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, 1995
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 8, 1996: 37,817,878
shares (owned by the parent - KU Energy Corporation).
Documents Incorporated by Reference: None
Exhibit Index appears on page 43.
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KENTUCKY UTILITIES COMPANY
Form 10-K
Annual Report to the Securities and Exchange Commission
For the Year Ended December 31, 1995
_____________
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 . . . . . . . . . . . . . . . . . . 41
PART III
10. Directors and Executive Officers of the Registrant . . . . . . 41
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 41
12. Security Ownership of Certain Beneficial Owners and Management 41
13. Certain Relationships and Related Transactions . . . . . . . . 41
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 42
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . 43
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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PART I
Item 1. Business
General
Kentucky Utilities Company (KU) is a wholly owned subsidiary of KU Energy
Corporation (KU Energy). KU is a public utility engaged in producing and
selling electric energy. KU provides electric service to about 425,500
customers in over 600 communities and adjacent suburban and rural areas
in 77 counties in central, southeastern and western Kentucky, and to
about 28,600 customers in 5 counties in southwestern Virginia. In
Virginia, KU operates under the name Old Dominion Power Company. Of the
Kentucky communities, 161 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. The lack of
Virginia franchises is not expected to have a material adverse effect on
KU's operations. KU also sells electric energy at wholesale for resale
in 12 municipalities.
The territory served by KU 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
KU's sources of electric revenues and the respective percentages of total
revenues for the three years 1993-1995 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
Amount % Amount % Amount %
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential $ 232,760 34 $ 213,574 34 $ 210,759 35
Commercial 151,778 22 142,207 22 138,271 23
Industrial 130,066 19 120,043 19 111,857 18
Mine Power 36,076 5 36,498 6 34,977 6
Public Authorities 54,161 8 49,869 8 48,142 8
Wholesale 50,699 7 47,961 7 46,898 8
Opportunity 25,241 4 41,704 7 15,565 2
Miscellaneous Revenues 5,649 1 4,181 - 3,428 -
Provision for Refund -
Litigation Settlement - - (19,385) (3) (3,309) -
Total $ 686,430 100 $ 636,652 100 $ 606,588 100
</TABLE>
The electric utility business is affected by 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 of Operations -
Sales and Revenues for information related to revenues including those
from opportunity sales.
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Operations
KU's net generating capability was 3,509 megawatts at December 31, 1995.
An additional 110-megawatt combustion turbine peaking unit is scheduled
to be placed into commercial operation in 1996. 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. KU
obtains power from other utilities under bulk power purchase and
interchange contracts. At December 31, 1995, KU's system capability,
including purchases from others, was 3,903 megawatts. On August 16, 1995,
an all-time system peak demand, on a one-hour integrated basis, was set
at 3,341 megawatts. This peak was surpassed on February 5, 1996 by a
3,391 megawatt peak. See Item 2, Properties-Construction for a
discussion of KU's plans to add additional peaking capacity.
The percentage of KU's system output which was internally generated and
purchased for the periods indicated was as follows:
1995 1994 1993
Internally Generated 82% 83 % 89 %
Purchased 18% 17 % 11 %
KU 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. KU also has interconnections and contractually established
operating arrangements with neighboring utilities and cooperatives.
Under a contract with Owensboro Municipal Utilities (OMU), KU 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 KU. Such power constituted
about 8% of KU's net system output during 1995. See Note 4 of the Notes
to Financial Statements.
KU owns 20% of the common stock of Electric Energy, Inc. (EEI), which
owns and operates a 1,000-megawatt generating station in southern
Illinois. KU's entitlement is 20% of the available capacity of the
station. Purchases from EEI 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 KU. Such power constituted
about 8% of KU's net system output in 1995. See Note 4 of the Notes to
Financial Statements.
KU had approximately 2,230 employees at December 31, 1995, of which about
300 are covered by union contracts expiring August 1996.
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Fuel Matters
Coal-fired generating units provided more than 99% of KU's net kilowatt-
hour generation for 1995. The remainder of KU's net generation for 1995
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:
1995 1994 1993
Per ton - all sources $ 28.37 $ 28.91 $ 27.92
Per MBTU - all sources $ 1.16 $ 1.19 $ 1.15
Per ton - spot purchases only $ 26.84 $ 28.33 $ 26.23
Per MBTU - spot purchases only $ 1.10 $ 1.16 $ 1.08
Spot purchases as % of all sources 30 % 46 % 44 %
KU 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.
KU 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. KU intends to meet a
substantial portion of its coal requirements with 3-year and 5-year
contracts. KU anticipates that coal supplied under such contracts will
represent about two-thirds of the requirements over the next several
years. As part of this strategy, KU is currently negotiating and will
continue to negotiate replacement contracts as contracts expire. KU 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 existing fuel contracts for each of the years
1996 through 2000.
KU has no long-term contracts in place for the purchase of natural gas
for its combustion turbine peaking units. KU has met its gas
requirements through spot purchases. KU does not anticipate encountering
any significant problems acquiring an adequate supply of fuel necessary
to operate its peaking units. See Item 2, Properties-Construction for a
discussion of KU's plans to add additional peaking capacity.
Environmental Matters
Federal and state agencies have adopted environmental protection
standards which apply to the electric operations of KU. Capital
expenditures to comply with these standards amounted to about
$193 million during the 1991-1995 time period.
KU's generating units are operated in compliance with the Kentucky
Natural Resources and Environmental Protection Cabinet's (Cabinet) State
Implementation Plan (KYSIP) and New Source Performance Standards
developed under the Clean Air Act. The KYSIP is a federally approved
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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 nitrogen oxides) from KU's
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. KU's 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 KU 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 were required to comply with sulfur dioxide emission
reduction obligations beginning January 1, 1995. In order to comply with
these sulfur dioxide emission limitations, KU has installed a scrubber
and related facilities on Ghent Unit 1 and switched to lower sulfur coal
on some other Phase I affected units. In addition, these units were
retrofitted with low NOx burners in order to comply with applicable
nitrogen oxide limitations under United States Environmental Protection
Agency (EPA) regulations. The EPA issued final acid rain permits for
each of KU's Phase I affected units. The EPA's approval of KU 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. KU's current emission allowance
strategy, in part, includes the banking of 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. The banked
allowances are expected to allow KU to delay capital expenditures
associated with KU's Phase II acid rain compliance obligations, which
are effective January 1, 2000. KU's Phase II compliance strategy, in
addition to utilizing banked allowances, may include additional fuel
switching or the installation of additional scrubbers. However, KU 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 KU's 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. KU's operations are in substantial compliance
with the conditions in the permits. KU is in the process of renewing the
required permits that expired in 1995, which continue in effect until new
permits are issued.
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
byproducts by practices common to the utility industry are adequate for
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the protection of human health and the environment. The Cabinet also
regulates utility wastes as special wastes under its waste management
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, KU has implemented procedures to be followed in the
handling, storage and disposal of PCBs. In addition, KU 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, KU received a letter from the EPA identifying KU
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 KU 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 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. The
agreement does not cover costs which may be incurred in connection with
any remediation plan. A remediation plan is before the EPA for approval.
KU 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
KU is subject to the jurisdiction of the Kentucky Public Service
Commission (PSC) and the Virginia State Corporation Commission (SCC) as
to retail rates and service, accounts, issuance of securities and in
other respects. The Federal Energy Regulatory Commission (FERC) has
jurisdiction under the Federal Power Act over certain of the electric
utility facilities and operations, wholesale sale of power and related
transactions and accounting practices of KU, and in certain other
respects as provided in the Act. The FERC has classified KU as a "public
utility" as defined in the Act. 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), KU may also be subject to
the jurisdiction of the Tennessee Public Service Commission as to retail
rates, accounts, issuance of securities and in other respects. Since
1992, utilities in Kentucky have had the option to use either a
historical test period or a forward-looking test period in rate filings.
KU's 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 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
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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 uses
an average fuel cost factor based primarily on projected test year fuel
costs. The fuel cost factor is adjusted annually for the over or under
collection of fuel costs from the previous year.
Rate regulation in Kentucky allows each electric utility with a PSC-
approved environmental compliance plan and environmental surcharge to
recover on a current basis the cost of complying with federal, state or
local environmental requirements, including the Federal Clean Air Act as
amended, which applies to coal combustion wastes and by-products from
facilities utilized for the production of energy from coal. During 1994,
the PSC approved KU's environmental surcharge, which is designed to allow
KU to recover compliance related operating expenses and to earn a return
on those compliance related capital expenditures 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, including information concerning
pending legal proceedings, see Note 9 of the Notes to Financial
Statements, "Environmental Cost Recovery."
Integrated resource planning regulations in Kentucky require KU and the
other major utilities to make triennial filings with the PSC, of various
historical and forecasted information relating to forecasted load,
capacity margins and demand-side management techniques. KU is required
to make its next filing on April 22, 1996.
Pursuant to Kentucky law, the PSC has established the boundaries of the
service territory or area of each retail electric supplier in Kentucky
(including KU), 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.
KU 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 KU 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
In March 1995, the 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
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. The FERC expects to issue
final rules in 1996. For further discussion, see Item 7, Managements'
Discussion and Analysis of Financial Condition and Results of Operation -
Utility Issues- Competition.
KU placed a Transmission Services (TS) Tariff into effect in 1994 and a
Power Services (PS) Tariff into effect in 1995. The TS Tariff covers
wholesale transactions involving the use of KU's transmission system.
The PS tariff allows KU to sell wholesale power at market-based rates.
The FERC staff, intervenors and KU are engaged in settlement discussions
designed to settle all outstanding issues. Both tariffs are subject to
refund pending final FERC approval.
Although these new tariffs did not have a material impact on KU's 1995
revenues or net income, they are indicative of the increasingly
competitive environment in which KU and other utilities operate.
Item 2. Properties
<TABLE>
KU 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 1,976,000
Green River South Carrollton, Ky 263,636 242,000
E. W. Brown Burgin, Ky 739,534 661,000
Tyrone Tyrone, Ky 137,500 136,000
Pineville Four Mile, Ky 37,500 34,000
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 357,000 377,000
3,853,627 3,509,000
</TABLE>
Substantially all properties are subject to the lien of KU's Mortgage
Indenture.
Construction
Three 110-MW combustion turbine peaking units have been installed over
the past two years. The first peaking unit was placed into commercial
operation in late 1994. The second and third units were placed into
commercial operation in February 1995 and December 1995, respectively.
The total construction expenditures for the years 1996 through 2000 are
estimated at $547 million. Such expenditures include an estimated
$190 million for generating facilities, $83 million for transmission
facilities and $274 million for distribution and general facilities.
Included in total construction expenditures for the 1996-2000 period are
$120 million for 485 MW of peak generating capacity to be added during
1996-2000 (including one substantially complete unit with an effective
capability of 110-MW scheduled for commercial operation in 1996.) KU has
no plans to install coal-fired baseload generating capacity before 2010.
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Construction expenditures for the years 1991 through 1995 aggregated
about $647 million. See Note 4 of the Notes to Financial Statements for
the estimated amounts of construction expenditures for each of the years
1996 through 2000.
KU 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 KU's ability to raise necessary capital. (See Item 7,
Management's Discussion and Analysis of Financial Condition and Results
of Operations.) KU's 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
Environmental Cost Recovery
See Note 9 of the Notes to Financial Statements, "Environmental Cost
Recovery," for a discussion of environmental surcharge legal proceedings.
Fuel Matters
As previously reported in Item 3 of the Quarterly Report on Form 10-Q for
the period ending June 30, 1995, a former coal supplier of KU initiated
arbitration proceedings to recover 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 also was seeking to recover final reclamation costs which began
in 1994 and were estimated to continue for four more years. This matter
was settled in December 1995 resulting in no obligation to KU.
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
Michael R. Whitley Chairman and Chairman of the Board of KU since
Age 52 President* August 1995 and President from
November 1994. Director of KU
since March 1992. Senior Vice-
President of KU from March 1987 to
November 1994. Secretary of KU
from July 1978 to November 1992.
James M. Allison Senior Vice- Senior Vice-President of KU since
Age 42 President November 1994. Vice-President of
KU 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 KU since
Age 48 President* November 1992. Vice-President of
KU from April 1982 to November
1992.
Wayne T. Lucas Senior Vice- Senior Vice-President of KU since
Age 48 President November 1994. Vice President of
KU from November 1986 to November
1994.
George S. Brooks II General Corporate Secretary of KU since
Age 45 Counsel and November 1992, and General Counsel
Corporate since January 1988.
Secretary*
Gary E. Blake Vice-President Vice-President of KU since
Age 42 November 1992. Western Division
Manager of KU from October 1991 to
November 1992. Assistant Western
Division Manager of KU from March
1990 to October 1991. Field
Operations Coordinator for KU from
April 1986 to March 1990.
William E. Casebier Vice-President Vice-President of KU since May
Age 53 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 KU since
Age 41 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.
Gary L. Hawley Vice-President Vice President of KU since January
Age 47 1996. Director of Bulk Power
Planning from November 1986 to
January 1996.
Robert M. Hewett Vice-President Vice-President of KU since January
Age 48 1982.
Ronald L. Whitmer Vice-President Vice-President of KU since
Age 63 November 1992. Director of
Production and Generation
Construction of KU from May 1985
to November 1992. (Retired
effective January 1996.)
William N. English Treasurer* Treasurer of KU since April 1982.
Age 45
Michael D. Robinson Controller* Controller of KU since August
Age 40 1990.
John J. Maloy, Jr. Assistant Assistant Treasurer of KU since
Age 41 Treasurer 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.
* Certain executive officers of KU may be considered "executive
officers" of KU Energy for certain purposes. Identified persons
hold positions with the same titles at KU Energy. Refer to KU
Energy's Annual Report on Form 10-K for information concerning
positions held during the last five years and information
concerning KU Energy executive officers.
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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 KU is held by KU Energy.
The following table sets forth the cash distributions (in thousands of
dollars) on common stock paid by KU for the periods indicated:
1995 1994
First Quarter $ 15,789 $ 15,411
Second Quarter $ 15,789 $ 15,411
Third Quarter $ 15,789 $ 15,411
Fourth Quarter $ 15,883 $ 15,411
See Note 5 of the Notes to Financial Statements for information regarding
dividend restrictions.
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<TABLE>
Item 6. Selected Financial Data
<CAPTION>
Year ended December 31, 1995 1994 1993 1992 1991
(in thousands)
Operating Revenues:
<S> <C> <C> <C> <C> <C>
Residential $232,760 $ 213,574 $210,759 $ 194,817 $202,885
Commercial 151,778 142,207 138,271 133,519 137,653
Industrial 130,066 120,043 111,857 102,808 98,595
Mine power 36,076 36,498 34,977 36,696 37,093
Public authorities 54,161 49,869 48,142 45,570 46,332
Total sales to ultimate
consumers 604,841 562,191 544,006 513,410 522,558
Other electric utilities 75,940 89,665 62,463 58,979 61,542
Miscellaneous revenues and other 5,649 4,181 3,428 3,432 3,560
Provision for refund -
litigation settlement - (19,385) (3,309) - -
Total operating revenues 686,430 636,652 606,588 575,821 587,660
Operating Expenses:
Fuel used in generation (1) 189,845 170,654 178,910 168,470 183,167
Electric power purchased 69,579 61,442 34,711 32,753 26,744
Other operating expenses 121,426 112,712 104,930 93,915 91,779
Maintenance 62,592 66,134 59,451 61,118 58,590
Depreciation 75,080 65,259 60,800 58,849 57,337
Federal and state income taxes 44,670 44,683 48,178 41,489 46,569
Other taxes 14,694 14,582 14,347 13,359 12,858
Total operating expenses 577,886 535,466 501,327 469,953 477,044
Net Operating Income 108,544 101,186 105,261 105,868 110,616
Other Income and Deductions 8,235 9,299 8,331 11,226 12,062
Income Before Interest Charges
and AFUDC 116,779 110,485 113,592 117,094 122,678
Interest Charges:
Interest on long-term debt 36,095 32,147 31,650 39,571 36,559
Other interest 4,021 2,411 1,249 1,394 1,626
Total interest charges 40,116 34,558 32,899 40,965 38,185
AFUDC 179 1,585 593 169 262
Net Income $ 76,842 $ 77,512 $ 81,286 $ 76,298 $ 84,755
Preferred Stock Dividend
Requirements 2,256 2,384 2,558 2,518 3,031
Net Income Applicable to Common
Stock $ 74,586 $ 75,128 $ 78,728 $ 73,780 $ 81,724
Common Dividends $ 63,250 $ 61,644 $ 60,509 $ 108,996 $ 56,727
(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>
-14-
<PAGE>
<TABLE>
Item 6. Selected Financial Data
(continued)
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Assets (in thousands) $1,659,988 $1,618,100 $1,523,274 $1,408,453 $1,412,961
Capitalization: (in thousands)
Bonds $ 545,830 $ 495,830 $ 441,830 $ 443,330 $ 407,330
Notes 64 86 107 128 149
Unamortized premium on
long-term debt 86 96 108 519 713
Preferred stock 40,000 40,000 40,000 40,000 40,000
Preferred stock with mandatory
redemption - - - - -
Common stock equity 576,537 565,201 552,106 534,073 569,289
Total capitalization $1,162,517 $1,101,213 $1,034,151 $1,018,050 $1,017,481
% Total Capitalization
Represented by:
Long-term debt 47.0 45.1 42.7 43.6 40.1
Preferred stock 3.4 3.6 3.9 3.9 3.9
Common stock equity 49.6 51.3 53.4 52.5 56.0
Kilowatt-hours Generated,
Purchased and Sold:
(in thousands)
Power generated 15,223,851 15,524,844 14,934,839 13,700,313 14,183,713
Power purchased 3,254,861 3,066,917 1,926,299 2,032,110 1,464,812
Power interchanged - net (6,569) 2,638 1,556 3,393 (10,725)
Total 18,472,143 18,594,399 16,862,694 15,735,816 15,637,800
Less - losses and company use 1,054,589 998,010 1,066,251 876,862 906,468
Remainder - kilowatt-hours
sold 17,417,554 17,596,389 15,796,443 14,858,954 14,731,332
Sales classified:
Residential 5,016,012 4,706,058 4,702,697 4,278,098 4,385,670
Commercial 3,403,054 3,272,370 3,217,504 3,080,045 3,122,156
Industrial 3,850,647 3,641,469 3,409,213 3,093,113 2,874,016
Mine power 926,873 974,233 933,317 977,032 955,410
Public authorities 1,297,913 1,225,668 1,199,893 1,123,494 1,133,176
Total sales to
ultimate consumers 14,494,499 13,819,798 13,462,624 12,551,782 12,470,428
Other electric utilities 2,923,055 3,776,591 2,333,819 2,307,172 2,260,904
Total 17,417,554 17,596,389 15,796,443 14,858,954 14,731,332
Average Number of Customers 449,144 440,590 432,636 425,403 419,340
Residential Sales (per customer):
Average kilowatt-hours 13,377 12,781 12,995 12,007 12,471
Average revenue $ 620.75 $ 580.05 $ 582.41 $ 546.80 $ 576.93
System Capability - Megawatts:
Kentucky Utilities' plants 3,509 3,265 3,164 3,163 3,162
Purchased contracts 394 540 365 293 254
Total system capability 3,903 3,805 3,529 3,456 3,416
Net System Maximum Demand -
Megawatts 3,341 3,127 3,176 2,845 2,894
Load Factor (%) 58.7 59.8 57.7 59.4 58.4
Heat Rate (BTU per KWH) (1) 10,377 10,306 10,367 10,344 10,350
Fuel - Average Cost per Ton(1) $ 28.49 $ 28.84 $ 28.31 $ 27.88 $ 29.67
Average Cost per Million BTU(1) $ 1.18 $ 1.19 $ 1.17 $ 1.18 $ 1.24
(1) Based on coal consumed
</TABLE>
-15-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
KU, an electric utility, is a wholly owned subsidiary of KU Energy.
RESULTS OF OPERATIONS
1995 Compared to 1994
Net Income Applicable to Common Stock
Net income applicable to common stock in 1995 was $74.6 million as
compared to $75.1 million in 1994 (which includes a one-time recovery of
about $1.9 million associated with the resolution of a coal contract
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>
1995 1994
kWh Revenues kWh Revenues
(%) (000's) (%) (000's)
<S> <C> <C> <C> <C>
Residential 7 $ 19,186 - $ 2,815
Commercial 4 9,571 2 3,936
Industrial 6 10,023 7 8,186
Mine Power & Public
Authorities 1 3,870 3 3,248
Total Retail Sales 5 42,650 3 18,185
Wholesale 5 2,738 2 1,063
Opportunity (42) (16,463) 176 26,139
Total Other Electric Utilities (23) (13,725) 62 27,202
Miscellaneous Revenues
and Other - 1,468 - 753
Total Before Refund (1) 30,393 11 46,140
Provision for Refund -
Litigation Settlement - 19,385 - (16,076)
Total (1) $ 49,778 11 $30,064
</TABLE>
Kilowatt-hour (kWh) sales in 1995 were 1% below sales in 1994. The
decrease was largely due to a 42% decline in opportunity sales which
reflects a return to more normal levels from the unusually high levels of
opportunity sales in 1994.
Sales to residential customers increased by 7% in 1995 as a result of
favorable weather in the second half of 1995, continued growth in the
number of residential customers and the impact of KU's marketing efforts.
Industrial sales rose 6% as a result of continued economic growth in KU's
service area. About 29% of the increase in industrial sales for 1995
was due to greater sales to Toyota Motor Manufacturing, KU's largest
customer.
Operating revenues for 1995 were $686.4 million, up $30.4 million (5%)
-16-
<PAGE>
from 1994, excluding the impact of the refunds to customers associated
with the above mentioned 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 as a result of the refunds.
The increase in 1995 revenues was largely due to the growth in retail
sales described above and to amounts recovered under an environmental
surcharge (about $17.9 million in 1995 compared to $3.5 million in 1994).
Refer to Note 9 of the Notes to Financial Statements, "Environmental Cost
Recovery."
1995 kWh Sales by Classification
Year Ended December 31, 1995
Residential 29%
Commercial 20%
Industrial 22%
Mine Power & Public Authorities 13%
Opportunity 7%
Wholesale 9%
Total 100%
Operating Expenses
Fuel expense for 1995 was $189.8 million, a $3.9 million (2%) decrease
from 1994, excluding the effect of the 1994 refunds to customers. This
decrease was due to a 1% decline in annual coal consumption and a 1%
decrease in the average price per ton of coal consumed.
Purchased power expense increased $8.1 million (13%) in 1995 due to
increased demand ($2.5 million) and energy costs ($5.6 million). The
increase in energy costs reflects a 6% increase in kWh purchases as well
as higher prices. The increase in kWh purchases is primarily
attributable to the significant demand for electricity in the third
quarter of 1995 due to unusually warm weather.
Other operating expenses increased $8.7 million (8%) in 1995 due to
increased generating plant operations expenses (primarily attributable
to costs associated with environmental compliance) and administrative and
general expenses.
Maintenance expense decreased $3.5 million (5%) in 1995. Maintenance
expense for 1994 included additional costs for damage from two severe ice
storms in the first quarter of 1994.
Depreciation expense increased $9.8 million (15%). This increase was
related to the Ghent Unit 1 scrubber, which was placed into service late
in 1994, and two combustion turbine peaking units placed into service
late in 1994 and early in 1995.
Interest Charges
Interest charges rose $5.9 million (17%) in 1995 reflecting the issuance
of $54 million of long-term debt in the fourth quarter of 1994, $50
million of long-term debt in the second quarter of 1995 and an increase
-17-
<PAGE>
in the average amount of short-term debt outstanding during the first
half of 1995.
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 was largely due to
increased operating expenses which 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.
Earnings for 1994 include a one-time recovery of about $1.9 million
associated with the resolution of a coal contract dispute. Refer to
Note 1 of the Notes to Financial Statements, "Operating Revenues and Fuel
Costs."
Sales and Revenues
Sales in 1994 increased 11% from sales in 1993. The increase was
primarily due to greater opportunity sales and to increased sales to
industrial customers. Opportunity sales rose 176% in 1994 due to
increased demand for power from neighboring utilities. 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. In March 1994, Toyota completed an $800 million assembly
plant expansion. Residential sales were flat as compared to 1993.
Excluding the effect of the refunds to customers, revenues in 1994
increased $46.1 million (8%) over 1993 as a result of increased kWh
sales.
Operating Expenses
Fuel expense, excluding the effect of the above referenced refunds to
customers, 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 increased $26.7 million (77%) in 1994 due to
higher demand costs ($13.8 million) and increased energy charges
($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 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.
-18-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
KU continues to maintain a strong financial position. At the end of
1995, common stock equity represented 49.6% of total capitalization,
while long-term debt was 47.0% and preferred stock was 3.4%. KU's
financial strength is reflected in high quality credit ratings. KU s
senior debt securities have ratings of AA (Duff & Phelps), Aa2 (Moody's)
and AA- (Standard & Poor's).
<TABLE>
As of December 31, 1995 1994 1993 1992 1991
<CAPTION>
<S> <C> <C> <C> <C> <C>
Capitalization (in millions) $1,163 $1,101 $1,034 $1,018 $1,017
Long-Term Debt 47.0% 45.1% 42.7% 43.6% 40.1%
Preferred Stock 3.4% 3.6% 3.9% 3.9% 3.9%
Common Stock Equity 49.6% 51.3% 53.4% 52.5% 56.0%
</TABLE>
Cash from operations accounted for 78% of cash requirements in 1995 as
compared to 55% in 1994 and 67% in 1993. For these purposes, cash
requirements exclude optional debt refinancings and redemptions and
optional preferred stock redemptions.
Financing
Taking advantage of lower interest rates, KU issued $36 million of
Series S First Mortgage Bonds at a rate of 5.99% in January 1996 and used
the proceeds to redeem the $35.5 million of Series K First Mortgage Bonds
which carried a rate of 7 3/8%.
In June 1995, KU issued $50 million of Series R First Mortgage Bonds
bearing interest at 7.55%. The proceeds were used primarily to refinance
short-term indebtedness incurred to finance ongoing construction
expenditures and general corporate requirements.
In 1994, $54 million of Variable Rate Collateralized Solid Waste Disposal
Facility Revenue Bonds were issued on behalf of KU. In 1993, $50 million
of 5 3/4% Collateralized Solid Waste Disposal Facility Revenue Bonds were
issued. 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.
In 1993, KU refinanced $120 million of first mortgage bonds at
significantly lower interest rates.
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.
To provide working capital for operations, KU began issuing commercial
paper in 1994. At the end of 1994, KU had $76.3 million outstanding
under its commercial paper program. KU's commercial paper balance was
lowered to $55.6 million by year-end 1995 through refinancing with long-
-19-
<PAGE>
term debt.
KU's financial strength is enhanced by its low cost of capital. Shown
below are KU's embedded costs of long-term debt and preferred stock at
the end of 1995, 1994 and 1993.
Embedded Cost 1995 1994 1993
Long-Term Debt 7.15% 7.06% 7.23%
Preferred Stock 5.64% 5.64% 6.37%
Construction Requirements
Construction expenditures were $124.5 million in 1995. Of that amount,
about $23.1 million related to construction of combustion turbine
generating units (peaking units), $11.7 million related to compliance
with the 1990 Clean Air Act Amendments and $5.6 million to other
environmental compliance measures.
Projected construction expenditures for the 1996-2000 period are
$547.3 million. Included in this amount is $120.4 million for additional
peaking units. Also included in the 1996-2000 construction total is
$9.7 million for environmental compliance measures.
KU expects to provide about 92% of its 1996-2000 construction
requirements through internal sources of funds with the balance primarily
from long-term debt.
<TABLE>
Construction Expenditures by Function - Actual 1995 and Estimated 1996-2000
<CAPTION>
Actual Estimated
(in millions of dollars) 1995 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C>
Total Construction Expenditures $ 125 $ 108 $ 143 $ 115 $ 97 $ 84
Generation 42% 32% 48% 35% 33% 19%
Distribution 38% 43% 32% 42% 43% 53%
Transmission & Other 20% 25% 20% 23% 24% 28%
</TABLE>
UTILITY ISSUES
Competition
The utility industry continues to move to a more competitive and less
regulated operating environment. Competition at the wholesale level was
set in motion with the National Energy Policy Act of 1992 (NEPA). Under
NEPA, the Federal Energy Regulatory Commission (FERC) was given authority
-20-
<PAGE>
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. In March of 1995, the FERC issued a Notice of Proposed
Rulemaking (NOPR) which would require electric utilities to file
nondiscriminatory open access transmission tariffs that would apply to
all wholesale buyers and sellers of electricity as well as to the
utility's own wholesale sales and purchases. A natural outgrowth of
NEPA, the NOPR also proposes to allow, in certain circumstances, the
collection of charges for the recovery of stranded costs (fixed costs
which would likely be unrecoverable in a fully competitive market) when
customers change power suppliers. The FERC expects to issue final rules
in 1996.
For KU, the risks associated with stranded costs are small. A 1995
study by Moody's Investors Service estimated that stranded costs for the
U. S. investor-owned utility industry total some $135 billion. A
significant portion of these costs would become unrecoverable at
competitive market prices. KU was identified in the Moody's study as one
of the best-positioned companies with no stranded costs.
KU placed a Transmission Services (TS) Tariff into effect in 1994 and a
Power Services (PS) Tariff into effect in 1995. Both tariffs are
subject to refund pending final FERC approval. The TS Tariff covers
wholesale transactions involving the use of KU's transmission system,
while the PS Tariff allows KU to leverage its low-cost position by
selling wholesale power at market-based rates.
While NEPA prohibits the FERC from ordering utilities to provide
transmission access to retail customers, several states are considering
proposals that would allow retail wheeling. Regulators and legislators
have not pushed for retail wheeling in KU's service territory, largely
because rates in the area are already among the very lowest in the
country. There is also some concern that retail wheeling might put
upward pressure on rates for some customer classes.
KU believes that competition and change will continue to impact the
industry going forward. With utility rates that are among the lowest in
the nation, KU believes it is well-positioned for an increasingly
competitive environment.
KU has launched a series of innovative marketing programs that are
increasing KU's market share. In addition, KU has developed strategic
initiatives to increase opportunity sales and to expand its market
through economic development.
Environmental Matters
Clean Air Act
The Clean Air Act Amendments of 1990 require a two-phase reduction in
emissions of sulfur dioxide and nitrogen oxide. KU met its Phase I
requirements (which were effective January 1, 1995) primarily through the
addition of a flue gas desulfurization system (scrubber) on Unit 1 of
-21-
<PAGE>
KU's Ghent Generating Station. The scrubber began commercial operation
late in 1994.
KU estimates capital costs for the scrubber and other equipment
modifications related to Clean Air Act compliance to be $145 million
through the year 1999. Substantially all of this amount had been spent
through the end of 1995.
KU's current strategy for Phase II requirements (which will be effective
January 1, 2000) is to use accumulated emission allowances to delay
additional capital expenditures. These allowances will accumulate from
saved emission allowances as a result of reduced emissions from the
Ghent Unit 1 scrubber and allowances received through the Environmental
Protection Agency's Phase I Extension Plan Program.
KU's future compliance plans are contingent upon many factors including
developments in the emission allowance market and the fuel market as well
as regulatory and legislative actions and advances in clean air
technology. 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 August 1994, KU implemented an environmental cost recovery mechanism
(surcharge). Authorized by a 1992 state statute and approved by the
Kentucky Public Service Commission (PSC), the surcharge is designed to
recover certain environmental compliance costs, including costs to
comply with the Federal Clean Air Act as amended, through a surcharge on
customers' bills.
The constitutionality of the surcharge was challenged in a state court
action brought against KU and the PSC by the Attorney General of Kentucky
and joined by representatives of consumer groups. In July 1995, the
state court upheld the constitutionality of the surcharge statute but
disallowed recovery of expenditures incurred before January 1, 1993.
All parties (including KU) have appealed to the Kentucky Court of
Appeals. Refer to Note 9 of the Notes to Financial Statements,
"Environmental Cost Recovery."
Other
In 1990, KU received a letter from the Environmental Protection Agency
(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. A remediation plan is before
the EPA awaiting approval. Even when the final plan is approved, KU does
not believe that any liability with respect to the site will have a
material impact on its financial position or results of operations.
-22-
<PAGE>
Meeting Future Power Needs
KU's energy supply strategy is designed to provide an adequate and
reliable supply of electricity in an environmentally responsible and
cost-effective manner. KU projects an annual growth in sales and peak
demand of 2.8% and 3.0%, respectively, over the next 5 years. KU plans
to provide for the future power needs of its customers primarily through
purchased power and the addition of combustion turbine peaking units.
Three 110-megawatt gas/oil-fired peaking units have been installed over
the past two years. An additional 485 megawatts of peaking unit capacity
is planned through 2000 including a 110-megawatt unit scheduled for
commercial operation in 1996. There are no plans for additional coal-
fired baseload capacity before 2010.
Inflation
KU's rates are designed to recover operating and historical plant
investment 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.
-23-
<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, 1995 and 1994, and the related statements
of income and retained earnings, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements
and the schedule referred to below are the responsibility of KU's
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, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
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 29, 1996
-24-
<PAGE>
<TABLE>
Statements of
Income and
Retained
Earnings
Kentucky Utilities Company
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1995 1994 1993
<S> <C> <C> <C>
Operating Revenues (See Note 1) $ 686,430 $ 636,652 $ 606,588
Operating Expenses:
Fuel, principally coal, used in generation
(See Note 1) 189,845 170,654 178,910
Electric power purchased 69,579 61,442 34,711
Other operating expenses 121,426 112,712 104,930
Maintenance 62,592 66,134 59,451
Depreciation 75,080 65,259 60,800
Federal and state income taxes 44,670 44,683 48,178
Other taxes 14,694 14,582 14,347
Total Operating Expenses 577,886 535,466 501,327
Net Operating Income 108,544 101,186 105,261
Other Income and Deductions:
Interest and dividend income 2,838 4,295 2,813
Other income and deductions - net 5,467 6,098 5,926
Total Other Income and Deductions 8,305 10,393 8,739
Income Before Interest Charges 116,849 111,579 114,000
Interest Charges:
Interest on long-term debt 36,095 32,147 31,650
Other interest charges 3,912 1,920 1,064
Total Interest Charges 40,007 34,067 32,714
Net Income 76,842 77,512 81,286
Preferred Stock Dividend Requirements 2,256 2,384 2,558
Net Income Applicable to Common Stock $ 74,586 $ 75,128 $ 78,728
Retained Earnings Beginning of Year $ 257,656 $ 244,429 $ 226,210
Add Net Income 76,842 77,512 81,286
334,498 321,941 307,496
Deduct:
Dividends on preferred stock 2,256 2,384 2,558
Dividends on common stock 63,250 61,644 60,509
Preferred stock redemption expense - 257 -
65,506 64,285 63,067
Retained Earnings End of Year $ 268,992 $ 257,656 $ 244,429
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
-25-
<PAGE>
<TABLE>
Statements of
Cash Flows
Kentucky Utilities Company
Year Ended December 31, (in thousands of dollars) 1995 1994 1993
Cash Flows from Operating Activities:
<CAPTION>
<S> <C> <C> <C>
Net income $ 76,842 $ 77,512 $ 81,286
Items not requiring (providing) cash currently:
Depreciation 75,080 65,259 60,800
Deferred income taxes 15,502 (1,559) 5,725
Investment tax credit deferred (4,095) (4,110) (4,131)
Changes in current assets and liabilities:
Change in fuel inventory 6,214 (4,579) 7,694
Change in accounts receivable (7,759) (203) (9,331)
Change in accounts payable (11,517) 5,511 22,768
Change in liability to ratepayers (310) (29,958) 36,867
Change in escrow funds 312 30,841 (37,752)
Other - net (1,210) 3,250 2,643
Net Cash Provided by Operating Activities 149,059 141,964 166,569
Cash Flows from Investing Activities:
Construction expenditures - utility (124,515) (193,344) (177,069)
Nonutility property (272) (465) (4,956)
Other 153 836 380
Net Cash Used by Investing Activities (124,634) (192,973) (181,645)
Cash Flows from Financing Activities:
Short-term borrowings - net (20,700) 76,300 -
Issuance of long-term debt 49,288 53,305 171,581
Funds deposited with trustee - net 15,100 95 (18,268)
Retirement of long-term debt, including premiums (21) (21) (180,677)
Retirement of preferred stock, including premiums - (20,302) -
Issuance of preferred stock - - 20,000
Payment of dividends (65,506) (64,089) (63,027)
Net Cash Provided (Used) by Financing Activities (21,839) 45,288 (70,391)
Net Increase (Decrease) in Cash and Cash Equivalents 2,586 (5,721) (85,467)
Cash and Cash Equivalents Beginning of Year 3,111 8,832 94,299
Cash and Cash Equivalents End of Year $ 5,697 $ 3,111 $ 8,832
Supplemental Disclosures
Cash paid for:
Interest on short- and long-term debt $ 37,961 $ 31,864 $ 33,860
Federal and state income taxes $ 31,974 $ 45,270 42,483
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
-26-
<PAGE>
<TABLE>
Balance
Sheets Kentucky Utilities Company
As of December 31, (in thousands of dollars) 1995 1994
Assets
<CAPTION>
Utility Plant:
<S> <C> <C>
Plant in service, at cost $ 2,394,018 $ 2,238,926
Less: Accumulated depreciation 997,366 933,394
1,396,652 1,305,532
Construction work in progress 61,410 104,385
Total Utility Plant 1,458,062 1,409,917
Current Assets:
Cash and cash equivalents 5,697 3,111
Escrow funds - coal contract litigation 6,599 6,911
Construction funds held by trustee 3,743 18,553
Accounts receivable, net of allowance
for doubtful accounts 49,471 41,712
Accrued utility revenues 27,900 24,227
Fuel, principally coal, at average cost 29,438 35,652
Plant materials and operating supplies, at average cost 23,064 20,081
Other 8,121 10,616
Total Current Assets 154,033 160,863
Investments, Deferred Charges and Other Assets:
Unamortized loss on reacquired debt 11,304 12,324
Other 36,589 34,996
Total Investments, Deferred Charges and Other Assets 47,893 47,320
Total Assets $ 1,659,988 $ 1,618,100
Capitalization and Liabilities
Capitalization: (See Statements of Capitalization)
Common stock equity $ 576,537 $ 565,201
Preferred stock 40,000 40,000
Long-term debt 545,980 496,012
Total Capitalization 1,162,517 1,101,213
Current Liabilities:
Long-term debt due within one year 21 21
Short-term borrowings 55,600 76,300
Accounts payable 38,000 49,517
Accrued interest 7,556 7,328
Accrued taxes 5,201 9,422
Customers' deposits 6,876 6,423
Accrued payroll and vacations 8,706 8,207
Liability to ratepayers - coal contract litigation 6,599 6,909
Other 6,752 6,275
Total Current Liabilities 135,311 170,402
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 231,717 214,892
Accumulated deferred investment tax credits 34,180 38,275
Regulatory tax liability 57,726 60,788
Other 38,537 32,530
Total Deferred Credits and Other Liabilities 362,160 346,485
Total Capitalization and Liabilities $ 1,659,988 $ 1,618,100
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
-27-
<PAGE>
<TABLE>
Statements of
Capitalization
Kentucky Utilities Company
As of December 31, (in thousands of dollars) 1995 1994
<CAPTION>
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) (595)
Retained earnings 268,992 257,656
Total Common Stock Equity 576,537 565,201
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
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
7.55% Series R, due June 1, 2025 50,000 -
8.55% Series P, due May 15, 2027 33,000 33,000
295,000 245,000
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 50,000
Variable Rate Pollution Control Series 10, due
November 1, 2024 50,800 35,700
Variable Rate County of Carroll, Kentucky, Collateralized
Solid Waste Disposal Facility Revenue Bonds, due
November 1, 2024 3,200 18,300
250,830 250,830
Total First Mortgage Bonds 545,830 495,830
Unamortized premium 86 96
8% secured note, due January 5, 1999 (net of current maturity) 64 86
Total Long-Term Debt 545,980 496,012
Total Capitalization $1,162,517 $1,101,213
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
-28-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
1. Summary of Significant Accounting Policies
General
Kentucky Utilities Company (KU) is the principal subsidiary of KU Energy
Corporation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Certain amounts from prior periods have been
reclassified to conform with the current year presentation.
KU is a public utility engaged in producing and selling electric energy.
KU provides electric service to about 425,500 customers in over 600
communities and adjacent suburban and rural areas in 77 counties in
central, southeastern and western Kentucky and to about 28,600 customers
in 5 counties in southwestern Virginia.
Regulation
KU is 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,
KU maintains its accounts in accordance with the Uniform System of
Accounts as defined by these agencies. KU's 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, KU's 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 3.5% in 1995, 3.4% in 1994, and 3.3% in 1993.
Cash and Cash Equivalents
For purposes of reporting cash flows, KU considers highly liquid
investments with a maturity of three months or less from the date of
purchase to be cash equivalents.
-29-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
KU utilizes a cash management mechanism that funds certain bank accounts
for checks as they are presented to those banks. KU classified checks
written but not presented to those banks, which amounted to $10.5 million
and $11.5 million at December 31, 1995 and 1994, respectively, in
accounts payable.
Financial Instruments
KU's temporary cash investments are classified as held-to-maturity and
are reported under the caption "Cash and cash equivalents" on the Balance
Sheet.
Unamortized Loss on Reacquired Debt
KU 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. KU
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. Fuel adjustment clauses adjust operating revenues for changes
in the level of fuel costs charged to expense. An environmental
surcharge for Kentucky retail customers, 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 Federal Clean Air Act as amended. See Note 9 of the Notes
to Financial Statements, "Environmental Cost Recovery," for an update of
environmental surcharge legal proceedings.
Pursuant to regulatory orders, KU has been refunding fuel cost savings
related to the resolution of a coal contract dispute. 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 FERC in lump sum payments in September 1993. Refunds
to Kentucky retail customers commenced in July 1994. A portion remains
to be refunded to Kentucky customers who have not filed claims. Any
amounts not claimed within seven years of the initial refunds will
escheat to the state.
Operating revenues and fuel expense for 1994 were reduced by
$19.4 million and $23.1 million, respectively, resulting from the above-
mentioned refunds. Operating revenues and fuel expense were reduced by
$3.3 million and $4.1 million, respectively, in 1993. The refunding had
no impact on operating revenues or fuel expense for 1995. The difference
between the reduction in operating revenues and the reduction in fuel
-30-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
expense is attributed to incurred litigation costs, fuel cost savings
related to opportunity sales and costs incurred to administer the refund
plan. These amounts were allowed to be retained by KU pursuant to
regulatory orders.
Income Taxes
KU 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 KU's 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
KU is included in the consolidated federal tax return of its parent
company, KU Energy. Income taxes are allocated to the individual
companies, including KU, based on their respective taxable income or
loss.
The accumulated deferred income taxes as set forth in the Balance Sheet
arise from the following temporary differences:
<TABLE>
As of December 31, (in thousands of dollars) 1995 1994
<CAPTION>
Deferred Tax Assets:
Unamortized investment tax credit and other property
<S> <C> <C>
related differences $ 31,667 $ 31,805
Other 15,990 17,363
Less: Amounts included in current assets 4,985 6,726
42,672 42,442
Deferred Tax Liabilities:
Accelerated depreciation and other property
related differences 268,203 251,282
Other 6,186 6,052
274,389 257,334
Net accumulated deferred income tax liability $231,717 $214,892
</TABLE>
-31-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
<TABLE>
The components of income tax expense are as follows:
Year Ended December 31, (in thousands of dollars) 1995 1994 1993
<CAPTION>
Income taxes charged to Operating Income:
<S> <C> <C> <C>
Current - federal $ 23,597 $ 37,058 $ 35,893
- state 5,134 8,812 9,484
28,731 45,870 45,377
Deferred - federal 12,165 (1,114) 2,837
- state 3,845 13 71
16,010 (1,101) 2,908
Deferred investment tax credit (71) (86) (107)
44,670 44,683 48,178
Income taxes charged to Other Income and Deductions:
Current - federal 854 1,537 (2,056)
- state 190 344 (560)
1,044 1,881 (2,616)
Deferred - federal (406) (365) 2,261
- state (102) (93) 556
(508) (458) 2,817
Amortization of deferred investment tax credit (4,024) (4,024) (4,024)
(3,488) (2,601) (3,823)
Total income tax expense $ 41,182 $ 42,082 $ 44,355
</TABLE>
KU's effective income tax rate, determined by dividing income taxes by
the sum of such taxes and net income, was 34.9% in 1995, 35.2% in 1994,
and 35.3% in 1993. 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) 1995 1994 1993
<S> <C> <C> <C>
Federal income tax computed at 35% $ 41,308 $ 41,858 $ 43,974
Add (Deduct):
State income taxes, net of federal
income tax benefit 5,894 5,899 6,208
Amortization of deferred investment tax credit (4,095) (4,110) (4,131)
Other, net (1,925) (1,565) (1,696)
Total income tax expense $ 41,182 $ 42,082 $ 44,355
</TABLE>
3. Retirement Benefits
Pensions
KU 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 retirement. KU's
funding policy is to make such contributions as are necessary to finance
the benefits provided under the plan. KU's contributions meet the
-32-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
funding standards set forth in the Employee Retirement Income Security
Act of 1974. The plan assets consist primarily of common stocks,
corporate bonds and U.S. Government Securities.
KU 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 KU.
The reconciliation of the funded status of the retirement plans and the
pension liability recorded by KU is as follows:
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1995 1994
<S> <C> <C>
Fair value of plan assets $ 179,203 $ 154,314
Projected benefit obligation (183,795) (169,599)
Plan assets less than projected benefit obligation (4,592) (15,285)
Unrecognized net (gain)/loss from past
experience different than that assumed (5,907) 5,246
Unrecognized prior service cost 4,344 4,705
Unrecognized net asset (1,649) (1,799)
Regulatory effect recorded (1,634) (3,229)
Pension liability $ (9,438) $ (10,362)
Accumulated benefit obligation (including vested benefits
of $139,250 and $124,094, respectively) $ 141,531 $ 126,146
</TABLE>
<TABLE>
Components of Net Pension Cost:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1995 1994 1993
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 6,060 $ 6,017 $ 5,036
Interest cost on projected benefit obligation 13,560 12,366 12,311
Actual return on plan assets (27,064) (3,723) (13,229)
Net amortization and deferral 14,608 (8,765) 1,785
Regulatory effect recorded (1,595) (1,916) 56
Net pension cost $ 5,569 $ 3,979 $ 5,959
</TABLE>
<TABLE>
<CAPTION>
Assumptions Used in Determining Actuarial Valuations:
1995 1994 1993
<S> <C> <C> <C>
Weighted average discount rate used to
determine the projected benefit obligation 7 3/4 % 8 1/4 % 7 1/2%
Rate of increase for compensation levels (1) 4 3/4 % 5 1/2 % 4 3/4%
Weighted average expected long-term rate
of return on assets 8 1/4 % 8 1/4 % 8 1/4%
(1)4 3/4%, 6% and 5 1/4%, respectively, used for the Supplemental Security Plan valuation.
</TABLE>
-33-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Other Postretirement Benefits
KU provides certain health care and life insurance benefits to eligible
retired employees and their dependents. KU 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 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. KU's 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, KU began funding, in addition to current requirements for
benefit payments, the maximum tax-favored amount allowed through certain
tax deductible funding vehicles. KU 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.
The reconciliation of the funded status of the plans and the
postretirement benefit liability recorded by KU is as follows:
<TABLE>
<CAPTION>
As of December 31, (in thousands of dollars) 1995 1994
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $ (28,575) $ (31,992)
Fully eligible active plan participants (8,250) (8,287)
Other active plan participants (26,831) (25,578)
(63,656) (65,857)
Plan assets at fair value 10,427 5,341
Accumulated postretirement benefit obligation
in excess of plan assets (53,229) (60,516)
Unrecognized net (gain)/loss from past
experience different from that assumed (18,773) (11,353)
Unrecognized transition obligation 56,801 60,142
Accrued postretirement benefit liability $ (15,201) $ (11,727)
</TABLE>
<TABLE>
Components of the net periodic postretirement benefit cost are as follows:
<CAPTION>
Year Ended December 31, (in thousands of dollars) 1995 1994 1993
Service cost (benefits attributed to service
<S> <C> <C> <C>
during the period) $ 1,918 $ 2,105 $ 2,048
Interest cost on accumulated postretirement
benefit obligation 4,926 4,926 5,730
Actual return on plan assets (1,722) (80) -
Net amortization and deferral 792 (118) -
Amortization of transition obligation 3,341 3,341 3,341
Regulatory effect recorded - 689 (689)
Net periodic postretirement benefit cost $ 9,255 $ 10,863 $ 10,430
</TABLE>
-34-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
<TABLE>
<CAPTION>
Assumptions Used in Determining Actuarial Valuations: 1995 1994 1993
<S> <C> <C>
Weighted average discount rate used to <C>
determine the projected benefit obligation 7 3/4% 8 1/4% 7 1/2%
Rate of increase for compensation levels 4 3/4% 5 1/2% 4 3/4%
Weighted average expected long-term rate of
return on assets 8 % 8 1/4% -
</TABLE>
For measurement purposes, a 7.5% annual rate of increase in the per
capita cost of covered health care benefits is assumed for 1996. The
health care cost trend rate is assumed to decrease gradually to 4.75%
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 one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1995, by
$10.6 million (17%) and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the year
by $1.4 million (20%).
4. Commitments and Contingencies
<TABLE>
<CAPTION>
The effects of certain commitments made by KU are estimated below:
(in thousands of dollars) 1996 1997 1998 1999 2000 1996-2000
Estimated Construction
<S> <C> <C> <C> <C> <C> <C>
Expenditures $108,000 $143,500 $114,700 $97,200 $ 83,900 $547,300
Estimated Contract
Obligations:
Fuel 152,500 114,800 77,000 39,800 4,600 388,700
Purchased power 27,700 28,900 27,400 26,300 25,600 135,900
Operating leases 2,800 2,800 2,800 2,700 2,700 13,800
Sinking Fund Requirements:
First mortgage bonds $ 376 $ 376 $ 376 $ 376 $ 355 $ 1,859
</TABLE>
Construction Program
KU 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 - Construction Requirements for
a discussion of future construction expenditures including those relating
to construction of peaking units and compliance with the Federal Clean
Air Act as amended.
Coal Supply
Obligations under KU's coal purchase contracts are stated at prices
effective January 1, 1996, and are subject to changes as defined by the
terms of the contracts.
-35-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Purchased Power Agreements
KU has purchase power arrangements with Owensboro Municipal Utilities
(OMU), Electric Energy, Inc. (EEI), and Virginia Electric and Power
Company (Virginia Power). Under the OMU agreement, which expires on
January 1, 2020, KU 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 KU during 1996-2000, which is expected to be
approximately 8% of KU's 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
KU's proportionate share of debt service requirements on $198.8 million
of OMU bonds outstanding at December 31, 1995. The debt service is
allocated to KU based on its annual allocated share of capacity, which
averaged approximately 49% in 1995.
KU has a 20% equity ownership in EEI, which is accounted for on the
equity method of accounting. KU's 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.
KU has contracted to purchase 110-MW of capacity from Virginia Power for
the periods of June 1997 through September 1997 and January 1998 through
February 1998.
Sinking Fund Requirements
Annual sinking fund requirements for KU's first mortgage bonds may be met
with cash or expenditures for bondable property as provided in the
Mortgage Indenture. KU intends to meet the 1996 sinking fund
requirements with expenditures for bondable property.
Lines of Credit
KU has aggregate bank lines of credit of $80 million, all of which
remained unused at December 31, 1995. A portion of these credit lines
($20 million) expires in September 1996, and the balance ($60 million)
expires in December 1997. In support of these lines of credit, KU
compensates the banks by paying a commitment fee.
5. Common Stock
KU 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, 1995, there
were no restricted retained earnings.
6. Preferred Stock
Each series of preferred stock is redeemable at the option of KU upon 30
days' written notice as follows:
-36-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Redemption Price per Share
Series (plus accrued and unpaid dividends, if any)
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.
As of December 31, 1995, there were 5.3 million shares of KU preferred
stock, having a maximum aggregate stated value of $200 million,
authorized for issuance.
7. Short-Term and Long-Term Debt
KU's short-term financing requirements are satisfied through the sale of
commercial paper. The weighted average interest rate on the year-end
balance was 5.83% for 1995 and 6.07% for 1994.
In 1994, KU 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 and 1995, KU drew
down $35.7 million and $15.1 million, respectively, relating to these
bonds. Kentucky Utilities Pollution Control Series 10 Bonds are issued
under KU's Mortgage Indenture.
Under the provisions for the variable rate revenue bonds, KU can choose
between various interest rate options. Currently, the daily interest
rate option is being utilized. The average annual interest rate on the
bonds during 1995 was 3.95% and was 4.10% for 1994. 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, KU has available lines of credit
which may be used to repurchase the bonds.
In June 1995, KU issued $50 million of Series R First Mortgage Bonds.
The proceeds were used primarily to refinance short-term indebtedness
incurred to finance ongoing construction expenditures and general
corporate requirements.
Substantially all of KU's utility plant is pledged as security for the
First Mortgage Bonds.
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:
-37-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
Cash and cash equivalents, escrow funds, construction funds, short-term
borrowings, commercial paper 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 KU's
first mortgage bonds and on current rates available to KU for debt of the
same remaining maturities for KU's pollution control bonds and promissory
note.
KU 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 KU to terminate the swap at the date of
measurement. This agreement expires in early 1996. KU has no downside
interest rate risk associated with this agreement.
The estimated fair values of KU's financial instruments at December 31
are as follows:
<TABLE>
<CAPTION>
1995 1994
Carrying Estimated Carrying Estimated
(in thousands of dollars) Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Interest rate swap $ - $ 600 $ - $ 1,550
Long-term debt $ 546,001 $ 594,395 $ 496,033 $ 475,976
</TABLE>
If the difference between fair value and carrying value of KU's long-term
debt were 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 KU's financial position
or results of operations.
-38-
<PAGE>
Notes to
Financial
Statements
Kentucky Utilities Company
9. Environmental Cost Recovery
Since August 1994, KU has been collecting an environmental surcharge from
its Kentucky retail customers under a Kentucky statute which authorizes
electric utilities (including KU) to implement, beginning January 1,
1993, an environmental surcharge. The surcharge is designed to recover
certain operating and capital costs of compliance with federal, state or
local environmental requirements associated with the production of energy
from coal, including the Federal Clean Air Act as amended. KU's
environmental surcharge was approved by the PSC in July 1994 and was
implemented in August 1994.
The constitutionality of the surcharge was challenged in the Franklin
County (Kentucky) Circuit Court in an action brought against KU and the
PSC by the Attorney General of Kentucky and joined by representatives of
consumer groups. In July 1995, the Circuit Court entered a judgment
upholding the constitutionality of the statute, but vacating that part of
the PSC's July 1994 order which the judgment describes as allowing KU to
recover, under the surcharge, environmental expenditures incurred before
January 1, 1993, and ordering the case remanded to the PSC for
determination in accordance with the Circuit Court judgment.
The Attorney General and other consumer representatives appealed to the
Kentucky Court of Appeals that part of the Circuit Court judgment
upholding the constitutionality of the surcharge statute. The PSC and KU
appealed that part of the judgment denying recovery of environmental
expenditures incurred before January 1, 1993. On August 22, 1995, the
PSC ordered all surcharge revenues collected by KU from that date subject
to refund pending final determination of all appeals. The total
collections under the surcharge from August 22, 1995 through December 31,
1995 were approximately $7 million.
KU believes the constitutionality of the surcharge statute will be
upheld, but it cannot predict the outcome of that part of the Circuit
Court judgment disallowing recovery of environmental expenditures
incurred before January 1, 1993. If the Circuit Court judgment is
ultimately upheld as entered, KU estimates that the amount it would be
required to refund (which is based solely on costs associated with
environmental expenditures incurred before January 1, 1993) for surcharge
collections through December 31, 1995, from the inception of the
surcharge would be approximately $6 million, and from August 22, 1995
would be approximately $2 million. At this time, KU has not recorded any
reserve for refund.
-39-
<PAGE>
Supplementary
Quarterly
Financial
Information
(Unaudited)
Kentucky Utilities Company
Quarterly financial results for 1995 and 1994 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 in 1994 were
insignificantly impacted by the refunds. The refunding had no impact on
operating revenues for 1995. Refer to Note 1 of the Notes to Financial
Statements for additional information.
<TABLE>
<CAPTION>
Quarter 4th 3rd 2nd 1st
(in thousands of dollars)
1995
<S> <C> <C> <C> <C>
Operating Revenues $ 170,152 $ 194,373 $ 154,757 $ 167,148
Net Operating Income 30,626 33,073 18,283 26,562
Net Income 22,438 24,915 10,561 18,928
Net Income Applicable
to Common Stock 21,874 24,351 9,997 18,364
1994
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
These quarterly amounts reflect, in KU's opinion, all adjustments
(including only normal recurring adjustments) necessary for a fair
presentation.
</TABLE>
-40-
<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 (Proxy Statement) filed
with the Securities and Exchange Commission in connection with its 1996
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 KU 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.
-41-
<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, 1995,
Statements of Cash Flows for the three years ended
December 31, 1995,
Balance Sheets as of December 31, 1995 and 1994
Statements of Capitalization as of December 31, 1995 and
1994, 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.
-42-
<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 KU, 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 KU 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 First
Trust of Illinois National Association (successor to
Bank of America Illinois, formerly Continental Bank,
National Association and formerly Continental
Illinois National Bank and Trust Company of Chicago)
and a successor individual co-trustee, as Trustees
(the 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 KU 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 KU for the
year ended December 31, 1984), June 1, 1985
(Exhibit 4 to Form 10-Q Quarterly Report of KU for
the quarter ended June 30, 1985), May 1, 1990
(Exhibit 4 to Form 10-Q Quarterly Report of KU for
the quarter ended June 30, 1990), May 1, 1991
(Exhibit 4 to Form 10-Q Quarterly Report of KU for
the quarter ended June 30, 1991), May 15, 1992
(Exhibit 4.02 to Form 8-K of KU dated May 14, 1992),
August 1, 1992 (Exhibit 4 to form 10-Q Quarterly
-43-
<PAGE>
Number Description Page
4.A Report of KU for the quarter ended September 30,
(cont.) 1992), June 15, 1993 (Exhibit 4.02 to Form 8-K of KU
dated June 15, 1993) and December 1, 1993
(Exhibit 4.01 to Form 8-K of KU dated December 10,
1993). Incorporated by reference. -
4.B Supplemental Indenture dated March 1, 1992 between
Kentucky Utilities Company and the Trustees,
providing for the conveyance of properties formerly
held by Old Dominion Power Company (Exhibit 4B to
Form 10-K Annual Report of KU for the year ended
December 31, 1992). Incorporated by reference. -
4.C Supplemental Indenture dated November 1, 1994 between
Kentucky Utilities Company and the Trustees (Exhibit
4C to Form 10-K Annual Report of KU for the year
ended December 31, 1994). Incorporated by reference. -
4.D Supplemental Indenture dated June 1, 1995 between
Kentucky Utilities Company and the Trustees
(Exhibit 4 to Form 10-Q Quarterly Report of KU for
the quarter ended June 30, 1995). Incorporated by
reference. -
4.E Supplemental Indenture dated January 15, 1996 between
Kentucky Utilities Company and the Trustees. 49-72
10.A KU's Amended and Restated Performance Share Plan
(Exhibit 10A to Form 10-Q Quarterly Report of KU for
the quarter ended June 30, 1993). Incorporated by
reference. -
10.B KU's Annual Performance Incentive Plan (Exhibit 10B
to Form 10-K Annual Report of KU for the year ended
December 31, 1990). Incorporated by reference. -
10.C Amendment No. 1 to KU's Annual Performance Incentive
Plan (Exhibit 10D to Form 10-K Annual Report of KU
for the year ended December 31, 1991). Incorporated
by reference. -
10.D Amendment No. 2 to KU's Annual Performance Incentive
Plan (Exhibit 10H to Form 10-K Annual Report of KU
for the year ended December 31, 1993). Incorporated
by reference. -
10.E Amendment No. 3 to KU's Annual Performance Incentive
Plan (Exhibit 10I to Form 10-K Annual Report of KU
for the year ended December 31, 1993). Incorporated
by reference. -
10.F KU's Executive Optional Deferred Compensation Plan
(Exhibit 10C to Form 10-K Annual Report of KU for the
year ended December 31, 1990). Incorporated by
reference. -
10.G Amendment No. 1 to KU's Executive Optional Deferred
Compensation Plan (Exhibit 10F to Form 10-K Annual
Report of KU for the year ended December 31, 1991).
Incorporated by reference. -
-44-
<PAGE>
Number Description Page
10.H Amendment No. 2 to KU's Executive Optional Deferred
Compensation Plan (Exhibit 10J to Form 10-K Annual
Report of KU for the year ended December 31, 1993).
Incorporated by reference. -
10.I KU's Supplemental Security Plan (Exhibit 10I to
Form 10-K Annual Report of KU for the year ended
December 31, 1991). Incorporated by reference. -
10.J Amendment No. 1 to KU's Supplemental Security Plan.
(Exhibit 10J to Form 10-K Annual Report of KU for the
year ended December 31, 1994). Incorporated by
reference. -
10.K Amendment No. 2 to KU's Supplemental Security Plan.
(Exhibit 10K to Form 10-K Annual Report of KU for the
year ended December 31, 1994). Incorporated by
reference. -
10.L KU's Director Retirement Retainer Program, and
Amendment No. 1 (Exhibit 10G to Form 10-K Annual
Report of KU for the year ended December 31, 1991).
Incorporated by reference. -
10.M KU's Amended and Restated Director Deferred
Compensation Plan 73-90
12 Computation of Ratio of Earnings to Fixed Charges 91
21 List of Subsidiaries 92
23 Consent of Independent Public Accountants 93
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 94-95
99.B Director and Executive Officer Information 96-106
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.
-45-
<PAGE>
The following instruments defining the rights of holders of certain long-
term debt of KU 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 KU and the County
of Mercer, Kentucky, in connection with $12,900,000 County of
Mercer, Kentucky, Collateralized Solid Waste Disposal Facility
Revenue Bonds (KU Project) 1990 Series A, due May 1, 2010 and
May 1, 2020.
2. Loan Agreement dated as of May 1, 1991 between KU and the County
of Carroll, Kentucky, in connection with $96,000,000 County of
Carroll, Kentucky, Collateralized Pollution Control Revenue
Bonds (KU Project) 1992 Series A, due September 15, 2016.
3. Loan Agreement dated as of August 1, 1992 between KU and the
County of Carroll, Kentucky, in connection with $2,400,000
County of Carroll, Kentucky, Collateralized Pollution Control
Revenue Bonds (KU Project) 1992 Series C, due February 1, 2018.
4. Loan Agreement dated as of August 1, 1992 between KU and the
County of Muhlenberg, Kentucky, in connection with $7,200,000
County of Muhlenberg, Kentucky, Collateralized Pollution Control
Revenue Bonds (KU Project) 1992 Series A, due February 1, 2018.
5. Loan Agreement dated as of August 1, 1992 between KU and the
County of Mercer, Kentucky, in connection with $7,400,000 County
of Mercer, Kentucky, Collateralized Pollution Control Revenue
Bonds (KU Project) 1992 Series A, due February 1, 2018.
6. Loan Agreement dated as of August 1, 1992 between KU and the
County of Carroll, Kentucky, in connection with $20,930,000
County of Carroll, Kentucky, Collateralized Pollution Control
Revenue Bonds (KU Project) 1992 Series B, due February 1, 2018.
7. Loan Agreement dated as of December 1, 1993, between KU and the
County of Carroll, Kentucky, in connection with $50,000,000
County of Carroll, Kentucky, Collateralized Solid Waste Disposal
Facilities Revenue Bonds (KU Project) 1993 Series A due
December 1, 2023.
8. Loan Agreement dated as of November 1, 1994, between KU and the
County of Carroll, Kentucky, in connection with $54,000,000
County of Carroll, Kentucky, Collateralized Solid Waste
Disposal Facilities Revenue Bonds (KU Project) 1994 Series A due
November 1, 2024.
(B) No reports on Form 8-K were filed by KU during the last quarter of
1995.
-46-
<PAGE>
<TABLE>
SCHEDULE II
KENTUCKY UTILITIES COMPANY
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Year Ended December 31, 1995 1994 1993
(in thousands)
Accumulated Provision for Uncollectible Accounts Receivable
<S> <C> <C> <C>
Balance at beginning of year $ 457 $ 923 $ 1,033
Balance at end of year $ 455 $ 457 $ 923
Note-Other valuation and qualifying accounts are not significant.
</TABLE>
-47-
<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 8, 1996.
KENTUCKY UTILITIES COMPANY
/s/ Michael R. Whitley
Michael R. Whitley
Chairman and President
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/ Michael R. Whitley
Michael R. Whitley Chairman and President (Principal Executive
Officer) 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/ Harry M. Hoe
Harry M. Hoe Director
/s/ Milton W. Hudson
Milton W. Hudson Director
/s/ John T. Newton
John T. Newton 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
/s/ Lee T. Todd, Jr.
Lee T. Todd, Jr. Director
March 8, 1996
-48-
Executed in 120 Counterparts
No. 12
SUPPLEMENTAL INDENTURE
Dated January 15, 1996
______________
KENTUCKY UTILITIES COMPANY
TO
FIRST TRUST OF ILLINOIS, NATIONAL ASSOCIATION
AND FRANK SGARAGLINO,
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,
SERIES S, DUE January 15, 2006)
-49-
<PAGE>
THIS SUPPLEMENTAL INDENTURE, dated January 15, 1996
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 FIRST TRUST OF
ILLINOIS, NATIONAL ASSOCIATION, a national banking
association having its office or place of business in the
City of Chicago, Cook County, State of Illinois, successor
to Bank of America 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 FRANK SGARAGLINO
(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 and 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, Series S (hereinafter sometimes referred to
as the "bonds of Series S" or the "bonds of said Series"),
and to be authorized, authenticated and issued only as
registered bonds without coupons; and
WHEREAS, the Company desires, in accordance with the
provisions of Article I, as hereby amended, Section 6(e) of
Article II and Article XVI of the Indenture, to execute this
supplemental indenture for the purpose of creating and
authorizing the bonds of Series S 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 and 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
-50-
<PAGE>
WHEREAS, the bonds of Series S are to be authorized,
authenticated and issued only in the form of registered
bonds without coupons, and each of such bonds and the
certificate of the Trustee thereon shall be substantially in
the following form, to wit:
(Form of bond of Series S)
No. . . . . . $. . . . . . .
Kentucky Utilities Company
First Mortgage Bond, Series S
Original
Issue Dated Maturity
Date Date Date CUSIP
January 24, January 15, January 15,
1996 1996 2006
Interest
Interest Payment Record
Rate Dates Dates
5.99% July 15 July 1
January 15 January 1
REGISTERED OWNER ___________________________________
PRINCIPAL AMOUNT ____________________________________
DOLLARS
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to the Company or its agent for
registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co.
or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co.
or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the Registered Owner hereof, Cede &
Co., has an interest herein.
-51-
<PAGE>
Kentucky Utilities Company, a Kentucky and Virginia
corporation (hereinafter referred to as the "Company"), for
value received, hereby promises to pay to the Registered
Owner specified above or registered assigns, the Principal
Amount specified above on the Maturity Date specified above,
and to pay to the Registered Owner interest on said sum from
the Dated Date specified above, at the Interest Rate
specified above, payable half-yearly on the Interest Payment
Dates specified above, until said principal sum is paid.
The interest so payable on any Interest Payment Dates will
be paid, subject to certain exceptions provided in the
Supplemental Indenture dated January 15, 1996, hereinafter
referred to, to the Registered Owner at the close of
business of the Trustee on the immediately preceding Record
Date. Both the principal of and the interest on this bond
shall be payable at the office or agency of the Company in
the City of Chicago, State of 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, or,
at the option of the Registered Owner, in like coin or
currency, at the office or agency of the Company in the
Borough of Manhattan, City of New York, State of New York.
At the option of the Company, interest on this bond shall be
payable by check mailed on the Interest Payment Date to the
Registered Owner hereof.
EXCEPT UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, THIS GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS
A WHOLE BY THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY, ANOTHER NOMINEE OF THE DEPOSITARY, A
SUCCESSOR OF THE DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR.
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 First Trust of Illinois, National Association
(successor to Bank of America Illinois, formerly Continental
Bank, National Association and Continental Illinois National
Bank and Trust Company of Chicago) (hereinafter referred to
as the "Trustee") and Edmond B. Stofft, as Trustees, and the
various indentures supplemental thereto each executed and
delivered by the Company to the Trustees (including
Successor Co-Trustees) under said indenture of mortgage
(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
-52-
<PAGE>
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. Bonds of Series S are
not subject to redemption prior to maturity.
In case of certain events of default specified in the
Indenture, the principal of this bond may be declared or may
become due and payable in the manner and with the effect
provided in the Indenture. 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 transferable 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; provided, that
the Company shall not be required to transfer, exchange or
register bonds of Series S during the 10 days next preceding
an Interest Payment Date.
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.
-53-
<PAGE>
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.
KENTUCKY UTILITIES COMPANY
By ___________________________
President
ATTEST:
_________________________
Secretary
This bond is one of the bonds of the series designated
therein, described in the within mentioned Indenture.
FIRST TRUST OF ILLINOIS, NATIONAL
ASSOCIATION
as Trustee
By _______________________________
Authorized Officer
(End of form of bond of Series S)
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, trans-
ferred, assigned, pledged, mortgaged, warranted the title to
and conveyed, and by these presents does give, grant,
-54-
<PAGE>
bargain, sell, transfer, assign, pledge, mortgage, warrant
the title to and convey unto FIRST TRUST OF ILLINOIS,
NATIONAL ASSOCIATION and FRANK SGARAGLINO, 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 hereafter
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 FIRST
TRUST OF ILLINOIS, NATIONAL ASSOCIATION and FRANK
SGARAGLINO, 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
III of this supplemental indenture (said description being
incorporated herein by reference with the same force and
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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, rights 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 FIRST TRUST
OF ILLINOIS, NATIONAL ASSOCIATION and FRANK SGARAGLINO, as
Trustees under the Indenture, as hereby 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 S 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
Section 1. A series of bonds issuable under the
Indenture, as hereby modified and amended, and to be known
and designated as "First Mortgage Bonds, Series S" (herein-
after in this Article sometimes referred to as the "bonds of
Series S" or as the "bonds of said Series"), and which shall
be executed, authenticated and issued only in the form of
registered bonds without coupons, is hereby created and
authorized. The bonds of said Series shall be substantially
in the form thereof hereinbefore recited. If so directed by
the Company, the bonds of Series S shall be issued as a
single global security for each maturity thereof and
registered in the name of The Depository Trust Company or
its nominee or successor under a "book-entry-only" system
pursuant to a letter of representation between the Company
and the Trustee and said depository. Each bond of said
Series shall be dated as of the Interest Payment Date
thereof to which interest was paid next preceding the date
of issue, unless (a) issued on an Interest Payment Date
thereof to which interest was paid, in which event it shall
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be dated as of the date of issue, or (b) issued prior to the
occurrence of the first Interest Payment Date thereof to
which interest was paid, in which event it shall be dated
the Dated Date; and the bonds of said Series shall be due
and payable on the Maturity Date hereinabove specified in
the form of bond, shall bear interest from the date thereof
at the Interest Rate per annum specified in the form of
bond, payable half-yearly on the Interest Payment Dates
specified in the form of bond in each year to the Registered
Owners as specified on the registry books of the Trustee on
the close of business on the applicable Record Date as
hereinafter provided; shall be payable both as to principal
and interest, at the office or agency of the Company in the
City of Chicago, State of 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, or at the
option of the Registered Owner, in like coin or currency, at
the office or agency of the Company in the Borough of
Manhattan, City of New York, State of New York; and, at the
option of the Company, shall be payable as to interest by
check mailed on the Interest Payment Date to the Registered
Owner thereof. So long as any "book-entry-only" system is
in effect, the bonds of said Series shall be paid as
provided in the letter of representation referred to above.
Anything contained in Section 14 of Article I of the
Indenture (or elsewhere in the Indenture) to the contrary
notwithstanding, only the person in whose name any of the
bonds of Series S is registered (the "Registered Owner") at
the close of business on any Record Date (as hereinafter
defined) with respect to any Interest Payment Date shall be
entitled to receive the interest payable on such Interest
Payment Date notwithstanding the cancellation of such bonds
upon any transfer or exchange subsequent to the Record Date
and prior to such Interest Payment Date; provided, however,
that if and to the extent the Company shall default in the
payment of the interest due on such Interest Payment Date,
such defaulted interest shall be paid to the persons in
whose names outstanding bonds of said Series are registered
on the record date to be established by the Trustees for
payment of such defaulted interest.
The term "Record Date" as used in this Article I with
respect to any Interest Payment Date applicable to the bonds
of said Series (other than an Interest Payment Date for the
payment of defaulted interest) shall mean the applicable
Record Date specified in the form of bond next preceding
such Interest Payment Date, or, if such Record Date shall be
a legal holiday or a day on which banking institutions in
the City of Chicago, Illinois, or the Borough of Manhattan,
City of New York, State of New York, are authorized by law
to close, then the next preceding day which shall not be a
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legal holiday or a day on which such institutions are so
authorized to close.
The bonds of Series S are not subject to redemption
prior to maturity.
Section 2. The bonds of said Series shall, from time
to time, 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
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, issuance
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 purpose of the
Indenture, as hereby modified and amended, and such
facsimile seal shall be valid and effective for all
purposes.
The Company shall not be required to transfer, exchange
or register bonds of said Series during the 10 days next
preceding an Interest Payment Date.
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Section 3. (a) Except as provided in subsections (c)
and (g) below, the holder of all of the bonds of Series S
shall be The Depository Trust Company ("DTC") and the bonds
of said Series shall be registered in the name of Cede &
Co., as nominee for DTC.
(b) The bonds of Series S shall be initially issued
in the form of a single authenticated fully registered
certificate in the name of Cede & Co. and in the principal
amount of the bonds of Series S (a "Global Bond"). Upon
initial issuance, the ownership of such bonds of said Series
shall be registered in the bond register kept by the Trustee
in the name of Cede & Co., as nominee of DTC. So long as
the bonds of said Series are evidenced by a Global Bond, the
Trustee and the Company may treat DTC (or its nominee) as
the sole and exclusive holder of the bonds of Series S
registered in its name for the purposes of payment of the
principal of, premium, if any, and interest on the bonds of
said Series or portion thereof to be redeemed, and of giving
any notice permitted or required to be given to holders
under the Indenture and neither the Trustee nor the Company
shall be affected by any notice to the contrary. The
Trustee shall pay all principal of, premium, if any, and
interest on the bonds of Series S registered in the name of
Cede & Co. only to or "upon the order of" DTC (as that term
is used in the Uniform Commercial Code as adopted in
Illinois and New York), and all such payments shall be valid
and effective to fully satisfy and discharge the Company's
obligations with respect to the principal of, premium, if
any, and interest on such bonds of said Series to the extent
of the sum or sums so paid. Except as otherwise provided in
Section 3(c) and (g) below, no person other than DTC shall
receive authenticated bond certificates evidencing the
obligation of the Company to make payments of principal of,
premium, if any, and interest on the bonds of said Series.
Upon delivery by DTC to the Trustee of written notice to the
effect that DTC has determined to substitute a new nominee
in place of Cede & Co., and subject to the provision of the
Indenture with respect to transfers of bonds, the word
"Cede & Co." in this supplemental indenture shall refer to
such new nominee of DTC.
(c) Any Global Bond shall be exchangeable for bonds
of Series S in certificated form registered in the names of
Participants and/or Beneficial Owners if, but only if, (i)
DTC notifies the Company that it is unwilling or unable to
continue as depository for bonds of said Series or at any
time ceases to be a clearing agency registered as such under
the Securities Exchange Act of 1934, as amended, (ii) the
Company instructs the Trustee that such Global Bond shall be
exchangeable or (iii) there shall have occurred and be
continuing an event of default or an event that with notice
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or passage of time, or both, would constitute an event of
default. In any such event, the Trustee shall issue,
transfer and exchange bond certificates as requested by DTC
in appropriate amounts pursuant to Article I of the
Indenture and Section 1 of Article I of this supplemental
indenture. The Company shall pay all costs in connection
with the production, execution and delivery of such bond
certificates. If bond certificates are issued, the
provisions of the Indenture shall apply to, among other
things, the transfer and exchange of such certificates and
the method of payment and principal of, premium, if any, and
interest on such certificates.
(d) Notwithstanding any other provision of this
supplemental indenture to the contrary, so long as any bonds
of Series S are evidenced by a Global Bond, registered in
the name of Cede & Co., as nominee of DTC, all payments with
respect to the principal of, premium, if any, and interest
on the bonds of said Series and all notices with respect to
the bonds of said Series shall be made and given,
respectively, to DTC as provided in the representation
letter relating to the bonds of said Series among DTC, the
Trustee and the Company. The Trustee is hereby authorized
and directed to comply with all terms of the representation
letter.
(e) In connection with any notice or other
communication to be provided pursuant to the Indenture for
the bonds of Series S by the Company or the Trustee with
respect to any consent or other action to be taken by the
holders of the bonds of said Series, the Company or the
Trustee, as the case may be, shall seek to establish a
record date to the extent permitted by the Indenture for
such consent or other action and give DTC notice of such
record date not less than fifteen (15) calendar days in
advance of such record date to the extent possible. Such
notice to DTC shall be given only when DTC is the sole
holder.
(f) NEITHER THE TRUSTEE NOR THE COMPANY SHALL HAVE
ANY RESPONSIBILITY OR OBLIGATION TO ANY OF DTC'S
PARTICIPANTS (EACH, A "PARTICIPANT"), ANY PERSON CLAIMING A
BENEFICIAL OWNERSHIP IN THE BONDS OF SERIES S UNDER OR
THROUGH DTC OR ANY PARTICIPANT (EACH, A "BENEFICIAL OWNER"),
OR ANY OTHER PERSON WHICH IS NOT SHOWN ON THE BOND REGISTER
MAINTAINED BY THE TRUSTEE AS BEING A HOLDER, WITH RESPECT TO
(i) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY
PARTICIPANT; (ii) THE PAYMENT BY DTC OR ANY PARTICIPANT OF
ANY AMOUNT IN RESPECT OF THE PRINCIPAL OF, PREMIUM, IF ANY,
OR INTEREST ON THE BONDS OF SAID SERIES; (iii) ANY NOTICE
WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO HOLDERS UNDER
THE INDENTURE OF BONDS OF SAID SERIES; (iv) THE SELECTION BY
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DTC OR ANY PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN
THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS OF SERIES S;
OR (v) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS
BONDHOLDER.
SO LONG AS CEDE & CO. IS THE REGISTERED HOLDER OF THE
BONDS OF SERIES S AS NOMINEE OF DTC, REFERENCES HEREIN TO
THE BONDS OF SAID SERIES OR REGISTERED HOLDERS OF THE BONDS
OF SAID SERIES SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE
BENEFICIAL OWNERS OF THE BONDS OF SAID SERIES NOR DTC
PARTICIPANTS.
(g) No Global Bond may be transferred except as a
whole by DTC to a nominee of DTC or by a nominee of DTC to
DTC or another nominee of DTC or by DTC or any such nominee
to a successor of DTC or a nominee of such successor.
(h) Upon the termination of the services of DTC
with respect to the bonds of Series S pursuant to subsection
(c) of this Section 3 after which no substitute book-entry
depository is appointed, the bonds of said Series shall be
registered in whatever name or names holders transferring or
exchanging bonds of said Series shall designate in
accordance with the provisions of the Indenture.
ARTICLE II
Section 1. Section 10 of Article III and Section 1 of
Article VII of the Indenture are each hereby amended to
provide that the Company covenants and agrees to observe and
comply with the provisions of said sections as so amended
hereby so long as the bonds of Series S 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, Nos. 9 and 10 and Series R.
The bonds outstanding on the date hereof to which said
Section 1 applies are Series K, P, Q and R.
ARTICLE III
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
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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.
At the time of the execution of this supplemental
indenture, the aggregate principal amount of all
indebtedness outstanding, or to be presently outstanding,
under and secured by the Indenture, as hereby modified and
amended, is $580,130,000, consisting of and represented by
First Mortgage Bonds of the Company of the following series:
Interest Maturity Principal
Series Rate Date Amount
K 7 3/8 December 1, 2002 $35,500,000(a)
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 Variable November 1, 2024 52,300,000(b)
R 7.55 June 1, 2025 50,000,000
S (c) January 15, 2006 36,000,000(d)
_________
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(a) To be paid and discharged not more than 90 days
after issuance of Series S.
(b) An additional $1,700,000 remains authorized to be
issued.
(c) At the Interest Rate specified in the form of bond.
(d) To be presently issued by the Company under the
Indenture, as hereby modified and amended.
All of said bonds of Series K, Series P, Series Q and
Series R, 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, June 15, 1993 and June 1, 1995, respec-
tively, 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 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, Series No. 9 and Series No. 10 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 Thirty-Six Million Dollars ($36,000,000) in
principal amount of bonds of Series S proposed to be
presently 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 will be
owned by, Goldman, Sachs & Co., 85 Broad Street, New York,
New York and J.J.B. Hilliard, W.L. Lyons, Inc., 501 South
Fourth Avenue, Louisville, Kentucky.
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:
FIRST: The following described electric substations and
switching stations of the Company located in Kentucky:
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Item 1: The 69 kV switching station near
Madisonville in Hopkins County.
Item 2: The 69 kV switching station near Pineville
in Harlan County.
SECOND: The following described electric transmission
lines of the Company located in Kentucky:
Item 1. The 138 kV single circuit steel pole line
extending from the Ghent/Kenton line to the Butler
Substation near Butler in Pendleton County.
Item 2. The 69 kV single circuit wood pole line
extending from the Boyle County/Lancaster line to the
Danville #582 Substation near Danville in Boyle County.
Item 3. The 69 kV single circuit extension from the
Lake Reba/Paint Lick line to the Berea Substation near
Berea in Madison County.
Item 4. The 138 kV single circuit extension from
the Brown North/Higby Mill #2 line to the Clays Mill
Substation near Lexington in Fayette County.
Item 5. The 69 kV single circuit wood pole line
extending from the Rocky Branch/Pocket line near Liggett
in Harlan County.
Item 6. The 69 kV single circuit wood pole line
extending form the Lancaster/Dix line near Lancaster in
Garrard County.
Item 7. The 69 kV single circuit wood pole line
extending from the Cimarron Tap line to the Andalex
Island Mine metering structure near Madisonville in
Hopkins County.
THIRD: The following described electric transmission
lines of the Company located in Virginia:
Item 1. The 34.5 kV single circuit wood pole line
extending from the Dorchester/Andover 34.5 kV line to the
Canepatch metering structure near Canepatch in Wise
County.
Item 2. The 34.5 kV single circuit wood pole line
extending form the Pardee Tap line to the new Potcamp
metering structure near Potcamp in Wise County.
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Item 3. The 69 kV single circuit wood pole line
attending from the Imboden/Dorchester 69 kV line to the
Bear Branch Substation near Norton in Wise County.
FOURTH: The following described real estate of the
Company situated in Carroll County, Kentucky.
Beginning at a point in the easterly line of a tract as
conveyed to Harold Swango and recorded in Deed Book 98,
Page 25, in the Carroll County Court Clerk s Office, said
point being at the northwest corner of a tract as
conveyed to Elizabeth O Neal by the will of T. W. O Neal,
appearing of record in Will Book 9, Page 52, in the
aforementioned County Clerk s Office, and said point
having coordinate values of North 841.310'; West 6578.167
as related to the Control System for Kentucky Utilities
Ghent Generating Station; thence with the east line of
Swango North 20 deg. 37 min. 34 sec. West 1109.63 feet to
a point in the south line of the Kentucky Utilities
Company tract, said point being at the northeast corner
of the Swango tract; thence leaving the line of Swango
and with the southerly line of the Kentucky Utilities
Company tract North 65 deg. 08 min. 21 sec. East 1991.24
feet to an iron pin; thence North 25 deg. 15 min. 24 sec.
West 709.81 feet to an iron pin; thence North 81 deg. 36
min. 54 sec. East 1142.51 feet to an iron pin; thence
South 25 deg. 40 min. 46 sec. East 197.82 feet to an iron
pin; thence North 67 deg. 47 min. 06 sec. East 1080.39
feet to a point at the Northwest corner of a tract as
conveyed to William Gex and Nancy E. Diuguid by deed
dated 2 January, 1973 and of record in Deed Book 77, Page
490, and also deed dated 28 March, 1985 and of record in
Deed Book 99, Page 71, in the aforementioned County
Clerk s Office; thence leaving the southerly line of the
Kentucky Utilities Company tract and with a fence, the
westerly line of Diuguid South 21 deg. 11 min. 52 sec.
East 2024.50 feet to a fence post; thence with a fence,
the northerly line of Diuguid South 65 deg. 17 min. 23
sec. West 435.58 feet to a fence post; thence South 80
deg. 45 min. 36 sec. West 387.01 feet to a fence post;
thence South 66 deg. 47 min. 38 sec. West 122.32 feet to
a fence post; thence North 71 deg. 37 min. 54 sec. West
68.18 feet to a fence post; thence South 79 deg. 15 min.
54 sec. West 111.53 feet to a fence post; thence South 70
deg. 40 min. 21 sec. West 704.83 feet to a wooden fence
post in the east line of the previously mentioned O Neal
tract; thence leaving the northerly line of Diuguid and
with the easterly line of O Neal and a fence North 24
deg. 19 min. 03 sec. West 441.59 feet to a corner fence
post; thence with the northerly line of O Neal and a
fence South 79 deg. 46 min. 29 sec. West 760.53 feet to a
fence post; thence South 81 deg. 24 min. 34 sec. West
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263.05 feet to a corner fence post; thence South 18 deg.
57 min. 54 sec. West 233.77 feet to a point; thence South
65 deg. 27 min. 56 sec. West 610.52 feet to a fence post;
thence South 63 deg. 23 min. 46 sec. West 570.34 feet to
the point of beginning and containing 149.185 acres,
being the description set forth in that property line map
of Fuller, Mossbarger, Scott and May, which is attached
hereto and made a part hereof, and being the property
acquired by the Company by deed dated July 20, 1995 and
recorded in Deed Book 124, Page 273, Carroll County Court
Clerk s Office.
FIFTH: The following described real estate of the Company
situated in Fayette County, Kentucky:
All of Parcel 1 of the Consolidation Minor Final Record
Plat, Kentucky Utilities Company Lansdowne Substation
Property of record in Plat Cabinet J, Slide 705, in the
Office of the Fayette County Clerk being known and
designated as a portion of Lansdowne-Merrick Park,
Lexington, Fayette County, Kentucky, and being the
property acquired by the Company by deed dated July 19,
1995 and recorded in deed Book 1797, Page 598, Fayette
County Court Clerk s Office.
SIXTH: The following described real estate of the Company
situated in Grayson County, Kentucky:
BEGINNING at a stake in the east right of way of Wallace
Avenue, thence N 63 degrees 00' 02" E, 153.24 feet to a
stake, thence S 56 degrees 56' 55" E, 193.60 feet to a
stake, thence S 18 degrees 36' 07" W 230.42 feet to a
stake, thence N 71 degrees 30' 56" W, 155.56 feet to a
stake in the east right of way of Wallace Avenue, thence
along the meanders of Wallace Avenue N 17 degrees 51' 17"
W 104.65 feet to a stake, thence N 23 degrees 26' 22" W
114.65 feet to the point of beginning, containing 1.36
acres, more or less, as determined by a survey made
August 12, 1994 by Clemons Lane Surveying, Inc. R.L.S.
2811, and being the property acquired by the Company by
deed dated April 13, 1995 and recorded in Deed Book 252,
Page 55, Grayson County Court Clerk s Office.
SEVENTH: The following decribed real estate of the
Company situated in Harlan County, Kentucky:
Item 1: Beginning at a steel pin set in the line of
the Cornelius property and at the northwest corner of the
Jeffrey Howard property;
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thence N 11 50'31" W, 670.87 feet to a steel pin
found on a spur, the northeast corner of the Cornelius
property;
thence continuing up the spur N 54 23'32" E, 276.42
feet to a steel pin and cap set on top of the ridge
between Coxs Branch and Rock Branch, said point has a
blazed 24" oak tree as a witness;
thence with the ridge between Coxs Branch and Rock
Branch, S 83 32'34" E, 440.76 feet to a steel pin set on
top of the ridge under a 500kv electric transmission line
of the Kentucky Utilities Company and at the south right-
of-way of an old electric transmission line which has
been removed;
thence with the south right-of-way of said
transmission line which has been removed, S 12 34'42" E,
881.45 feet to a steel pin in the center of Coxs Branch;
thence down and with the center of Coxs Branch, the
following five courses: S 42 33' 28" W, 57.76 feet to a
point in ledge rock in the center of Coxs Branch;
thence S 77 28'16" W, 147.87 feet to a point in
ledge rock in the center of Coxs Branch;
thence S 14 56'17" W, 24.63 feet a point in ledge
rock in the center of Coxs Branch;
thence S 82 37' 17" W, 92.73 feet to a point in
ledge rock in the center of Coxs Branch;
thence N 76 28'08" W, 40.84 feet to a point in
ledge rock in the center of Coxs Branch, a common corner
with Jeffrey Howard, a steel pin and cap witness on the
bank bears N 10 26'35" E, 10.28 feet;
thence with the line of Jeffrey Howard, N 63 58'46"
W, 440.17 feet to the point of beginning, containing
14.32 acres as surveyed by David A. Atwell, Kentucky
Registered Surveyor, License Number 2063, June 16, 1995,
and being the property acquired by the Company by deed
dated August 10, 1995 and recorded in Deed Book 320, Page
37, Harlan County Court Clerk s Office.
Item 2. Beginning at a steel pin found in the north
right-of-way of Kentucky Highway 72, at the southeast
corner of the Cornelius property;
thence with the Cornelius property line N 11 38'28"
W, 323.29 feet to a steel pin set this survey;
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thence leaving the Cornelius line and with the line
of a tract to be conveyed by Josh Howard to the Kentucky
Utilities Company, S 63 58'46" E, 440.17 feet to a mark
on ledge rock in the center of Coxs Branch, a steel pin
witness set on the bank of Coxs Branch bears N 10 26'35"
W, 10.28 feet;
thence down and with the center of Coxs Branch the
following six courses: N 71 13'01" W, 14.41 feet to a
mark on ledge rock in the center of Coxs Branch;
thence S 72 01'34" W, 70.88 feet to a mark on ledge
rock in the center of Coxs Branch;
thence S 69 04'11" W, 62.00 feet to a mark on ledge
rock in the center of Coxs Branch;
thence S 58 08'49" W, 78.43 feet to a mark on ledge
rock in the center of Coxs Branch;
thence S 62 54'14" W, 48.59 feet to a mark on ledge
rock in the center of Coxs Branch;
thence S 53 30'25" W, 63.73 feet to a steel pin set
in the center of Coxs Branch at the north right-of-way of
Kentucky Highway 72;
thence with the said right-of-way N 60 17'26" W,
34.83 feet to the point of beginning, containing 1.28
acres by survey of David A. Atwell, Kentucky Registered
Surveyor License Number 2063, June 16, 1995, and being
the property acquired by the Company by deed dated August
10, 1995 and recorded in Deed Book 320, Page 41, Harlan
County Court Clerk s Office.
EIGHTH: The following described real estate of the
Company situated in McCracken County, Kentucky:
Beginning at a point which is the intersection of the
centerline of the Woodville-Heath Road (KY 725) with the
east R/W line of Rice Springs Road (KY 995); thence S 15
degrees 00' W 662.00 feet along the east R/W line of Rice
Springs Road to a point; thence S 70 degrees 00' E 425.6
feet to an iron pin, said iron pin being the northeast
corner of Grantee s 100' x 100' substation lot and also
the "true" point of beginning for this survey; thence
1. S 20 degrees 00' W 100.00 feet along the east
side of Grantee s lot to an iron pin;
2. N 70 degrees 00' W 100.00 feet along the south
side of Grantee s lot to an iron pin;
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3. S 20 degrees 00' W 22.47 feet along a line
common to the Grantors property to an iron pin;
4. S 71 degrees 37' 49" E 150.06 feet along a line
common to the James E. Beasley, Jr., property to an iron
pin;
5. N 20 degrees 00' E 118.20 feet along a line
common to Grantors property to an iron pin;
6. N 70 degrees 00' W 50.00 feet along a line
common to Grantors property to the "true" point of
beginning, containing .185 acres, and being the property
acquired by the Company by deed dated June 19, 1995 and
recorded in Deed Book 834, Page 836, McCracken County
Clerk's Office.
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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, and said First Trust of Illinois, National
Association, 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 Vice Presidents,
Assistant Vice Presidents or Trust Officers, and said Frank
Sgaraglino, 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)
FIRST TRUST OF ILLINOIS, NATIONAL
ASSOCIATION
By /s/ Steven E. Charles
Steven E. Charles
Vice President
Attest: /s/ Larry Kusch
Larry Kusch
Asst. Vice President
(Corporate Seal)
/s/ Frank Sgaraglino
FRANK SGARAGLINO
(Seal)
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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 18th day of
January, 1996.
/s/ Rella M. Evans
Rella M. Evans
Notary Public
(Notarial Seal)
My commission expires: November 20, 1999
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State of Illinois )
) ss:
County of Cook )
I, David W. Traubert, a Notary Public in and for said County
in the State aforesaid, do hereby certify that:
(a) Steven E. Charles, a Vice President of First Trust of
Illinois, National Association, a national banking association,
and Larry Kusch, an Assistant Vice President of said association,
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 Assistant Vice President of said association, 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 association, for the uses and
purposes therein set forth; and said Steven E. Charles, upon
oath, acknowledged himself to be a Vice President of said
association 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 association thereto by himself as
such officer; and
(b) Frank Sgaraglino, 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 18th day of
January, 1996.
/s/ D. W. Traubert
D. W. Traubert
Notary Public
(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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KENTUCKY UTILITIES COMPANY
DIRECTOR DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective As Of December 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 December 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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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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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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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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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. Subaccounts I and II
may, in turn, be further subdivided into such subaccounts as the
Company considers desirable for purposes of the administration of
the Plan.
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
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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
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
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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,
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
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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
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
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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
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
any portion of 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
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the amount credited to his or her Account. Payment shall be made
in accordance with Payment Method I, Payment Method II or Payment
Method III, below, as elected by the Director:
(a) Payment Method I - By payment in a
lump sum of the portion, if any, 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
which is to be paid pursuant to this Payment
Method I.
(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)
while an election with respect to this
Payment Method II or a similar payment method
under any such other plan was in effect. The
amount of each installment shall be equal to
the quotient obtained by dividing the
portion, if any, of the balance credited to
Participant's Account as of the Accounting
Date coincident with or next preceding the
date of such installment payment which is to
be paid pursuant to this Payment Method II 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) while an
election with respect to this Payment Method
III or a similar payment method under any
such other plan was in effect. The amount of
each installment shall be equal to the
quotient obtained by dividing the portion, if
any, of the balance credited to Participant's
Account as of the Accounting Date coincident
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with or next preceding the date of such
installment payment which is to be paid
pursuant to this payment Method III by the
number of installment payments remaining to
be made to such Participant at the time of
such calculation.
A method of payment shall be elected by the Director at the time
the Director elects to become a Participant, which method of
payment election shall remain in effect until changed as
hereinafter provided.
A Participant may change his or her payment method election
under this Section 5.1 effective as of the January 1st of any
calendar year beginning on or after January 1, 1996 by giving the
Company written notice of such change prior to the January 1st as
of which the change is to be effective. A change in a payment
method election, however, shall only be effective with respect to
amounts credited to the Participant's Account attributable to
Compensation deferred under the Plan for services to be rendered
on or subsequent to such January 1st and while such change in
payment method election shall remain in effect. A change in
payment method election shall remain in effect until further
changed as provided herein.
An election or change in election as to the method of
payment shall be made on a form provided or prescribed by the
Company and once made shall be irrevocable with respect to
amounts credited to the Participant's Account that are
attributable to Compensation deferred under the Plan for services
rendered during the period for which the payment method election
or change thereof was in effect.
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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 and, in such manner as the Committee shall determine
in its discretion, among any payment method subaccounts
thereunder.
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5.4 Beneficiary: As used in the Plan, the term
"Beneficiary" means:
(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.
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ARTICLE VII
Facility of Payment
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
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any requirements of eligibility for a benefit under the Plan. No
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.
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<PAGE>
9.3 Interests Not Transferable. No person shall have
any right to commute, encumber, pledge or dispose of any right to
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
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<PAGE>
undertaking, covenant and/or provision hereof. Whenever
possible, each provision of this Plan shall be interpreted in
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
day of January, 1996.
KENTUCKY UTILITIES COMPANY
By /s/ Michael R. Whitley
Chairman, President and
Chief Executive Officer
[Corporate Seal]
ATTEST:
/s/ George S. Brooks II
Secretary
-90-
<TABLE>
EXHIBIT 12
KENTUCKY UTILITIES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
(in thousands except ratios)
Earnings
<S> <C> <C> <C> <C> <C>
Net Income $ 76,842 $ 77,512 $ 81,286 $ 76,298 $ 84,755
Adjustments
Fixed charges 40,116 34,558 32,899 40,965 38,185
Income taxes
Current Federal 23,597 37,058 35,893 30,838 37,241
Current State 5,134 8,812 9,484 7,951 9,252
Deferred Federal--Net 12,165 (1,114) 2,837 2,269 570
Deferred State--Net 3,845 13 71 561 160
Deferred investment
tax credit--Net (71) (86) (107) (130) (654)
Income taxes included
in Other Income
and Deductions
Current Fed and State 1,044 1,881 (2,616) (224) 2,085
Deferred Fed and State (508) (458) 2,817 1,144 (458)
Amortization of
investment credit (4,024) (4,024) (4,024) (4,019) (3,723)
Undistributed income of
Electric Energy, Inc 99 (39) (38) (53) 5
Total Earnings $158,239 $ 154,113 $158,502 $ 155,600 $167,418
Fixed Charges
Int on long-term debt $ 36,095 $ 32,147 $ 31,650 $ 39,571 $ 36,559
Other interest charges 4,021 2,411 1,249 1,394 1,626
Total Fixed Charges $ 40,116 $ 34,558 $ 32,899 $ 40,965 $ 38,185
Ratio of Earnings
to Fixed Charges 3.94 4.46 4.82 3.80 4.38
____________
Note--Rentals are not material and have not been included in fixed charges.
-91-
</TABLE>
EXHIBIT 21
KENTUCKY UTILITIES COMPANY
LIST OF SUBSIDIARIES
Electric Energy, Inc., an Illinois corporation--KU 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) of our report dated January 29, 1996, included
in Kentucky Utilities Company's Form 10-K for the year ended December 31,
1995.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
March 8, 1996
-93-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1995 AND THE STATEMENTS OF INCOME AND CASH FLOWS FOR
THE PERIOD ENDED DECEMBER 31, 1995 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-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,458,062
<OTHER-PROPERTY-AND-INVEST> 11,957
<TOTAL-CURRENT-ASSETS> 154,033
<TOTAL-DEFERRED-CHARGES> 35,936
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,659,988
<COMMON> 308,140
<CAPITAL-SURPLUS-PAID-IN> (594)
<RETAINED-EARNINGS> 268,991
<TOTAL-COMMON-STOCKHOLDERS-EQ> 576,537
0
40,000
<LONG-TERM-DEBT-NET> 545,980
<SHORT-TERM-NOTES> 55,600
<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> 441,850
<TOT-CAPITALIZATION-AND-LIAB> 1,659,988
<GROSS-OPERATING-REVENUE> 686,430
<INCOME-TAX-EXPENSE> 44,670
<OTHER-OPERATING-EXPENSES> 533,216
<TOTAL-OPERATING-EXPENSES> 577,886
<OPERATING-INCOME-LOSS> 108,544
<OTHER-INCOME-NET> 8,305
<INCOME-BEFORE-INTEREST-EXPEN> 116,849
<TOTAL-INTEREST-EXPENSE> 40,007
<NET-INCOME> 76,842
2,256
<EARNINGS-AVAILABLE-FOR-COMM> 74,586
<COMMON-STOCK-DIVIDENDS> 63,250
<TOTAL-INTEREST-ON-BONDS> 36,095
<CASH-FLOW-OPERATIONS> 149,059
<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>
EXHIBIT 99.A
DESCRIPTION OF COMMON STOCK
General. The authorized capital stock of KU 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, 1995, 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, 1995. 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 KU's Restated Articles of Incorporation and resolutions and amendments
establishing series of Preferred Stock (collectively, the Articles) and of
KU's Mortgage Indenture, as amended, securing its first mortgage bonds
(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 KU may declare dividends on
the Common Stock out of any surplus or net profits of KU 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 KU
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, KU 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 KU for maintenance and repairs and provided
for depreciation subsequent to April 30, 1947, plus KU's 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 KU 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 KU 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, 1995, 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
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
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<PAGE>
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 KU, the
holders of Preferred Stock and the Preference Stock are entitled to be
paid designated amounts out of the net assets of KU 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. KU's 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 eleven members. KU's 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 KU's Stock have no preemptive right to
subscribe for stock or securities of KU.
Call of Special Meetings. KU's 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 KU are fully
paid and non-assessable.
Under Kentucky and Virginia law, KU 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.
-95-
<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 for their certificated shares and those shares which they may have
acquired through reinvested dividends. 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
8, 1996, as follows: for the Reinvestment Plan, to George S. Brooks II,
Secretary of the Company, at the address stated on page 1; for the ESOP, to
Banc One Kentucky, 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
WARREN W. ROSENTHAL, who has served as a director of the Company
since 1991 and of Kentucky Utilities Company since 1976, will
[PHOTO] not stand for re-election at the 1996 Annual Meeting of
Shareholders in accordance with the Board of Directors'
retirement policy. The Company expresses its appreciation to Mr.
Rosenthal for his substantial contribution and his years of
dedicated service as a director.
General. Five 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 Mira S. Ball, Carol M. Gatton, Frank
V. Ramsey, Jr., Charles L. Shearer and Lee T. Todd, Jr. as directors of the
Company, to hold office until the 1999 Annual Meeting of Shareholders of the
Company or, in the case of Mr. Gatton, until the 1998 Annual Meeting of
Shareholders, or in each case 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, 1996.
-96-
<PAGE>
The following information is given with respect to the nominees for election
as directors:
MIRA S. BALL, 61, is Secretary-Treasurer and Chief Financial
Officer of Ball Homes, Inc., a single-family residential
[PHOTO] developer and property management company. She has been a
director of the Company and Kentucky Utilities since 1992. Ms.
Ball beneficially owns 5,986 shares of Common Stock of the
Company.
CAROL M. GATTON, 63, is Chairman of Area Bancshares, Inc., a
bank holding company in Owensboro, Kentucky. He is also involved
[PHOTO] in real estate ventures and automobile dealerships. Mr. Gatton
beneficially owns 1,000 shares of Common Stock of the Company.
FRANK V. RAMSEY, JR., 64, is President and Director of Dixon
Bank, Dixon, Kentucky, and a farm owner and operator. He has
[PHOTO] 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.
CHARLES L. SHEARER, PH.D., 53, is President of Transylvania
University, Lexington, Kentucky. He has been a director of the
[PHOTO] Company since 1991 and a director of Kentucky Utilities since
1987. Dr. Shearer beneficially owns 1,389 shares of Common Stock
of the Company which include 200 shares held solely by his wife
and 14 shares held by his children.
LEE T. TODD, JR., PH.D., 49, is President and Chief Executive
Officer of DataBeam Corporation, a Kentucky-based high
[PHOTO] technology firm. He was elected a director of the Company and
Kentucky Utilities in August of 1995 when the number of
positions on the Boards was increased. Dr. Todd beneficially
owns 500 shares of the Common Stock of the Company.
-97-
<PAGE>
Information with respect to those directors whose terms are not expiring is
as follows:
HARRY M. HOE, 70, is President and a director of J. R. Hoe &
Sons, Inc., Middlesboro, Kentucky, a foundry and casting
[PHOTO] company. He has been a director of the Company since 1991 and a
director of Kentucky Utilities since 1979. Mr. Hoe beneficially
owns 15,794 shares of Common Stock of the Company which include
5,088 shares held solely by his wife. His term expires in 1998.
MILTON W. HUDSON, 68, has been an economic consultant
(Washington, DC) since 1991. He was Managing Director and Senior
[PHOTO] 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 1,142 shares
of Common Stock of the Company. His term expires in 1997.
JOHN T. NEWTON, 65, retired in 1995 as Chairman of the Board and
Chief Executive Officer of the Company and Kentucky Utilities, a
[PHOTO] position he had held since 1987. He had also been 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 32,653
shares of Common Stock of the Company which include 7,668 shares
held jointly with his wife and 5,000 shares held solely by his
wife. His term expires in 1997.
WILLIAM L. ROUSE, JR., 63, was Chairman of the Board and Chief
Executive Officer and a director of First Security Corporation
[PHOTO] 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 2,186
shares of Common Stock. His term expires in 1997.
MICHAEL R. WHITLEY, 53, was elected Chairman, President and
Chief Executive Officer of the Company and Kentucky Utilities on
[PHOTO] August 1, 1995. He had been President and Chief Operating
Officer of the Company and Kentucky Utilities since 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 24,122
shares of the Common Stock of the Company which include 6,300
shares held jointly with his wife and 337 shares held solely by
his wife. His term expires in 1998.
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<PAGE>
Voting Securities Beneficially Owned by Directors, Nominees and Executive
Officers. The directors, nominees and executive officers of the Company and
Kentucky Utilities owned beneficially at January 31, 1996 an aggregate of
181,707 shares of Common Stock of the Company, representing in the aggregate
.5% of such 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
Committee, the Audit Committee, the Compensation Committee, the Finance
Committee, the Long-Range Planning Committee, and the Nominating and Corporate
Governance Committee. Committee members are the same for committees of the
Company and committees of Kentucky Utilities.
During 1995, the Board of Directors of the Company held 19 meetings
(including Committee meetings), and the Board of Directors of Kentucky
Utilities held 22 meetings (including Committee meetings).
During 1995, each current director attended 100% of the meetings of the
Company's and Kentucky Utilities' Board of Directors and applicable committee
meetings.
The members of the Executive Committee are Messrs. Newton, Rosenthal, Rouse,
Shearer and Whitley. Neither the Company's nor Kentucky Utilities' Executive
Committee met during 1995. The Executive Committee has the full power of the
Board between meetings of the Board, except as provided by law.
The members of the Audit Committee are Ms. Ball and Messrs. Hoe, Hudson and
Rouse. The Company's Audit Committee met two times in 1995 as did the Kentucky
Utilities' Audit Committee. The Audit Committee selects and engages (and may
discharge) the Company's independent auditors; approves or disapproves each
professional service or type of service to be provided by the auditors; meets
with the auditors regarding the scope and results of the annual audit and of
internal accounting procedures and practices; reviews any recommendations which
may be made by the independent auditors; and generally exercises supervision
over all matters relating to audit functions, making periodic reports to the
Board.
The members of the Compensation Committee are Messrs. Ramsey, Rosenthal and
Rouse. The Company's Compensation Committee met three times in 1995 and the
Kentucky Utilities' Compensation Committee met five times. The Compensation
Committee reviews compensation for all officers, directors' fees and fees paid
to directors for membership on the various committees of the Board; makes
recommendations to the Board at least annually with respect to appropriate
levels of compensation and fees and administers certain benefit plans.
The members of the Finance Committee are Messrs. Hudson, Ramsey, Rosenthal
and Shearer. The Company's Finance Committee met one time in 1995 and the
Kentucky Utilities' Finance Committee met twice in 1995. The Finance Committee
monitors and reviews financing programs and capital structure of the Company,
reviews the Company's cash position in order to establish programs for the
proper investment of amounts determined to be available for such purpose from
time to time, and reports to the Board at least annually concerning its
activities, or, when appropriate, makes recommendations which the committee
deems appropriate for action to be taken by the Board.
The members of the Long-Range Planning Committee are Messrs. Ramsey,
Rosenthal, Rouse, Shearer and Todd. The Company's Long-Range Planning Committee
met once in 1995 as did the Kentucky Utilities Long-Range Planning Committee.
The Long-Range Planning Committee makes recommendations to the Board with
respect to the Company's future strategy.
-99-
<PAGE>
Performance Graph. The following performance graph compares the performance
for the last five years of the Company's Common Stock (or for periods prior to
December 1, 1991, Kentucky Utilities' Common Stock) to the S&P 500 Index and
the index of investor-owned electric and combination electric and natural gas
utilities reported by Edison Electric Institute (the "EEI Index"). The graph
gives total shareholder return in each case assuming $100 invested at December
31, 1990 and the reinvestment of all dividends. Following the graph is a chart
giving the same information.
[PERFORMANCE GRAPH APPEARS HERE]
Shareholder Returns
(Dividends Reinvested)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
KU Energy....................... $100.00 $142.00 $153.40 $166.87 $165.22 $194.85
EEI Index....................... 100.00 128.87 138.69 154.11 136.28 178.55
S&P 500 Index................... 100.00 130.47 140.41 154.56 156.60 215.45
</TABLE>
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. Similarly,
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<PAGE>
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. The
annual retainer in effect upon the director's termination from a Board will
generally be calculated as described in the first paragraph under this caption.
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.
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 Director, 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 deferred under the Director Deferred Compensation Plans will be paid to
the participant upon termination as a director for any reason other than death
based on a choice made by the Director as permitted by the Director Deferred
Compensation Plans 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.
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<PAGE>
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 1993 through 1995 in all
capacities, to the Chief Executive Officers 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
BONUS COMPENSATION PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(3) ($)(4) ($)(5) ($)(6)
- --------------------------- ---- ---------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
JOHN T. NEWTON; 1995 328,616 74,811 23,959 0 232,257
Former Chairman of the Board, 1994 462,694 149,979 13,380 158,738 7,561
Former Chief Executive Officer, 1993 424,237 144,362 11,886 0 8,444
& Current Director of the
Company & Kentucky Utilities(1)
MICHAEL R. WHITLEY; 1995 318,467 73,476 116 0 4,686
Chairman of the Board, President 1994 245,490 67,157 481 50,508 5,560
& Chief Executive Officer & 1993 219,529 62,164 1,258 0 6,045
Director of the Company &
Kentucky Utilities(2)
JAMES W. TIPTON; 1995 227,591 39,942 1,445 0 4,667
Senior Vice President 1994 214,043 63,210 1,373 50,508 5,537
of the Company 1993 204,042 60,331 1,201 0 5,712
O. M. GOODLETT; 1995 210,195 44,550 0 0 4,500
Senior Vice President of the 1994 200,251 56,889 0 30,246 4,500
Company & Kentucky Utilities 1993 188,724 54,257 0 0 4,497
WAYNE T. LUCAS; 1995 194,553 42,160 711 0 4,692
Senior Vice President 1994 159,699 33,754 523 22,658 5,522
of Kentucky Utilities 1993 139,331 31,695 446 5,813
JAMES M. ALLISON; 1995 169,405 38,160 0 0 4,527
Senior Vice President 1994 133,674 29,131 0 0 4,500
of Kentucky Utilities 1993 110,885 24,222 5,576 0 0
</TABLE>
- --------
(1) Retired as Chairman and CEO in August 1995.
(2) Assumed additional titles of Chairman and CEO on August 1, 1995, having
been President since November 1, 1994.
(3) Bonuses are paid under the Incentive Plans. The bonus reported for Mr.
Newton for 1995 has been prorated to reflect his retirement as of August 1,
1995. Any bonus earned but deferred under the Executive Deferred
Compensation Plans is included in the Table.
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<PAGE>
(4) Other annual compensation consists of the following items: (1) amounts for
group term life insurance and related taxes; (2) an amount for above-market
interest earned and paid on deferred compensation for Mr. Newton in 1995;
and (3) an amount for taxes related to moving expenses for Mr. Allison in
1993.
(5) Reflects payouts under the Kentucky Utilities Performance Share Plan
described under "Report of Compensation Committee on Executive
Compensation" above. Performance goals were not met, and thus no payouts
were made for the Performance Cycle that relates to 1993 and 1995 in the
table above. Amounts shown for 1994 reflect a payout in the form of
restricted shares of the Company's common stock of 75% of the contingent
grant for the Performance Cycle commencing in 1991. Such restricted stock
will be forfeited if the officer terminates employment prior to January 1,
2001 for any reason other than retirement, disability or death. In the
event of a change in control, the restrictions lapse immediately.
(6) All other compensation includes: (a) above-market-rate interest earned on
deferred compensation; (b) the employer matching contribution made to the
officer's account in the 401(k) Employee Savings Plan; and (c) Supplemental
Security Plan Payment of $227,757 to Mr. Newton as the benefit payable for
the period of August 1, 1995 through July 31, 1996. Such amounts for 1995
with respect to items (a) and (b) are shown in the following table.
<TABLE>
<CAPTION>
INTEREST ON 401(K)
EXECUTIVE DEFERRED MATCHING
OFFICER COMPENSATION CONTRIBUTION
--------- ------------ ------------
<S> <C> <C>
John T. Newton................................ $N/A $4,500
Michael R. Whitley............................ $186 $4,500
James W. Tipton............................... $167 $4,500
O. M. Goodlett................................ $N/A $4,500
Wayne T. Lucas................................ $192 $4,500
James M. Allison.............................. $ 27 $4,500
</TABLE>
Performance Shares contingently awarded under the Performance Share Plans in
1995 are reported in the Long-Term Incentive Plan awards table below. A
description of how awards are determined is presented under "Report of
Compensation Committee on Executive Compensation." A description of the scale
by which performance targets are set follows the table.
Long-Term Incentive Plan--Awards In Last Fiscal Year
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS UNDER NON-
PERIOD STOCK
NUMBER OF UNTIL PRICE-BASED PLANS(5)
UNITS MATURATION -------------------------------------
OR OR THRESHOLD
NAME OTHER RIGHTS PAYOUT(4) ($) TARGET ($) MAXIMUM ($)
- ---- ------------ ----------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C>
John T. Newton.......... 1,727(1) 3 $ 0 $25,905-$38,858 $ 51,810
Michael R. Whitley...... 4,075(2) 3 $ 0 $61,125-$91,688 $122,250
James W. Tipton......... 2,445(2) 3 $ 0 $36,675-$55,013 $ 73,350
O. M. Goodlett.......... 2,200(3) 3 $ 0 $33,000-$49,500 $ 66,000
Wayne T. Lucas.......... 2,085(3) 3 $ 0 $31,275-$46,913 $ 62,550
James M. Allison........ 1,855(3) 3 $ 0 $27,825-$41,738 $ 55,650
</TABLE>
- --------
(1) Constitutes Performance Shares contingently granted under the KUE
Performance Share Plan in 1995 as adjusted on a prorated basis to reflect
retirement as of August 1, 1995.
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<PAGE>
(2) Constitutes Performance Shares contingently granted under the KUE
Performance Share Plan in 1995.
(3) Constitutes Performance Shares contingently granted under the Kentucky
Utilities Performance Share Plan in 1995.
(4) Number of years in Performance Cycle.
(5) 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, 1995.
For the Performance Cycle commencing in 1995, 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 1995-1997 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.
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. The credited years of
service under the Retirement Plan for such persons were as follows: Mr. Newton,
37 years; Mr. Whitley, 31 years; Mr. Tipton, 28 years; Mr. Goodlett, 25 years;
Mr. Lucas, 26 years; and Mr. Allison, 1 year. All of the credited years of
service were computed as of December 31, 1995 except for Mr. Newton's service
which was determined as of August 1, 1995, his date of retirement. 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 1995, 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 1995 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. Whitley,
$101,643; Mr. Tipton, $93,138; Mr. Goodlett, $84,738; Mr. Lucas, $86,998; and
Mr. Allison, $50,219. Mr. Newton's annual pension benefit under the Retirement
Plan commencing on his August 1, 1995 retirement date is $106,309.
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<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 prior to age 65, the
member will receive the "retirement benefit" if the member lives to retirement
age and remains 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 1995 basic salary) are as follows: Mr. Whitley, $145,164; Mr. Tipton,
$62,166; Mr. Goodlett, $62,889; Mr. Lucas, $43,376; and Mr. Allison, $63,262.
Mr. Newton's annual benefit under the Supplemental Security Plan, commencing on
his August 1, 1995 retirement, is $227,757. 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,
-105-
<PAGE>
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 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.
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 1996. The
firm has served as the independent public accountants for the Company and
Kentucky Utilities 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 1997
Annual Meeting of Shareholders must be received by the Company at its principal
executive offices no later than November 17, 1996 in order to be eligible to be
considered for inclusion in the Company' 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
-106-
