky Utilities Company
Supplemental Security Plan
(As Amended and Restated Effective As Of August 1, 1991)
The Kentucky Utilities Company Supplemental
Security Plan (As Amended and Restated Effective As Of August
1, 1991), (the "Plan"), is hereby amended, effective as of
August 1, 1993, in the following respects:
1. By deleting Section 1.23 of the Plan and
inserting in lieu thereof the following:
"1.23 "Plan Acceptance" shall mean the
form of written acceptance, attached as
Exhibit 1, which is executed by a Member
as a condition to membership in the Plan
and witnessed by the Secretary of the
Compensation Committee, Secretary of the
Company or such other officer of the
Company as the Committee shall designate
from time to time."
2. By deleting Section 2.2 of the Plan and
inserting in lieu thereof the following:
"2.2 After meeting the requirements
for becoming a Member and as a condition
to membership, each other Employee on or
after August 1, 1991 shall complete a
Plan Acceptance in the form attached as
Exhibit 1 and shall return the duly
executed Plan Acceptance to the
Committee, the Secretary of the Company
or such other officer of the Company as
the Committeee shall designate from time
to time. Upon such receipt of the
executed Plan Acceptance, the Employee
shall become a Member."
3. By deleting Exhibit 1 to the Plan and
inserting in lieu thereof a new Exhibit 1 in the form
attached hereto.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be executed by the Chairman of the Board and
President, having been duly authorized by the Board of
Directors of the Company on July 26, 1993 and effective
August 1, 1993.
KENTUCKY UTILITIES COMPANY
By /s/ John T. Newton
John T. Newton
Chairman of the
Board and President
Date of Signature: 7/27/93
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EXHIBIT 10.K
Amendment No. 2 To
Kentucky Utilities Company
Supplemental Security Plan
(As Amended and Restated Effective As Of
August 1, 1991)
The Kentucky Utilities Company Supplemental Security
Plan (As Amended and Restated Effective As Of August 1, 1991), as
further amended (the "Plan"), is hereby amended, effective
December 19, 1994, in the following respects:
1. By deleting Section 1.20 of the Plan and inserting in
lieu thereof the following:
"1.20 "Member" shall mean:
(a) each Employee who is an officer of the
Company and is participating in or elects to
participate in the Plan as provided in Article II
hereof, and
(b) each other Employee who prior to
December 19, 1994 (i) was in compensation group
E-15, E-14 or E-13, and (ii) was participating in
the Plan as provided in Article II hereof, but
excluding for periods on and after December 19,
1994, however, any such other Employee unless he
was a Member on December 18, 1994. If any such
other Employee was a Member within the meaning of
this Section 1.20(b) on December 19, 1994 by
reason of being in compensation group E-15 on
December 19, 1994 and such Member is subsequently
placed in compensation group E-14 during January
1995, he shall be deemed for all purposes of this
Plan (but not for any other purpose) to be an
Employee in compensation group E-15 throughout the
period, and for as long as, he continues without
interruption to be an Employee in compensation
group E-14.
If, at or after the occurrence of a Change in Control,
an Employee who was a Member immediately prior to the
Change in Control shall cease to be an officer or in
compensation group E-15, E-14 or E-13, such person
shall be deemed to be a Member for purposes of the Plan
(other than for purposes of Article III, Article V, and
Article VI and the benefit provided under Section 14.2)
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<PAGE>
even though he has otherwise ceased to meet the
requirements for being a Member."
2. By deleting Section 2.2 of the Plan and inserting in
lieu thereof the following:
"2.2 After meeting the requirements for becoming
a Member on or after August 1, 1991 and prior to the
December 19, 1994, and as a condition to membership,
each other Employee shall complete a Plan Acceptance in
the form attached as Exhibit 1 and shall return the
duly executed Plan Acceptance to the Committee, the
Secretary of the Company or such other officer of the
Company as the Committee shall designate from time to
time. Upon such receipt of the executed Plan
Acceptance, the Employee shall become a Member.
After meeting the requirements for becoming a
Member under Section 1.20(a) on or after December 19,
1994, each other Employee shall complete a Plan
Acceptance in the form attached as Exhibit 1 and shall
return the duly executed Plan Acceptance to the
Committee, the Secretary of the Company or such other
officer of the Company as the Committee shall designate
from time to time. Upon such receipt of the executed
Plan Acceptance, the Employee shall become a Member.
Notwithstanding anything in the foregoing
provisions of this Section 2.2 to the contrary, on and
after December 19, 1994, no Employee shall become a
Member unless the Employee meets the requirements of
Section 1.20(a)."
3. By adding the following new sentence at the end of
Section 2.3 as follows:
"If an Employee shall cease to be a Member under this
Section 2.3 on or after December 19, 1994, he shall not
become a Member thereafter unless he meets the
requirements of Section 1.20(a)."
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument
to be executed by the Chairman of the Board and Chief Executive
Officer, having been duly authorized by the Board of Directors of
the Company on December 19, 1994, effective as of December 19,
1994.
KENTUCKY UTILITIES COMPANY
By /s/ John T. Newton
John T. Newton
Chairman of the
Board and Chief
Executive Officer
Date of Signature 12/21/94
-73-
EXHIBIT 10.M
KENTUCKY UTILITIES COMPANY
DIRECTOR DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective As Of January 1, 1995)
ARTICLE I
Purpose
The Kentucky Utilities Company Director Deferred
Compensation Plan (the "Plan") was established, effective June 1,
1989, to provide eligible directors of Kentucky Utilities Company
with the opportunity to defer some or all of the compensation
which may be payable to them for services to be performed as
members of the Board of Directors of Kentucky Utilities Company.
The terms and conditions of the Plan, as amended and restated
effective as of January 1, 1995, are set forth below.
ARTICLE II
Definitions
The following words and phrases shall have the meanings
set forth below unless a different meaning is clearly required by
the context:
(a) Account: The account maintained
for each Participant showing his or her
interest under the Plan which shall be
divided into Subaccount I and Subaccount II
as provided in Section 4.1.
(b) Accounting Date: Each March 31,
June 30, September 30 and December 31 of each
calendar year. The first Accounting Date
under the Plan was June 30, 1989.
(c) Beneficiary: The person or persons
(natural or otherwise) designated, in
accordance with Section 5.4, to receive the
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<PAGE>
distribution of a Participant's Account
balance in the event of the Participant's
death.
(d) Board: The Board of Directors of
the Company.
(e) Committee: The Compensation
Committee of the Board.
(f) Company: Kentucky Utilities
Company, a corporation organized and existing
under the laws of the Commonwealth of
Kentucky.
(g) Compensation: Any retainer and
meeting fees payable to the Director by the
Company for services rendered as a member of
the Board or any committee thereof.
(h) Director: Any member of the Board
on or after the Effective Date who is
separately compensated for his or her
services as a member of the Board.
(i) Effective Date: June 1, 1989.
(j) Fair Market Value: The closing
price of the Parent's Common Stock as
reported in the listing of the New York Stock
Exchange - Composite Transactions on a
specified date.
(k) Parent: KU Energy Corporation or
any successor thereto.
(l) Participant: A Director
participating in the Plan in accordance with
the provisions of Section 3.2, or a former
Director whose Account balance under the Plan
has not been paid in full.
(m) Plan: The Kentucky Utilities
Company Director Deferred Compensation Plan
set forth in this instrument, as it may be
amended from time to time.
(n) Service: An individual's service
on the Board and on the boards of the Parent
or any Subsidiary.
(o) Subsidiary: An entity in which the
Company or the Parent directly or indirectly
beneficially owns 50% or more of the voting
securities.
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<PAGE>
ARTICLE III
Eligibility and Participation
3.1 Eligibility: Each member of the Board who was a
Director on the Effective Date was eligible to participate in the
Plan as of the Effective Date. Each other Director shall be
eligible to participate in the Plan as of the first day of the
month next following the date he or she becomes a Director.
3.2 Participation: A Director may elect to
participate in the Plan effective as of the date the Director
first becomes eligible to participate as provided in Section 3.1,
or effective as of the January 1st of any calendar year beginning
after such date, by filing written notice of such election with
the Company prior to the effective date of such election. Such
notice shall be accompanied by (i) an election to defer
Compensation as provided in Section 3.4, (ii) an election with
respect to Account adjustments as provided in Section 4.3, and
(iii) an election as to the method of payment as provided in
Section 5.1. Upon filing such election notice, the Director
shall become a Participant in the Plan effective as of the date
elected as permitted in this Section 3.2.
3.3 Crediting of Compensation: Commencing on the
effective date of a Participant's participation in the Plan and
continuing during the period that Compensation is to be credited
to the Participant's Account under the Plan, the Company shall
defer payment of and credit to the Participant's Account all or
such portion, as elected by the Participant under Section 3.4, of
the Compensation that the Participant would have received for
services rendered by the Participant during such period as a
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<PAGE>
member of the Board but for his participation in the Plan, such
credits to be made as provided in Section 4.2(b).
3.4 Election to Defer: At the time a Director elects
to become a Participant, the Director shall elect to have from
10% to 100%, in specified multiples of 10%, of his or her
Compensation for services rendered subsequent to the date the
Director becomes a Participant deferred under the Plan and
credited to his or her Account as provided in Section 3.3. Such
election shall remain in effect until changed or terminated as
hereinafter provided.
A Participant may change his or her election under this
Section 3.4 effective as of the January 1st of any calendar year
with respect to Compensation for services to be rendered as a
Director on or subsequent to such January 1st, by giving the
Company written notice of such change prior to such January 1st.
Any change may (i) increase or decrease, within the limits
prescribed in the preceding paragraph, the portion of
Compensation to be deferred and credited to the Participant's
Account as provided in Section 3.3, (ii) terminate an election to
defer Compensation under this Section 3.4 or (iii) resume the
deferral of Compensation under the Plan within the limits
prescribed in the preceding paragraph. A change in the portion
of Compensation deferred or the termination of a Participant's
election to defer Compensation shall not entitle the Participant
to receive payment of his or her Account balance, which shall be
payable only as provided in Article V.
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<PAGE>
Any election or change in election under this
Section 3.4 shall be made on a form provided or prescribed by the
Company.
ARTICLE IV
Participants' Accounts
4.1 Individual Accounts: A separate Account shall be
maintained by the Company on its books for each Participant.
Such Account shall be divided into subaccounts to specifically
identify the portion of the Account subject to adjustment under
Section 4.3(a) ("Subaccount I") and the portion of the Account
subject to adjustment under Section 4.3(b) ("Subaccount II"). As
of January 1, 1995, each Participant's Account shall be allocated
to Subaccount I unless the Participant has elected otherwise as
of such date as provided in Section 4.3.
4.2 Accounting Procedures: Each Participant's Account
shall be adjusted as of each Accounting Date as follows and in
the following order:
(a) The amount of any transfer to or
from Subaccount I or Subaccount II of the
Participant's Account, pursuant to a change
in election or deemed election under Section
4.3, made as of the first day of the calendar
quarter ending on such Accounting Date shall
be added to or subtracted from, as the case
may be, the applicable Subaccounts as of the
first day of such calendar quarter.
(b) Each Participant's Account shall
next be credited with the amount of
Compensation to be credited to his or her
Account as provided in Section 3.3 during the
calendar quarter ending on such Accounting
Date. Credits shall be made as of the last
business day of the respective calendar
months in which such Compensation would have
been paid to the Participant by the Company
but for his or her participation in the Plan
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<PAGE>
and shall be allocated to Subaccount I or
Subaccount II in accordance with the
Participant's election or deemed election as
in effect as of the respective dates as of
which the credits are made.
(c) Each Participant's Account shall
next be charged as of such Accounting Date
with the amount of any distributions under
the Plan to the Participant or to his or her
Beneficiary effective as of or prior to such
Accounting Date.
(d) Subaccount I of each Participant's
Account shall next be credited with the
amount equivalent to interest, as determined
under Section 4.3(a), to be added to the
Participant's Account as of such Accounting
Date.
(e) Subaccount II of each Participant's
Account shall next be adjusted upwards or
downwards, as the case may be, in accordance
with Section 4.3(b), to reflect the Fair
Market Value of the hypothetical shares of
Parent Common Stock allocated to Subaccount
II of the Participant's Account as of such
Accounting Date.
4.3 Election With Respect to Subaccount Adjustments:
Subaccount I and Subaccount II of a Participant's Account are
subject to adjustment as provided in Section 4.2 as follows:
(a) Subaccount I Adjustments.
Subaccount I of a Participant's Account shall
be adjusted as of an applicable Accounting
Date by the addition of an amount equivalent
to interest. The interest equivalent to be
credited as of an Accounting Date shall be
equal to the interest that would be earned on
the average of the balances in Subaccount I
of the Participant's Account at the end of
each calendar month during the calendar
quarter ending on such Accounting Date, at a
rate per annum which equals the average prime
rate charged by banks as reported in the
Federal Reserve Bulletin published on or next
prior to such Accounting Date.
(b) Subaccount II Adjustments:
Subaccount II of a Participant's Account
shall be adjusted as of an applicable
Accounting Date occurring after December 31,
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<PAGE>
1994 to equal the Fair Market Value as of
such Accounting Date (or, if the Accounting
Date is not a trading date, as of the trading
date next preceding such Accounting Date) of
the number of hypothetical shares of Parent
Common Stock allocated to Subaccount II of
the Participant's Account as of such
Accounting Date. The number of hypothetical
shares of Parent Common Stock allocated to
Subaccount II of a Participant's Account as
of any date shall be equal to the number of
shares of Parent Common Stock that would be
allocated to the Account as of such date if
(i) the Compensation credited to the
Participant's Account to be allocated to
Subaccount II was invested in the Parent's
Common Stock at Fair Market Value on the
trading day that is coincident with or next
preceding the last day of the calendar month
in which such Compensation would have been
paid to the Participant but for participation
in the Plan, (ii) any balance transferred
effective as of January 1, 1995 from
Subaccount I due to the one-time election
permitted under the following provisions of
this Section 4.3 was invested in the Parent's
Common Stock at the average Fair Market Value
on trading days during the month of December,
1994, (iii) cash dividends on the shares of
Parent Common Stock treated as allocated to
Subaccount II of the Participant's Account
were automatically reinvested in the Parent's
Common Stock at Fair Market Value on the
trading day that is coincident with or next
following the applicable dividend payment
date, and (iv) any transfers to Subaccount I
due to a change in election under Section 4.3
or any distributions from Subaccount II of
the Participant's Account were made at Fair
Market Value on the trading day that is
coincident with or next preceding the
effective date of such change of election or
distribution of the number of hypothetical
shares of Parent Common Stock needed to make
such transfer or distribution, which
hypothetical shares shall be subtracted from
the number of shares treated as allocated to
Subaccount II of the Participant's Account as
of the effective date of the transfer or
distribution.
At the time a Director elects to become a Participant
or as of January 1, 1995, if later, the Director shall elect to
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<PAGE>
have the Compensation thereafter deferred under Section 3.4 and
credited to the Participant's Account allocated, in specified
multiples of 10%, to Subaccount I or Subaccount II. If a
Director who is a Participant as of December 31, 1994 fails to
make an election hereunder as of January 1, 1995, he shall be
deemed to have elected to have Compensation deferred on or after
January 1, 1995 allocated to Subaccount I. A Participant's
election or deemed election under this Section 4.3 shall remain
in effect until changed as hereinafter provided.
A Participant may change his or her election or deemed
election under this Section 4.3 effective as of the January 1st
of any calendar year beginning on or after January 1, 1995 by
giving the Company written notice of such change prior to such
January 1st. Any change shall direct that subsequent
Compensation credits under Section 3.3 be allocated, in specified
multiples of 10%, to Subaccount I or Subaccount II. Such change
shall be effective commencing with the January 1st elected and
shall remain in effect until further changed as provided herein.
In addition, a Director who is a Participant as of December 31,
1994 may make a one-time election to have the Balance (as
hereinafter defined) credited to the Participant's Account as of
December 31, 1994 transferred, in specified multiples of 10%, to
Subaccount II effective as of January 1, 1995. For purposes of
the preceding sentence, "Balance" shall mean the portion of the
amount credited to the Participant's Account as of December 31,
1994 attributable to Compensation deferred under the Plan
subsequent to April 30, 1992 plus the interest equivalent
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credited to the Account in respect of such Compensation since
April 30, 1992 through December 31, 1994.
Any election or change in election under this Section
4.3 shall be made on a form provided or prescribed by the
Company.
Notwithstanding the foregoing provisions of this
Section 4.3, if a Participant terminates his or her Service and
the balance credited to his or her Account is to be paid in
accordance with Payment Method II or Payment Method III as
provided in Section 5.1, any balance in Subaccount II of the
Participant's Account shall be transferred by a deemed election
to Subaccount I of the Participant's Account as of the day after
the Accounting Date that is coincident with or next following the
Participant's termination of Service.
ARTICLE V
Distribution of Benefits
5.1 Termination For Reasons Other Than Death: Within
15 days after the Accounting Date coincident with or next
following the date on which the Participant terminates his or her
Service for any reason other than death (but not earlier than
July 1, 1995 if a Participant made the one-time election
permitted under Section 4.3 to transfer all or part of his or her
Account to Subaccount II effective as of January 1, 1995) the
Company shall pay, or commence to pay, to the Participant in cash
the amount credited to his or her Account. Payment shall be made
in accordance with Payment Method I, Payment Method II or Payment
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Method III, below, as elected by the Director at the time the
Director elects to become a Participant:
(a) Payment Method I - By payment in a
lump sum of the amount credited to the
Participant's Account as of the Accounting
Date coincident with or next following the
date on which the Participant terminates his
or her Service.
(b) Payment Method II - By payment in
quarterly installments, the number of which
shall be the lesser of (i) 40 or (ii) the
aggregate number of full calendar quarters
during which compensation was credited to the
Participant's Account under the Plan and to
his or her account under any similar plan of
the Parent or a Subsidiary (but not counting
any such calendar quarter more than once).
The amount of each installment shall be equal
to the quotient obtained by dividing the
balance credited to Participant's Account as
of the Accounting Date coincident with or
next preceding the date of such installment
payment by the number of installment payments
remaining to be made to such Participant at
the time of such calculation.
(c) Payment Method III - By payment in
annual installments, the number of which
shall be the lesser of (i) 10 or (ii) the
aggregate number of full calendar years (but
not less than one) during which compensation
was credited to the Participant's Account
under the Plan and to his or her account
under any similar plan of the Parent or a
Subsidiary (but not counting any such
calendar year more than once). The amount of
each installment shall be equal to the
quotient obtained by dividing the balance
credited to Participant's Account as of the
Accounting Date coincident with or next
preceding the date of such installment
payment by the number of installment payments
remaining to be made to such Participant at
the time of such calculation.
An election under this Section 5.1 shall be made on a form
provided or prescribed by the Company and once made shall be
irrevocable.
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5.2 Death: Upon the death of a Participant, whether
before or after termination as a member of the Board, prior to
the complete distribution of the balance credited to his or her
Account, any undistributed amount credited to the Participant's
Account as of the Accounting Date coincident with or next
following the Participant's date of death shall be paid in cash
in a lump sum to the Participant's Beneficiary within 15 days
after such Accounting Date (but not earlier than July 1, 1995 if
a Participant made the one-time election permitted under Section
4.3 to transfer all or part of his or her Account to Subaccount
II effective as of January 1, 1995).
5.3 Hardship Distribution: With the written consent
of the Committee, a Participant may withdraw, as of an Accounting
Date prior to termination of Service, from the portion of his or
her Account credited to Subaccount I as of such Accounting Date a
cash amount not in excess of the balance credited to Subaccount I
of the Participant's Account as of such Accounting Date. The
Committee, in its sole discretion, may consent to such withdrawal
but only if the withdrawal is necessary, upon demonstration by or
on behalf of the Participant, because of a substantial financial
hardship of the Participant as a result of accident, illness or
disability. The Committee, in its sole discretion, shall
determine the amount of such a distribution that is needed to
meet the need created by the hardship. Any such distribution
shall be charged to the Participant's Account credited to
Subaccount I.
5.4 Beneficiary: As used in the Plan, the term
"Beneficiary" means:
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<PAGE>
(a) The last person designated as
Beneficiary by the Participant in a written
notice on a form prescribed by and filed with
the Company;
(b) If there is no designated
Beneficiary or if the person so designated
shall not survive the Participant, such
Participant's spouse; or
(c) If no such designated Beneficiary
and no such spouse is living upon the death
of a Participant, or if all such persons die
prior to the full distribution of the
Participant's Account, then the legal
representative of the last survivor of the
Participant and such persons, or, if the
Company shall not receive notice of the
appointment of any such legal representative
within one year after such death, the
heirs-at-law of such survivor (in the
proportions in which they would inherit his
intestate personal property) shall be the
Beneficiaries to whom the then remaining
balance of the Participant's Account shall be
distributed.
Any Beneficiary designation may be changed from time to time by
like notice similarly delivered. No notice given under this
Section shall be effective unless and until the Company actually
receives such notice and enters it in its records.
ARTICLE VI
Financing of Benefits
The Plan shall be a nonqualified and unfunded plan.
Benefit payments under the Plan shall represent an unsecured
general obligation of the Company and shall be paid by the
Company from its general assets. No special fund or trust shall
be created or held for the financing of benefits under the Plan.
ARTICLE VII
Facility of Payment
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<PAGE>
Whenever a person entitled to receive any payment under
the Plan is a person under legal disability or a person not
adjudicated incompetent but who, by reason of illness or mental
or physical disability, is in the opinion of the Committee unable
properly to manage his or her affairs, then such payments shall
be paid in such of the following ways as the Committee deems
best: (a) to such person directly; (b) to the legally appointed
guardian or conservator of such person; (c) to some relative or
friend of such person for his or her benefit; (d) for the benefit
of such person in such manner as the Committee considers
advisable. Any payment made in accordance with the provisions of
this Article shall be a complete discharge of any liability for
the making of such payment under the Plan, and the distributee's
receipt shall be a sufficient discharge to the Company.
ARTICLE VIII
Administration
The Plan shall be administered by the Compensation
Committee of the Board. The Committee shall have such duties
and powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, to construe and
interpret the Plan, decide all questions of eligibility and
determine the amount and time of payment of benefits hereunder.
The Committee shall have no power to add to, subtract from or
modify any of the terms of the Plan, or to change or add to any
benefits provided under the Plan, or to waive or fail to apply
any requirements of eligibility for a benefit under the Plan. No
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<PAGE>
Participant who is a member of such Committee may vote on any
question relating specifically to himself or herself.
ARTICLE IX
Miscellaneous
9.1 Other Agreements. The Plan shall not affect in
any way the rights or obligations of a Director under any
deferred compensation or other agreement between the Director and
the Company or the Parent, including, but not limited to, the
KU Energy Corporation Director Retirement Retainer Program or the
Kentucky Utilities Company Director Retirement Retainer Program.
9.2 Successors. The Company shall require any
successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or
substantially all of the business and/or assets of the Company
expressly to assume and to agree to perform this Plan in the same
manner and to the same extent the Company would be required to
perform if no such succession had taken place. This Plan shall
be binding upon and inure to the benefit of the Company and any
successor of or to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all
of the business and/or assets of the Company whether by sale,
merger, consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the
purposes of this Plan), and the heirs, executors and
administrators of each Director.
9.3 Interests Not Transferable. No person shall have
any right to commute, encumber, pledge or dispose of any right to
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<PAGE>
receive payments hereunder, nor shall such payments be subject to
seizure, attachment or garnishment for the payments of any debts,
judgments, alimony or separate maintenance obligations or be
transferable by operation of law in the event of bankruptcy,
insolvency or otherwise, all payments and rights hereunder being
expressly declared to be nonassignable and nontransferable.
9.4 Amendment and Termination. The Plan may be
amended from time to time or terminated by the Board at any time,
but no amendment or termination may adversely affect the rights
of any person without his or her prior written consent.
9.5 Applicable Law. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth of
Kentucky.
9.6 Notices. For all purposes of this Plan, all
communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or five business
days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of
the Company) at its principal executive office and to a
Participant at his or her principal residence, or to such other
address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
9.7 Severability: Each section, subsection and lesser
section of this Plan constitutes a separate and distinct
undertaking, covenant and/or provision hereof. Whenever
possible, each provision of this Plan shall be interpreted in
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<PAGE>
such manner as to be effective and valid under applicable law.
In the event that any provision of this Plan shall finally be
determined to be unlawful, such provision shall be deemed severed
from this Plan, but every other provision of this Plan shall
remain in full force and effect, and in substitution for any such
provision held unlawful, there shall be substituted a provision
of similar import reflecting the original intention of the
parties hereto to the extent permissible under law.
9.8 Withholding of Taxes: The Company may withhold
from any amounts payable under this Plan all federal, state, city
and other taxes as shall be legally required.
IN WITNESS WHEREOF, Kentucky Utilities Company has
caused this instrument to be executed in its name by its Chairman
of the Board and Chief Executive Officer and its Corporate Seal
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<PAGE>
to be hereunto affixed, attested by its Secretary, on this 21st
day of December, 1994.
KENTUCKY UTILITIES COMPANY
By /s/ John T. Newton
Chairman of the Board and
Chief Executive Officer
[Corporate Seal]
ATTEST:
/s/ George S. Brooks II
Secretary
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<TABLE>
EXHIBIT 12
KENTUCKY UTILITIES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31, 1994 1993 1992 1991 1990
(in thousands except ratios)
Earnings
<S> <C> <C> <C> <C> <C>
Net Income $ 77,512 $ 81,286 $ 76,298 $ 84,755 $ 80,113
Adjustments
Fixed charges 34,558 32,899 40,965 38,185 37,351
Income taxes
Current Federal 37,058 35,893 30,838 37,241 30,618
Current State 8,812 9,484 7,951 9,252 8,866
Deferred Federal--Net (1,114) 2,837 2,269 570 3,024
Deferred State--Net 13 71 561 160 (26)
Deferred investment
tax credit--Net (86) (107) (130) (654) (151)
Income taxes included
in Other Income
and Deductions
Current Fed and State 1,881 (2,616) (224) 2,085 4,167
Deferred Fed and State (458) 2,817 1,144 (458) (535)
Amortization of
investment credit (4,024) (4,024) (4,019) (3,723) (4,039)
Undistributed income of
Electric Energy, Inc (39) (38) (53) 5 76
Total Earnings $154,113 $ 158,502 $155,600 $ 167,418 $159,464
Fixed Charges
Int on long-term debt $ 32,147 $ 31,650 $ 39,571 $ 36,559 $ 36,132
Other interest charges 2,411 1,249 1,394 1,626 1,219
Total Fixed Charges $ 34,558 $ 32,899 $ 40,965 $ 38,185 $ 37,351
Ratio of Earnings
to Fixed Charges 4.46 4.82 3.80 4.38 4.27
____________
Note--Rentals are not material and have not been included in fixed charges.
</TABLE>
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EXHIBIT 21
KENTUCKY UTILITIES COMPANY
LIST OF SUBSIDIARIES
Electric Energy, Inc., an Illinois corporation--Kentucky Utilities owns
20% of EEI's common stock.
-92-
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in the previously filed Form S-8 Registration
Statements of KU Energy Corporation and Kentucky Utilities Company (File
Nos. 33-44234 and 33-57087) and Kentucky Utilities Company's previously
filed Form S-3 Registration Statement (File No. 33-69852) of our report
dated January 30, 1995, included in Kentucky Utilities Company's Form 10-K
for the year ended December 31, 1994.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
March 9, 1995
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<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet as of December 31, 1994 and the Income Statement for the period ended
December 31, 1994 and is qualified in its entirety by reference to such Form
10-K Annual Report.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,409,917
<OTHER-PROPERTY-AND-INVEST> 13,344
<TOTAL-CURRENT-ASSETS> 160,811
<TOTAL-DEFERRED-CHARGES> 34,028
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,618,100
<COMMON> 308,140
<CAPITAL-SURPLUS-PAID-IN> (595)
<RETAINED-EARNINGS> 257,656
<TOTAL-COMMON-STOCKHOLDERS-EQ> 565,201
0
40,000
<LONG-TERM-DEBT-NET> 496,012
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 76,300
<LONG-TERM-DEBT-CURRENT-PORT> 21
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 440,566
<TOT-CAPITALIZATION-AND-LIAB> 1,618,100
<GROSS-OPERATING-REVENUE> 636,652<F1>
<INCOME-TAX-EXPENSE> 44,683
<OTHER-OPERATING-EXPENSES> 490,783
<TOTAL-OPERATING-EXPENSES> 535,466
<OPERATING-INCOME-LOSS> 101,186
<OTHER-INCOME-NET> 10,393
<INCOME-BEFORE-INTEREST-EXPEN> 111,579
<TOTAL-INTEREST-EXPENSE> 34,067
<NET-INCOME> 77,512
2,384
<EARNINGS-AVAILABLE-FOR-COMM> 75,128
<COMMON-STOCK-DIVIDENDS> 61,644
<TOTAL-INTEREST-ON-BONDS> 32,147
<CASH-FLOW-OPERATIONS> 141,269
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>See Note 1 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>
EXHIBIT 99.A
DESCRIPTION OF COMMON STOCK
General. The authorized capital stock of Kentucky Utilities consists of
5,300,000 shares of Preferred Stock, cumulative, without par value,
issuable in series, of which 37,817,878 shares were outstanding at
December 31, 1994, 2,000,000 shares of Preference Stock, cumulative,
without par value, issuable in series, and 80,000,000 shares of Common
Stock, without par value of which 37,817,878 shares were outstanding (all
of which were held by KU Energy) at December 31, 1994. No shares of
Preference Stock are issued or outstanding.
The following statements, unless the context otherwise indicates, are
brief summaries of the substance or general effect of certain provisions
of Kentucky Utilities' Restated Articles of Incorporation and resolutions
and amendments establishing series of Preferred Stock (collectively, the
"Articles") and of Kentucky Utilities' Mortgage Indenture, as amended,
securing its first mortgage bonds (the "Indenture"). The statements make
use of defined terms, are not complete and do not give effect to statutory
or common law.
Dividend Rights. The Board of Directors of Kentucky Utilities may declare
dividends on the Common Stock out of any surplus or net profits of
Kentucky Utilities legally available for the purpose, provided full
cumulative dividends on the Preferred Stock and the Preference Stock for
the current and all past quarterly dividend periods shall have been paid
or declared and set apart for payment and Kentucky Utilities is not in
arrears in its sinking fund obligations in respect of any shares of
Preferred Stock or Preference Stock.
Limitations on Dividends on Common Stock. The Indenture provides that, so
long as certain currently outstanding series of First Mortgage Bonds are
outstanding, Kentucky Utilities will not declare or pay any dividends on
its Common Stock or make any other distribution on or purchase any of its
Common Stock unless the amounts expended by Kentucky Utilities for
maintenance and repairs and provided for depreciation subsequent to
April 30, 1947, plus Kentucky Utilities' earned surplus (retained
earnings) for such period and remaining after any such payment,
distribution or purchase, shall aggregate not less than 15% of the gross
operating revenues of Kentucky Utilities for the period. The Articles
provide, in effect, that, so long as any of the Preferred Stock is
outstanding, the total amount of all dividends or other distributions on
Common Stock and purchases of such stock that may be paid or made during
any 12-month period shall not exceed (a) 75% of the "net income available
for dividends on common stock" if the ratio of "common stock equity" to
"total capital" (each as defined) of Kentucky Utilities shall be 20% to
25%, or (b) 50% of such net income if such ratio shall be less than 20%.
When such ratio is 25% or more, no such dividends, distributions or
purchases may be paid or made which would reduce such ratio to less than
25% except to the extent permitted by clauses (a) and (b) above. As of
December 31, 1994, no amount of retained earnings was restricted under the
Indenture or Articles.
Voting Rights. Each share of Common Stock is entitled to one vote on each
matter voted on at stockholders' meetings, except as otherwise provided in
the Articles, and to cumulative voting rights in the election of
directors. Shares of Preferred Stock and Preference Stock are not
entitled to vote for the election of directors or in respect of any other
matters, except as expressly provided in the Articles or as may be
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<PAGE>
required by law. The Articles give to holders of Preferred Stock and
Preference Stock certain special voting rights designed to protect their
interest with respect to specified corporate action. In addition, in
certain events relating to dividends in default on Preferred Stock,
holders of Preferred Stock as a class are entitled to elect a majority of
the full Board of Directors; and in certain events relating to dividends
in default on the Preference Stock, holders of Preference Stock as a class
are entitled to elect two directors.
Liquidation Rights. Upon the liquidation or dissolution of Kentucky
Utilities, the holders of Preferred Stock and the Preference Stock are
entitled to be paid designated amounts out of the net assets of Kentucky
Utilities in preference to the Common Stock. After such payment to
holders of Preferred Stock and Preference Stock, the remaining assets and
profits shall be distributed to the holders of Common Stock.
Board of Directors. Kentucky Utilities' Bylaws provide for a Board of
Directors comprised of from nine to eleven members as determined from time
to time by the Board. The Board currently has ten members. Kentucky
Utilities' Articles provide for the classification of the Board of
Directors into groups with directors being elected for three-year terms
subject to certain rights of holders of Preferred Stock and Preference
Stock to elect directors.
Preemptive Rights. Holders of Kentucky Utilities' Stock have no
preemptive right to subscribe for stock or securities of Kentucky
Utilities.
Call of Special Meetings. Kentucky Utilities' Articles provide that no
meeting of shareholders (except for certain meetings called by holders of
Preferred Stock or Preference Stock) may be called by shareholders unless
called by the holders of at least 51 percent of all the votes entitled to
be cast on each issue proposed to be considered at the special meeting.
Miscellaneous. The outstanding shares of Common Stock of Kentucky
Utilities are fully paid and non-assessable.
Under Kentucky and Virginia law, Kentucky Utilities may amend the Articles
to increase, decrease or adjust its capital stock or any class thereof or
otherwise amend any provision of the Articles or any amendment thereto, in
the manner permitted by law, subject, however, to the limitations
prescribed in the Articles; and all rights conferred on stockholders in
the Articles or any amendment thereto are subject to the foregoing.
The Transfer Agents of the Common Stock are Illinois Stock Transfer
Company, Chicago, Illinois, and Harris Trust and Savings Bank, Chicago,
Illinois; and the Registrar is Harris Trust and Savings Bank, Chicago,
Illinois.
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EXHIBIT 99.B
<PAGE>
Shareholders may vote either in person or by duly authorized proxy. The
giving of a proxy will not prevent a shareholder from voting in person at the
meeting. A proxy may be revoked by a shareholder at any time prior to the
voting thereof by giving written notice to the Secretary of the Company prior
to such voting. All shares entitled to vote and represented by effective
proxies on the enclosed form, received by the Company, will be voted at the
meeting (or any adjourned session thereof) in accordance with the terms of such
proxies.
Each Participant in the Company's Automatic Dividend Reinvestment and Stock
Purchase Plan (the "Reinvestment Plan"), Kentucky Utilities' Employee Stock
Ownership Plan (the "ESOP") or the Kentucky Utilities Employee Savings Plan
(the "Savings Plan") will receive a form of proxy by which such Participant may
direct the agent or trustee under such Plans as to the manner of voting shares
credited to the Participant's accounts under such Plans. Shareholders of record
who are participants in the Reinvestment Plan will receive only one form of
proxy which will be deemed to include shares held of record and shares, if any,
held under such Plan. A Participant of any of such Plans wishing to vote in
person at the meeting may obtain a proxy for shares credited to his account
under such Plans by making a written request therefor by April 11, 1995, as
follows: for the Reinvestment Plan, to George S. Brooks II, Secretary of the
Company, at the address stated on page 2; for the ESOP, to Liberty National
Bank and Trust, PO Box 32500, Louisville, Kentucky 40232, Attention: Barbara J.
Steele, Trust Investment Division; and for the Savings Plan, to National City
Bank, Kentucky, PO Box 36010, Louisville, Kentucky 40233, Attention: Judith E.
Meany.
Election of Directors
General. Three directors are to be elected at the meeting. Barring unforeseen
circumstances and in the absence of contrary directions, the proxies solicited
herewith will be voted for the election of W. B. Bechanan, Harry M. Hoe and
Michael R. Whitley as directors of the Company, to hold office until the 1998
Annual Meeting of Shareholders of the Company or until their respective
successors shall have been duly elected and qualified. The proxies may also be
voted for a substitute nominee or nominees in the event any one or more of said
persons shall be unable to serve for any reason or be withdrawn from
nomination, an occurrence not now anticipated. Except as otherwise indicated,
each nominee has been engaged in his present principal occupation for at least
the past five years. All information regarding share ownership is as of January
31, 1995.
The following information is given with respect to the nominees for election
as directors:
W. B. BECHANAN, 69, retired in 1987 as Chairman of the Board and
- ------------ Chief Executive Officer of Kentucky Utilities. He has been a
- ------------ director of the Company since 1991 and a director of Kentucky
Utilities since 1978. Mr. Bechanan beneficially owns 25,975
shares of Common Stock of the Company which include 22,389
shares held pursuant to family trusts under which Mr. Bechanan
has shared investment power.
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<PAGE>
- ------------ HARRY M. HOE, 69, is President and a director of J. R. Hoe &
- ------------ Sons, Inc., Middlesboro, Kentucky, a foundry and casting
company. He has been a director of the Company since 1991 and a
director of Kentucky Utilities since 1979. Mr. Hoe beneficially
owns 14,888 shares of Common Stock of the Company which include
4,796 shares held solely by his wife.
MICHAEL R. WHITLEY, 52, was elected President and Chief
- ------------ Operating Officer of the Company and Kentucky Utilities on
- ------------ November 1, 1994. He was Executive Vice President of these
companies from August 1, 1994 to November 1, 1994. Before this
period, he had been a Senior Vice President of the Company since
1988 and of Kentucky Utilities since 1987. Mr. Whitley was
Secretary of the Company from 1988 until 1992 and of Kentucky
Utilities from 1978 until 1992. Mr. Whitley is a director of LFS
Bancorp Inc. and its wholly owned subsidiary, Lexington Federal
Savings Bank. Mr. Whitley has been a director of the Company and
Kentucky Utilities since 1992. Mr. Whitley beneficially owns
16,292 shares of the Common Stock of the Company which include
337 shares held solely by his wife.
Information with respect to those directors whose terms are not expiring is
as follows:
MIRA S. BALL, 60, is Secretary-Treasurer and Chief Financial
- ------------ Officer of Ball Homes, Inc., a single-family residential
- ------------ developer and property management company. She has been a
director of the Company and Kentucky Utilities since 1992. Ms.
Ball beneficially owns 5,918 shares of Common Stock of the
Company. Her term expires in 1996.
MILTON W. HUDSON, 67, has been an economic consultant
- ------------ (Washington, D.C.) since 1991. He was Managing Director and
- ------------ Senior Economic Advisor of Morgan Guaranty Trust Company of New
York from January 1990 until his retirement in June 1991. He has
been a director of the Company since 1991 and a director of
Kentucky Utilities since 1990. Mr. Hudson beneficially owns
1,076 shares of Common Stock of the Company. His term expires in
1997.
JOHN T. NEWTON, 64, is Chairman of the Board and Chief Executive
- ------------ Officer of the Company and Kentucky Utilities. He also was
- ------------ President of these companies from 1987 to November 1, 1994. Mr.
Newton has been a director of the Company since 1988 and a
director of Kentucky Utilities since 1974. He beneficially owns
35,407 shares of Common Stock of the Company which include
11,941 shares held jointly with his wife. His term expires in
1997.
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<PAGE>
- ------------ FRANK V. RAMSEY, JR., 63, is President and Director of Dixon
- ------------ Bank, Dixon, Kentucky, and a farm owner and operator. He has
been a director of the Company since 1991 and a director of
Kentucky Utilities since 1986. Mr. Ramsey beneficially owns
1,400 shares of Common Stock of the Company. His term expires in
1996.
WARREN W. ROSENTHAL, 71, is a private investor and the owner of
- ------------ Patchen Wilkes Farm, Lexington, Kentucky (a thoroughbred horse-
- ------------ breeding operation). Mr. Rosenthal is a director of
Immunomedics, Inc. He has been a director of the Company since
1991 and a director of Kentucky Utilities since 1976. Mr.
Rosenthal beneficially owns 17,400 shares of Common Stock of the
Company. His term expires in 1996.
WILLIAM L. ROUSE, JR., 62, was Chairman of the Board and Chief
- ------------ Executive Officer and a director of First Security Corporation
- ------------ of Kentucky, a multi-bank holding company, prior to his
retirement in 1992. Mr. Rouse is a director of Ashland,
Incorporated. He has been a director of the Company since 1991
and a director of Kentucky Utilities since 1989. Mr. Rouse
beneficially owns 1,000 shares of Common Stock of the Company.
In addition, Mr. Rouse's account under the Directors Deferred
Compensation Plan described below has the equivalent of 803
shares of Common Stock. His term expires in 1997.
CHARLES L. SHEARER, PH.D., 52, is President of Transylvania
- ------------ University, Lexington, Kentucky. He has been a director of the
- ------------ Company since 1991 and a director of Kentucky Utilities since
1987. Dr. Shearer beneficially owns 1,320 shares of Common Stock
of the Company which include 200 shares held solely by his wife
and 12 shares held by his children. His term expires in 1996.
Voting Securities Beneficially Owned by Directors, Nominees and Executive
Officers; Other Information. The directors, nominees and executive officers of
the Company and Kentucky Utilities owned beneficially at February 1, 1995 an
aggregate of 187,239 shares of Common Stock of the Company, representing in the
aggregate .5% of such stock.
On March 30, 1994, a report on Form 4 (due February 15, 1994) was filed on
behalf of Roger C. Grimm, a former Vice President of the Company, with the
Securities and Exchange Commission reporting a purchase of Company Common
Stock.
Meetings and Committees of the Board of Directors. All members of the
Company's Board of Directors are currently members of Kentucky Utilities' Board
of Directors. The Board of Directors of the Company and the Board of Directors
of Kentucky Utilities have each established six committees: the Executive
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<PAGE>
Directors' Compensation. Each director of the Company is also a director of
its principal subsidiary, Kentucky Utilities. Each director who is not an
employee of the Company or Kentucky Utilities is paid an annual retainer of
$20,000. This retainer is reduced by any retainer paid from a Company
subsidiary. Kentucky Utilities pays non-employee directors an annual retainer
of $15,000. Thus, the net annual Company retainer paid to such directors is
$5,000 but the aggregate paid for serving on both Boards is $20,000.
In addition to an annual retainer, the Company and Kentucky Utilities pay
each non-employee director a $750 fee for each meeting of a Board or a
particular committee attended; provided that if the Boards of the Company and
Kentucky Utilities meet on the same day, only one $750 fee is paid for both
meetings and if the same committee of the Boards of the Company and Kentucky
Utilities meet on the same day, only one $750 fee is paid for both meetings.
Out-of-pocket travel expenses are paid to directors for all meetings attended.
All eligible directors of the Company and Kentucky Utilities are entitled to
participate in the Director Retirement Retainer Programs (the "Director
Retirement Plans") of the Company and Kentucky Utilities. Directors who are
not, and have not previously been, an officer of Kentucky Utilities, the
Company, or their affiliated companies ("outside directors") are eligible to
participate. An outside director who is 65 years of age and has completed at
least five consecutive years of service on the Company's and/or Kentucky
Utilities' Board will receive, upon termination of service from a Board for any
reason other than death, an annual retirement benefit equal to the annual
retainer paid to such Board's directors in effect as of such termination,
payable monthly over a period of years equal to the number of full years such
director served on the Board, but not in excess of 10 years. Such payments
cease, however, if the director dies before all such payments are made. In the
event of a change in control of the Company or Kentucky Utilities, any person
then receiving a retirement benefit would be paid, within 30 days of the change
in control, a lump-sum payment equal to the discounted present value of all
then unpaid installments of the director's retirement benefit. In the event of
a change in control, each outside director in office immediately prior to such
change in control will be eligible to receive an accelerated retirement benefit
if the director terminates service from a Board for any reason other than death
within three years of the date of the change in control. Such accelerated
retirement benefit would be paid in a lump sum within 30 days of such
termination and would be equal to the discounted present value of the
retirement benefit which such director would have received if the director had
retired from the Board at age 70 (or for certain directors, 72) and lived to
collect the full benefit otherwise payable under the applicable Director
Retirement Plan. Such benefit would be based on the higher of the annual
retainer in effect immediately prior to the change in control or immediately
prior to such director's termination of service. Change in control is broadly
defined under the Director Retirement Plans and includes any merger,
consolidation, reorganization or sale of substantially all of the assets of the
Company or Kentucky Utilities which results in less than a majority of the
voting power of the resulting entity being owned by the holders of the Common
Stock of the Company prior to the transaction; a change in the majority of the
Board of Directors of the Company or Kentucky Utilities over a two-year period
which is not approved by two-thirds of the incumbent directors; and the
acquisition by any person or group of persons of beneficial ownership of 10% or
more of the Common Stock of the Company or Kentucky Utilities. The annual
retainer in effect upon the director's termination from a Board will be
calculated as described in the first paragraph under this caption.
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<PAGE>
Directors may elect to have all or a specified portion of their directors'
fees deferred under the Director Deferred Compensation Plans (the "Director
Deferred Compensation Plans") of the Company and Kentucky Utilities. Amounts
deferred will be maintained in unfunded accounts for each participant, which,
based on a choice made by the Directors in advance, either: 1) bear interest at
a floating rate based upon the average prime rate charged by banks as reported
in the Federal Reserve Bulletin; or 2) experience appreciation (depreciation)
and earnings based on a hypothetical investment in the Company's common stock.
Amounts credited under the Director Deferred Compensation Plans will be paid to
the participant upon termination as a director for any reason other than death
in a single payment or, with interest, quarterly over a period of not to exceed
40 calendar quarters, or, with interest, annually over a period of not to
exceed 10 years. In the event of a participant's death, payment of any
remaining balance of credited amounts will be made in a single payment to a
designated beneficiary. In certain cases, directors may receive a distribution
of deferred amounts in the event of substantial financial hardship. Because
officers of the Company and Kentucky Utilities receive no compensation for
services as directors, any director who is an officer is not eligible to
participate in the plans.
Executive Compensation. The following table contains information with respect
to the compensation paid by (or earned from) the Company and Kentucky
Utilities, for all services rendered during 1992 through 1994 in all
capacities, to the Chief Executive Officer and the other four most highly
compensated executive officers of the Company and Kentucky Utilities:
Summary Compensation Table
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION PAYOUTS
-------------------------- ------------
LTIP
OTHER ANNUAL ------------ ALL OTHER
NAME AND PRINCIPAL COMPENSATION PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($)(1) ($)(2) ($)(3) ($)(4)
------------------ ---- --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
JOHN T. NEWTON; 1994 462,694 149,979 13,380 158,738 7,561
Chairman of the Board, 1993 424,237 144,362 11,886 0 8,444
Chief Executive Officer 1992 414,909 99,075 11,161 NA 4,870
& Director of the Company
& Kentucky Utilities
MICHAEL R. WHITLEY; 1994 245,490 67,157 481 50,508 5,560
President, Chief Operating 1993 219,529 62,164 1,258 0 6,045
Officer & Director of the 1992 210,682 41,834 21 NA 3,574
Company & Kentucky
Utilities
JAMES W. TIPTON; 1994 214,043 63,210 1,373 50,508 5,537
Senior Vice President of 1993 204,042 60,331 1,201 0 5,712
the Company 1992 205,199 41,834 18 NA 3,346
O. M. GOODLETT; 1994 200,251 56,889 0 30,246 4,500
Senior Vice President of 1993 188,724 54,257 0 0 4,497
the Company & Kentucky 1992 160,215 24,736 0 NA 2,182
Utilities
WAYNE T. LUCAS; 1994 159,699 33,754 523 22,658 5,522
Senior Vice President of 1993 139,331 31,695 446 0 5,813
Kentucky Utilities 1992 141,305 23,803 413 NA 3,101
</TABLE>
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<PAGE>
- --------
(1) Bonuses are paid under the Annual Performance Incentive Plan. Any bonus
earned but deferred under the Executive Deferred Compensation Plan is
included in the Table.
(2) Other annual compensation consists of amounts for group term life insurance
and related income taxes.
(3) Under the Kentucky Utilities Performance Share Plan, which commenced in
1990 and is described under "Report of Compensation Committee on Executive
Compensation" above, Performance Shares have been contingently granted each
year since 1990 in each case for a three-year Performance Cycle. For the
Performance Cycle commencing in 1990, there was a zero payout. For the
Performance Cycle commencing in 1991, a payout of 75% of the contingent
grant was made in 1994 as shown in the table above. The 1994 amounts
represent awards of restricted shares of Company Common Stock (valued at
April 26, 1994, the date of transfer to the officers). Such shares will be
forfeited if the officer terminates employment prior to January 1, 2001 for
any reason other than retirement, disability or death or in the event of a
change in control. Shares of Common Stock are awarded under the plan only
after the end of the Performance Cycle and if the performance goals have
been met.
(4) All other compensation includes above-market-rate interest earned on
deferred compensation and the employer matching contribution made to the
officer's account in the 401(k) Employee Savings Plan. Such amounts for
1994 are shown in the following table.
<TABLE>
<CAPTION>
INTEREST ON 401(K)
EXECUTIVE DEFERRED MATCHING
OFFICER COMPENSATION CONTRIBUTION
--------- ------------ ------------
<S> <C> <C>
John T. Newton.................................. $3,061 $4,500
Michael R. Whitley.............................. $1,060 $4,500
James W. Tipton................................. $1,037 $4,500
O. M. Goodlett.................................. $ 0 $4,500
Wayne T. Lucas.................................. $1,022 $4,500
</TABLE>
Performance Shares contingently awarded under the Company's and Kentucky
Utilities' Performance Share Plans in 1994 are reported in the Long-Term
Incentive Plan awards table below. A description of how awards are determined
is presented under "Report of Compensation Committee on Executive
Compensation." A description of the scale by which performance targets are set
follows the table.
Long-Term Incentive Plan--Awards In Last Fiscal Year
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
PERIOD
UNTIL ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
NUMBER OF MATURATION PRICE-BASED PLANS(4)
UNITS OR OR ----------------------------------------
NAME OTHER RIGHTS PAYOUT(3) THRESHOLD($) TARGET($) MAXIMUM($)
- ---- ------------ ----------- ------------ ---------------- ----------
<S> <C> <C> <C> <C> <C>
John T. Newton.......... 7,240(1) 3 $ 0 $97,740-$146,610 $195,480
Michael R. Whitley...... 2,275(1) 3 $ 0 $30,713-$ 46,069 $ 61,425
James W. Tipton......... 2,170(2) 3 $ 0 $29,295-$ 43,943 $ 58,590
O. M. Goodlett.......... 1,955(2) 3 $ 0 $26,393-$ 39,589 $ 52,785
Wayne T. Lucas.......... 990(2) 3 $ 0 $13,365-$ 20,048 $ 26,730
</TABLE>
- --------
(1) Constitutes Performance Shares contingently granted under the KU Energy
Performance Share Plan in 1994.
(2) Constitutes Performance Shares contingently granted under the Kentucky
Utilities Performance Share Plan in 1994.
-101-
<PAGE>
(3) Number of years in Performance Cycle.
(4) See description below for the scale that determines which amount would be
applicable. Amounts are calculated based on the price of the Company's
Common Stock on December 31, 1994.
For the Performance Cycle commencing in 1994, payouts of contingent grants
shown in the table above will be determined by calculating the average return
on equity for the Performance Cycle of the Company or Kentucky Utilities, as
the case may be, compared to the average return on equity for the Performance
Cycle for the comparable companies. The returns will be ranked in descending
order. For the 1994-1996 Performance Cycle, the scale that determines if grants
are earned is as follows: if the Company's or Kentucky Utilities' rank, as the
case may be, is in the top two, the payout will be 100% of the contingent grant
(the Maximum shown in the table); if their rank is third or fourth, the payout
will be 75% and if their rank is fifth or sixth, the payout will be 50% (the
two figures shown as Target in the table); and if their rank is seventh or
below, no shares will be awarded (shown as the Threshold in the table) for that
Performance Cycle under the applicable Performance Share Plan. Similar scales
have been established for other outstanding Performance Cycles (with the scale
relating to growth in earnings per share for the Kentucky Utilities Performance
Share Plan prior to the Performance Cycle commencing in 1993).
Each of the officers of the Company and Kentucky Utilities is entitled to
participate in the Kentucky Utilities employee retirement plans described
below. Executive officers, like other employees, are eligible to participate in
Kentucky Utilities' Retirement Plan, and all eligible persons whose
compensation is reported in the Summary Compensation Table participated in the
Retirement Plan. Contributions to the Retirement Plan are determined
actuarially and cannot be readily calculated as applied to any individual
participant or small group of participants. Generally, compensation for
Retirement Plan purposes means base compensation while a participant, excluding
overtime pay, commissions, performance incentive compensation or other
extraordinary compensation. The compensation for Retirement Plan purposes of
the individuals named in the foregoing table is substantially equivalent to the
base salary reported in the Summary Compensation Table. As of December 31,
1994, the credited years of service under the Retirement Plan for such persons
were as follows: Mr. Newton, 36 years; Mr. Whitley, 30 years; Mr. Tipton, 27
years; Mr. Goodlett, 24 years; and Mr. Lucas, 25 years. Retirement Plan
benefits depend upon length of service, age at retirement and amount of
compensation (determined in accordance with the Retirement Plan).
Although higher amounts are determined under the Retirement Plan and shown in
the table below, in most cases, pension benefits under the Retirement Plan or
compensation used to measure such benefits will be reduced to comply with
maximum limitations imposed by the Internal Revenue Code. Under such
limitations effective in 1994, no base compensation above $150,000 may be used
to calculate a benefit, except in the case of certain executive officers to
preserve benefits accrued under previously applicable rules. In addition, no
annual benefit derived from employer contributions may exceed $120,000.
Assuming retirement at age 65, a Retirement Plan participant would be eligible
at retirement for a maximum annual pension benefit (without taking into account
the Internal Revenue Code limitations referred to above) set forth in the
following table. However, assuming retirement at age 65, assuming 1994 base
compensation and taking into account the Internal Revenue Code limitations, the
annual pension benefit under the Retirement Plan for the executive officers
named in the Summary Compensation Table would be as follows: Mr. Newton,
$118,347; Mr. Whitley, $101,643; Mr. Tipton, $93,138; Mr. Goodlett, $84,638;
and Mr. Lucas, $86,738.
-102-
<PAGE>
<TABLE>
<CAPTION>
FINAL
AVERAGE ANNUAL BENEFIT AFTER SPECIFIED YEARS OF SERVICE(2)
BASE --------------------------------------------------------------
PAY(1) 15 20 25 30 35 40 45
------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$150,000................ $ 29,999 $ 39,999 $ 49,999 $ 59,999 $ 69,998 $ 79,998 $ 89,998
200,000................ 39,999 53,332 66,665 79,998 93,331 106,664 119,997
250,000................ 49,999 66,665 83,331 99,998 116,664 133,330 149,996
300,000................ 59,999 79,998 99,998 119,997 139,997 159,996 179,996
350,000................ 69,998 93,331 116,664 139,997 163,329 186,662 209,995
400,000................ 79,998 106,664 133,330 159,996 186,662 213,328 239,994
450,000................ 89,998 119,997 149,996 179,996 209,995 239,994 269,993
500,000................ 99,998 133,330 166,663 199,995 233,328 266,660 299,993
550,000................ 109,997 146,663 183,329 219,995 256,660 293,326 329,992
600,000................ 119,997 159,996 199,995 239,994 279,993 319,992 359,991
</TABLE>
- --------
(1) "Final average base pay" generally means the average annual compensation
during the 60 consecutive months of highest pay during the period of
employment.
(2) Annual benefits shown are on a straight life annuity basis. Amounts shown
are not subject to any deduction for Social Security benefits or other
offset amounts. Benefits may be reduced by Internal Revenue Code
limitations described above.
Executive officers and certain other employees of the Company and Kentucky
Utilities are eligible to be members in Kentucky Utilities' Supplemental
Security Plan which provides retirement, disability and death benefits as well
as a change in control retirement benefit and a change in control severance
benefit. As to executive officers, upon retirement at age 65, an eligible
member will receive 15 annual payments of an amount equal to 75% of basic
compensation, offset by benefits payable from any defined benefit plan of the
Company or an affiliate (such as Kentucky Utilities' Retirement Plan) and
social security benefits. Basic compensation is the annualized base monthly
salary of the member, exclusive of performance incentive compensation or other
extraordinary compensation, in effect at termination of employment by
retirement, disability or death. Upon termination of employment by death of an
eligible executive officer prior to age 65, the member's beneficiary will
receive an annual benefit equal to 50% of basic compensation until the later of
the date such member would have attained age 65 or completion of 15 annual
payments. Upon termination of employment by disability, the member will receive
the "retirement benefit" if the member lives to retirement age and is then
disabled or the "death benefit" if the member dies prior to retirement age and
is disabled at death. Benefits will be paid from the general funds of the
employer. The estimated annual benefits from Kentucky Utilities' Supplemental
Security Plan that would be payable upon retirement at normal retirement age
for the individuals named in the Summary Compensation Table (assuming 1994
basic salary) are as follows: Mr. Newton, $227,266; Mr. Whitley, $89,247; Mr.
Tipton, $56,502; Mr. Goodlett, $48,466; and Mr. Lucas, $38,866. To assist in
providing funds to pay such benefits when they become payable, insurance is
purchased on the lives of the members of the Supplemental Security Plan.
Under the Supplemental Security Plan, members are entitled to change in
control severance benefits in the following circumstances: (i) involuntary
termination of the individual's employment within two years following the
change in control for reasons other than cause, death, permanent disability or
attainment of age 65; (ii) resignation within two years of the change in
control for good reason (as defined in the plan); and (iii) in respect of the
Chairman of the Board, the President, the Chief Financial Officer or, if such
positions are filled by less than three persons, the Executive Vice President,
in each case of Kentucky Utilities, termination of employment for any reason
during the 30-day period commencing on the first anniversary of the change in
control. In such circumstances, the employee will be entitled to a change in
control severance
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<PAGE>
payment equal to a certain percentage (300% in the case of executive officers
of the Company or Kentucky Utilities) of the sum of (i) the employee's basic
compensation and (ii) the employee's target annual performance incentive
compensation. In addition, the employee will be entitled to continuation of
certain employee welfare benefits for up to three years following termination
of employment, subject to an offset for comparable benefits. Under the
Supplemental Security Plan, the employee is entitled to receive additional
payments, if necessary, to reimburse the employee for certain federal excise
tax liabilities. The Supplemental Security Plan's change in control retirement
benefit provides that, upon termination of employment, other than for cause (as
defined in the Supplemental Security Plan) following a change in control, an
eligible member will receive a lump sum amount equal to the present value of
the retirement benefit (described in the preceding paragraph and assuming the
member is then 65 but prorated if the member then has less than 15 years of
service, including an assumed three additional years of service for executive
officers); provided that, if the termination is more than two years from the
change in control, the calculation of years of service will not include the
assumed additional three years and the compensation upon which the benefit is
calculated will be the actual compensation in effect at termination (rather
than the compensation in effect at the change in control which, if higher,
would be used if termination occurred within two years of the change in
control). The change in control severance benefits and change in control
retirement benefits are effective for a minimum of five years, which is
automatically extended from year to year unless Kentucky Utilities gives notice
that it does not wish to extend the period of effectiveness. Change in control
has essentially the same meaning as under the Director Retirement Plans
described under "Directors' Compensation."
The Performance Share Plans and Executive Deferred Compensation Plans contain
provisions relating to a change in control. Under each of these plans a change
in control has essentially the same meaning as under the Director Retirement
Plans described under "Directors' Compensation." Under the Performance Share
Plans, if a participant's employment is terminated voluntarily or involuntarily
after a change in control, such participant will have the right to an immediate
cash payment for all Performance Cycles in which the participant is currently
participating. The amount payable to a participant in the event of termination
in connection with a change in control will be determined in accordance with
the formula specified in the Performance Share Plan. In addition, after a
change in control, whether or not the participant is terminated, under the
Executive Deferred Compensation Plans, all amounts held under such plans will
be paid to the participant. The Incentive Plans do not contain any change in
control provisions.
General
Independent Public Accountants. The Audit Committee of the Board has selected
the firm of Arthur Andersen LLP as independent public accountants to examine
the financial statements of the Company and Kentucky Utilities for 1995. The
firm has served as the Company's independent public accountants since 1991 and
as Kentucky Utilities' independent public accountants for many years.
Representatives of the firm are not expected to be present at the annual
meeting.
Proposals of Shareholders. Under the rules of the Securities and Exchange
Commission, any shareholder proposal intended to be presented at the 1996
Annual Meeting of Shareholders must be received by the Company at its principal
executive offices no later than November 19, 1995, in order to be eligible to
be considered for inclusion in the Company's proxy materials relating to that
meeting. A shareholder submitting a proposal or nominating a person to serve as
director must comply with procedures set forth in the Company's By-laws. In
general, the By-laws provide that for business to be considered at an annual
meeting of shareholders, a shareholder must give timely and proper notice of
the matter to the Secretary of the Company. The notice must specify in
reasonable detail the business desired to be brought before the meeting
-104-
