SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3464
Kentucky Utilities Company
(Exact name of registrant as specified in its charter)
Kentucky and Virginia 61-0247570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Quality Street, Lexington, Kentucky 40507
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 606-255-2100
Not Applicable
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No .
Number of shares of Common Stock outstanding at May 8, 1995:
37,817,878 shares (owned by the parent-KU Energy Corporation).
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
KENTUCKY UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
March 31,
1995 1994
Operating Revenues (See Note 2) $167,148 $166,528
Operating Expenses:
Fuel, principally coal,
used in generation (See Note 2) 45,706 43,859
Electric power purchased 15,777 15,883
Other operating expenses 30,598 26,687
Maintenance 14,856 14,538
Depreciation 18,701 16,187
Federal and state income taxes 10,634 14,731
Other taxes 4,314 4,063
Total Operating Expenses 140,586 135,948
Net Operating Income 26,562 30,580
Other Income and Deductions:
Interest and dividend income 633 1,736
Other income and deductions - net 1,480 1,173
Total Other Income and Deductions 2,113 2,909
Income Before Interest Charges 28,675 33,489
Interest Charges 9,747 8,145
Net Income 18,928 25,344
Preferred Stock Dividend Requirements 564 692
Net Income Applicable to Common Stock $ 18,364 $ 24,652
The accompanying Notes to Financial Statements are an integral
part of these statements.
-2-
<PAGE>
KENTUCKY UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
For the Three
Months Ended
March 31,
1995 1994
Cash Flows from Operating Activities:
Net Income $ 18,928 $ 25,344
Items not requiring (providing) cash currently:
Depreciation 18,701 16,187
Deferred income taxes and investment tax credit (630) (1,819)
Changes in current assets and liabilities:
Change in fuel inventory (254) 4,644
Change in accounts receivable 5,623 1,418
Change in accounts payable (18,239) (10,332)
Change in accrued taxes 10,725 17,858
Change in accrued utility revenues 2,493 4,788
Other--net 8,424 1,154
Net Cash Provided by Operating Activities 45,771 59,242
Cash Flows from Investing Activities:
Construction expenditures - utility (28,035) (40,496)
Other 10 163
Cash Used by Investing Activities (28,025) (40,333)
Cash Flows from Financing Activities:
Short-term borrowings - net (7,100) 3,500
Funds deposited with trustee - net 8,600 9,000
Retirement of long-term debt (21) (21)
Retirement of preferred stock, including premium - (20,302)
Payment of dividends (16,353) (16,258)
Net Cash Used by Financing Activities (14,874) (24,081)
Net Increase (Decrease) in Cash and
Cash Equivalents 2,872 (5,172)
Cash and Cash Equivalents Beginning of Period 3,111 8,832
Cash and Cash Equivalents End of Period $ 5,983 $ 3,660
Supplemental Disclosures
Cash paid for:
Interest on short and long-term debt $ 6,475 $ 4,779
Federal and state income taxes $ - $ -
The accompanying Notes to Financial Statements are an integral
part of these statements.
-3-
<PAGE>
KENTUCKY UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
As of As of
March 31, Dec. 31,
1995 1994
ASSETS
Utility Plant:
Plant in service, at cost $2,274,572 $2,238,926
Less: Accumulated depreciation 953,153 933,394
1,321,419 1,305,532
Construction work in progress 98,617 104,385
1,420,036 1,409,917
Current Assets:
Cash and cash equivalents 5,983 3,111
Escrow funds - coal contract litigation 6,508 6,911
Construction funds held by trustee 9,979 18,553
Accounts receivable 36,089 41,712
Accrued utility revenues 21,734 24,227
Fuel, principally coal, at average cost 35,906 35,652
Materials and supplies, at average cost 21,670 20,081
Other 11,002 10,616
148,871 160,863
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 12,069 12,324
Other 34,933 34,996
47,002 47,320
Total Assets $1,615,909 $1,618,100
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity $ 567,776 $ 565,201
Preferred stock 40,000 40,000
Long-term debt 495,987 496,012
1,103,763 1,101,213
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 69,200 76,300
Accounts payable 31,278 49,517
Accrued interest 9,938 7,328
Accrued taxes 20,147 9,422
Customers' deposits 6,421 6,423
Accrued payroll and vacations 10,718 8,207
Liab. to ratepayers - coal contract litigation 6,508 6,909
Other 7,956 6,275
162,187 170,402
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 215,826 214,892
Accumulated deferred investment tax credits 37,251 38,275
Regulatory tax liability 60,119 60,788
Other 36,763 32,530
349,959 346,485
Total Capitalization and Liabilities $1,615,909 $1,618,100
The accompanying Notes to Financial Statements are an integral
part of these statements.
-4-
<PAGE>
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PRESENTATION OF CONDENSED INFORMATION
Pursuant to the rules and regulations of the Securities and
Exchange Commission, certain information has been condensed and
certain footnote disclosures have been omitted, which are normal-
ly included in financial statements prepared in accordance with
generally accepted accounting principles.
These financial statements should be read in conjunction
with the financial statements and notes thereto in the Kentucky
Utilities Company (KU) Annual Report on Form 10-K for the year
ended December 31, 1994.
In the opinion of management, the information furnished
herein reflects all adjustments which are necessary to present
fairly the results of the periods shown and the disclosures which
have been made are adequate to make the information not mislead-
ing. Results of interim periods are not necessarily indicative
of results for any twelve-month period due to the seasonal nature
of KU's business.
2. OPERATING REVENUES AND FUEL COSTS
Pursuant to regulatory orders, KU 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.
-5-
<PAGE>
KENTUCKY UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Operating revenues and fuel expense for the three-month
period ended March 31, 1994 were reduced by $.5 million and $2.9
million, respectively, resulting from the above-mentioned refund.
The refunding had no impact on operating revenues or fuel expense
for the three-month period ended March 31, 1995. The difference
between the reduction in operating revenues and the reduction in
fuel expense is attributed to incurred litigation costs and fuel
costs savings related to off-system sales. These amounts were
allowed to be retained by KU pursuant to regulatory orders.
-6-
<PAGE>
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY & RESOURCES
KU's construction expenditures decreased approximately
$12 million during the three-month period ending March 31, 1995,
compared to the same period of 1994. The decrease is primarily
attributable to planned reductions in expenditures for combustion
turbine peaking units and for compliance with the 1990 Clean Air
Act Amendments.
KU plans to issue up to an additional $50 million of long-
term debt during 1995, principally to refinance short-term
indebtedness.
RESULTS OF OPERATIONS
Quarter ended March 31, 1995, compared
to the Quarter ended March 31, 1994
Net income applicable to common stock for the three-month
period ending March 31, 1995 was $18.4 million as compared to
$24.7 million for the corresponding period of 1994. Net income
applicable to common stock for the first quarter of 1994 included
a one-time recovery of about $1.9 million from the resolution of
a coal contract dispute. For additional information concerning
the refunds resulting from resolution of the dispute and the
impact on 1994 operating results, refer to Note 2 of the Notes to
Financial Statements, "Operating Revenues and Fuel Costs".
-7-
<PAGE>
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Increase (Decrease)
From Prior Year
Three Months
Ended March 31, 1995
kWh Revenues
(%) (000's)
Residential (6) $ (1,255)
Commercial (1) 1,060
Industrial 5 2,299
Mine Power & Public Authorities (2) 666
Total Retail Sales (2) 2,770
Other Electric Utilities (21) (2,477)
Miscellaneous Revenues & Other - (210)
Total Before Refund (5) 83
Provision for Refund -
Litigation Settlement - 537
Total (5) $ 620
Operating revenues, before the impact of the refunds to
customers, increased about $.1 million. A 5% decrease in
kilowatt-hour sales was offset by $3.8 million recovered under
the environmental surcharge discussed below (see page 10). The
decrease in kilowatt-hour sales is attributable to a decline in
residential and off-system sales, partially offset by an increase
in industrial sales. The increase in industrial sales reflects
continued economic growth in the manufacturing sector of KU's
service area. About 30% of the industrial sales increase was due
to greater sales to Toyota Motor Manufacturing U.S.A., Inc., KU's
largest customer. The decrease in off-system sales is
attributable to a decrease in demand for power at neighboring
utilities. The decline in residential sales reflects milder
weather during the first quarter of 1995 compared to 1994.
Fuel expense, excluding the effect of the refunds to customers,
decreased $1.1 million (2%). This decrease reflects a 6% decrease
-8-
<PAGE>
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in tons of coal consumed, partially offset by a 3% increase in
the average price per ton of coal consumed. Purchased power
expense decreased $.1 million (1%) due to an increase in demand
costs ($1.3 million) offset by a decrease in kilowatt-hour
purchases ($1.4 million). The decrease in kilowatt-hour
purchases is due to the previously mentioned decline in kilowatt-
hour sales.
Other operating expenses increased $3.9 million (15%) due to
increased generating plant operations expenses (primarily
attributable to costs associated with environmental compliance),
advertising and marketing program expenses and timing of
administrative and general expenditures.
Maintenance expense increased $.3 million (2%) due to an
increase in production maintenance resulting from the timing of
scheduled maintenance at KU's generating stations. This increase
was substantially offset by a decrease in distribution
maintenance in 1995. Extensive ice storm damage in the first
quarter of 1994 increased distribution maintenance in that
period.
Depreciation expense increased $2.5 million (16%) resulting
from the Ghent Unit 1 scrubber and two combustion turbine peaking
units being placed into service late in 1994 and early 1995.
Interest charges increased $1.6 million (20%) reflecting the
issuance of additional short-term debt (commercial paper) during
1995 as well as the issuance of $54 million of long-term debt in
-9-
<PAGE>
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the fourth quarter of 1994. The average amount of short-term
debt outstanding during the first quarter of 1995 was
substantially greater than in the first quarter of 1994.
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 has resulted 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 the surcharge
statute is constitutional and the PSC approval of July 1994 will
be upheld.
UTILITY ISSUES - COMPETITION
In March 1995, the Federal Energy Regulatory Commission
(FERC) issued a Notice of Proposed Rulemaking (NOPR) by which the
FERC will require public utilities that own or control facilities
used for the transmission of electric energy in interstate
commerce to offer "open access" transmission service on a
-10-
<PAGE>
KENTUCKY UTILITIES COMPANY
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
nondiscriminatory basis. The FERC also proposes to allow, in
certain circumstances, the collection of charges for the recovery
of stranded costs when customers change power suppliers. KU
filed a Transmission Services (TS) Tariff and Power Services (PS)
Tariff on September 30, 1994 (Refer to Management's Discussion
and Analysis in the 1994 Annual Report on Form 10-K under the
heading "Utility Issues - Competition" for a discussion of the TS
Tariff and PS Tariff filed by KU). KU revised the TS Tariff in a
filing made on March 31, 1995 with the FERC. KU will comply with
any requirements mandated by the FERC's final rules. Although KU
does not expect either of these new tariffs to have a material
impact on its 1995 revenues or income, they are indicative of the
increasingly competitive environment in which KU and other
utilities operate.
-11-
<PAGE>
PART II. OTHER INFORMATION
KENTUCKY UTILITIES COMPANY
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL COST RECOVERY
By order of July 19, 1994, the Kentucky Public Service
Commission (PSC) approved KU's plan for environmental surcharge
adjustments to customer billings beginning in August 1994. The
surcharge, authorized by a Kentucky statute enacted in 1992, is
designed to recover certain ongoing operating and capital costs,
not already included in existing rates, related to compliance
with federal, state or local environmental requirements
associated with the production of energy from coal, including the
1990 Clean Air Act Amendments. Surcharge billings are subject to
periodic PSC review to confirm the level of environmental
expenditures and to reconcile previous surcharge billings with
actual costs.
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 KU's
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
-12-
<PAGE>
the court pending the outcome of the litigation. Management
believes that 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.
FUEL MATTERS
A former coal supplier of KU has initiated arbitration
proceedings to recover approximately $536,000 in on-going
reclamation costs claimed to have been incurred during mining
operations at the supplier's mine used to supply KU under a
contract that expired in 1988. In addition, the supplier has
submitted invoices for approximately $1,324,000 representing what
it claims are final reclamation costs incurred during 1994. The
supplier has stated that invoices for final reclamation costs
will be submitted every six months over the five years estimated
by the supplier for completion of final reclamation, which began
in 1994. The supplier has not sought arbitration or otherwise
initiated proceedings with respect to the claims for final
reclamation nor has it produced any original cost data in support
of its claims for final reclamation. Management intends to
contest vigorously the claims for on-going and final reclamation.
Although the total amount of the claims is unknown at this time,
KU believes that this matter will not have a material adverse
effect on KU's financial position or its results of operation. KU
will seek to recover any amounts ultimately paid through the Fuel
Adjustment Clause.
-13-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed as part of this report:
Exhibit
Number Description
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule (required for electronic
filing only in accordance with Item 601(c)(1) of
Regulation S-K.)
(b) Reports on Form 8-K.
None.
-14-
<PAGE>
KENTUCKY UTILITIES COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KENTUCKY UTILITIES COMPANY
(Registrant)
Date May 8, 1995 /s/ John T. Newton
John T. Newton
Chairman of the Board and
Chief Executive Officer
Date May 8, 1995 /s/ Michael D. Robinson
Michael D. Robinson
Controller
-15-
EXHIBIT 12
KENTUCKY UTILITIES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
12 Months Ended
March 31, 1995
(in thousands,
except ratio)
Earnings
Net Income $ 71,096
Adjustments
Fixed charges 36,118
Income taxes
Current Federal 32,673
Current State 7,737
Deferred Federal-Net (103)
Deferred State-Net 363
Deferred investment tax credit-Net (83)
Income taxes included in Other Income
and Deductions
Current Federal and State 1,358
Deferred Federal and State (633)
Amortization of investment tax credit (4,024)
Undistributed income of Electric
Energy, Inc. 51
Total Earnings $ 144,553
Fixed Charges
Interest on long-term debt $ 32,634
Other interest charges 3,484
Total Fixed Charges $ 36,118
Ratio of Earnings to Fixed Charges 4.00
Note--Rentals are not material and have not been included in
fixed charges.
-16-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet as of March 31, 1995 and the Income Statement for the period ended March
31, 1995 and is qualified in its entirety by reference to such Form 10-Q
Quarterly Report.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,420,036
<OTHER-PROPERTY-AND-INVEST> 11,602
<TOTAL-CURRENT-ASSETS> 148,871
<TOTAL-DEFERRED-CHARGES> 35,400
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,615,909
<COMMON> 308,140
<CAPITAL-SURPLUS-PAID-IN> (594)
<RETAINED-EARNINGS> 260,230
<TOTAL-COMMON-STOCKHOLDERS-EQ> 567,776
0
40,000
<LONG-TERM-DEBT-NET> 495,987
<SHORT-TERM-NOTES> 69,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 21
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 442,925
<TOT-CAPITALIZATION-AND-LIAB> 1,615,909
<GROSS-OPERATING-REVENUE> 167,148
<INCOME-TAX-EXPENSE> 10,634
<OTHER-OPERATING-EXPENSES> 129,952
<TOTAL-OPERATING-EXPENSES> 140,586
<OPERATING-INCOME-LOSS> 26,562
<OTHER-INCOME-NET> 2,113
<INCOME-BEFORE-INTEREST-EXPEN> 28,675
<TOTAL-INTEREST-EXPENSE> 9,747
<NET-INCOME> 18,928
564
<EARNINGS-AVAILABLE-FOR-COMM> 18,364
<COMMON-STOCK-DIVIDENDS> 15,789
<TOTAL-INTEREST-ON-BONDS> 8,474
<CASH-FLOW-OPERATIONS> 45,771
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>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>
